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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-_____
GOLDEN OCEAN GROUP LIMITED
_________________________________________________________________
(Exact name of Registrant as specified in its charter)
REPUBLIC OF LIBERIA
_________________________________________________________________
(Jurisdiction of incorporation or organization)
P.O. Box 265, Suite 6
Tower Hill House
Le Bordage, St. Peter Port
GY1 3QU Channel Islands
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section
12(b) of the Act: None
Securities registered or to be registered pursuant to Section
12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: 10% Senior Notes due 2001
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period
covered by the annual report.
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Common Shares, no par value
4,000,000
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 which financial statement item the
Registrant has elected to follow.
Item 17 Item 18 X
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TABLE OF CONTENTS (1)
Page
Part I Item 1 Description of Business.................. 1
Item 2 Description of Property.................. 19
Item 3 Legal Proceedings........................ 19
Item 4 Control of the Registrant................ 19
Item 5 Nature of Trading Market................. 20
Item 7 Taxation................................. 20
Item 8 Selected Consoldated Financial
Information.......................... 20
Item 9 Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 27
Item 10 Directors and Officers of Registrant..... 43
Item 11 Compensation of Directors and Officers... 45
Item 13 Interest of Management in Certain
Transactions......................... 45
Part IV Item 18 Financial Statements..................... 46
Item 19 Financial Statements and Exhibits........ 46
___________________
(1) Items omitted are inapplicable.
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PART I
ITEM 1- DESCRIPTION OF BUSINESS
General
Golden Ocean Group Limited (together with its
subsidiaries, the "Company") was incorporated on
February 8, 1995, under the laws of the Republic of
Liberia. The Company is in the business of acquiring,
disposing, owning, managing, operating, leasing and
chartering very large crude oil carriers ("VLCCs") and dry
bulk carriers (together, the "Vessels") and engaging in
certain related activities. The Company currently focuses
on (i) purchasing VLCCs for charter or sale to third
parties and (ii) purchasing and operating newbuilding dry
bulk carriers for long-term charter to third parties.
The Company, through its subsidiaries and certain
joint ventures with third parties ("Joint Ventures")
(together, the "Group"), currently owns or operates in
sale/leaseback transactions seven VLCCs and ten dry bulk
carriers. The Group has eleven VLCCs and two dry bulk
carriers on order for delivery between 1999 and 2000.
Assuming no other purchases or sales, the Group expects to
have a fleet of eighteen VLCCs (totaling 5.3 million dwt)
and twelve dry bulk carriers (totaling 1.1 million dwt) by
December 31, 2000. These 30 vessels are sometimes referred
to herein as the Group's vessels on a "pro forma basis."
In addition, the Company has acquired options to
purchase following their respective deliveries from their
builders seven VLCCs ordered by the Company's parent,
Golden Ocean Limited. These vessels have scheduled
delivery dates between 2000 and 2001.
The Company and its vessel-owning subsidiaries and
Joint Ventures, which together constitute the Group's
operating companies and their respective holding companies,
are Liberian corporations.
Ownership and Management of the Company Generally
The Company is currently a wholly owned subsidiary
of Golden Ocean Limited ("GOL"), a closely-held Liberian
holding company. However, 200,000 warrants (the "Investor
Warrants"), each to purchase one common share of the
Company, no par value (the "Common Shares"), were issued to
qualified investors on August 27, 1997 and September 11,
1997 pursuant to a private placement (the "Offering") of
securities by the Company. Warrants to purchase an
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additional 120,000 Common Shares of the Company (the
"Placement Warrants") were issued to Sutro & Co.
Incorporated and Libra Investments, Inc., the placement
agents in connection with the Offering (the "Placement
Agents"). On a fully diluted basis, assuming the exercise
of all Warrants, GOL owns 92% of the Company's outstanding
Common Shares, investors own 5% of the Common Shares
outstanding and the Placement Agents own 3% of the Common
Shares outstanding.
Business
The Group currently derives substantially all of
its operating revenues from long-term charters to well-
known third party charterers, including Kawasaki Kisen
Kaisha, Ltd. ("K Line") (part of the Kawasaki group and one
of the five major Japanese ship owners and operators),
Bocimar N.V. ("Bocimar") (a subsidiary of CMB n.v., one of
the largest fleet operators in Europe) and Argent Shipping
Corporation ("Argent") (an affiliate of Navix Corporation
and one of the five major Japanese ship owners and
operators). The Group's top three charterers accounted for
over 68% of its net operating revenues in 1998, over 75% of
its net operating revenues in 1997 and over 66% of its
revenues in 1996. In addition, the Group has contracted to
long-term charter one of its ordered dry bulk carriers to
South African Maritime Corporation Limited ("Safmarine") (a
part of the Safren group and the national carrier of South
Africa). Currently, five of the Group's seven existing
VLCCs and ten of its twelve dry bulk carriers on a pro
forma basis are on long-term charters to such entities and
others with durations of at least two years. Thirteen of
such charters expire after the year 2001. In addition, one
existing VLCC and one existing dry bulk carrier are on
short-term charter and one VLCC is trading on the voyage
charter market.
As of December 31, 1998, the Group has newbuilding
orders for VLCCs aggregating 3.9 million dwt, representing
approximately 15% of total VLCC tonnage on order worldwide.
As of December 31, 1998, the average age of the
Group's existing dry bulk fleet was 1.3 years (by dwt)
whereas the estimated average age of the world's dry bulk
fleet was 13.0 years (by dwt), and the average age of the
Group's existing VLCC fleet was 2.2 years (by dwt) whereas
the estimated average age of the world's VLCC fleet was
13.1 years (by dwt).
Generally, the Group has financed the construction
or purchase of its newly-built dry bulk carriers by
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arranging long-term charters on or about the time of the
placing of the order for such vessels. The charters for
such vessels are primarily period (time or bareboat)
charters with terms of seven to fifteen years and have
terms designed to ensure that the related debt service is
met. The Group also finances up to 95% of the initial cost
of its VLCCs with secured borrowings at rates the Group
considers attractive. Downpayments on new vessels have
been typically funded through capital contributions,
investments through joint ventures with third parties,
unsecured borrowings or surplus cash flow from the existing
fleet.
The Group has subcontracted technical management
and certain commercial management responsibilities for its
time-chartered VLCCs to TSM International, Ltd. ("TSM") and
Thome Ship Management Pte Ltd, ("Thome") both of which are
independent ship management companies.
The Group's Vessels
Set forth below is certain summary information
concerning the Group's vessels:
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<TABLE>
Dry Bulk Carriers
<CAPTION>
Outstanding Currency
Expiration(1) Debt as of of
Vessel Name/ Year of Charter of December 31, Charter
Hull No. Dwt Delivery Builder Charterer Type Charter Ownership(2) 1998(4) Revenue
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Golden Poterne 150,000 1996 NKK NYK Time 2000 100% (S/L) Yen4.05 $
Channel 170,000 1996 NKK Cosco(3) Bareboat 2011 100% Yen4.23 $
Alliance NCSC Time 1999(+1)
Channel 170,000 1997 NKK Cosco(3) Bareboat 2012 100% Yen4.27 $
Navigator Bocimar Time 2001(+1)
Channel Poterne 170,000 1997 NKK Bocimar Time 2012 100% (S/L) Yen3.89 Yen & $
Golden Daisy 46,920 1998 Oshima Safmarine Time 2010 50% (JV) Yen2.26 Yen & $
Golden Rose 46,920 1998 Oshima Safmarine Time 2010 50% (JV) Yen2.28 Yen & $
Golden Protea 45,000 1998 Tsuneishi Safmarine Time 2010 100% (S/L) Yen2.31 Yen & $
Golden Aloe 45,000 1998 Tsuneishi Safmarine Time 2010 100% (S/L) Yen2.31 Yen & $
Cos Hero 45,000 1999 Tsuneishi Cosco Bareboat 2014 100% Yen2.47 Yen
Golden Disa 75,200 1999 Hitachi Safmarine Time 2011 100% (S/L) Yen2.87 Yen & $
Subtotal 964,040
Ordered:
Golden Nerina 75,200 1999 Hitachi Safmarine Time 2011 100% (S/L) Yen2.87 Yen & $
Hull No. 6288 75,200 2000 Hitachi - - - 100% - -
Subtotal 150400
Total 1,114,440
=========
<FN>
__________________
(1) The number in parentheses sets forth the number of years by which the charterer may opt to extend the charter.
(2) Abbreviations in this column have the following meanings: "100%" means the vessel is owned by a wholly-owned subsidiary
of the Company; "100%(S/L)" means the vessel is bareboat chartered and controlled by a wholly-owned subsidiary pursuant
to a sale/leaseback transaction with a financial institution; "50%(JV)" means the vessel is owned by a Joint Venture of
which the Company owns 50% of the voting stock and an outside investor owns the other 50%.
(3) The Channel Alliance and Channel Navigator have been bareboat chartered by wholly-owned subsidiaries of the Company to
Cosco (Singapore) Pte. Ltd. ("Cosco"), which has bareboat chartered both vessels back to another wholly-owned subsidiary
of the Company for additional charterhire above what Cosco pays to the vessel-owning subsidiaries. Such wholly owned
subsidiary, in turn, has chartered the Channel Alliance to National Coal Supply Company ("NCSC") and the Channel
Navigator to Bocimar.
(4) Yen in billions; Dollars in millions. The outstanding debt for ordered vessels relates to loan facilities that will be
drawn down during the construction of the vessels.
</TABLE>
4
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<TABLE>
VLCCs
<CAPTION>
Outstanding Currency
Expiration(1) Debt as of of
Vessel Name/ Year of Charter of December 31, Charter
Hull No. Dwt Delivery Builder Charterer Type Charter Ownership(2) 1998(4) Revenue
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Delivered:
Golden 280,000 1995 Hitachi - Voyage - 50%(JV) Yen 2.78 $
Fountain $30.05
Golden Stream 260,000 1995 Hitachi K Line Time 2002(+3) 100% $62.92 $
Navix Astral 260,000 1996 Hitachi Argent Bareboat 2011 100% Yen 6.87 Yen
New Vanguard 298,500 1998 Hitachi Ming Wah Bareboat 2008 100% $68.14 $
New Vista 298,500 1998 Hitachi Ming Wah Bareboat 2008 54.6% $71.44 $
Golden Victory 298,500 1999 Hitachi NYK Time 2006 54% $59.92 $
New Circassia 305,000 1999 Mitsubishi Ming Wah Bareboat 2000 50%(JV) Yen 8.37 $
Subtotal 2,000,500
Ordered:
Pacific Lagoon 305,000 1999 Mitsubishi - - - 50%(JV)(3) Yen 8.37 -
Hull 5788 298,500 1999 Hitachi - - - 100% - -
Hull 5888 298,500 1999 Hitachi - - - 100% - -
Hull 5988 298,500 1999 Hitachi - - - 100% - -
Hull 1618 300,000 1999 Kawasaki - - - 100% - -
Hull 1628 300,000 1999 Kawasaki - - - 100% - -
Hull 1638 300,000 2000 Kawasaki - - - 100% - -
Hull 1668 300,000 2000 Kawasaki - - - 100% - -
Hull 6378 298,500 2000 Hitachi - - - 100% - -
Hull 6388 298,500 2000 Hitachi - - - 100% - -
Hull 6398 298,500 2000 Hitachi - - - 100% - -
Subtotal 3,296,000
Total 5,296,500
=========
<FN>
_______________
(1) The number in parentheses sets forth the number of years by which the charterer may opt to extend the charter.
(2) Abbreviations in this column have the following meanings: "100%" means the vessel is owned by a wholly-owned subsidiary
of the Company; "54.6%" means the vessel is owned by a subsidiary of which the Company owns 54.6% of the capital stock
and an outside investor owns the other 45.4%; "54%" means the vessel is owned by a subsidiary of which the Company owns
54% and the outside investors own the other 46%; "50%(JV)" means the vessel is owned by a Joint Venture of which the
Company owns 50% of voting stock and an outside investor owns the other 50%.
(3) Although this vessel is owned by an indirect wholly owned subsidiary of the Company, the Company has entered into an
agreement to assign 50% of its beneficial ownership in one of its intervening subsidiaries in the chain of ownership
thereof to a third party investor. Consequently, the vessel is treated as owned by a Joint Venture of which the Company
owns 50% of the voting stock and such investor owns the other 50%.
(4) Yen in billions; Dollars in millions. The outstanding debt for ordered vessels relates to loan facilities that will be
drawn down upon delivery of the vessels.
</TABLE>
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The Group has one of the youngest fleets of any
significant VLCC or dry bulk carrier owner in the world. As of
December 31, 1998, the average age of the Group's existing dry
bulk fleet was 1.3 years (by dwt) whereas the estimated average
age of the world's dry bulk fleet was 13.0 years (by dwt), and
the average age of the Group's existing VLCC fleet was 2.2 years
(by dwt) whereas the estimated average age of the world's VLCC
fleet was 13.1 years (by dwt).
The Group's vessels on a pro forma basis total
approximately 6.4 million dwt. The Group currently owns,
operates or has on order twelve dry bulk carriers totaling
approximately 1.1 million dwt.
The Group currently owns or has on order a total of
eighteen VLCCs. One of the Group's delivered VLCCs is trading on
the voyage charter market and was purchased in a Joint Venture
with a prominent third party. Five other delivered VLCCs are on
long-term charter to prominent third parties, and are owned by
subsidiaries of the Company. One VLCC is on a one year bareboat
charter and is owned by a Joint Venture. The Group has ordered
from Japanese shipyards a further eleven double hull VLCC
newbuildings, each of which is being purchased through a separate
subsidiary or Joint Venture.
Operations
All of the Group's vessels are registered in Panama,
which is a jurisdiction commonly accepted for vessel registry by
international shipping lenders, including the trading houses and
commercial lenders with which the Company deals. In addition,
the Group's dry bulk carriers are entered into the Philippine
"bareboat registry" pursuant to an agreement between Panama and
the Philippines which enables the vessels to carry the Philippine
flag while maintaining their Panamanian registry for ownership
and mortgage purposes. Panamanian registry enables the secured
lenders for the Group's vessels to have Panamanian mortgages,
which are recognized in major maritime jurisdictions for security
purposes, while carriage of the Philippine flag allows the
vessels to have Philippine officers and crews.
All of the Group's vessels are classed with American
Bureau of Shipping, Lloyds Register of Shipping, Det Norske
Veritas, Bureau Veritas or another member of the International
Association of Classification Societies.
Upon delivery to the relevant vessel-owning subsidiary
or Joint Venture from the shipyard, a chartered vessel is then
"delivered" to its charterer. A time charterer generally has the
right to control the trading of the vessel for the period of the
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charter, and will instruct the master (captain) of the vessel to
load cargoes permitted under the charter in certain ports and to
discharge them in other ports. If the time charterer does not
require the vessel to carry the time charterer's own cargo, the
time charterer may subcharter the vessel on either a time charter
or voyage charter basis to a third party. In either case, the
vessel-owning subsidiary or Joint Venture will be responsible for
the maintenance of the vessel and the supply of the officers and
crew. By contrast, in a bareboat charter, the bareboat charterer
will be responsible for all aspects of the operation and
maintenance of the vessel.
As is common in the international dry bulk carrier and
oil tanker industries, the Group's vessels are subject to
commercial and technical management arrangements with vessel
managers and operators, who, in turn, contract with independent
crewing agents.
Charters
Generally, the Group has financed the construction or
purchase of its newly-built dry bulk carriers by arranging long-
term charters on or about the time of the placing of the order
for such vessels. The charters for such vessels are time or
bareboat charters, most of which grant the relevant charterer the
right to subcharter the vessel to third parties.
The Group currently derives substantially all of its
operating revenues from long-term charters to well-known third
party charterers, including K Line, Bocimar and Argent. The
Group's top three customers accounted for over 68% of its net
operating revenues in 1998, over 75% of its net operating
revenues in 1997 and over 66% of its net operating revenues in
1996. The Group has contracted to charter one of its ordered dry
bulk carriers to Safmarine (part of the Safren Group and the
national carrier of South Africa) under long-term time charters.
Currently, ten of the Group's ten dry bulk carriers and
five of its eighteen VLCCs on a pro forma basis are under long-
term charters with durations of at least two years to such
entities and others. Special features of certain charters
include the following:
- Purchase Options. The long-term charters for eight
of the Group's dry bulk carriers and three of its
VLCCs contain purchase options granting the
charterer the right to purchase the vessel from the
relevant subsidiary or Joint Venture at
predetermined prices at a certain time. The prices
are set at levels which are in excess of the
scheduled vessel-related debt at the time the
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option would be exercised. Typically, the option
may be exercised at any time after the end of the
seventh year of the charter. Options under eight
of the charters are not exercisable until after the
maturity date of the Notes.
- Profit Sharing Upon Sale. The charters for five of
the Group's vessels-Channel Alliance, Channel
Poterne, Cos Hero, New Vanguard and New Vista
provide that upon a sale of the vessel, the
charterer will share in the profits gained from
such sale. Specifically, these profit sharing
arrangements provide that: (i) in the case of the
Channel Alliance, the vessel may only be sold if
the profit from the sale will exceed $1.0 million,
and the charterer is entitled to 50% of the profit
realized on any such qualifying sale; (ii) in the
case of the Channel Poterne, the charterer is
entitled to receive 50% of the profit from the sale
of the vessel; (iii) in the case of the Cos Hero,
the vessel may only be sold if the profit from the
sale will exceed $3.0 million, and the charterer is
entitled to 50% of the profit realized on any such
qualifying sale; (iv) in the cases of the New
Vanguard and New Vista the charterer is entitled to
40% of the profit from the sale of the vessel.
- - Profit and Loss Sharing Upon Subcharter. The
charters for five of the Group's vessels, Channel
Poterne, New Vanguard, New Vista, Golden Victory
and New Circassia provide for sharing of profits or
losses upon the subcharter of the vessel by the
charterer. Specifically, these profit or loss
sharing arrangements provide that: (i) in the case
of the Channel Poterne, the Group is entitled to
receive 40% of the profits from a subcharter of the
vessel and must reimburse the charterer 50% of the
amount by which charterhire paid by the charterer
exceeds charterhire paid under any subcharter;
(ii) in the cases of the New Vanguard and New
Vista, the Group is entitled to receive 50% of the
profits of the charterers subcharters of the
vessels; (iii) in the case of the Golden Victory
the Group is entitled to 50% of the difference
between the charterhire and an average market rate
determined by the London Tanker Broker Panel;
(iv) in the case of the New Circassia the Group is
entitled to 40% of any surplus of average
subcharter hire exceeding $28,250 per day and must
contribute 50% of any deficit of average subcharter
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hire below $25,000 per day up to a maximum of
$1,250 per day.
- Currency of Charterhire. The payment schedule under
the various bareboat and time charters varies
between payment in Yen, Dollars or a combination of
the two with the currency of payment generally
keyed to the currency of the financing on the
vessel. See "Business- Current Financing
Arrangements" and "Management Discussion and
Analysis of Financial Condition and Results of
Operations-Currency Exchange Rates." The bareboat
charters of the Navix Astral, Channel Alliance,
Channel Navigator and the Cos Hero require payment
in Yen. The bareboat charters of the New Vanguard,
New Vista and New Circassia require payments in
Dollars. Seven of the time charters require
payment in both Yen and Dollars, while five of the
time charters require payment solely in Dollars.
Current Financing Arrangements
Set forth below is a summary of the general terms and
conditions of the various financing arrangements pursuant to
which the Group, the subsidiaries and the Joint Ventures have
borrowed, or are expected to borrow, money to finance the
construction of vessels. Each financing arrangement was
negotiated on an arms-length basis with third party lenders that
are not affiliates of the Group or the Placement Agents. This
summary is not a complete description of the terms and conditions
of such financing arrangements set forth in the agreements,
instruments and documents executed in connection therewith.
Predelivery Financing
With respect to certain of its vessels, the Group has
financed stage payments due to the shipyard during construction
of the vessel with predelivery loans. These predelivery loans
typically mature upon delivery of the relevant vessel. The Group
has repaid these loans with proceeds from either (i) separate
loans which are drawn down at the time of delivery of the vessel
or (ii) the sale of the relevant vessel to a third party under a
sale/leaseback arrangement.
Permanent Financing
General. With six exceptions involving sale/leaseback
arrangements discussed below, the construction of the Group's
vessels is generally financed by secured term loans made to a
subsidiary or Joint Venture (each a "Borrower") by third party
lenders (each a "Lender"). The Lenders are either affiliates of
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Japanese trading houses and shipyards, or independent
international commercial lenders active in vessel finance. The
loans are denominated in either Yen or Dollars or a combination
thereof. The loans are guaranteed by the Company or a wholly-
owned subsidiary of the Company (the "Parent Guarantor"). During
1998, the Borrowers paid an aggregate of approximately
$14.5 million in interest and approximately $34.1 million in
principal in respect of these loans. With respect to eleven of
the Group's vessels on a pro forma basis, long-term financing has
not yet been finalized. The Company expects that such long-term
financing for these vessels will be obtained on similar terms to
that obtained for its existing vessels.
Maturity. Most of the loans are for terms of between
seven and fifteen years, at which time the then outstanding
principal amount of a loan, if any, together with all accrued but
unpaid interest thereon, becomes due and payable.
Principal Amount; Amortization. Each loan is in a
principal amount of up to 95% of the purchase price of the
relevant vessel. In most cases, such principal amount is
amortized in part on either a monthly or quarterly basis over the
term of the loan. Many of the loans require a balloon payment
ranging from 10% to 35% of the principal amount of the Loan,
which is due upon maturity. On December 31, 1998, the aggregate
outstanding principal amount of such loans made to the Borrowers
was $347.6 million exclusive of capital leases.
Interest. The loans bear interest at floating rates in
the range of Yen or Dollar LIBOR plus 1.125% to 1.75%, payable
either monthly or quarterly in arrears, except for $60.9 million
of debt which bears interest at a fixed rate of 3.66% per annum
and $27.4 million of debt which bears interest at a fixed rate of
3.20% per annum.
Prepayments. Several loans provide for a customary
prepayment premium payable to the Lender upon the prepayment in
full of the outstanding principal amount of a loan, whether as a
result of a total loss of the vessel, a sale of the vessel or
otherwise.
Profits on Sale. Certain loans require that the
Borrower pay the Lender a certain percentage (e.g., 1-1/2%) of
the sale price or a certain percentage (e.g., 33-1/3%) of the
profit realized by the Borrower upon the sale of the vessel.
Fees and Expenses. The loans include customary
provisions for reimbursement of costs and expenses incurred by
the Lenders in connection with the administration and enforcement
of the loans, including reimbursement for increased costs. In
addition, certain of the loans provide for commissions to the
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Lender, calculated as a percentage of the loan and payable at
certain times prior to maturity of the loan.
Security. The collateral securing each loan consists of
a combination of, among other things, a first preferred ship
mortgage over the relevant vessel, an assignment of the charter
(if any) related to such vessel, an assignment of earnings and
insurances with respect to the vessel, a charge (i.e., a security
interest) over the Borrower's funds, an assignment of the
shipbuilding contract and a pledge of shares of the vessel owning
subsidiary or Joint Venture by the Parent Guarantor or Parent
Guarantors. In addition, certain loans are cross-collateralized,
such that a loan for one vessel is secured by a mortgage on, and
an assignment of the earnings under the charter of, another
vessel. In each such case, the loans which are cross-
collateralized were extended by the same Lender or affiliates of
the same Lender.
Events of Default. The loans may be accelerated by the
Lenders upon the occurrence of customary events of default, such
as, among other things, default in the payment of amounts due to
the Lenders and the bankruptcy of the Borrower or Parent
Guarantor. The loans also contain cross-default provisions upon,
among other things, the acceleration or imminent acceleration of
any debt of a Borrower or Parent Guarantor.
Sale/Leasebacks
Six of the Group's vessels have been financed through
sale/leaseback transactions pursuant to which the vessel-owning
subsidiary has sold a vessel to an unaffiliated third party and
bareboat chartered the vessel back from such third party. Upon
the expiration of each bareboat charter, the relevant vessel-
owning subsidiary is obligated to purchase the vessel at a
predetermined price. These sale/leaseback arrangements are
subject to similar conditions and prohibitions applicable to the
loans.
Joint Ventures
Two of the Group's dry bulk carriers and three of the
Group's VLCCs are owned by Joint Ventures. The outstanding
voting shares of each of the Joint Ventures are held 50% by the
Company and 50% by outside investors which include shipowners,
charterers, operators and financial investors, all of which have
substantial experience in the shipping industry. Typically, the
third party investors have contributed all or a significant
portion of the down payment on a particular Joint Venture's
vessel through shareholder loans. The Company, for its part, has
contributed the remainder of the down payment, if any, relating
to the vessels, and has assumed responsibility for obtaining
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financing for the vessels. In addition, the Company has agreed
to pay other expenses relating to each vessel, including fees and
commissions associated with the financing or management of the
vessel. Generally, the Company has also agreed to guarantee the
Joint Venture's obligations to the relevant Lender and, in
certain cases, the return on the third party investors'
investments in the Joint Venture.
Management of Vessels
Commercial management functions include insuring
compliance with the relevant charters, prosecuting or defending
claims in connection with the charters, maintaining all books and
accounting records pertaining to the relevant vessel and
providing other general corporate management services. Technical
management responsibilities include physical maintenance of the
vessel, supplying officers and crews, arranging for provisions of
deck, cabin and engine stores, arranging insurance for the
vessel, informing the relevant vessel owning company of scheduled
maintenance, inspecting the vessel and performing other normal
vessel services.
The Group transferred all of the commercial and
technical management functions for its dry bulk carriers to its
subsidiary, Golden Ocean Services Inc (the "Manager") in late
1997. The Company uses the services of affiliated agents in Hong
Kong, Vancouver and Shanghai and unaffiliated agents in other
locations on an "as needed" arms-length basis to perform certain
of the duties of the Manager.
The Group has subcontracted technical management and
certain commercial management responsibilities for its time-
chartered VLCCs to TSM and Thome, both of which are independent
ship management companies.
Competition
The Group obtains employment for its vessels in a highly
competitive market, and competes in such market against many
companies operating larger fleets and with greater capital
resources and liquidity. Seaborne transportation services are
provided mainly by independent ship-owned fleets and proprietary
fleets of commodity producers. Competition for tonnage can be
intense and depends on price, location, size, age and condition
of a particular vessel and the acceptability of its operators to
the charterers. The Group believes that no ocean shipping entity
exerts substantial influence in the international shipping
markets, although the possibility exists for an owner or pool of
owners with a substantial number of vessels suitable for a
particular market to have an effect upon rates in that market.
12
<PAGE>
Industry Conditions: the International Tanker and Dry Bulk
Markets
VLCCs
The Company believes that current conditions in the
international tanker market may result in a decrease in the
supply of VLCCs in future periods. Any such decrease could
contribute to higher charterhire rates for VLCCs. Moreover, the
average per day earnings of a VLCC with respect to the transport
of oil cargo between the Arabian Gulf and Far East (i.e.,
Singapore) ports increased approximately 284% between June 1994
and December 1998 to $33,439 per day. However, since charterhire
rates are affected by numerous variables such as demand for
seaborne crude oil imports and the total size of the VLCC fleet,
most of which are outside the Group's control, the Group cannot
offer any assurance as to charterhire rates in any period. In
fact, charter rates during the first four months of 1999 have
fallen substantially.
The following factors may contribute to a decrease in
VLCC supply:
Aging Fleet. As of December 31, 1998, the worldwide
VLCC fleet consisted of approximately 431 vessels (124.5 million
dwt) with an average age of approximately 13.1 years. By the
year 2002, approximately 43% of the world's existing fleet by dwt
will be at least 23 years old, which was the average scrapping
age for VLCCs in 1996-1998.
Scrapping. During the four-year period from 1992 to
1995, the average scrapping age of VLCCs was 20 years. From
1996-1998 the average scrapping age for VLCCs was 23 years. In
1998 the average scrapping age for VLCCs was 23 years. In 1997,
freight rates increased significantly which resulted in
relatively lower scrapping. In 1998 the fall in spot market
rates and the preference of charterers for modern tonnage
resulted in increased scrapping. As of December 31, 1998, 91% of
the VLCCs built in 1973 had been scrapped. There is no assurance
that scrapping rates will be maintained or that the capacity for
construction of VLCCs will not equal or exceed the capacity of
the scrapped VLCCs.
VLCC Orderbook. As of December 31, 1998, to the Group's
knowledge, there were orders for the construction of 84 new VLCCs
aggregating 24.5 million dwt. This represents 20% (by dwt) of
the VLCC fleet as of December 31, 1998. There is no assurance
that orders for new VLCCs will not increase or that new or
refurbished VLCCs will not commence operations sooner than
anticipated, either of which could offset factors that might
otherwise contribute to a decline in VLCC supply.
13
<PAGE>
Regulation. Prior to 1991, almost all VLCCs were built
with a single hull. Pursuant to International Maritime
Organization (the "IMO") regulations, all tankers ordered after
July 6, 1993 have had to be of double hull construction.
Furthermore, once single hull tankers reach the 25th anniversary
from the date of their delivery they are required by the IMO to
have wing tanks or double bottom spaces (not used for the
carriage of oil) covering 30% of the sides or bottom of the hull
or, alternatively, other structural or operational protections
(such as operation in hydrostatic balance). Upon their 30th
anniversary, they must be retrofitted with a double hull. These
regulations, which may introduce significant costs or reduce
cargo capacity, could serve to restrict the economic life of
single hull VLCCs.
Dry Bulk Carriers
The Company considers the stability provided by long-
term chartering of its dry bulk carriers to be a particularly
important component of its business. Charter rates for dry bulk
carriers have experienced short-term fluctuations in recent
years. Long-term chartering of the Group's dry bulk carriers to
prominent third parties has, in the Company's opinion, reduced
its vulnerability to short-term market fluctuations in that
portion of its business.
Dry bulk carriers are generally used to transport major
bulk cargoes which consist of iron ore, coal and grain and minor
bulk cargoes such as bauxite, phosphate and sugar. Demand for
dry bulk carriers is dependent on a number of factors including
world and regional economic and political conditions,
developments in international trade, changes in seaborne and
other transportation patterns, weather patterns, crop yields,
armed conflicts, port congestion, canal closures and other
diversions of trade. These factors cause the demand for dry bulk
cargoes, and consequently the demand for dry bulk carriers, to
fluctuate.
Charter rates for dry bulk carriers were severely
depressed in the mid- to late-1980's as a result of an oversupply
of dry bulk carriers and general market fluctuations. With the
gradual absorption of the oversupply of dry bulk carriers and an
improving economy, charter rates recovered slightly in the early
1990's, but then declined significantly between the fourth
quarter of 1995 and the third quarter of 1996. In the fourth
quarter of 1996, charter rates generally improved as a result of
a strong global economy and high dry bulk carrier scrapping rates
in the middle of the year. Between the first quarter of 1997 and
the fourth quarter of 1997, rates generally decreased but rates
for Capesize dry bulk carriers increased. During 1998, rates for
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<PAGE>
all classes of dry bulk carrier decreased due to effects of the
Asian crisis and a slowdown in world trade.
As of January 1998, the worldwide dry bulk carrier fleet
totaled approximately 5,380 vessels or 265.1 million dwt.
Ownership of the worldwide fleet is highly fragmented with no
private owner or owning group owning more than approximately 2%
of the world's dry bulk carrier fleet by dwt.
The average age of the current worldwide dry bulk
carrier fleet as of December 31, 1997 was 13.0 years (by dwt).
Newbuilding tonnage on order as of January 1998, was 23.2 million
dwt, which constitutes approximately 9% of the world's existing
fleet by dwt. Approximately 64% of this newbuilding tonnage is
scheduled for delivery in 1999.
There can be no assurance that industry conditions for
either VLCCs or dry bulk carriers outlined above will continue,
and there is no assurance that the Group will be able to secure
long-term charters for unchartered vessels, or additional long-
term charters for its chartered vessels when current charters
expire. Similarly, there is no assurance that a reduction in
VLCC supply will occur or that any such reduction will have an
effect on charterhire rates, or that there will be a demand for
the period charter of newbuilding VLCCs when the Group's
newbuilding VLCCs are delivered. The foregoing is not a complete
summary of industry conditions and is qualified in its entirety.
Regulation
General
The ownership and operation of the Group's vessels are
materially affected by government regulation in the form of
international conventions, national, state and local laws and
regulations in force in the jurisdictions in which the Group's
vessels may operate, as well as in their country of registration
and flag (Panama and the Philippines). Because such conventions,
laws and regulations are often revised, the Company cannot
predict the ultimate cost of complying with such requirements, or
the impact of such requirements, on the resale value or useful
life of the Group's vessels.
The Group 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
and the age of the vessel. The Group believes that it has or can
15
<PAGE>
readily obtain all permits, licenses and certificates currently
required to permit its vessels to operate.
International Environmental Regulation
Outside the United States, many countries have ratified
and follow the International Convention on Civil Liability for
Oil Pollution Damage, 1969, as amended, (the "CLC"). Under the
CLC, a vessel's registered owner is strictly liable for pollution
damage on the territorial waters of a contracting state caused
by the discharge of persistent oil, subject to certain complete
defenses. Liability is limited to approximately $180 per gross
registered ton or approximately $21.3 million, whichever is less.
Recently, the 1992 Protocol to the CLC was enacted by a
sufficient number of countries to bring that Protocol into
effect. The 1992 Protocol raised the limit on liability of a
ship owner to approximately $87.2 million and this greater limit
will apply on territorial waters of each country that has adopted
this specific Protocol of the CLC. The exact amount of liability
is tied to a unit of account which varies according to a basket
of currencies. The right to limit liability is forfeited where
the spill is caused by the owner's actual fault or privity and
under the 1992 Protocol, where the spill is caused by the owner's
intentional or reckless conduct. Vessels trading to contracting
states must establish evidence of insurance covering the limited
liability of the owner. In jurisdictions where the CLC has not
been adopted, various legislative schemes or common law govern,
and liability is imposed either on the basis of fault or in a
manner similar to the CLC.
Shipowners and operators are also subject to IMO
regulations which set forth vessel design and inspection
requirements for pollution prevention applicable to oil tankers.
The regulations state, in part, that (i) tankers between 25 and
30 years old must be of double hull construction or of a mid-deck
design with double side construction, unless they have wing tanks
or double bottom spaces, not used for the carriage of oil, which
cover at least 30% of the length of the cargo tank section of the
hull or are capable of hydrostatically balanced loading which
ensures at least the same level of protection against oil spills
in the event of collision or stranding, (ii) tankers 30 years or
older must be of double hull construction or mid-deck design with
double side construction, and (iii) existing tankers will be
subject to enhanced inspections. Some classification societies,
the certificates of which evidence compliance with the IMO
regulations, may implement these enhanced inspection requirements
prior to the effective date of such regulations. In addition,
under the IMO regulations, tankers that (i) are the subject of a
contract for a major conversion or original construction on or
after July 6, 1993, (ii) commence a major conversion or have
their keel laid on or after January 6, 1994, or (iii) complete a
16
<PAGE>
major conversion or are a newbuilding delivered on or after
July 6, 1996, must be of double hull construction or a mid-deck
design with double side construction or be of another approved
design ensuring the same level of protection against oil
pollution. The Group believes that all of its vessels comply
with IMO regulations relating to design and construction of
tankers.
The operation of the Group's vessels is also affected by
the IMO's newly adopted ISM Code, which requires shipowners and
bareboat charterers to develop an extensive "Safety Management
System," which includes policy statements, manuals, standard
procedures and lines of communication. Noncompliance with the
ISM Code may subject the shipowner or bareboat charterer to
denial of entry to or detention in ports and increased liability
and may lead to decreases in available insurance coverage for
affected vessels. Golden Ocean Services (UK) Limited, a wholly-
owned subsidiary of the Company, with responsibility for
technical and commercial management of the Group's fleet, is
fully accredited under the ISM Code and the Group's vessels are
in compliance with the ISM Code.
The IMO continues to review and introduce new
regulations on a regular basis. It is impossible to predict what
additional regulations, if any, may be passed by the IMO, whether
those regulations will be adopted by member countries and what
effect, if any, such regulations might have on the operation of
oil tankers. Because patterns of world crude oil trade are not
constant, the Company's vessels may load cargoes in any areas of
the world for delivery to other areas. In the Group's opinion,
trading of the vessels in such areas will not expose the vessels
to regulations more stringent than those of the United States and
the IMO. However, additional laws and regulations may be adopted
which could limit the use of oil tankers such as the Group's
VLCCs in oil producing and refining regions.
United States Environmental Regulation
OPA applies to all owners, operators and bareboat
charterers of vessels that trade to the United States or its
territories or possessions or operate in United States waters,
which include the United States territorial seas and the 200-
nautical mile exclusive economic zone of the United States.
Under OPA, Responsible Parties (as defined therein) are strictly
liable on a joint and several basis for discharges of oil (unless
the discharge results solely from the act or omission of a third
party, an act of God or an act of war) for all oil spill
containment, clean-up costs and damages arising from actual and
threatened discharges of oil pertaining to their vessels in the
200-mile exclusive economic zone of the United States. Damages
include (i) natural resources damages and the costs of assessment
17
<PAGE>
thereof, (ii) real and personal property damages, (iii) net loss
of taxes, royalties, rent, fees and other lost government
revenues, (iv) lost profits or impairment of earning capacity due
to property or natural resources damage, (v) net cost of public
services necessitated by a spill response, such as protection
from fire, safety or health hazards, and (vi) loss of subsistence
use of natural resources. OPA limits the strict liability of
Responsible Parties to the greater of $1,200 per gross ton or
$10 million per tanker and $600 per gross ton per dry bulk
carrier. However, these limits do not apply if the incident is
caused by violation of applicable United States federal safety,
construction or operating regulations, or gross negligence or
willful misconduct by the Responsible Party or that of a person
in a contractual relationship with the Responsible Party, or if
the Responsible Party failed or refused to report the incident or
to cooperate and assist in connection with oil removal
activities.
CERCLA and most U.S. state environmental statutes impose
unlimited liability for discharges of hazardous substances. In
addition, OPA specifically permits individual states to impose
their own liability regimes with regard to oil pollution
incidents occurring within their boundaries, and many states have
enacted legislation providing for unlimited liability for oil
spills.
Under OPA, with certain limited exceptions, all newly
built or converted tankers operating in United States waters must
be built with double hulls conforming to particular
specifications. Tankers that do not have double hulls are
subject to structural and operational measures to reduce oil
spills and will be phased out by the year 2015. In addition, OPA
specifies vessel manning, equipment and other construction
requirements that are in various stages of development by the
USCG applicable to new and to existing vessels. The Company's
tankers are in compliance with the double-hull requirements of
OPA.
OPA also requires that all shipowners must demonstrate
financial ability to pay for the cleanup costs and damages caused
by an oil spill in US waters. Pursuant to regulations
promulgated by the USCG, evidence of financial responsibility
equal to the aggregate of OPA's strict liability limit of $1,200
per gross ton and $300 per gross ton for potential liability for
discharges of hazardous substances pursuant to CERCLA, may be
demonstrated by a guaranty in the form of acceptable insurance,
surety bond, self-insurance or other means approved by the USCG.
Evidence of financial responsibility is submitted to the USCG
which issues to the vessel owner or operator a Certificate of
Financial Responsibility ("COFR") as proof of compliance with
this requirement. Failure to obtain a COFR and/or maintain such
18
<PAGE>
COFR on board the vessel may result in detention or seizure of
the vessel and a fine. Claimants may bring suit directly against
an insurer, surety or other party that furnishes the guaranty.
In the event that such insurer, surety or other party is sued
directly, it is limited to asserting the following defenses:
(i) the defense that the incident was caused by the willful
misconduct of the responsible party; (ii) the defenses available
to the Responsible Party under OPA or CERCLA; (iii) the defense
that the claim exceeds the amount of the guaranty; (iv) the
defense that the claim exceeds the property amount of the
guaranty based on the gross tonnage of the vessel; and (v) the
defense that the claim has not been made under either OPA or
CERCLA. The Company believes that all of the Group's vessels
that call within United States waters comply with these USCG
requirements.
Owners or operators of tankers operating in United
States waters must file vessel response plans with the USCG, and
their tankers must operate in compliance with USCG approved
plans. Such response plans must, among other things:
(i) identify and ensure, through contract or other approved
means, the availability of necessary private response resources
to respond to a "worst case" discharge or to a substantial threat
of a worst case discharge of oil or a hazardous substance;
(ii) describe crew training and drills; and (iii) identify a
qualified individual with full authority to implement removal
actions. The Company believes that all of the Group's vessels
that call within United States waters comply with these USCG
requirements.
Additional laws and regulations, environmental or
otherwise, may be adopted which could limit the ability of the
Group to do business or increase the cost of its doing business
and which may have a material adverse effect on the operations of
the Group. It is impossible to predict what additional
legislation, if any, may be promulgated by the United States or
any other country or authority.
Insurance
General
There are a number of risks associated with the
operation of vessels, including mechanical failure, collision,
property loss, cargo loss or damage and business interruption due
to political circumstances in foreign countries, hostilities and
labor strikes and off-hire period. In addition, the operation of
any vessel is subject to the inherent possibility of marine
disaster, including oil spills and other environmental mishaps,
and the liabilities arising from owning and operating vessels in
international trade. OPA, which imposes virtually unlimited
19
<PAGE>
liability upon owners, operators and demise charterers of any
vessel trading in the United States exclusive economic zone for
certain oil pollution accidents in the United States, has made
liability insurance more expensive for shipowners and operators
trading in the United States market.
Hull and Machinery Insurance
The Group has obtained marine hull and machinery and war
insurance which includes the risk of actual and constructive
total loss, for each of its vessels, with deductibles ranging
from $100,000 to $250,000 per vessel per incident. The Group
maintains loss of hire insurance to cover loss of charter income
resulting from accidents or breakdowns to the vessels (which may
also be covered under the vessels' hull and machinery
insurances). Although loss of hire insurance covers as much as
90 days lost charter income, the Group has to bear the first 14
days loss, consistent with industry practice.
Protection and Indemnity Insurance
Protection and indemnity insurance indemnifies the Group
for legal liabilities incurred while operating vessels, as
defined in the P&I Association's rules. This includes the legal
liability and other related expenses of injury or death of crew
and other third parties, loss or damage to cargo, claims arising
from collisions with other vessels, damage to other third party
property and pollution arising from oil or other substances,
including wreck removal. The coverage in a mutual assurance
association is generally limited at approximately $20 billion
with exception of oil pollution liability, which is limited to
$500 million per vessel per accident. Commencing February 20,
1998, the International Group of P&I Clubs ("International
Group") have agreed to lower a Club's aggregate liability to
approximately $4.5 billion.
Each of the vessels currently in the Group's fleet is
entered in a P&I Association belonging to the International
Group. As a member of a P&I Association, the Group is subject to
calls payable to the association as premium based on its claim
record as well as the claim record of all other members of its
P&I Association and supplementary calls payable to the P&I
Association in the event initial calls do not cover losses.
Excess Oil Pollution Insurance
In addition to the $500 million oil pollution insurance
provided through the P&I Associations, the Group has purchased
$200 million of excess coverage for its operated VLCCs, for
liabilities arising from oil pollution for total coverage of
$700 million per tanker per incident.
20
<PAGE>
ITEM 2 - DESCRIPTION OF PROPERTY
Other than its interests in the Vessels, the Company
through wholly-owned subsidiaries leases offices in London and
Hong Kong. The London office comprises 3,381 square feet and is
leased for a term of 10 years at the rate of 6.65 pounds sterling
per square foot per annum from an unaffiliated third party. The
Tokyo office comprises approximately 3,000 square feet, is owned by
Golden Ocean Enterprises Inc., an affiliated agent of the Company
based in Tokyo, and is leased at an arm's length commercial rate.
ITEM 3 - LEGAL PROCEEDINGS
The Group is party, as plaintiff or defendant, to
various personal injury and property casualty claims arising
during the normal course of its operations. Such claims are
covered by insurance, subject to customary deductibles.
Management believes that such claims will not have a material
adverse effect on the financial position and the results of
operations, financial condition or liquidity of the Company.
ITEM 4 - CONTROL OF THE REGISTRANT
The Company is currently a wholly owned subsidiary of
GOL. The following table sets forth certain information as of
December 31, 1998, concerning the ownership of the Company's
outstanding Common Shares on a diluted basis, assuming the
exercise of all outstanding Warrants to purchase Common Shares of
the Company.
Owner Number of Percentage
Common Shares Ownership
Golden Ocean Limited 3,680,000 92%
Holders of Investor Warrants* 200,000 5%
Placement Agent** 120,000 3%
Total 4,000,000 100%
____________________
* No single holder of Investor Warrants owns more than 3% of
the Common Shares of Company on a fully diluted basis.
** By virtue of Placement Warrants and the discussion under
"Item 9-Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere
herein.
21
<PAGE>
ITEM 5 - NATURE OF TRADING MARKET
No active trading market within or outside the United
States exists for the equity securities of the Company. The
Company's equity securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act").
The Company has registered pursuant to the Securities
Act an aggregate of $291,382,000 in principal amount at maturity
of its 10% Senior Notes due 2001 (the "Notes").
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS
Not Applicable
ITEM 7 - TAXATION
The Company is incorporated in the Republic of Liberia.
The Company will not be subject to income taxation under the laws
of the Republic of Liberia. There is no treaty relating to
taxation between the Republic of Liberia and the United States.
ITEM 8 - SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following Selected Consolidated Financial
Information of the Company should be read in conjunction with and
is qualified in its entirety by reference to the Consolidated
Financial Statements and notes thereto included elsewhere in this
filing document. The selected historical financial data as of
and for the years ended December 31, 1996, 1997 and 1998 have
been derived from the audited Consolidated financial Statements
for the three years ended December 31, 1998, that are included
elsewhere in this Report on Form 20-F. The selected historical
financial data as and for the years ended December 31, 1994 and
1995 have been derived from the audited Consolidated Financial
Statements of the Company. The following information should be
read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and audited
Consolidated Financial Statements, including the notes thereto,
included elsewhere in the Company.
22
<PAGE>
GOLDEN OCEAN GROUP LIMITED
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
(Dollars and Dwt in thousands)
Year ended December 31,
_______________________
1998 1997 1996 1995 1994
____ ____ ____ ____ ____
Income Statement Data:
Net operating revenues (1) $ 49,856 $ 46,938 $ 33,589 $ 16,042 $ -
Share of net income (losses)
of joint ventures (2,636) 2,581 (2,795) 4,044 1,920
Interest on direct financing
sub-lease 1,665 2,197 2,311 - -
_____________________________________________
Total operating revenues 48,885 51,716 33,105 20,086 1,920
Total operating expenses (2) 36,961 36,853 23,464 11,353 1,476
_____________________________________________
Net operating income 11,924 14,863 9,641 8,733 444
Foreign exchange gain (loss) (32,281) 30,376 12,763 16,134 -
Interest income 3,804 970 56 66 -
Interest expense 52,363 24,139 14,177 7,121 -
Other income (expenses) (173) 663 144 (338) -
Profit share payment - (6,243) - - -
Gain on disposal of vessel - 1,551 - - -
Loss on disposal of vessels (1,283) (8,331) - - -
Loss on disposal of interest
in joint venture - (600) - - -
Net income $(70,372) $9,110 $8,427 $17,474 $ 444
==============================================
Balance Sheet Data (at end of period):
Cash and cash equivalents 8,487 6,419 2,975 3,894 4,068
Interests escrow
(restricted cash) 28,747 38,071 - - -
Vessels and other
property, net 709,717 517,015 450,772 260,375 23,211
Investments in and advances
to joint ventures 24,394 25,210 26,599 29,023 12,347
Total assets 800,635 617,316 482,761 310,317 59,613
Total debt (3) 715,186 471,931 348,280 191,352 15,914
Total shareholders' equity 54,826 125,239 116,129 107,862 43,043
23
<PAGE>
Combined Group (Company/Joint Venture) Data(4):
Net operating revenues 66,589 59,140 54,228 59,471 39,124
EBITDA (5) 49,194 43,126 39,285 42,521 27,244
Interest expense 57,413 29,706 19,357 18,807 9,060
Capital expenditures 305,513 174,916 183,993 243,093 87,440
Total debt (3) 841,493 564,169 478,498 350,926 201,891
Ratio of EBITDA to
interest expense 0.86x 1.45x 2.03x 2.26x 3.01x
Other Company Data:
EBITDA (5) $37,696 $34,060 $24,005 $9,285 $(230)
Net cash provided by
operating activities 899 9,508 20,704 7,182 2,693
Net cash used in
investing activities 200,222 141,846 161,756 191,897 37,684
Net cash provided by
financing activities 201,391 135,782 140,133 184,541 31,361
Capital expenditures (6) 273,536 169,375 163,263 183,985 37,725
Ratio of earnings to
fixed charges (7) - 1.12x 1.28x 1.91x 1.02x
Ratio of EBITDA to
interest expense 0.72x 1.41x 1.69x 1.30x -
24
<PAGE>
Fleet Operating Data (at end of period)(8):
Wholly owned vessels 10 7 7 4 -
Vessels owned by Joint Ventures 3 1 2 2 4
____________________________________________
Total Group Vessels 13 8 9 6 4
Vessels with over one year
remaining on period charters 11 7 8 6 4
Dwt of wholly owned vessels 1,867 1,330 1,137 557 -
Dwt of vessels owned by
Joint Ventures 374 280 430 430 270
____________________________________________
Total dwt of Group vessels 2,241 1,610 1,567 987 270
Average age of fleet 1.7 1.8 1.8 2.0 7.8
Average days off hire (9) 2.4 4.9 1.4 2.8 6.7
__________________________
(1) Net operating revenues equals charter income less broker's
commissions.
(2) Total operating expenses in the years 1994 to 1997 include amounts
paid to Golden Ocean Management Ltd., a related party, for vessel operations,
plus actual costs of related administrative services. See "Business-
Management of Vessels."
(3) Total debt includes secured loans, obligations under capital leases,
other loans and amounts due to shareholder and, at December 31, 1997 and
1998, the Notes, but does not include, in the case of the Company, $56.6
million of indebtedness of the Joint Ventures at December 31, 1997 or $94.9
million at December 31, 1998 which is guaranteed by the Company.
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<PAGE>
(4) The following table summarizes selected financial data of the Joint
Ventures:
Joint Venture Data:
Total operating revenues $16,733 $12,202 $20,639 $43,429 $39,124
EBITDA (5) 11,498 9,066 15,473 32,913 28,720
Foreign exchange gain (loss) (8,498) 3,530 4,486 1,885 -
Interest expense 5,050 5,567 5,180 11,686 9,060
Net income (loss) (7,114) 2,570 (5,590) 8,088 3,840
Capital expenditures (6) 31,977 5,541 20,730 59,108 49,715
Total debt 126,307 92,238 130,218 159,574 185,977
Total shareholders'
and partners' equity (4,673) 2,441 4,284 20,036 14,426
Dividends paid to Company - - 5,081 - 2,150
Ratio of EBITDA to
interest expense 2.3x 1.6x 3.0x 2.8x 3.2x
(5) EBITDA is defined as income before interest, income taxes,
depreciation and amortization, gain (loss) on disposal of assets-net. This
definition of EBITDA may not be comparable to similarly titled measures
disclosed by other companies. EBITDA does not include non-cash foreign
exchange gains or losses. In addition, EBITDA for the Company includes the
Company's share of earnings of the Joint Ventures only to the extent of
dividends actually recieved, but includes 100% of the Company's share of
losses (excluding non-cash foreign exchange gains or losses) of the Joint
Ventures which for the fiscal years ending December 31, 1998, 1997 and 1996
were zero, zero and $(4.9) million respectively. EBITDA is not required by
generally accepted accounting principles and should not be considered as an
alternative to net income, as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
(6) Capital expenditures include prices paid for vessels under
construction and capitalized predelivery expenses.
(7) The ratio earnings to fixed charges is a negative number. Earnings
would have needed to increase by $85,794,000 to achieve a ratio of 1:1.
For purposes of this computation, earnings is defined as income
(including the Company's share of net income (loss) of Joint Ventures) before
fixed charges. Fixed charges are equal to interest expense (including
capitalized interest) plus the Company's proportionate share of interest
expense (including capitalized interest) of the Joint Ventures. The Notes
are guaranteed by all of the subsidiaries and certain of the Joint Ventures
of Golden Ocean Group Limited. Net assets of non-guarantor Joint Ventures at
December 31, 1998 amounted to a deficit of $1,290,467 (1997 net assets of
$1,929,187). Net income of non-guarantor Joint Ventures for the year ended
December 31, 1998 was a loss of $3,219,653 (1997 net income of $1,389,882).
The Company has a 50% share in the non-guarantor Joint Ventures. Waivers of
covenants in loan agreements were obtained to enable subsidiaries to
guarantee the Company's obligations to Note holders and to pay dividends to
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the Company (see "Notes to Consolidated Financial Statements;" Note 15 and
Note 19).
The following table reflects the computation of the historical
earnings to fixed charges ratio:
Year Ended December 31,
1998 1997 1996 1995 1994
RATIO OF EARNINGS TO FIXED CHARGES (All numbers in thousands of dollars)
EARNINGS
Net Income per statement of
operations (70,374) 9,110 8,427 17,474 444
Interest Expenses 53,966 26,275 16,767 12,964 4,530
Earnings (16,408) 35,385 25,194 30,438 4,974
FIXED CHARGES
Interest expense-Company
Interest on long term debt 49,408 19,703 10,722 6,840 -
Interest on capital leases 2,955 4,436 3,455 281 -
Interest expense-Joint Ventures
(company share)
Interest on long term debt 1,604 2,136 2,590 5,843 4,530
Total Interest expenses 53,967 26,275 16,767 12,964 4,530
Capitalized Interest
Company 14,791 4,634 1,941 1,171 364
Joint Ventures (company share) 629 595 918 1,827 -
15,420 5,229 2,859 2,998 364
TOTAL FIXED CHARGES 69,387 31,504 19,626 15,962 4,894
RATIO OF EARNINGS
TO FIXED CHARGES - 1.12X 1.28X 1.91X 1.02X
(8) "Owned" includes vessels under capital lease or operated in
sale/leaseback transactions.
(9) Means the total number of days off hire divided by the weighted
average of the number of vessels owned or operated in sale/leaseback
transactions during the applicable period.
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ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Group (Golden Ocean Group Limited, its subsidiaries and Joint
Ventures) is an international owner, operator and manager of
VLCCs and dry-bulk carriers. The Group currently focuses on
purchasing and operating newbuilding VLCCs and dry-bulk carriers
for long-term charter to well-known third parties.
Fleet Review
The Group currently has a delivered fleet of seventeen ships
comprised of ten dry-bulk carriers (0.8 million dwt) and seven
VLCCs (2.0 million dwt). It has on order eleven VLCCs and two
dry-bulk carriers and has options to purchase a further seven
VLCCs ordered by the parent company, Golden Ocean Limited. Of the
delivered fleet, two existing VLCCs and two dry-bulk carriers are
owned by Joint Ventures. One VLCC newbuilding is owned by a
Joint Venture.
In 1998 there were five additions to the dry-bulk carrier fleet.
In February, the Handymax Golden Daisy was delivered, followed in
April by its sister vessel the Golden Rose. The Handymax Golden
Protea was delivered in early September followed by its sister
vessel the Golden Aloe later in the same month. The Panamax
Golden Disa was delivered in March and resold in June. The Group
also sold the Loire Ore in January 1998 under a sale agreed in
December 1997. The Golden Daisy, Golden Rose, Golden Protea and
Golden Aloe have all been fixed on twelve-year time charters to
Safmarine, the national carrier of South Africa. The Golden
Daisy and Golden Rose are owned by Joint Ventures.
Since the year-end, the Group has taken delivery of the Handymax
Cos Hero, which has been fixed on bareboat charter to COSCO
(Singapore) Pte. Ltd. for fifteen years, and the Panamax Golden
Disa, which has been fixed on a time charter to Safmarine for
twelve years. This vessel is not related to the vessel also
known as the Golden Disa, which was sold in June.
There were two additions to the Group's VLCC fleet in 1998 and a
further two since the year-end. The first of the Group's double-
hulled VLCCs, the New Vanguard was delivered in March 1998
followed by the New Vista in September. Both of these vessels
have been bareboat chartered to Hong Kong Ming Wah Shipping Co.
for ten years. The Golden Victory was delivered in January 1999
and has been fixed on a seven-year time charter to NYK. The New
Circassia was delivered in March 1999 and has been fixed on a
one-year bareboat charter to Hong Kong Ming Wah Shipping Co. The
New Circassia is owned by a Joint Venture.
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The Group's fleet is one of the youngest in the world. The
average age of the Group's existing fleet at December 31, 1998
was 20 months.
Assuming no further vessel orders or deletions, and that all
current orders are delivered, the Group will have by December 31,
2000 a fleet of 18 VLCCs (5.3 million dwt) and twelve dry-bulk
carriers (1.1 million dwt), and the average age of the fleet will
be 27 months. If, in addition, the Group exercises its options,
the Group will have a VLCC fleet of 25 vessels (7.4 million dwt)
by December 31, 2001.
Fleet Employment
The Group derives substantially all of its operating revenues
from long-term charters to well-known third parties, which
include Bocimar, K-Line, NYK, Safmarine and COSCO. These
charters are at fixed rates which escalate annually over the
terms of the charter. Currently seven of the Group's ten dry-
bulk carriers are on long-term charter to such entities with
charter terms of seven years or more. The remaining three
vessels are on charters with expiry dates between October 1999
and November 2001. Five of the Group's seven VLCCs are on
charter to such entities with terms of seven years or more. The
Golden Fountain is currently traded on the voyage charter market
and the New Circassia is on a one-year bareboat charter. Both
these vessels are owned by Joint Ventures.
Additionally, the Group has entered into profit sharing
agreements with the charterers of four VLCCs and one dry-bulk
carrier. These agreements provide for the Group to participate
in profits of the charterers' subcharters of the vessel and also
to contribute to subcharter losses on one VLCC and one dry-bulk
carrier.
1998 compared to 1997
Operating revenues
Net operating revenues (charter income less brokers commissions)
for the year ended December 31, 1998 increased 6% to
$49.9 million compared with $46.9 million for the year ended
December 31, 1997. This increase resulted from changes in the
composition of the wholly owned fleet and overall improved daily
charter rates. The Company sold two Panamax bulk carriers in
December 1997, a Capesize bulk carrier in January 1998 and a
further Panamax bulk carrier in June 1998. In the same period
the Company took delivery of one Panamax bulk carrier (March
1998) two Handymax bulk carriers (both September 1998) and two
VLCCs (March and September 1998). Due to these fleet changes,
available operating days of 2,916 days were 9% lower in 1998 than
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1997 (3,187 days). However, average daily charter rates achieved
in 1998 improved in comparison to 1997 due to annual rate
increments in long-term charters and the delivery of new vessels
fixed on higher charter rates than existing or sold vessels. The
following table illustrates the relationship between the
composition of the fleet, average charter rates achieved and net
revenues for the fleet.
1998 1997
Available Average Net Available Average Net
Class of Operating Daily Revenues Operating Daily Revenues
Vessel Days Rate ($s) ($000's) Days Rate ($s) ($000's)
Handymax 219 8,405 1,841 - - -
Panamax 96 8,760 841 696 10,920 7,600
Capesize 1,487 13,200 19,628 1,761 12,720 22,400
VLCC 365 32,375 11,948 365 29,100 10,622
VLCC -
Bareboat 749 20,825 15,598 365 17,305 6,316
Total 2,916 17,097 49,856 3,187 14,728 46,938
In 1998 22% of charter revenues were received in Yen (1997 28%).
The average remaining unexpired charter period for vessels
employed on term charters was 98 months as at December 31, 1998
(1997 131 months).
Brokers commissions fell to $0.5m (1997 $0.7m), and now represent
less than 1% of charter revenues. This has been achieved by
successfully promoting long term relationships with charterers.
Share of earnings of Joint Ventures
The Groups currently operating Joint Ventures are the owning
companies of the VLCCs Golden Fountain and New Circassia, the
Handymax bulk carrier Golden Daisy and the Handymax bulk carrier
Golden Rose. The Company's share of earnings of Joint Ventures
for the year ended December 31, 1998 was a loss of $2.6 million
compared with a profit of $2.6 million for the year ended
December 31, 1997. The loss is substantially due to Joint
Ventures incurring exchange losses on translation of Yen
denominated debt into US dollars. Joint Ventures incurred
exchange losses of $8.5m in 1998 of which the Group's share was
$4.2m. Underlying earnings of Joint Ventures, ignoring exchange
adjustments, were $1.4m in 1998 compared to a loss of $1.0m in
1997. This improvement is due primarily to the increased
earnings of the Golden Fountain, which achieved average hire
income, including profit share, of $33,600 per day in 1998
compared with $28,100 in 1997. The result for the year also
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<PAGE>
benefited from the earnings of the Golden Daisy (delivered in
February) and Golden Rose (delivered in April).
Total Joint Venture net charter income increased by 37% from
$12.2 million in 1997 to $16.7 million in 1998. Corresponding
operating expenses, which included vessel operating costs,
depreciation, administrative expenses and dry-docking charges
rose by 36% from $7.6m in 1997 to $10.3m in 1998. This led to an
overall increase of 39% in Joint Venture net operating income
from $4.6m in 1997 to $6.4m in 1998.
Joint Venture interest expense was $5.1 million for the year
ended December 31, 1998 against $5.6 million for the year ended
December 31, 1997, a reduction of 9%. This reduction is due to
Joint Ventures utilising a greater proportion of Yen debt
finance. Joint Venture US Dollar denominated debt retired in May
1997 associated with the sale of the Channel Enterprise has been
replaced with Yen denominated debt drawn down to finance
construction of the Golden Daisy and Golden Rose.
The Group's 50% share of Joint Venture losses, after cancellation
of intercompany interest charges of $0.9 million (1997
$1.3 million), was $2.6 million (1997 profit $2.6 million).
Operating expenses
Vessel operating costs which include crew wages and expenses,
insurance, lubricating oils, stores and spares, repairs and
maintenance decreased by 20% to $9.8 million for the year ended
December 31, 1998 compared with $12.3 million for the year ended
December 31, 1997. This reduction is due to changes in the
composition of the wholly owned fleet, the reduction in the
number of operating days and a greater proportion of the fleet
being chartered under bareboat charters. The Group does not bear
operating costs for vessels under bareboat charter, apart from
some sundry insurance costs. The following table illustrates the
relationship between the composition of the fleet, average daily
operating costs and total vessel operating costs.
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1998 1997
Available Average Total Available Average Total
Class of Operating Daily Op cost Operating Daily Op cost
Vessel Days Rate ($s) ($000's) Days Rate ($s) ($000's)
Handymax 219 3,110 681 - - -
Panamax 96 9,220 885 696 4,170 2,902
Capesize 1,487 3,910 5,814 1,761 3,960 6,974
VLCC 365 6,450 2,354 365 6,400 2,336
VLCC -
Bareboat 749 145 109 365 245 89
Total 2,916 3,376 9,843 3,187 3,860 12,301
The amount recorded for Panamax average daily operating costs is
unusually high due to the inclusion of a number of one off costs
associated with the delivery and sale of the vessel Golden Disa.
Depreciation expense increased by $0.1 million (1%) to
$16.8 million for the year ended December 31, 1998 compared with
1997. An additional amount of $1.9 million was provided to write
down the book value of the Golden Poterne to its fair value on
termination of a long-term time charter in November 1998.
Administrative expenses were $6.7 million for the year ended
December 31, 1998 compared with $3.7 million for the year ended
December 31, 1997, an increase of 81%. This increase is due to
the expansion of the fleet and costs associated with the Group's
enlarged newbuilding programme. Administrative expenses
principally cover expenses of the subsidiary agents of the Group
in London and Tokyo and affiliated agents of the Group in Hong
Kong, Shanghai, and Vancouver, together with audit,
administrative and legal fees. Where affiliated agents have been
used, these costs have been charged to the Group on an actual
cost basis.
As a result of these developments, total operating expenses for
the year ended December 31, 1998 were $37.0 million compared with
$36.9 million for the year ended December 31, 1997.
Net operating income
As a result of the foregoing factors, net operating income
decreased by 20% to $11.9 million for the year ended December 31,
1998, compared with $14.9 million for the year ended December 31,
1997. EBITDA for the year ended December 31, 1998 was
$37.7 million, compared with $34.1 million for the year ended
December 31, 1997, an increase of 11%.
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Other income/expenses
As discussed under "Currency Exchange Rates", foreign exchange
losses for the year ended December 31, 1998 were $32.3 million
compared with gains of $30.4 million for the year ended
December 31, 1997.
Interest income, mainly from escrow funds held as security for
the Senior Notes and from the uninvested portion thereof,
amounted to $3.8 million in the year ended December 31, 1998.
Interest expense increased by $28.3 million to $52.4 million as
compared with $24.1 million for the year ended December 31, 1997,
primarily due to the issuance of $200 million principal amount
Senior Notes in August 1997 and a further tranche of $91 million
in March 1998. The interest expense for the year ended
December 31, 1998 represents an average interest cost of 5.0%
(1997 5.4%) on interest bearing secured loans and capital leases
and an overall interest cost of 10.1% on all debt including the
Senior Notes. The Group has continued to hold down its average
interest rate due to the proportion of its borrowings which are
denominated in Yen and bear interest at rates linked to Yen
LIBOR. At December 31, 1998, long term debt and capital lease
obligations denominated in Yen represented 37% of the Group's
total debt, including Senior Notes compared to 48% in 1997. The
principal reason for this change is the issuance in March 1998 of
the second tranche of Senior Notes which are denominated in
Dollars.
Disposals
The sale of the Loire Ore was completed in January 1998 for
$40.0 million. As the sale had been agreed in December 1997, a
provision of $3.2 million to write down the vessel to the
realisable value was recorded in the 1997 accounts. A profit
share payment of $6.2 million based on the proceeds received less
debt outstanding was also recorded in the 1997 accounts. During
the year, the Golden Disa was sold for $23.0 million and a loss
of $1.3 million was recorded.
Net income
As a result of the foregoing, the net loss was $70.4 million for
the year ended December 31, 1998, against a profit of
$9.1 million for the year ended December 31, 1997.
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<PAGE>
1997 Compared to 1996
Operating revenues
As a result of fleet expansion, net operating revenues (charter
revenues less brokerage commissions) for the year ended
December 31, 1997 were 40% higher, rising to $46.9 million from
$33.6 million in 1996. The Company took delivery in 1997 of two
additional vessels, both subject to long term charters, and
benefited from a full year's net operating revenues of a vessel
delivered in October 1996. As a result, actual number of days on
hire for the Company's fleet increased by 54%, to 2,782 days in
1997, from 1,811 in 1996. Offhire averaged 4.9 days per vessel,
up from 1.4 days in 1996, because four of the vessels in the
fleet were drydocked. Delivery of larger vessels increased the
average size of the Company's vessels to 190,000 dwt at
December 31, 1997 from 162,000 dwt at December 31, 1996. The
total deadweight tonnage of the Company's fleet increased to
1,330,000 dwt from 1,137,000 dwt.
Broker's commissions were $0.7 million or 1.5% of gross charter
revenues in 1997, compared to $0.3 million or 1% of gross charter
revenues in 1996. These rates, both low by shipping industry
standards, are a consequence of the Company's emphasis on
building long term relationships with major charters.
Average daily rates of charter hire earned by the Group's VLCCs
were up by 2% to $25,133 in 1997 from $24,591 per day in 1996,
while average daily rates of charter hire earned by the Group's
dry bulk carriers declined by 6% to $13,536 in 1997 from $14,452
in 1996. This was due in part to the decline of the Yen against
the Dollar as discussed below under "Currency Exchange Rate. In
1997, 28% of charter hire of the Group's vessels were denominated
in Yen compared to 37% in 1996. Also contributing to the
relatively small increase in Group VLCC rates was the
continuation of the bareboat charter for the Navix Astral in
1997. This charter resulted in lowered average daily hire rates
for Group vessels, since the Company does not bear operating
costs for the Navix Astral. Accordingly, the bareboat rate of
hire for that vessel does not reflect a component for operating
expenses that would be included in an equivalent time charter.
In both 1996 and 1997, all Group vessels were employed on either
time charter or bareboat charter. Due to the delivery in 1997 of
the Channel Navigator and Channel Poterne, both of which had
charters with 15 year terms, average remaining unexpired charter
periods increased by 26% to 131 months at December 31, 1997
compared with 104 months at December 31, 1996. Also contributing
to this increase was the sale and consequent cancellation of
charters of two vessels in December 1997, the Channel Fortune and
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<PAGE>
Channel Prosperity both of which had charters expiring within
three years.
Shares of Earnings (losses) of Joint Ventures
Total Joint Venture operating revenues declined to $12.2 million
in 1997 from $20.6 million in 1996. The reduction in total
operating revenues of the Joint Ventures can be attributed to a
decrease in net time charter revenues and the cessation of
aircraft lease rental income effective January 1, 1997. The
latter came to an end following disposal of the Company's
interest in the aircraft joint venture. Net time charter
revenues decreased to $12.2 million in 1997 from $15.7 million in
1996, mainly as a result of the disposal of a Joint Venture
vessel in May 1997. Cessation of the aircraft joint venture
resulted in there being no aircraft rentals in 1997 whereas in
1996 there had been $4.9 million.
Total Joint Venture operating expenses declined by 43% from
$13.3 million in 1996 to $7.6 million in 1997. This reflected
lower vessel operating costs, lower depreciation on vessels and
the absence in 1997 of depreciation on aircraft. Vessel
operating costs decreased by 19% to $3.4 million in 1997 from
$4.2 million in 1996, mainly due to the May 1997 sale of the
Channel Enterprise. Likewise, depreciation on vessels decreased
to $4.5 million in 1997 from $7,1 million in 1996. There was no
aircraft depreciation in 1997 compared to $1.3 million in 1996.
For the foregoing reasons, net operating income dropped by 37% to
$4.6 million in 1997 from $7.3 million in 1996.
The foreign exchange gain in 1997 was $3.5 million ($4.5 million
in 1996). This gain, from the Yen portion of the Golden Fountain
debt, resulted from a translation at December 31, 1996 of Yen
116.1 per $1 compared with Yen 130 per $1 at December 31, 1997.
The gain in 1996 resulted from a translation at December 31, 1995
of Yen 103.9 per $1 compared with Yen 116.1 at December 31, 1996,
while, in addition, the Yen debt outstanding was higher in 1996
compared to 1997.
Interest expense declined to $5.6 million in 1997 from
$6.8 million in 1996 as a result of debt repayment on the May
1997 sale of the Channel Enterprise. A loss of $4.9 million was
incurred in 1996 in connection with the sale of aircraft. There
was also an impairment loss on a vessel of $7.1 million, taken in
1996 in connection with the anticipated sale of the Channel
Enterprise in 1997. The impairment loss was recognized so as to
reduce the carrying value of the vessel to its expected sale
proceeds.
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<PAGE>
Joint Ventures made a profit of $2.6 million in 1997 compared to
a loss of $7.2 million in 1996. The Company's 50% share of
earnings adjusted to eliminate intercompany interest charges of
$1.3 million (1996 $0.8 million), thus improved from a loss of
$2.8 million in 1996 to a profit of $2.6 million in 1997.
Operating expenses
Vessel operating costs, which include crew wages and expenses,
insurance, lubricating oils, stores and spares and repairs
increased by 46% to $12.3 million in 1997 from $8.4 million in
1996. This increase resulted primarily from an expansion in the
number of operating days in the year for the vessels in the
Company's fleet.
Administrative expenses rose by 28% to $3.7 million in 1997 from
$2.9 million in 1996, mainly due to the increase in the Group's
fleet and to the Group's enlarged newbuilding programme.
Administrative expenses principally cover expenses of the Group's
offices in London and Tokyo, expenses of affiliated agents in
Hong Kong, Shanghai and Vancouver, together with Group audit,
administrative and legal fees for the Group borne by such agents.
The costs of affiliated agents are charged to the Group by the
respective agents on an actual cost basis.
Depreciation expense rose by 49% in l997 to $16.7 million from
$11.2 million in 1996. This was due as a result of the expansion
of the Group's fleet.
Total operating expenses increased by 57% to $36.9 million in
1997 from $23.5 million in 1996 primarily as a result of the
foregoing.
Net operating income
For the reasons stated above, net operating income rose to
$14.9 million in 1997 from $9.6 million in 1996.
Other income (expense)
As discussed under "Currency Exchange Rate," the foreign exchange
gain increased to $30.4 million in 1997 from $12.8 million in
1996.
Interest expense increased 70% to $24.1 million in 1997 from
$14.2 million in 1996, due to an increase in the Company's
outstanding indebtedness and the issuance of Senior Notes in a
Rule 144A offering in August 1997 to fund fleet expansion and the
Group's newbuilding programme.
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<PAGE>
Excluding net interest payable on the Senior Notes of $7 million,
the average interest rate payable by the Group in 1997 was
unchanged from 1996 at 5.4%. The ability to hold down the
average interest rate was due to an increase in the proportion of
the Group's borrowings at floating rates based on Yen LIBOR.
However, at December 31, 1997 borrowings and capital lease
obligations denominated in Yen had declined to 48% of the Group's
total debt, compared to 60% in 1996, principally due to the issue
of the Dollar denominated Senior Notes in August 1997.
Disposal
There were no vessel sales or disposals during 1996. Sales of
two vessels, the Channel Fortune and Channel Prosperity, were
completed in 1997. These two sales brought about a loss on
disposal of $8.3 million. The sale of a panamax newbuilding
vessel at delivery during the year produced a profit on disposal
of $1.6 million.
As a result of the sale of the Loire Ore in January 1998, a
provision of $6.2 million has been made against a profit share
payment due to Charterers upon sale of the vessel. In addition,
the difference between the net book value of the Loire Ore at
December 31, 1997 and the proceeds received on sale has been
recorded as a write down of $3.2 million in the current year.
However, as a result of this sale an exchange gain of
$7.4 million was realized. See "Currency Exchange Rate" for
further explanation.
Net Income
Net income of the Company increased by 8% to $9.1 million in 1997
from $8.4 million in 1996.
Liquidity and Capital Resources
General
The Group's principal sources of cash are cash flows from
charters, advances under loan facilities, vessel sales and loan
advances from the Group's shareholder, Golden Ocean Limited. The
Group's principal uses of cash will be to finance capital
commitments, to meet operational requirements and to fund debt
service payments. Net cash inflows from operations were
$0.9 million in 1998 and $9.5 million in 1997.
At December 31, 1998 the Group (excluding Joint Ventures) had
cash and cash equivalents of $8.5 million compared with
$6.4 million at December 31, 1997. Restricted cash included
within these amounts totalled $4.9 at December 31, 1998 and $1.4m
37
<PAGE>
at December 31, 1997. Cash and cash equivalents increased by
$2.1 million as a result of operating activities and the balance
of proceeds from the issuance of a further $91.4 million
principal amount of Senior Notes in March 1998.
A total of $69.1 million before expenses was raised from the
issue of the second tranche of Senior Notes. These Notes were
issued at a price of $756.60 per $1,000 principal amount and
generated net proceeds of $52.7 million after issue expenses and
funds placed in escrow.
The Group's consolidated balance sheet shows a working capital
deficit of $7.1 million as at December 31, 1998 compared to a
surplus of $6.0 million as at December 31, 1997. The Group has
committed charter income due in 1999 totalling $65.9 million,
which it expects to be sufficient to fund current operational
cash requirements and debt service payments.
Interest payments on the Group's Senior Notes will be funded from
investments held in escrow during 1999. The Group may also
receive surplus funds from the sale of vessels owned by
subsidiaries and its proportionate share of surplus funds from
the sale of vessels owned by Joint Ventures.
The Group also expects Joint Ventures to fund their operational
cash requirements and debt service payments in 1999 through
charter revenues.
Total shareholders equity at December 31, 1998 was $54.8 million
compared to $125.2 million at December 31, 1997. The decrease was
due to the charge for the year ended December 31, 1998 of the net
loss of $70.4 million.
Capital commitments
At December 31, 1998 the Group (excluding Joint Ventures) had
capital commitments for vessels under construction due as
follows:
1999 2000
Yen Dollar Total Yen Dollar Total
Payments Payments Payments Payments Payments Payments
(Ymillion) ($000's) ($000's) (Ymillion) ($000's) ($000's)
Financed 7,215 59,716 123,679 - - -
Unfinanced 36,510 97,350 429,882 37,310 61,950 392,712
Total 44,725 157,066 553,561 37,310 61,950 392,712
Joint Ventures had capital commitments for two VLCCs under
construction totalling Yen 16.7 billion (equivalent to
38
<PAGE>
$148.4 million) falling due in 1999. Third party financing for
these payments was in place at December 31, 1998.
The unfinanced commitments relate to five VLCCs due for delivery
in 1999 and six VLCCs and one Panamax bulk carrier due for
delivery in 2000. Management believes that the Company will be
able to enter into suitable charter employment for each of the
remaining unchartered newbuildings and that, on the strength of
these charters, it will be able to arrange long-term financing
for the remaining payments due to the shipyards.
Management is now focusing on arranging suitable long-term
charters for the five remaining unfinanced VLCCs to be delivered
in 1999.
There can be no assurance that suitable charters can be arranged
or that financing for the unfinanced capital commitments will be
available on favourable terms or at all.
Long term debt and interest rates
Long term debt as of December 31, 1998 consists of $236.4 million
(1997 $150.3 million) of 10% Senior Notes on an accreted value
basis, $459.0 million (1997 $293.7 million) of long term secured
debt and obligations under capital leases and loans from minority
interests totalling $13.3 million (1997 $12.3 million). In
addition, the Company guarantees Joint Ventures' indebtedness
totalling $94.9 million (1997 $ 56.6 million). The increase in
indebtedness is due to the expansion of the Group's fleet and the
issuance of a second tranche of Senior Notes in March 1998.
Secured loans totalling $347.6 million (1997 $202.6 million)
represent Yen denominated loans totalling $145.1 million and US
Dollar denominated loans totalling $202.5 million. Interest is
payable on Yen denominated loans at floating rates based on Yen
LIBOR plus margins of between 1.3% and 1.5%, except for
$60.9 million on which interest is fixed at 3.66% and
$27.5 million on which interest is fixed at 3.2%. Interest is
payable on US Dollar denominated loans at Dollar LIBOR plus 1.5%
on $62.9 million. The balance bears interest at fixed rates
between 7.29% and 7.49%. Repayment maturities are detailed in
note 15 to the Consolidated Financial Statements.
Capital lease obligations outstanding as at December 31, 1998 of
$111.4 (1997 $91.1 million) are all denominated in Yen and bear
interest at Yen LIBOR plus a margin of 1.5%, except for
$35.9 million on which imputed interest is at 6.11%. Repayment
maturities are detailed in note 14 to the Consolidated Financial
Statements.
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Other loans, representing advances to subsidiaries from minority
shareholders, totalling $13.3 million (1997 $12.3 million) bear
interest at rates between 7% and 12%.
The average interest rate payable on the total interest bearing
debt as at December 31, 1998 was 10.1% (1997 9.5%). Management
anticipates that the average interest rate payable will reduce as
further secured loans are arranged to fund the newbuilding
programme and the proportion of total debt represented by the
Senior Notes decreases.
There can be no assurance that the Group's future cash flows will
be sufficient to service its current or future debt service. If
the Group fails to meet its obligations under such indebtedness,
it may need to refinance or restructure all or a portion of such
indebtedness, sell vessels or seek to raise additional debt or
equity capital. There is no assurance that the Group will be
able to effect any such refinancing or restructuring, sell assets
or obtain any such additional debt or equity capital.
Currency Exchange Rates
The Group has significant capital commitments denominated in Yen
(see Liquidity and Capital Resources) and significant borrowings
denominated in Yen. It also has contracted charter income
denominated in Yen.
The Group does not hedge against movements in the US Dollar
equivalent of capital commitments denominated in Yen.
When the Group borrows in Yen, it seeks to limit its exposure to
exchange rate movements by arranging Yen denominated charters to
cover the debt service requirements of the related Yen
borrowings.
At December 31, 1998, the Group had Yen borrowings of Y28.9
billion (1997 Yen 28.3 billion) of which Yen 16.4 billion (1997
Yen 15.7 billion) were matched by equivalent Yen charter income
and Yen 12.5 billion (1997 Yen 12.6 billion) were not.
In 1998, the Group (excluding Joint Ventures) recorded exchange
losses of $32.3 million compared with gains of $30.4 million in
1997. This is due to the appreciation of the Yen against the US
Dollar over the year ended December 31, 1998. The exchange rate
of Yen for US Dollars was $1=Yen 130.0 at December 31, 1997 and
was $1=112.8 as at December 31, 1998. This represents an
appreciation of 13% over the year. All Yen loans are recorded at
the prevailing exchange rate.
40
<PAGE>
Impact of Inflation
Although inflation has some impact on operating costs and general
and administrative costs, management does not believe inflation
will lead to a significant growth in these costs in the
foreseeable future. Many of the Group's charters provide for
incremental increases in charter hire every year. These
increases are designed to cover increases in the operating costs
of the Group due to inflation.
Year 2000 Issue
Management is continuing its review of all phases of the Groups
activities that could be affected by Year 2000 issues. Year 2000
issues relate to the inability of computer programs or microchips
to distinguish between the year 1900 and the year 2000. In
connection with computer processing of its financial records, the
Group uses software that is Year 2000 compliant. Management is
reviewing its computer supported operational activities, which
include computer-operated machinery or processes or computer
based backup systems on board its vessels. Management is testing
applications and has found those tested either to be Year 2000
compliant or to have minor deficiencies that are expected to be
corrected by mid 1999. Management is performing further tests of
systems that it expects to complete in mid 1999.
Management has communicated with third parties whose Year 2000
compliance is critical to the Groups operations and is following
up with them concerning their plans and progress in addressing
Year 2000 issues. Management is not aware of any Year 2000
problems as a result of this effort.
The costs associated with the Groups Year 2000 compliance
activities are not expected to be material to the Groups
financial position and such costs are being expensed as incurred,
The failure to correct a Year 2000 problem could result in an
interruption in certain normal business activities or operations.
Management believes, however, that with completion of its Year
2000 project, significant interruptions will not be encountered.
Completion of the Groups Year 2000 project is based on
management's best estimates, which were derived utilising
numerous assumptions regarding future events. There can,
therefore, be no assurance that there will not be a delay in, or
unanticipated costs associated with the Year 2000 issue.
Specific factors that might cause differences between the
estimates and actual results include but are not limited to, the
availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, timely
responses by third parties and suppliers and similar
41
<PAGE>
uncertainties. Management expects to evaluate the necessity for
a contingency plan by mid 1999.
Market Risk
The Group is exposed to market risk from changes in interest
rates and changes in exchange rates which could affect its
results of operations and financial condition. The Group manages
its exposure to market risk by its regular operating and
financing activities and, when deemed appropriate, through the
use of derivative financial instruments.
The Group limits its exposure to changes in interest rates by
hedging a portion of its floating rate debt with interest rate
swaps. Management's objective is to ensure with reasonable
certainty that, on a vessel by vessel basis, surplus charter hire
after payment of operating costs (where applicable) will be
sufficient to meet future debt service payments.
The Group limits its exposure to changes in exchange rates by
arranging for a portion of charter hire to be paid in Yen where
the Group borrows in Yen. Management's objective is to maintain
a mix of Yen and Dollar denominated hire income which
substantially matches its mix of Yen and Dollar denominated long
term debt. At December 31, 1998 42% of the Groups long term debt
was denominated in Yen and 38% of the Groups committed future
charter income was denominated in Yen.
Interest rate sensitivity
The table below provides information about the Company's
financial instruments and derivative financial instruments that
are sensitive to changes in interest rates, including interest
rate swaps and debt obligations. For debt obligations, the table
presents principal cash flows and related average interest rates
by expected maturity dates. For interest rate swaps, the table
presents notional principal amounts and related average interest
rates paid and received by expected maturity dates. Notional
amounts are used to calculate the contractual amounts to be
exchanged under the contract. Average variable rates are based
on Dollar LIBOR as at December 31, 1998 (5.1%).
42
<PAGE>
2004
and Fair
1999 2000 2001 2002 2003 later Total Value
$(millions)
Liabilities
Fixed rate debt
(Yen) 6.0 5.8 1.0 - - - 12.8 16.1
Average interest
rate 3.5% 3.5% 3.7% - - - 3.5%
Floating rate
debt (Yen) 4.5 5.5 10.1 10.6 10.5 91.1 132.3 132.3
Average margin
over LIBOR 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
Floating rate
(US$) 12.5 13.6 14.8 58.1 10.9 92.5 202.4 202.4
Average margin
over LIBOR 1.3% 1.3% 1.3% 1.5% 1.3% 1.3% 1.3%
Interest rate swaps
Variable to fixed
(US$) 8.1 8.7 9.4 10.0 10.9 92.5 139.6 5.4
Average pay rate 6.7% 6.7% 6.7% 6.7% 6.7% 6.8% 6.8%
Average receive
rate 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%
The fair value of interest rate swaps of $5.4 million represents
the amount that would be payable by the Group to terminate the
swap contracts as at December 31, 1998.
Exchange rate sensitivity
The table below provides information about the Groups financial
instruments and firmly committed charters by functional currency
and presents such information in U.S. Dollar equivalents. For
debt obligations, the table presents principal cash flows and
average interest rates by expected maturity dates. For firmly
committed Yen denominated charters, amounts receivable are
presented in U.S. Dollar equivalents.
43
<PAGE>
2004
and Fair
1999 2000 2001 2002 2003 later Total Value
$(millions)
Liabilities
Fixed rate debt
(Yen) 6.0 5.8 1.0 - - - 12.8 16.1
Average interest
rate 3.5% 3.5% 3.7% - - - 3.5%
Floating rate
debt (Yen) 4.5 5.5 10.1 10.6 10.5 91.1 132.3 132.3
Average margin
over LIBOR 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
Charter income
Contracted income
(Yen) 19.5 21.3 21.3 21.3 21.3 168.2 272.8
Outlook for the current year
The following factors and events will affect the Group's results
of operations in 1999.
(a) The Group took delivery of the Handymax bulk carrier Cos
Hero and the VLCC Golden Victory in January 1999. The
Cos Hero has been placed on bareboat charter to COSCO
for fifteen years and the Golden Victory has been placed
on time charter to NYK for seven years. In March, a
Joint Venture took delivery of the VLCC New Circassia
and the Group took delivery of the Panamax Golden Disa.
The New Circassia has been placed on bareboat charter to
Hong Kong Ming Wah Shipping Co. for one year initially.
The Golden Disa has been placed on time charter to
Safmarine for twelve years. The Group will take
delivery of a further five VLCCs and one Panamax bulk
carrier in 1999.
(b) Future variations in the exchange rate of Yen for US
Dollars will affect the Group's results of operations.
The Yen has appreciated against the US Dollar from Yen
130.0 per $1 at December 31, 1997 to Yen 112.8 per $1 at
December 31, 1998. At April 12, 1999 the exchange rate
for the Yen was Yen 121.1 per $1.
(c) The time charter of the Joint Venture owned Golden
Fountain ended on the September 7, 1998 and the vessel
is currently employed in the voyage charter market.
44
<PAGE>
Fluctuations in the market rate for voyage charters of
VLCCs will affect the results of operations of this
vessel. Management continues to monitor market
conditions for favourable time charter opportunities.
(d) The year ended December 31, 1999 will have the full
benefit of the earnings of the New Vanguard (delivered
March 1998), the New Vista (delivered September, 1998),
Golden Protea (delivered September, 1998) and Golden
Aloe (delivered September, 1998). Joint Ventures will
have the benefit of a full year's earnings of the Golden
Daisy (delivered February 1998) and Golden Rose
(delivered April 1998).
(e) The principal amount of Senior Notes outstanding after
the exercise of the Note warrants in March 1998 has
increased to $291.4 million from $200 million. The cost
of servicing these additional Notes (comprising interest
payable and amortisation of issue discount) will be
$15.3 million for the full year ended December 31, 1999.
ITEM 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT
Set forth below are the names and positions of the directors and
executive officers of the Company. Directors of the Company are
elected annually, and each director holds office until a
successor is elected. Officers of both the Company are elected
from time to time by vote of the board of directors and hold
office until a successor is elected.
The Company
Name Age Position
Fred W.Y. Cheng 47 Chairman, Chief Executive Officer, Director
Robert J. Knutzen 50 Chief Operating Officer, President, Director
Anthony J. Allen 56 Chief Financial Officer, Director, Treasurer
Ricky K.W. Cheung 49 Director
Shigeru Matsui 57 Director
Douglas C. Wolcott 66 Director
Michael J. McCabe 45 Secretary
___________
Certain biographical information with respect to each
director and executive officer of the Company is set forth below.
Fred W. Y. Cheng has been the Chairman of the Board of
Directors and Chief Executive Officer of the Company since
February, 1997. Mr. Cheng formed a predecessor to the Company in
1978 to purchase, operate and charter to prominent third parties
second-hand dry bulk carriers and oil tankers. Mr. Cheng is a
45
<PAGE>
member of the Committee of Bureau Veritas. Mr. Cheng has more
than twenty-four years experience in the purchase and operation
of dry bulk carriers and oil tankers.
Robert J. Knutzen has been President, Chief Operating
Officer and a director of the Company since February, 1997.
Mr. Knutzen has also been Managing Director and Chief Executive
Officer of Golden Ocean Services (U.K.) Ltd., the Company's
subsidiary agent in London, as well as President of Golden Ocean
Enterprises Inc., the Company's affiliated agent in Tokyo, since
1982. Mr. Knutzen became an Associate of the Chartered Institute
of Arbitrators in 1984, a Director of the Swedish Club in 1987,
Deputy Chairman of the Swedish Club in 1989 and an Elected Member
of the American Bureau of Shipping in 1991.
Anthony J. Allen has been Chief Financial Officer and a
director of the Company since February, 1997. Mr. Allen is a
chartered accountant and has been a partner in the English
consulting firm of Ormerod Allen & Co. since 1994 and was a
director of Marine Financial Management Limited, the predecessor
to Ormerod Allen & Co., from 1992 to 1994. Ormerod Allen & Co.
and Marine Financial Management Limited have been performing
services for the Group and its affiliates since 1992.
Ricky K.W. Cheung has been a director of the Company
since August, 1997. Mr. Cheung has been the Managing Director of
Golden Ocean (Hong Kong) Ltd., the Company's affiliated agent in
Hong Kong, since 1992. Prior to that time, Mr. Cheung served in
a variety of commercial lending positions.
Shigeru Matsui has been a director of the Company since
August, 1997. Mr. Matsui has been President of Matsui & Company,
Ltd. a Tokyo-based ship brokerage firm, since 1971. Mr. Matsui
has been president of Teekay Shipping (Japan) Ltd. since 1986 and
a director of the advisory board of Protector Corp. for TK Trusts
since 1992. Mr. Matsui is currently the president of The
Japanese Shipbrokers' Association and has also served as a
director, managing director and vice president thereof since
1971.
Douglas C. Wolcott has been a director of the Company
since August, 1997. Mr. Wolcott has also been a director of
Knightsbridge Tankers Limited, a publicly traded Bermuda company,
since September 18, 1996 and a director of London & Overseas
Freighters Ltd. since October, 1994. Mr. Wolcott also served as
President of Chevron Shipping Corporation until 1994.
Michael J. McCabe has been the Secretary of the Company
since May 1997. Mr. McCabe was a director of the Company from
February 1995 to May 1997. Mr. McCabe has been a member of the
Bermudan law firm of Conyers, Dill & Pearman since 1980. Conyers,
46
<PAGE>
Dill & Pearman has been performing legal, corporate management
and related services for the Group from prior to 1992.
Committees of the Board of Directors
The Company maintains an audit committee and a
compensation committee, each comprised of independent directors
of the Company.
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation payable to all
directors and executive officers of the Company as a group by the
Company, the subsidiaries, the Joint Ventures and associated
companies for services in all capacities in respect of the fiscal
year ended December 31, 1998 was $1,030,000. This amount relates
to directors' fees, management fees, salaries and in-kind
compensation. The Company pays each independent director fees of
$25,000 per annum, and reimburses his expenses incurred in
attending meetings. The Company expects to adopt a profit
sharing plan that provides for bonus payments to be made to
certain employees of the Company based on the Company's net
profit and return on equity. A portion of the payments under
such plan are allocated to members of the Company's senior
management and the remainder is to be allocated by the
Compensation Committee of the Board of Directors.
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES
Not Applicable
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Notwithstanding the assumption of management and agency
functions by wholly-owned subsidiaries of the Company in
September, 1997, TSM and Thome have continued to commercially
manage and technically operate the Group's time-chartered VLCCs.
In addition, certain agency functions may be performed by
affiliates of the Company on an "as needed" arms-length basis
from time to time.
Anthony Allen, a director and Chief Financial Officer of
the Company, is a partner at Ormerod Allen & Co. Mr. Allen's
services to the Company as a director and Chief Financial Officer
are being provided to the Company through Ormerod Allen & Co.
The Codan Trust Company Limited, which controls Golden
Ocean Limited, is an affiliate of Conyers, Dill & Pearman, a
Bermudan law firm that has been performing legal, corporate
management and related services for the Group since 1982.
47
<PAGE>
Michael J. McCabe, the Secretary of the Company, is a member of
Conyers, Dill & Pearman.
Matsui & Company, Ltd. has received fees in the past for
performance of ship and financing brokerage services to the
Company, and will continue to receive such fees for the provision
of such services, when rendered, at industry standard rates.
Shigeru Matsui, a director of the Company, is the President and
principal shareholder of Matsui & Company, Ltd.
PART II
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
Not Applicable.
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 16 - CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES
Not Applicable.
PART IV
ITEM 17 - FINANCIAL STATEMENTS
Not Applicable
ITEM 18 - FINANCIAL STATEMENTS
See the financial statements listed in Item 19 below and
set forth on pages F-1 through F-24.
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements, together with the
joint report of KPMG Peat Marwick and Moore Stephens thereon, are
filed as part of this annual report:
Index to Financial Statements
Independent Auditors' Report F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of
December 31, 1998 and December 31, 1997 F-2
48
<PAGE>
Consolidated Statements of Operations and
Retained Earnings for the years ended
December 31, 1998, 1997 and 1996. F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1998,
1997 and 1996 F-5
Notes to Consolidated Financial Statements F-7
49
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Golden Ocean Group Limited
We have audited the accompanying consolidated balance sheets of
Golden Ocean Group Limited and subsidiaries as of December 31,
1998 and 1997 and the related consolidated statements of
operations and retained earnings and cash flows for each of the
years in the three year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Golden Ocean Group Limited and subsidiaries
as of December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the years in
the three year period ended December 31, 1998, in conformity with
generally accepted accounting principles in the United States.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As described in more detail in note 27 to the consolidated
financial statements, the Company has incurred a net loss of
$70.4 million in 1998 and has significant debt obligations. The
Company also does not have financing in place to fund capital
commitments of YEN37,432,150,000 ($331,845,300) and $97,350,000
for five vessels under construction with deliveries scheduled in
1999 and installment payments due in 1999 for two vessels with
deliveries scheduled in the year 2000. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plans to address these issues are
discussed in note 27 to the consolidated financial statements.
The consolidated financial statements do not include any
F-1
<PAGE>
adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick Moore Stephens
Chartered Accountants Chartered Accountants
Vallis Building St. Paul's House
Par-la-Ville Road Warwick Lane
Hamilton, Bermuda London, England
March 26, 1999 March 26, 1999
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars)
ASSETS DECEMBER 31,
NOTE 1998 1997
____ ____ ____
CURRENT ASSETS
Cash and cash equivalents 3 $ 8,487 $ 6,419
Inventories 549 392
Trade accounts receivable 27 303
Investment in direct
financing sub-lease 6 - 1,554
Prepaid expenses and
other accounts receivable 1,358 1,374
Short term investments 11 28,747 19,581
Vessels under capital
lease, net 5 - 40,149
---------- ----------
Total current assets 39,168 69,772
Vessels owned, net 4,15 420,889 274,023
Vessels under capital
lease, net 5 107,898 40,414
Vessels under construction 7,15 132,276 129,692
Options to purchase vessels 8 48,654 -
Investment in joint ventures 9 1,382 4,018
Loans to joint ventures 9,10 23,012 21,192
Investment in direct
financing sub-lease 6 - 31,183
Long term investments 11 - 18,490
Goodwill, net 12 18,439 19,219
Deferred note issue
costs, net 13 8,917 9,313
---------- ----------
Total assets $ 800,635 $ 617,316
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of
long term debt 15 $ 23,050 $ 13,955
Obligations under
capital leases 14 6,524 30,016
F-3
<PAGE>
Trade accounts payable
and accrued expenses 3,765 3,344
Note interest payable 19 9,713 6,667
Accrued profit share 5 - 6,243
Time charter income
received in advance 1,949 2,572
Amounts due to related
party 16 237 289
Drydocking and special
survey provisions 1,045 713
---------- ----------
Total current liabilities 46,283 63,799
Other loans 17 13,262 12,265
Long term debt 15 324,527 188,646
Obligations under capital
leases 14 104,893 61,119
Notes payable 19 236,372 150,281
Amounts due to shareholder 18 19,820 15,649
Drydocking and special
survey provisions 611 318
---------- ----------
Total liabilities 745,768 492,077
Minority interest 41 -
SHAREHOLDERS' EQUITY
Share capital 20 - -
Additional paid in capital 20 63,661 63,661
Retained earnings/(deficit) (8,835) 61,578
---------- ----------
Total shareholders' equity 54,826 125,239
Commitments and contingent
liabilities 7,25 - -
Total liabilities and
shareholders' equity $ 800,635 $ 617,316
========== ==========
See accompanying notes to the consolidated financial statements
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Expressed in thousands of United States Dollars)
YEAR ENDED DECEMBER 31,
NOTE 1998 1997 1996
____ ____ ____ _____
OPERATING REVENUES
Charter income 23(c) $ 50,326 $ 47,647 $ 33,912
Brokers' commission (470) (709) (323)
Share of earnings (losses)
of joint ventures 9 (2,636) 2,581 (2,795)
Interest on direct
financing sub-lease 1,665 2,197 2,311
--------- -------- --------
Total operating revenues 48,885 51,716 33,105
OPERATING EXPENSES
Vessel operating costs 9,843 12,301 8,368
Administrative expenses 16 6,696 3,729 2,940
Depreciation and
amortisation expense 4,5 16,835 16,658 11,176
Write down of vessel 5 1,892 3,227 -
Amortisation of goodwill 779 260 -
Drydocking and special
survey costs 916 678 980
--------- -------- --------
Total operating expenses 36,961 36,853 23,464
--------- -------- --------
Net operating income 11,924 14,863 9,641
OTHER INCOME (EXPENSES)
Foreign exchange
gain/(loss) 22 (32,281) 30,376 12,763
Interest income 3,804 970 56
Interest expense (52,363) (24,139) (14,177)
Other income (expenses) (173) 663 144
Profit share payment 5 - (6,243) -
Gain on disposal of vessel 7 - 1,551 -
Loss on disposal of vessels 4 (1,283) (8,331) -
Loss on disposal of
interest in joint venture 9 - (600) -
--------- --------- --------
Net other income (expense) (82,296) (5,753) (1,214)
--------- -------- --------
F-5
<PAGE>
Net income/(loss) before
minority interest (70,372) 9,110 8,427
Minority interest (41) - -
--------- -------- --------
Net income/(loss) (70,413) 9,110 8,427
Retained earnings at
beginning of the year 61,578 52,468 44,041
Retained earnings/
deficit) at end of the year $ (8,835) $ 61,578 $ 52,468
========= ======== ========
See accompanying notes to the consolidated financial statements
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States Dollars)
YEAR ENDED DECEMBER 31,
1998 1997 1996
____ ____ ____
OPERATING ACTIVITIES
Net income/(loss) $ (70,413) $ 9,110 $ 8,427
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Foreign exchange gain 32,281 (30,376) (12,763)
Depreciation and amortisation
expense 16,835 16,658 11,176
Write down of vessel 1,892 3,227 -
Share of earnings (losses) of
joint ventures 2,636 (2,581) 2,795
Gain on disposal of vessel - (1,551) -
Loss on disposal of vessels 1,283 8,331 -
Loss on disposal of interest in
joint venture - 600 -
Amortisation of note discount 16,951 3,881 -
Amortisation of goodwill 779 260 -
Amortisation of deferred note issue
costs 3,210 847 -
Interest receivable on loans to
joint ventures (496) (723) -
Administrative expenses not
involving cash - - 2,650
Minority interest 41 - -
Net change in:
Inventories (157) (41) (198)
Trade accounts receivable 276 1,130 5,891
Prepaid expenses and other
accounts receivable (1,583) (1,480) (225)
Trade accounts payable and
accrued expenses 558 (5,088) (849)
Note interest payable 3,046 6,667 -
Accrued profit share (6,243) 6,243
-
Other accounts payable - 5,497) 1,838
Time charter income received
in advance (622) 67 982
Drydocking and special survey
provisions 625 (176) 980
------- ------- ------
Net cash provided by operating activities 899 9,508 20,704
F-7
<PAGE>
INVESTING ACTIVITIES
Loans to joint ventures (1,324) 801 (5,452)
Dividends received from joint ventures - - 5,081
Received from disposal of interest in
joint venture - 3,250 -
Payments received on direct financing
sub-lease 1,299 3,029 1,878
Additions to vessels under construction (224,882) (169,375) (163,263)
Payments to acquire options on vessels (48,654) - -
Proceeds from sale of vessels 62,415 77,859 -
Payments to acquire investments (13,645) (37,334) -
Proceeds from redemption of investments 24,569 - -
Acquisitions net of cash - (20,076) -
--------- -------- --------
Net cash used in investing activities (200,222) (141,846) (161,756)
See accompanying notes to the consolidated financial statements
F-8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Expressed in thousands of United States Dollars)
YEAR ENDED DECEMBER 31,
1998 1997 1996
____ ____ ____
FINANCING ACTIVITIES
Proceeds from long term debt 195,627 93,806 141,943
Repayment of long term debt (34,072) (86,425) (30,933)
Repayment of capital leases (30,609) (6,452) (4,239)
Proceeds from other loans - 10,513 22,732
Repayments of other loans - (21,856) -
Amounts due to related party (52) (4,009) 13,440
Advances by shareholder 4,171 15,649 -
Capital contributions returned to
shareholder - - (2,810)
Proceeds of note issue 69,140 144,716 -
Payments for deferred note issue costs (2,814) (10,160) -
-------- --------- ---------
Net cash provided by financing
activities 201,391 135,782 140,133
Net increase (decrease) in cash and cash
equivalents 2,068 3,444 (919)
Cash and cash equivalents at beginning
of year 6,419 2,975 3,894
Cash and cash equivalents at end of
year $8,487 $6,419 $2,975
======= ======= =======
Supplementary disclosure of cash flow
information
Interest paid 42,789 17,379 16,040
Interest capitalised (13,855) (4,635) (1,941)
-------- ------- -------
Interest paid, net of capitalised
interest $28,934 $12,744 $14,103
======== ======= ========
Supplementary schedule of non cash investing and financing activities:
The capital lease obligations for the Golden Poterne (in 1996), Channel
Poterne (in 1997), Golden Protea and Golden Aloe (in 1998) did not involve
cash and therefore the inception values of the leases of $40,062,000,
$35,101,000, $17,234,000 and $17,319,000 respectively have been excluded from
the statements of cash flows. Similarly, the inception of the direct
financing sub-lease of the Golden Poterne (in 1996) did not involve cash and
therefore the inception value of this lease of $40,062,000 has been excluded
from the statement of cash flows.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. GENERAL
Golden Ocean Group Limited ("the Company") was
incorporated in Liberia on February 8, 1995 under the
name of Channel Rose Investment Limited. On February 4,
1997, the name of the Company was changed from Channel
Rose Investment Limited to Golden Ocean Group Limited.
Golden Ocean Group Limited, through its subsidiaries and
joint venture companies, owns and operates a fleet of
tankers and bulk cargo vessels. The majority of its
revenues are derived from fixed, long-term time charter
arrangements. As at December 31, 1998 the wholly owned
fleet consists of four Very Large Crude Carriers
("VLCC's") and two capesize bulkers. There are also two
capesize bulkers and two handymax bulkers on capital
lease to the Company. Additionally, the joint venture
fleet comprises one VLCC and two handymax bulkers.
There are seventeen vessels on order by subsidiaries and
joint venture companies and the Company has options to
purchase a further seven VLCCs. Until September 30,
1997, the fleet was managed by Golden Ocean Management
Limited, a company incorporated under the laws of
Bermuda and related through common control. As from
October 1, 1997, the fleet is managed by Golden Ocean
Services Inc., a subsidiary company.
The Company's activities are not limited to any
geographical area.
2. ACCOUNTING POLICIES
The consolidated financial statements have been prepared
in accordance with generally accepted accounting
principles in the United States. The preparation of
financial statements in accordance with generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the period. Actual results
could differ from those estimates. The following are
the significant accounting policies adopted by the
Company:
F-10
<PAGE>
(a) CONSOLIDATION
The consolidated financial statements include the
assets, liabilities and results of operations of
the Company and its majority owned subsidiaries.
All inter-company balances and transactions have
been eliminated upon consolidation.
Entities in which the Company has a majority of the
voting rights are consolidated. Non-equity
financing provided by the minority interests is
accounted for as other loans. Minority interest in
the results of operations of subsidiaries is
allocated in proportion to the total minority
shareholding.
Acquisitions of minority interests in subsidiaries
in 1997 have been accounted for using the purchase
method of accounting.
(b) INVESTMENT IN JOINT VENTURES
The Company's investments in joint ventures are
accounted for using the equity method of accounting
whereby the carrying value is cost plus the
Company's share of post-acquisition net income
(loss). Dividends received from joint ventures
reduce the carrying value of the investment.
(c) VESSELS
The cost of vessels less estimated residual value
is depreciated on a straight-line basis over their
estimated useful lives. The vessels' lives are
estimated at 25 years from date of construction.
The Company leases certain vessels under agreements
which are classified as capital leases due to the
existence of bargain purchase options.
Amortisation of vessels under capital lease is
calculated in the same manner as owned vessels and
included within depreciation expense in the
statement of operations.
(d) VESSELS UNDER CONSTRUCTION
The carrying value of the vessels under
construction represents the accumulated costs to
the balance sheet date which the Company has had to
pay by way of purchase installments and other
capital expenditures, together with capitalised
F-11
<PAGE>
loan interest and other associated financing fees.
Capital commitments under contracts with
shipbuilders are not recorded as a liability until
installments become due (note 7). No charge for
depreciation will be made until the vessels'
delivery.
(e) ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
In Accordance with SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company reviews
expected future cash flows on a vessel by vessel
basis (undiscounted and without interest charges)
to determine whether the carrying values of its
vessels are recoverable. If the expected future
cash flows are less than the carrying value of the
vessel, provision is made to write down the
carrying value of the vessel to the recoverable
amount.
(f) OPTIONS TO PURCHASE VESSELS
Payments to acquire options to purchase vessels are
capitalised at the time of execution of the option
contract. The Company reviews expected future cash
flows which would result from exercise of each
option contract on a contract by contract basis to
determine whether the carrying value of the option
is recoverable. If the expected future cash flows
are less than the carrying value of the option plus
further costs to delivery, provision is made to
write down the carrying value of the option to the
recoverable amount. The carrying value of each
option payment is written off as and when the
Company adopts a formal plan not to exercise the
option. Strike price payments are capitalised and
the total of the option payment and strike price
payment is transferred to cost of vessels, net upon
exercise of the option.
(g) INVENTORIES
Inventories, which comprise lubricating oils and
bunkers where applicable, are stated at the lower
of cost or market value. Cost is determined on a
first-in, first-out basis. Expenditure on other
consumables is charged against income when
incurred.
F-12
<PAGE>
(h) INVESTMENTS
Investments in marketable securities are recorded
at amortised cost. The Company classifies all
investments with maturity dates within one year of
the balance sheet date as short-term investments.
Amortisation of discount on held-to-maturity
securities is included within interest income.
(i) GOODWILL
Goodwill, recognised in business combinations
accounted for as purchases, is being amortised on a
straight-line basis over 25 years. The Company
reviews expected future cash flows from purchases
(undiscounted and without interest charges) to
determine whether the carrying value of goodwill is
recoverable. If the expected future cash flows are
less than the carrying value of each purchase
including related goodwill, provision is made to
write down the carrying value of goodwill to the
recoverable amount.
(j) DEFERRED NOTE ISSUE COSTS
Deferred note issue costs, comprising professional
fees and other costs directly attributable to the
Company's issue of Senior Notes are capitalised and
amortised over the term to maturity of the Senior
Notes. Amortisation of deferred note issue costs
is included within interest expense.
(k) Drydocking and special survey provisions
Most of the expenditure on repairs and maintenance
of the vessels is incurred during drydockings,
which take place approximately every 30 months,
with additional costs when special surveys are
carried out every five years. Provisions are made
so that each year's result bears a proportion of
these costs. Such provisions are based on
estimates made by management of the expected cost
and length of time between drydockings. Changes in
estimates of the expected cost and timing of the
drydock are recorded in the period in which they
are determined.
F-13
<PAGE>
(l) REVENUE AND EXPENSE RECOGNITION
Time, voyage and bareboat charter revenues and
expenses are recorded on a daily accruals basis.
(m) FOREIGN CURRENCIES
The Company's functional currency is the U.S.
Dollar as the majority of revenues are received in
U.S. Dollars and the majority of the Company's
operating expenditures are made in U.S. Dollars.
Transactions in foreign currencies during the year
are translated into U.S. Dollars at the rates of
exchange in effect at the date of transaction.
Foreign currency monetary assets and liabilities
are translated using rates of exchange at the
balance sheet date. Non monetary assets and
liabilities are translated using historical rates.
At December 31, 1998 the exchange rate for Yen was
$1=Yen112.80 (1997 $1=Yen130.025).
(n) INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap
transactions to hedge a portion of its exposure to
floating interest rates on its long-term debt.
These transactions involve paying a fixed rate and
receiving a floating rate of interest on a notional
principal amount equivalent to the loan designated
as being hedged. The differential to be paid or
received is accrued as interest rates change and is
recognised as an adjustment to interest expense.
Premiums and receipts, if any, are recognised as
adjustments to interest expense over the lives of
the individual contracts. Any gain or loss
realized on the early termination of an interest
rate swap agreement is recognised as an adjustment
of interest expense over the remaining term of the
hedged debt.
(o) CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows,
certain highly liquid investments with original
maturities of three months or less when purchased
are considered equivalent to cash.
F-14
<PAGE>
(p) RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued in June 1998 and
is effective for fiscal years beginning after
June 15, 1999. It establishes accounting and
reporting standards for derivative instruments,
including derivative instruments that are embedded
in other contracts, as well as for hedging
activities. The Company intends to adopt the
standard as from January 1, 2000. Management is
currently assessing the impact that SFAS 133 will
have on the consolidated financial statements.
3. CASH AND CASH EQUIVALENTS
Included within cash and cash equivalents are amounts
totalling $1,946,000 (1997 $1,412,000) which have been
retained by lenders to repay the next principal
installments and interest payments due on certain long
term loans (note 14). Included within cash and cash
equivalents is an amount of $3,000,000 which has been
retained by a lender in satisfaction of a loan covenant
whereby the outstanding amount of the loan is restricted
to a percentage of the current market value of the
vessel New Vista.
4. VESSELS OWNED, NET
1998 1997
---- ----
('000) ('000)
Cost
At beginning of the year 294,997 311,616
Transferred from vessels under
construction 185,179 49,979
Removed on disposal (23,921) (66,598)
-------- --------
At end of the year $456,255 $294,997
======== ========
Depreciation
At beginning of the year 20,974 14,288
Charge for the year 14,614 13,589
Removed on disposal (222) (6,903)
------- -------
At end of the year $35,366 $20,974
======== ========
-------- --------
F-15
<PAGE>
Net book value $420,889 $274,023
======== ========
During the year, the Company sold the Golden Disa. Loss
on disposal was $1,283,000. During the year ended
December 31, 1997, the Company sold the vessels Channel
Fortune and Channel Prosperity. Losses on disposal were
$4,347,000 and $3,984,000 respectively.
DATE DEADWEIGHT CHARTER
WHOLLY-OWNED FLEET DELIVERED TYPE TONNAGE (M.T.) EXPIRATION
Golden Stream 1995 VLCC 260,000 March 2002
Navix Astral 1996 VLCC 260,000 March 2011
Channel Alliance 1996 Capesize 170,000 October 1999
Channel Navigator 1997 Capesize 170,000 February 2001
New Vanguard 1998 VLCC 298,500 March 2008
New Vista 1998 VLCC 298,500 September 2008
The insured value of owned vessels is $460,900,000 plus
Yen10,000,000,000 (equivalent to $88,652,482).
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
December 31, 1998 and 1997
5. VESSELS UNDER CAPITAL LEASE, NET
1998 1997
---- ----
('000) ('000)
Cost
At beginning of the year 88,938 47,237
Transferred from vessels under construction 38,057 41,701
Transferred from investment in sub-lease 31,500 -
Removed on disposal (47,237) -
-------- -------
At end of the year $111,258 $88,938
======== =======
Amortisation
At beginning of the year 8,375 2,079
Charge for the year 2,221 3,069
Additional writedown to realisable value - 3,227
Removed on disposal (7,236) -
------- -------
At end of the year $3,360 $8,375
======== =======
________ _______
Net book value $107,898 $80,563
======== =======
Date Deadweight Charter
Leased fleet delivered Type tonnage (m.t.) expiration
- ------------------ --------- ---- -------------- ----------
Golden Poterne 1996 Capesize 150,000 November 2000
Channel Poterne 1997 Capesize 170,000 February 2012
Golden Protea 1998 Handymax 45,000 September 2010
Golden Aloe 1998 Handymax 45,000 September 2010
The insured value of leased vessels is $160,000,000.
By a memorandum of agreement dated December 18, 1997,
the Loire Ore was sold to a third party for delivery on
January 27, 1998 for a price of $40,000,000.
The difference between the net book value of the Loire
Ore at December 31, 1997 and the proceeds received on
F-17
<PAGE>
sale has been recorded as a write down of $3,227,358 in
1997.
Under a profit share agreement in which profit was
defined as sale proceeds less debt outstanding, a
payment of $6,243,262 was made to the charterer of the
Loire Ore on delivery to the new owners. This payment
was recorded as an expense in the statement of
operations in 1997.
6. INVESTMENT IN DIRECT FINANCING SUB-LEASE
The vessel Golden Poterne was time chartered for 15
years from delivery in 1996. Due to the existence of a
bargain purchase option in the time charter, this lease
was recorded as a direct financing sub-lease as the
vessel had in substance been sold to the time charterer
with no gain or loss on sale.
On November 15, 1998 the time charter was cancelled and
the vessel was redelivered to the Company. At the date
the time charter was cancelled, the carrying value of
the direct financing sub-lease had appreciated to
$33,392,000 from $32,736,000 as at December 31, 1997 as
a result of the strengthening of the Yen relative to the
Dollar over this period. The excess carrying value of
the direct financing sub-lease over the fair value of
the vessel as at November 15, 1998 amounted to
$1,892,000. This amount was written off. The fair
value of the vessel was transferred to vessels under
capital lease, net and will be depreciated over the
vessels remaining life.
7. VESSELS UNDER CONSTRUCTION
1998 1997
('000) ('000)
Cost at beginning of the year 129,692 69,976
Purchase installments and capital expenditure 207,093 159,953
Excess of fair values over book values acquired - 2,330
Interest capitalised 14,791 4,635
Pre-delivery expenses 2,050 2,425
Other associated financial fees capitalised 1,886 6,996
Disposal - (24,943)
Transferred to vessels owned, net (185,179) (49,979)
Transferred to vessels under capital lease, net (38,057) (41,701)
_________ ________
Cost at end of the year $ 132,276 $ 129,692
========= =========
F-18
<PAGE>
Hull #1118 was sold on delivery in 1997 to a third party
for net proceeds of $26,494,000.
A summary of the Company's capital commitments for
vessels under construction (excluding those owned by
joint ventures) at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
DEADWEIGHT CAPITAL
SCHEDULED TONNAGE COMMITMENTS
HULL # DELIVERY BUILDER TYPE (M.T.) 1999 2000 2001
('000) ('000) ('000)
Yen contracts
<S> <C> <C> <C> <C> <C> <C> <C>
1158 1999 Tsuneishi Handymax 45,000 YEN 1,867,500 YEN - YEN -
5898 1999 Hitachi Panamax 75,200 2,945,000 - -
5889 1999 Hitachi Panamax 75,200 2,480,000 - -
6288 2000 Hitachi Panamax 75,200 - 2,880,000 -
5788 1999 Hitachi VLCC 298,500 8,770,300 - -
5888 1999 Hitachi VLCC 298,500 8,751,550 - -
5988 1999 Hitachi VLCC 298,500 8,890,300 - -
1628 1999 Kawasaki VLCC 300,000 9,000,000 - -
6378 2000 Hitachi VLCC 298,500 2,020,000 7,070,000 -
6388 2000 Hitachi VLCC 298,500 - 9,090,000 -
6398 2000 Hitachi VLCC 298,500 - 9,090,000 -
1668 2000 Kawasaki VLCC 300,000 - 9,180,000 -
___________ __________ ______
Total Yen commitments YEN44,724,650 YEN37,310,000 YEN -
Total US Dollar equivalent of
Yen commitments $396,495,124 $330,762,411 $ -
============ ============ ==========
Dollar contracts
5678 1999 Hitachi VLCC 298,500 $ 59,716,000 $ $ -
1618 1999 Kawasaki VLCC 300,000 79,650,000 - -
1638 2000 Kawasaki VLCC 300,000 17,700,000 61,950,000 -
____________ ____________ __________
Total commitments $553,561,124 $392,712,411 $ -
============ ============ ==========
</TABLE>
At December 31, 1998 the Company had YEN7,215,000,000
(approximately equal to $63,962,766) and $61,000,000 in
unused commitments for long-term financing arrangements.
F-19
<PAGE>
Committed long term financing bears interest based on
Yen and Dollar Libor plus margins of between 1.5% and
1.75%. Repayment will be made between 7 and 8 years
from delivery of vessels or by sale and leaseback
transactions. Commitment fees of 0.25% to 0.5% are
charged by the lenders under the terms of such
arrangements. At December 31, 1998, Yen and Dollar
Libor were 0.5% (1997 0.5%) and 5.1% (1997 5.7%)
respectively.
The Company took delivery of Hull #5678 and Hull #1158
in January 1999 and Hull #5889 in March 1999.
8. OPTIONS TO PURCHASE VESSELS
In 1998 the Company purchased options to acquire vessels
at specified prices ordered by subsidiaries of its
parent company, Golden Ocean Limited. Each option is
exercisable between the delivery date of the respective
vessel and one year later.
A summary of the Company's options acquired as at
December 31, 1998 is as follows:
SCHEDULED DEADWEIGHT OPTION STRIKE
HULL# DELIVERY BUILDER TYPE TONNAGE (M.T.) PRICE PRICE
1688 2000 Kawasaki VLCC 300,000 $6,950,000 $74,047,000
1698 2000 Kawasaki VLCC 300,000 6,950,000 78,734,000
6618 2000 Hitachi VLCC 298,500 6,950,000 73,273,000
6668 2000 Hitachi VLCC 298,500 6,950,000 74,047,000
6678 2001 Hitachi VLCC 298,500 6,950,000 74,438,000
6688 2001 Hitachi VLCC 298,500 6,950,000 75,224,000
6698 2001 Hitachi VLCC 298,500 6,950,000 76,256,000
The Company has received an opinion from an independent
third party that the options were priced are at fair
market value at the time the options were granted.
9. INVESTMENT IN JOINT VENTURES
The Company has 50% interests in Golden Fountain
Corporation, Middleburg Properties Ltd. and Reese
Development Inc., which are vessel owning/operating
joint ventures. Details of the vessels owned joint
ventures (at December 31, 1998) are as follows:
F-20
<PAGE>
DEADWEIGHT
DATE DEADWEIGHT CHARTER
VESSEL NAME DELIVERED TYPE (M.T.) EXPIRATION
Golden
Fountain 1995 VLCC 280,000 -
Golden Daisy 1998 Handymax 46,902 February 2010
Golden Rose 1998 Handymax 46,902 April 2010
The Golden Fountain was trading on the voyage charter
market at the balance sheet date.
The insured value of joint venture owned vessels is
$162,500,000.
Joint ventures (all of which the Company has a 50%
interest in) have capital commitments for vessels under
construction at December 31, 1998 as follows:
<TABLE>
<CAPTION>
DEADWEIGHT CAPITAL
SCHEDULED TONNAGE COMMITMENTS
HULL # DELIVERY BUILDER TYPE (M.T.) 1999 2000 2001
('000) ('000) ('000)
Yen contracts
<S> <C> <C> <C> <C> <C> <C> <C>
2138 1999 Hitachi VLCC 305,000 YEN 8,370,000 YEN - YEN -
2139 1999 Hitachi VLCC 305,500 8,370,000 -
_____________ ____________ ___________
Total Yen commitments
YEN16,740,000 YEN - YEN -
============= ============ ==========
Total US Dollar equivalent
of Yen commitments $148,404,250 $ - $ -
============ ============ ==========
</TABLE>
Hull #2138 was delivered in March 1999.
The joint venture companies had YEN16,740,000,000
(approximately equal to $148,404,250) in unused
commitments for long-term financing arrangements.
Commitment fees of 0.25% are charged by the lenders
under the terms of such arrangements. As capital
F-21
<PAGE>
commitments become due, drawings will be made against
the unused portion of the loans.
The Company's share of undistributed earnings of joint
ventures included in consolidated retained earnings is
$1,382,000 (1997 $4,018,000) and is summarized as
follows:
1998 1997 1996
('000) ('000) ('000)
At beginning of the year 4,018 2,142 10,018
Dividends received from
aircraft joint venture - - (5,081)
Consolidated on change to
100% ownership - 2,903 -
Disposal of interest in
aircraft joint venture - (3,608) -
Share of net income (loss) (2,636) 2,581 (2,795)
------- ------- -------
$ 1,382 $ 4,018 $ 2,142
======= ======= =======
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
The combined assets and liabilities of the joint venture
companies (prepared under United States generally accepted
accounting principles) were as follows:
1998 1997
('000) ('000)
Total current assets 2,706 1,162
Vessels owned, net 125,317 90,174
Vessels under construction 21,640 28,640
_________ _________
Total assets $ 149,663 $ 119,976
========= =========
Total current liabilities 7,855 7,105
Long term liabilities 88,367 56,364
Due to third party joint venture partners 31,383 30,077
Due to the Company 26,731 23,989
Total liabilities $ 154,336 $ 117,535
_________ _________
Net assets $ (4,673) $ 2,441
========= =========
Company's 50% share of net assets (2,337) 1,221
Elimination of intercompany interest 3,719 2,797
_________ ________
Company's total share of net assets $ 1,382 $ 4,018
========= ========
The joint ventures had a working capital deficiency of
$5,149,000. The joint ventures are expected to fund
current obligations in 1999 through profitable time and
voyage charter operations and the continued financial
support of the joint venture participants.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
The results of joint venture operations (prepared under United
States generally accepted accounting principles) are summarized
as follows:
1998 1997 1996
('000) ('000) ('000)
Operating revenues
Net time charter revenues 16,733 12,202 15,734
Aircraft leases rental income - - 4,905
--------- --------- ---------
Total operating revenues 16,733 12,202 20,639
--------- --------- ---------
Operating expenses
Vessel operating costs 4,391 3,353 4,189
Depreciation on vessels 5,064 4,459 7,061
Depreciation on aircraft - - 1,312
Administrative expenses 255 158 60
Drydocking and special survey costs 617 (325) 710
--------- --------- ---------
Total operating expenses 10,327 7,645 13,332
--------- --------- ---------
Net operating income 6,406 4,557 7,307
--------- --------- ---------
Other income (expense)
Foreign exchange gain/(loss) (8,498) 3,530 4,486
Interest expense (5,050) (5,567) (6,756)
Loss on sale of aircraft - - (4,945)
Interest income 28 50 237
Other expenses - - (444)
Impairment loss on vessel - - (7,051)
--------- --------- ---------
Net other income (expense) (13,520) (1,987) (14,473)
--------- --------- ---------
--------- --------- ---------
$ (7,114) $ 2,570 $ (7,166)
========= ========= =========
F-24
<PAGE>
Company's 50% share of
net income (loss) (3,557) 1,285 (3,583)
Elimination of intercompany interest 921 1,296 788
--------- --------- ---------
Company's share of earnings (loss)
of joint ventures $ (2,636) $ 2,581 $ (2,795)
========== ========= =========
Joint venture revenues were derived wholly from shipping
activities.
10. LOANS TO JOINT VENTURES
Loans to joint venture companies represent advances to
finance joint venture operations. These advances are
subordinate to the rights of long term debt holders.
Interest accrues at rates between 2% and 7%. Loans will
only be repaid out of profits arising from operations or
the sale of joint venture vessels.
11. INVESTMENTS
The Company holds $29,138,000 (1997 $40,00,000)
principal amount of US Treasury securities with an
acquisition cost of $27,300,000 (1997 $37,334,000) to
fund the next two semi-annual interest payments due on
the Company's Notes payable (note 19). Management
considers these securities to be held-to-maturity
securities because management has both the ability and
the intent to hold these investments until they mature.
The treasury securities have maturity values which are
equivalent to the interest due on the interest payment
dates. The securities are held in an interest escrow
account for the benefit of the Note holders.
At December 31, 1998, the investments had a carrying
value of $28,747,000 (1997 $38,071,000) with market
value $28,852,000 (1997 $38,105,000). The investments
all mature within one year. Included in the carrying
value is $1,447,000 (1997 $737,000) of amortised
discount.
12. GOODWILL
Goodwill of $19,479,000 before accumulated amortisation
of $1,039,000 (1997 $260,000), results from the
acquisition of certain minority interests in
subsidiaries.
F-25
<PAGE>
13. DEFERRED NOTE ISSUE COSTS
The carrying value of deferred note issue costs
represents deferred costs of $12,973,000 (1997
$10,160,000) less accumulated amortisation of $4,056,000
(1997 $847,000). Amortisation is included within
interest expense in the statement of operations.
14. OBLIGATIONS UNDER CAPITAL LEASES
The vessels known as the Golden Poterne, Channel
Poterne, Golden Protea and Golden Aloe have been
acquired (in substance) due to the effect of bargain
purchase options in the bareboat charter agreements with
the legal vessel owners. The options (denominated in
Yen) can be exercised at any point during the term of
the charter. The option prices reduce on a sliding scale
over the term of the agreements. The Golden Poterne and
Channel Poterne have both been acquired under fifteen
year bareboat charters while the Golden Protea and
Golden Aloe have been acquired under ten year bareboat
charters.
The Company has the following commitments under capital
leases (in source currency and U.S. Dollar equivalents):
1998
_______________________________
('000,000) ('000)
1999 YEN 1,161 $ 10,296
2000 1,174 10,411
2001 1,185 10,506
2002 1,197 10,613
2003 1,209 10,722
2004 and later 9,310 82,534
_________ _________
Minimum lease payments 15,236 135,082
Less imputed interest 2,669 23,665
_________ _________
Present value of obligations
under capital leases YEN 12,567 $ 111,417
========== =========
At December 31, 1997, the present value of obligations
under capital leases was YEN11,747,000,000 (equivalent
to $91,135,000).
F-26
<PAGE>
15. LONG TERM DEBT
The outstanding secured loans at December 31, 1998 are
repayable as follows:
YEN denominated Dollar denominated Total
debt debt debt
_____________________ __________________ _______
('000,000) ('000) ('000) ('000)
1999 1,186 10,513 12,537 23,050
2000 1,270 11,257 13,620 24,877
2001 1,255 11,122 14,822 25,944
2002 1,191 10,556 58,108 68,664
2003 1,187 10,526 10,876 21,402
2004 and later 10,277 91,106 92,534 183,640
_________ _________ _________ ________
YEN16,366 $ 145,080 $ 202,497 $ 347,577
========= ========= ========= ========
At December 31, 1997, the Company had long term debt of
YEN16,552,000,000 (equivalent to $127,304,000) and
$75,297,000 totalling $202,601,000.
Interest is payable based on Yen and Dollar Libor plus
margins of between 1.25% and 1.75% on all loans except
for YEN6,868,884,456 (approximately equivalent to
$60,894,366) of debt which bears interest at 3.66% and
YEN3,097,785,946 (approximately equal to $27,462,641) of
debt which bears interest at 3.2%. At December 31,
1998, Yen and Dollar Libor were 0.5% (1997 0.5%) and
5.1% (1997 5.7%) respectively.
Loans to vessel owning subsidiaries are secured by first
and second mortgages on the vessels, assignments of
earnings and insurance proceeds and pledges of shares.
Loans to newbuilding owning subsidiaries are secured by
assignments of shipbuilding contracts. Covenants in the
loan agreements prohibit subsidiaries from paying
dividends or issuing guarantees. These covenants were
waived to enable the subsidiaries to guarantee the
Company's obligations to holders of Notes payable (note
19) and to pay dividends. Loan covenants still prohibit
subsidiaries from issuing further guarantees.
The Company also enters into interest rate swap
agreements in order to reduce its exposure to changes in
interest rates. At December 31, 1998 the Company had
interest rate swap agreements as follows:
F-27
<PAGE>
PRINCIPAL
COMPANY PAYS COMPANY RECEIVES AMOUNT EXPIRY
7.288% Dollar Libor + 1.25% $68,256,481 March 7, 2006
7.49% Dollar Libor + 1.25% $70,819,979 August 28, 2008
The notional principal amounts of the interest rate
swaps decrease over the terms of the agreements.
On January 11, 1999, the Company entered into an
interest rate swap agreement with a lender whereby the
Company will pay a fixed rate of 7.175% and will receive
a floating rate of interest based on Dollar Libor plus
1.75% on $60,350,000 notional principal amount. The
notional principal amount of the interest rate swap will
decrease monthly from the time the interest rate swap
becomes effective, on February 11, 1999 until the
termination date of December 12, 2005.
16. RELATED PARTY TRANSACTIONS
Until September 30, 1997, the fleet was managed by
Golden Ocean Management Limited (GOML), a related
company through common control. GOML, on behalf of the
company and its joint ventures, negotiated contracts for
construction of vessels and the related financing and
chartering arrangements. Additionally, GOML provided
administrative services and bore the legal
representation, travel and audit costs on the Company's
behalf. During the year ended December 31, 1997, GOML
charged the company $2,169,000 (1996 $290,000) and its
joint ventures $39,000 (1996 $60,000) in exchange for
the above services. In 1996, the difference between the
estimated actual cost of providing the services and the
amounts charged to the Company and joint ventures of
$2,650,000 was recorded as an administrative expense and
an increase in additional paid-in capital.
Amounts due to related parties are interest free,
unsecured and have no specified terms of repayment. The
average balance due to related parties during 1998 was
$263,000 (1997 $1,019,000; 1996 $537,000). Imputed
interest has not been recorded in these financial
statements as it is not considered to be material.
17. OTHER LOANS
Other loans represent advances by minority interests in
two subsidiaries engaged in VLCC newbuildings. Interest
accrues at rates between 7% and 12%. The loan plus
accrued interest is payable on the sale of the vessels.
F-28
<PAGE>
The Company has guaranteed the return of the principal
of certain loans amounting to $10,908,000 within two
years of delivery of the vessel. The vessels delivered
in September 1998 and January 1999.
18. AMOUNTS DUE TO SHAREHOLDER
Amounts due to shareholder are interest free and have no
specified terms of repayment. Imputed interest has not
been recorded in these financial statements. Imputed
interest for the year calculated at 7% amounts to
$960,000 (1997 $137,000). Advances from the shareholder
in the year were used provide additional working
capital.
19. NOTES PAYABLE
On August 27, 1997, the Company issued $150 million
principal amount of 10% Senior Notes (the "Notes") and a
further $50 million principal amount on September 11,
1997 at a price of $732 per $1,000 principal amount.
Each $1,000 principal amount of the Notes included a
non-transferable Note warrant and a separately
transferable share warrant. Two Note warrants entitled
the holder to purchase $1,000 principal amount of Notes
at a price of $756.60 at the exercise date of March 1,
1998. Each share warrant entitles the holder to
purchase one common share of the Company at an exercise
price of $46.20 per common share. The share warrants
can be exercised on or prior to August 31, 2001.
On March 2, 1998, the Company issued a further
$91,382,000 principal amount of 10% Senior Notes at a
price of $756.60 per $1,000 principal amount as a result
of the Note warrant holders exercising the Note
warrants. After fees of $2,813,627, and use of
$13,645,372 to purchase investments to be held in Trust
to fund interest payments due on August 31, 1998,
March 1, 1999 and August 31, 1999, the Company received
net proceeds of $52,680,622.
At December 31, 1998, the unamortized portion of the
Note discount amounted to $55,010,000 (1997 $49,719,000)
None of the proceeds of the Notes have been allocated to
the separately transferable share warrants as additional
paid in capital as the amount allocable to the share
warrants was deemed to be immaterial based on the fair
value of the share warrants on the issue date.
F-29
<PAGE>
The Notes are due on August 31, 2001 and are senior
unsecured obligations of the Company, ranking senior in
right of repayment to all existing and future
subordinated indebtedness of the Company. The Notes are
guaranteed by all of the subsidiaries and certain of the
joint ventures of Golden Ocean Group Limited. Net
assets of non-guarantor joint ventures at December 31,
1997 amounted to a deficit of $1,290,467 (1997 net
assets of $1,929,187). Net income of non-guarantor
joint ventures for the year ended December 31, 1998 was
a loss of $3,219,653 (1997 net income of $1,389,882).
The Company has a 50% share in the non-guarantor joint
ventures. Waivers of covenants in loan agreements were
obtained to enable subsidiaries to guarantee the
Company's obligations to Note holders and to pay
dividends to the Company (note 15).
20. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
By a resolution dated August 22, 1997, the Company's
authorized share capital was increased from 500 to
50,000,000 bearer shares of no par value.
On August 26, 1997 the Company declared a share dividend
of 7,359 shares for each share held increasing issued
share capital from 500 to 3,680,000 issued and
outstanding shares of no par value. All of the issued
shares are owned by Golden Ocean Limited, a company
incorporated under the laws of Liberia.
The Company is subject to restrictions on the payment of
dividends imposed by covenants entered into in
connection with the issue of Notes payable (note 19).
There are a total of 320,000 share warrants in issue
comprising 200,000 share warrants which were issued to
subscribers to the Company's issue of Notes payable
(note 19) and 120,000 warrants which were issued to the
placement agents. Each share warrant entitles the
holder to purchase one common share of the Company at an
exercise price of $46.20 per common share. The share
warrants can be exercised on or prior to August 31,
2001.
21. LEASING ARRANGEMENTS
The Company has arranged long term charters for its
vessels under which payments are received in Yen and
Dollars. Future minimum rentals on non-cancellable
operating leases at December 31, 1998 are as follows:
F-30
<PAGE>
Owned Vessels (note 4)
YEN DENOMINATED DOLLAR DENOMINATED TOTAL
INCOME INCOME INCOME
______________________ __________________ _______
('000,000) ('000) '000) ('000)
1999 1,661 14,723 51,138 65,861
2000 1,665 14,763 45,829 60,592
2001 1,661 14,723 37,572 52,295
2002 1,661 14,723 26,744 41,467
2003 1,661 14,723 23,529 38,252
2004 and later 12,927 114,598 126,645 241,243
_________ _________ _________ _________
YEN21,236 $ 188,253 $ 311,457 $ 499,710
========= ========= ========= =========
The Company has arranged long-term charters for four of
its vessels under construction under which payments will
be received in Yen and Dollars. Future minimum rentals
on non-cancellable operating leases at December 31, 1998
are as follows:
Vessels under construction (note 7)
YEN DENOMINATED DOLLAR DENOMINATED TOTAL
INCOME INCOME INCOME
_______________________ _________________ _______
('000,000) ('000) ('000) ('000)
1999 534 4,737 13,037 17,774
2000 739 6,554 14,681 21,235
2001 737 6,536 14,896 21,432
2002 737 6,536 15,152 21,688
2003 737 6,536 15,407 21,943
2004 and later 6,047 53,609 51,094 104,703
_________ _________ _________ _________
YEN 9,531 $ 84,508 $ 124,267 $ 208,775
========= ========= ========= ==========
22. FOREIGN EXCHANGE LOSS
The foreign exchange loss of $32,281,000 (1997 gain
$30,376,000; 1996 gain $12,763,000) primarily relates to
converting yen denominated obligations into US dollars
using the balance sheet exchange rate.
F-31
<PAGE>
23. FINANCIAL INSTRUMENTS
(a) FAIR VALUES
The following methods and assumptions were used by
the Company in estimating fair value disclosures
for financial instruments:
Long term debt (at floating rates): The carrying
amounts reported in the balance sheet for these
instruments approximate their fair value as the
interest rates for similar loans are based on a
floating rate.
Long term debt (at fixed rates): The fair value of
the Company's fixed rate debt is estimated using
discounted cash flow analysis, based on interest
rates currently available for debt with similar
terms and maturities.
Loans to joint ventures/other loans: The carrying
amounts reported in the balance sheet for these
instruments approximate their fair value as the
fixed interest rates approximate current market
rates for similar loans.
Other assets and liabilities: The fair values of
trade accounts receivable, amount due to related
party, other accounts receivable, trade accounts
payable, and other accounts payable approximate
their carrying value due to their short term
nature.
Interest rate swaps: The fair value of interest
rate swaps is the estimated amount that the Company
would pay or receive to terminate the swaps at the
reporting date.
Notes payable: The fair value of Notes was
determined from quoted market prices at which the
Notes traded.
A summary of fair values of the Company's financial
instruments as at December 31, 1998 is as follows:
Guarantees: It is not practicable to determine the
fair value of guarantees. Further information on
guarantees is provided in note 24.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1998 1997
_____________________ ___________________
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
Long term debt 347,577 350,29 202,601 205,943
Notes payable 236,372 58,276 150,281 167,450
Note warrants - - - 550,450
Interest rate swap
agreements - 5,403 - -
- -payable position
(b) MARKET RISK
Market risk exists with respect to changes in
foreign currency exchange rates. At December 31,
1998, the Company had a long-term debt of
YEN16,366,000,000 (1997 YEN16,552,000,000) which is
equivalent to $145,080,000 (1997 $127,304,000).
None of this exposure is hedged through purchasing
forward exchange currency contracts. However, the
Company has charter contracts denominated in Yen
with contracted payments as outlined in note 21.
Also, since a portion of the Company's long term
debt bears interest at a rate linked to LIBOR, it
is exposed to movements in interest rates.
(c) The following are the charterers that comprise 10
per cent or more of charter income.
1998 1997 1996
('000) ('000) ('000)
Argent Shipping
Corporation $ 5,887 $ 6,397 $ 5,570
Bocimar n.v. 12,788 12,136 -
Kawasaki Kisen Kaisha 12,100 10,758 11,163
N.C.S. Corporation 6,392 6,075 -
Hong Kong Ming
Wah Shipping Co. Ltd. 9,785 - -
Bocimar and N.C.S. Corporation charter dry-bulk
carriers. Other charterers mentioned above charter
VLCCs.
F-33
<PAGE>
(d) The Company has not entered into any speculative
derivative contracts.
24. FINANCIAL INFORMATION RELATING TO SEGMENTS
The Company organizes its business principally into two
operating segments. Both segments use the same
accounting policies as described in note 2. These
segments and their respective operations are as follows:
VLCC fleet includes vessels that normally carry crude
oil and related "dirty" products with a deadweight
tonnage of over 200,000 m.t.
Dry-bulk carrier fleet includes vessels that normally
carry dry cargoes such as grain, coal, ore, wood and
steel products etc. This fleet includes three sizes of
vessel, Handymax, Panamax and Capesize.
A summary of operations by major operating segments for
the three years ended December 31, 1998 is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1998 1997 1996
('000) ('000) ('000)
REVENUES
VLCC fleet 27,547 16,940 16,524
Dry-bulk carrier fleet 23,974 32,195 19,375
_________ _________ _________
51,521 49,135 35,899
SHARE OF EARNINGS/(LOSSES) OF
JOINT VENTURES (2,636) 2,581 (2,794)
_________ _________ _________
$ 48,885 $ 51,716 $ 33,105
========= ========= =========
F-34
<PAGE>
SHARE OF EARNINGS/(LOSSES) OF JOINT VENTURES
VLCC fleet (689) 1,991 2,093
Dry-bulk carrier fleet (1,947) 590 (3,675)
_________ _________ _________
(2,636) 2,581 (1,582)
Non-segment - - (1,213)
_________ _________ _________
$ (2,636) $ 2,581 $ (2,795)
========= ========= =========
INTEREST INCOME
VLCC fleet 159 86 56
Dry-bulk carrier fleet 19 37 -
_________ _________ _________
178 123 56
Non-segment 3,626 847 -
_________ _________ _________
$ 3,804 $ 970 $ 56
========= ========= =========
INTEREST EXPENSE
VLCC fleet 12,752 7,363 7,270
Dry-bulk carrier fleet 4,701 8,948 6,907
_________ _________ _________
17,453 16,311 14,177
Non-segment 34,910 7,828 -
_________ _________ _________
$ 52,363 $ 24,139 $ 14,177
========= ========= =========
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1998 1997 1996
('000) ('000) ('000)
DEPRECIATION
VLCC fleet 10,637 7,445 6,531
Dry-bulk carrier fleet 6,198 9,213 4,645
_________ _________ _________
$ 16,835 $ 16,658 $ 11,176
========= ========= ========
EXCHANGE GAINS/(LOSSES)
VLCC fleet (8,081) 6,850 6,822
Dry-bulk carrier fleet (24,200) 23,526 5,941
_________ _________ ________
$ (32,281 $ 30,376 $ 12,763
========= ========= ========
NET INCOME
VLCC fleet (6,723) 6,374 6,665
Dry-bulk carrier fleet (22,893) 10,801 7,405
_________ _________ _________
(29,616) 17,175 14,070
Non-segment (38,161) (10,646) (2,849)
Share of earnings/(losses) of
joint ventures (2,636) 2,581 (2,794)
_________ _________ _________
$ (70,413) $ 9,110 $ 8,427
========= ========= =========
IDENTIFIABLE ASSETS
VLCC fleet 497,566 287,822 219,098
Dry-bulk carrier fleet 217,918 222,368 235,663
__________ __________ _________
715,484 510,190 454,761
Non-segment 83,769 103,108 27,359
Share of net assets of
joint ventures 1,382 4,018 641
_________ _________ _________
$ 800,635 $ 617,316 $ 482,761
========= ========= =========
F-36
<PAGE>
EXPENDITURE FOR IDENTIFIABLE ASSETS
VLCC fleet 206,353 80,343 88,974
Dry-bulk carrier fleet 67,183 89,032 74,289
_________ __________ _________
$ 273,536 $ 169,375 $ 163,263
========== ========== =========
25. CONTINGENT LIABILITIES
(a) The Company insures the legal liability risk for
its shipping activities with The Steamship Mutual
Underwriting Association (Europe) Limited in
respect of dry cargo vessels and The Swedish Club
in respect of tankers. As a member of this
protection and indemnity association, the Company
is subject to calls payable to the association
based on the Company's claims record in addition to
the claims record of all other members of the
association. A contingent liability exists to the
extent that the claims records of the members of
the association in the aggregate show significant
deterioration which result in additional calls on
the members.
(b) The Company has guaranteed the yen and dollar long
term borrowings of joint ventures for amounts of
YEN7,317,257,830 (1997 YEN3,154,850,740) which is
equivalent to $64,869,307 (1997 $24,263,416) and
$30,054,720 (1997 $32,330,170).
(c) The Company has guaranteed the performance of a
third party under an overdraft facility amounting
to $151,255 (1997 $298,478) at the balance sheet
date.
(d) The Company has guaranteed the performance of two
joint venture companies under their respective
shipbuilding contracts. Contractual commitments at
December 31, 1997 amounted to YEN16,740,000,000,
which is equivalent to $148,404,255 (note 9).
(e) The Company has contractual commitments to
participate in the profits and losses of the time
charterer's subcharters of the Channel Poterne and
in the profits only of the New Vanguard, New Vista
and Golden Victory (which delivered on January 7,
1999). A joint venture participates in the
bareboat charterer's profits and losses on
subcharters of the New Circassia, which delivered
on March 24, 1999. The Company has accrued the
F-37
<PAGE>
revenue or expense arising from these arrangements
to the balance sheet date.
(f) The charterers have contractual rights to
participate in the profits on sale of five vessels.
In the case of the Channel Poterne, Channel
Alliance and Cos Hero, the charterer is entitled to
50% of the profit realized on any qualifying sale.
The Channel Alliance may only be sold if the profit
from the sale will exceed $1.0 million. The Cos
Hero, which delivered on January 12, 1999, may only
be sold if the profit from sale will exceed $3.0
million. Profit is defined as sale proceeds less
debt outstanding in the relevant profit share
agreements. If the New Vanguard or New Vista are
sold, the charterer is entitled to claim up to $1
million to cover losses incurred on subcharters of
the vessel. These vessels may only be sold after
the second anniversary of delivery. Any remaining
profit is to be split 60:40 in favor of the owner.
26. TAXATION
Under current Liberian law, the Company is not required
to pay any taxes in Liberia on either income or capital
gains.
27. LIQUIDITY
The consolidated financial statements have been prepared
assuming the Company will continue as a going concern.
The Company incurred a net loss of $70.4 million for the
year ended December 31, 1998 which has resulted in a
deficit of $8.8 million as at the balance sheet date.
The Company is highly leveraged and recent developments
have had a material adverse effect on the Company's
short term liquidity and the Company's ability to fund
its capital commitments in 1999. The Company's
projected cash flow from operations and current
financing arrangements will not be sufficient to fund
currently unfunded capital commitments due in 1999 of
YEN37,432,150,000 ($331,845,300) and $97,350,000 for
vessels under construction. Management expects to
arrange first mortgage financing for each VLCC vessel in
the region of $60 million with the remaining balance due
on each vessel to be provided by alternative financing
and secured by second mortgages on the vessels.
Management is currently negotiating with its existing
financiers and has retained Chase Securities Inc. to
assist in exploring strategic alternatives which include
F-38
<PAGE>
raising equity capital, the issue of new debt and
refinancing and /or restructuring its existing
indebtedness. There can be no assurance that the
Company will be successful in obtaining financing for
1999 capital commitments.
28. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 issue arises because many computerized
systems use two digits rather than four to identify a
year. Data sensitive system may recognize the year 2000
as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In
addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something
other than a date. The effects of the Year 2000 issue
may be experienced before, on, on after January 1, 2000
and, if not addressed, the impact on operations and
financial reporting may range form minor errors to
significant systems failure, which could effect an
entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the
Year 2000 issue affecting the Company, including those
related to the efforts of customers, or other third
parties, will be fully resolved.
F-39
<PAGE>
*Incorporated by
reference to Exhibits
to Registration
Statement on Form F-4 of
the Company filed March 1,
Designation of Exhibit 1998, with same designation
in this Form 20-F Description of Exhibits (File No. 333-8468)
1.1 Articles of Incorporation 3.1
Golden Ocean Group Limited,
as amended*
1.2 By-Laws of Golden Ocean Group 3.2
Limited*
1.3 Articles of Incorporation of 3.3
Golden Ocean Services, Inc.*
1.4 By-Laws of Golden Ocean 3.4
Services, Inc.*
1.5 Articles of Incorporation of 3.5
Channel Rose Holdings Inc.,
as amended*
1.6 By-Laws of Channel Rose 3.6
Holdings Inc.*
1.7 Articles of Incorporation of 3.7
Golden Bay Corporation,
as amended*
1.8 By-Laws of Golden Bay 3.8
Corporation*
1.9 Articles of Incorporation of 3.9
Golden Sand Corporation,
as amended*
1.10 By-Laws of Golden Sand 3.10
Corporation*
1.11 Articles of Incorporation of 3.11
Golden Sea Maritime Inc.*
1.12 By-Laws of Golden Sea 3.12
Maritime Inc.*
1.13 Articles of Incorporation of 3.13
Golden Anchor Corporation,
as amended*
46
<PAGE>
1.14 By-Laws of Golden Anchor 3.14
Corporation*
1.15 Articles of Incorporation of 3.15
Golden Hilton Shipping
Corporation, as amended*
1.16 By-Laws of Golden Hilton 3.16
Shipping Corporation*
1.17 Articles of Incorporation of 3.17
Golden President Shipping
Corporation, as amended*
1.18 By-Laws of Golden President 3.18
Shipping Corporation*
1.19 Articles of Incorporation of 3.19
Sable Navigation S.A.*
1.20 By-Laws of Sable Navigation 3.20
S.A.*
1.21 Articles of Incorporation of 3.21
Golden Surf Corporation*
1.22 By-Laws of Golden Surf 3.22
Corporation*
1.23 Articles of Incorporation of 3.23
Golden Loch Corporation*
1.24 By-Laws of Golden Loch 3.24
Corporation*
1.25 Articles of Incorporation of 3.25
Golden Gulf Corporation*
1.26 By-Laws of Golden Gulf 3.26
Corporation*
1.27 Articles of Incorporation of 3.27
Middleburg Properties Ltd.*
1.28 By-Laws of Middleburg 3.28
Properties Ltd.*
1.29 Articles of Incorporation of 3.29
Reese Development Inc.*
1.30 By-Laws of Reese Development 3.30
47
<PAGE>
Inc.*
1.31 Articles of Incorporation of 3.31
Golden Key Corporation*
1.32 By-Laws of Golden Key 3.32
Corporation*
1.33 Articles of Incorporation of 3.33
Golden Door Corporation*
1.34 By-Laws of Golden Door 3.34
Corporation*
1.35 Articles of Incorporation of 3.35
Golden Ocean Tankers Limited*
1.36 By-Laws of Golden Ocean 3.36
Tankers Limited*
1.37 Articles of Incorporation of 3.37
Golden Stream Corporation,
as amended*
1.38 By-Laws of Golden Stream 3.38
Corporation*
1.39 Articles of Incorporation of 3.39
Golden Bayshore Shipping
Corporation*
1.40 By-Laws of Golden Bayshore 3.40
Shipping Corporation*
1.41 Articles of Incorporation of 3.41
Golden Seaway Corporation,
as amended*
1.42 By-Laws of Golden Seaway 3.42
Corporation*
1.43 Articles of Incorporation of 3.43
Golden Sound Corporation,
as amended*
1.44 By-Laws of Golden Sound 3.44
Corporation*
1.45 Articles of Incorporation of 3.45
Golden Strait Corporation,
as amended*
48
<PAGE>
1.46 By-Laws of Golden Strait 3.46
Corporation*
1.47 Articles of Incorporation of 3.47
Golden Fjord Corporation*
1.48 By-Laws of Golden Fjord 3.48
Corporation*
1.49 Articles of Incorporation of 3.49
Golden Estuary Corporation*
1.50 By-Laws of Golden Estuary 3.50
Corporation*
1.51 Articles of Incorporation of 3.51
Golden Channel Corporation,
as amended*
1.52 By-Laws of Golden Channel 3.52
Corporation*
1.53 Articles of Incorporation of 3.53
Golden Current Corporation*
1.54 By-Laws of Golden Current 3.54
Corporation*
1.55 Articles of Incorporation of 3.55
Golden Bow Corporation*
1.56 By-laws of Golden Bow 3.56
Corporation*
1.57 Articles of Incorporation of 3.57
Golden Mast Corporation*
1.58 By-Laws of Golden Mast 3.58
Corporation*
1.59 Articles of Incorporation of 3.59
Golden Bridge Corporation*
1.60 By-Laws of Golden Bridge 3.60
Corporation*
1.61 Articles of Incorporation of 3.61
Golden Funnel Corporation*
1.62 By-Laws of Golden Funnel 3.62
Corporation*
49
<PAGE>
1.63 Articles of Incorporation of 3.63
Golden Keel Corporation*
1.64 By-Laws of Golden Keel 3.64
Corporation*
1.65 Articles of Incorporation of 3.65
Golden Rudder Corporation*
1.66 By-Laws of Golden Rudder 3.66
Corporation*
1.67 Articles of Incorporation of 3.67
Golden Aquarian Corporation*
1.68 By-Laws of Golden Aquarian 3.68
Corporation*
2.1 Indenture (the "Indenture") 4.2
among the Company, the
Guarantors and Bankers Trust
Company, as Trustee*
2.2 Amendment No. 1 to the 4.3
Indenture*
2.3 Memorandum of Agreement between 10.1
the Company and Asil Gida Ve
Kimya Sanayi ve Ticaret A.S.*
2.4 Memorandum of Agreement between 10.2
the Company and Pak Gida
Uretim Ve Pazarlama A.S.*
2.5 Memorandum of Agreement 10.3
between the Company and
Louis Dreyfus Armateurs SNC*
2.6 Collateral Pledge and 10.4
Security Agreement between
the Company and Bankers Trust
Company*
3.1 Subsidiaries of the Company* 21
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the
Securities Exchange of 1934, the registrant certifies that it
meets all of the requirements for filing on Form 20-F and has
duly caused this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOLDEN OCEAN GROUP LIMITED
By: /s/Fred W.Y. Cheng
__________________________
Fred W.Y. Cheng
Chairman
Dated: May 14, 1999
51
02052005.AA3