BEING FILED PURSUANT TO RULE 901(d) OF REGULATION S-T
----------
FORM 10-Q
----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the period from_________________ to_________________
COMMISSION FILE NUMBER
001-14135
----------------------
OMI CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARSHALL ISLANDS 52-2098714
- ------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.
ONE STATION PLACE
STAMFORD, CT 06902
- -------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 203-602-6700
-------------
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 and 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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF NOVEMBER 13, 1998:
Common Stock, par value .50 per share 43,676,000 shares
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of
Operations for the three months and nine months
ended September 30, 1998 and 1997 .......................... 3
Condensed Consolidated Balance Sheets--
September 30, 1998 and December 31, 1997 ................... 4
Consolidated Statements of Changes in Stockholders'
Equity for the year ended December 31, 1997 and
the nine months ended September 30, 1998 ................... 5
Consolidated Condensed Statements of Cash Flows for
the nine months ended September 30, 1998 and 1997 .......... 6
Notes to Condensed Consolidated Financial
Statements ................................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 14
PART II: OTHER INFORMATION ............................................... 24
SIGNATURES ........................................................... 25
-2-
<PAGE>
<TABLE>
<CAPTION>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ...................................... $ 38,124 $ 33,642 $114,983 $ 99,733
Operating Expenses: -------- -------- -------- --------
Vessel and voyage ........................... 19,261 17,422 62,223 57,206
Operating leases ............................ 6,033 2,883 20,411 3,540
Depreciation and amortization ............... 6,438 5,577 17,820 17,056
General and administrative .................. 2,203 2,229 6,841 6,865
-------- -------- -------- --------
Total operating expenses .................. 33,935 28,111 107,295 84,667
-------- -------- -------- --------
Operating income .............................. 4,189 5,531 7,688 15,066
-------- -------- -------- --------
Other Income (Expense):
Gain on disposal of assets-net .............. 6,625 -- 6,625 886
Interest expense-net ........................ (2,759) (2,325) (6,041) (7,699)
Other-net ................................... (1,010) -- (1,010) --
-------- -------- -------- --------
Net other income (expense) ................ 2,856 (2,325) (426) (6,813)
-------- -------- -------- --------
Income before income taxes,
equity in operations of joint
ventures and cumulative effect of
change in accounting principle .............. 7,045 3,206 7,262 8,253
Provision(benefit) for income taxes ........... -- 1,510 (37,158) 3,934
-------- -------- -------- --------
Income before equity in
operations of joint ventures
and cumulative effect of change in
accounting principle ........................ 7,045 1,696 44,420 4,319
Equity in operations of joint
ventures .................................... 998 (3,774) 3,162 (90)
-------- -------- -------- --------
Income (loss) before cumulative effect
of change in accounting principle ........... 8,043 (2,078) 47,582 4,229
Cumulative effect of change in
accounting principle, net of tax
provision of $5,419 ......................... -- -- -- 10,063
-------- -------- -------- --------
Net income (loss) ............................. 8,043 (2,078) 47,582 14,292
Other comprehensive income:
Reversal of deferred income taxes
on cumulative translation adjustment ....... -- -- 2,530 --
-------- -------- -------- --------
Comprehensive income (loss) ................... $ 8,043 $ (2,078) $ 50,112 $ 14,292
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE:
Income (loss) before cumulative effect
of change in accounting principle ........... $ 0.19 $ (0.05) $ 1.11 $ 0.10
Net income (loss) ............................. $ 0.19 $ (0.05) $ 1.11 $ 0.33
DILUTED EARNINGS PER COMMON SHARE:
Income (loss) before cumulative effect
of change in accounting principle ........... $ 0.19 $ (0.05) $ 1.10 $ 0.10
Net income (loss) ............................. $ 0.19 $ (0.05) $ 1.10 $ 0.33
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, including cash equivalents:
1998-$6,301, 1997-$25,900 ........................ $ 22,364 $ 30,608
Receivables:
Traffic ......................................... 9,950 8,151
Other ........................................... 3,789 2,957
Prepaid expenses and other current assets ......... 8,343 10,894
-------- --------
Total current assets .......................... 44,446 52,610
-------- --------
Vessels and other property, at cost ................ 544,185 425,644
Construction in progress ........................... 28,566 56,032
Less accumulated depreciation ...................... (144,264) (138,648)
-------- --------
Vessels, construction in progress
and other property-net ........................... 428,487 343,028
-------- --------
Investments in, and advances to joint ventures ..... 29,417 27,810
Other assets and deferred charges .................. 28,151 17,260
-------- --------
Total .............................................. $530,501 $440,708
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 782 $ 1,512
Accrued liabilities:
Voyage and vessel .............................. 14,408 7,230
Interest ....................................... 2,747 287
Other .......................................... 3,837 3,307
Deferred gain on sale of vessel .................. 3,151 3,151
Current portion of long-term debt ................ 15,200 5,575
-------- --------
Total current liabilities ..................... 40,125 21,062
-------- --------
Other liabilities .................................. 1,227 2,828
Deferred gain on sale of vessel .................... 8,302 10,665
Payable to parent-net .............................. -- 28,691
Deferred income taxes payable ...................... 3,100 45,480
Long-term debt ..................................... 227,747 48,424
Stockholders' equity ............................... 250,000 283,558
-------- --------
Total .............................................. $530,501 $440,708
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
Accumulated
Common Stock Net Retained Other Total
------------ Capital Intercompany (Deficit) Treasury Comprehensive Comprehensive Stockholders'
Shares Amount Surplus Transactions Earnings Stock Income Income Equity
------ ------- ------- ------------ --------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997 42,691 $21,346 $238,372 $28,146 $(42,374) $4,912 $250,402
Comprehensive income:
Net income 16,922 $16,922 16,922
Net change in valuation account -- -- --
-------
Comprehensive income $16,922
Retirement of partner's equity =======
interest in joint venture 777 777
Capital contribution of
intercompany account balance
with parent 4,100 4,100
Net intercompany transactions 11,357 11,357
Issuance of common stock 375 187 (187) -- --
------ ------- -------- ------- -------- ------ --------
Balance at December 31, 1997 43,066 21,533 243,062 39,503 (25,452) 4,912 283,558
Comprehensive income:
Net income 47,582 $47,582 47,582
Reversal of deferred income
taxes on cumulative
translation adjustment 2,530 2,530 2,530
-------
Comprehensive income $50,112
=======
Capital distribution of net
intercompany account balance
with parent (76,119) (76,119)
Net intercompany transactions 1,337 1,337
Capital contribution of net
intercompany transactions
with parent 40,840 (40,840) --
Exercise of stock options 50 25 (25) --
Issuance of common stock 560 280 (280) --
Purchase of treasury stock $(8,888) (8,888)
------ ------- -------- ------- -------- ------- ------ --------
Balance at September 30, 1998 43,676 $21,838 $207,478 $ -- $ 22,130 $(8,888) $7,442 $250,000
====== ======= ======== ======= ======== ======== ====== ========
</TABLE>
See notes to condensed consolidated financial statements
-5-
<PAGE>
<TABLE>
<CAPTION>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1998 1997
-------- -------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income ............................................... $ 47,582 $14,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle,
net of income tax provision ....................... -- (10,063)
Decrease in deferred income taxes ................... (39,850) --
Depreciation and amortization ....................... 17,820 17,056
Net intercompany transactions ....................... 1,337 7,153
Gain on disposal of assets-net ...................... (6,625) (886)
Amortization of deferred gain on sale of vessel ..... (2,363) (1,152)
Equity in operations of joint ventures
over dividends received ........................... (1,202) 90
Changes in assets and liabilities:
Increase in receivables and other
current assets .................................... (159) (4,879)
Advances to joint ventures-net ...................... (144) (961)
(Increase) decrease in other assets and
deferred charges .................................. (2,651) 4,680
Increase (decrease) in accounts payable and
accrued liabilities ............................... 8,770 (1,225)
Decrease in other liabilities ....................... (2,367) (647)
Decrease in payable to parent-net ................... (3,217) (1,469)
-------- -------
Net cash provided by operating activities ................ 16,931 21,989
-------- -------
CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES:
Additions to vessels and other property ................. (140,215) (42,594)
Proceeds from disposition of vessels and other property . 45,030 38,977
Other ................................................... (261) --
-------- -------
Net cash used by investing activities (95,446) (3,617)
-------- -------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from long-term debt ............................ 154,300 --
Payments on long-term debt .............................. (74,270) (22,784)
Purchase of treasury stock .............................. (8,888) --
Payments for debt issue costs ........................... (871) (123)
Capital contribution from parent ........................ -- 4,100
-------- -------
Net cash provided (used) by financing activities ......... 70,271 (18,807)
-------- -------
Net decrease in cash and cash equivalents ................ (8,244) (435)
Cash and cash equivalents at beginning of period ......... 30,608 16,056
-------- -------
Cash and cash equivalents at end of period ............... $ 22,364 $15,621
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1
OMI Corporation ("OMI" or the "Company"), is an international bulk shipping
company incorporated in the Republic of the Marshall Islands, which provides
seaborne transportation services primarily of crude oil and petroleum products.
The Company is a successor to Universal Bulk Carriers, Inc.("UBC"), a Liberian
corporation, which was a wholly owned subsidiary of OMI Corp. until June 17,
1998 at which date the Company was separated from OMI Corp. (renamed Marine
Transport Corporation "MTC") through a tax-free distribution to OMI Corp.'s
shareholders of one share of UBC common stock for each share of OMI Corp. ("Old
OMI") common stock. The distribution separated Old OMI into two publicly-owned
companies. OMI Corporation operates what was OMI Corp.'s foreign shipping
businesses under the management of certain officers formerly of Old OMI who
moved to the new company and certain former directors of Old OMI and additional
new directors. The Company continues to trade under the symbol"OMM" on the New
York Stock Exchange.
The financial statements and computations of basic and diluted earnings per
share (see Note 5) have been presented giving effect to the distribution as
though it occurred at the beginning of the earliest period presented. Except as
indicated, amounts reflected in the financial statements or disclosed in the
notes to financial statements relate to the Company's continuing operations and
prior year amounts have been reclassified to conform with the current
presentation. (See Note 2).
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of the
management of OMI, all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of operating results have been included in the
statements. Reference is made to the OMI Corporation Form S-1 filed on May 15,
1998 for additional information.
NOTE 2 - DISTRIBUTION
As part of the Distribution, OMI is party to certain agreements with MTC,
including the following:
Distribution Agreement--The Distribution Agreement provides for, with
certain exceptions, assumptions of liabilities and cross-indemnities designed
principally to place financial responsibility for the liabilities with the
appropriate company. OMI, however, assumed the obligations of Old OMI with
respect to Old OMI's 10.25 percent Senior Notes due November 1, 2003 in exchange
for a note from MTC in the amount of $6.4 million, which is equivalent in value
to the principal amount of the Senior Notes then outstanding. The Distribution
Agreement also provides that each of MTC and OMI will indemnify the other in the
event of certain liabilities arising under the Federal securities laws. Each of
MTC and OMI will have sole responsibility for claims arising out of its
respective activities after the Distribution.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and
-7-
<PAGE>
paid by the party incurring such costs or expenses. Except as set forth in the
Distribution Agreement or any related agreement, each party shall bear its own
costs and expenses incurred after the Distribution Date.
As part of the Distribution Agreement, OMI has, subject to certain
exceptions, provided indemnity to MTC for all taxes attributable to the
Distribution and to certain corporate restructuring transactions preceding the
Distribution.
Tax Cooperation Agreement--Prior to the Distribution, OMI and MTC entered
into a Tax Cooperation Agreement which sets forth each party's rights and
obligations with respect to federal, state, local and foreign taxes for periods
prior to and after the Distribution and related matters such as filing of tax
returns and conducting audits and other proceedings. In general, the Tax
Cooperation Agreement provides that OMI will be liable for taxes and be entitled
to refunds for each period covered by any such return which are attributable to
OMI and its subsidiaries and that MTC will be liable for and be entitled to
refunds for each period covered by such return which are not attributable to OMI
or OMI subsidiaries. Though valid as between the parties thereto, the Tax
Cooperation Agreement is not binding on the IRS and does not alter either
party's tax liability to the IRS.
Dividends--Any determination to pay dividends in the future by OMI will be
at the discretion of the board of directors and will be dependent upon its
results of operations, financial condition, capital restrictions, covenants and
other factors deemed relevant by the board of directors. Currently, the payment
of dividends by OMI is restricted by its credit agreements.
NOTE 3 - RELATED PARTY TRANSACTIONS
Payable to parent-net represent interest bearing and non-interest bearing notes
and non-interest bearing advances. Net intercompany transactions represent
allocations for income taxes, interest expense on unsecured corporate debt and
allocation of general corporate expenses.
Prior to the Distribution, debt had been incurred for the consolidated group at
the parent company level or at a limited number of subsidiaries, rather than at
the operating company level, in order to centrally manage various cash
functions. Consequently, the mortgage debt of Old OMI and its related interest
expense (net of tax benefit)were allocated to OMI (formerly UBC) and its
subsidiaries based upon the value of the vessel collateralizing the debt. The
changes in allocated corporate debt, the after-tax allocated interest expense
and the after tax allocated general and administrative expenses have been
included as Net intercompany transactions in Stockholder's equity. Although
management believes that the historical allocation of corporate debt and
interest expense is reasonable, it is not necessarily indicative of the
Company's debt or results of operations had the Company been on a stand alone
basis for the periods presented.
As of the Distribution Date, the cumulative balances of the Net intercompany
transactions of $40,840,000 were credited to Capital Surplus and the balance at
June 17, 1998 in Receivable from parent-net aggregating $76,119,000 was charged
to Capital Surplus. Included in the net receivable from parent was the
assumption by OMI (formerly UBC) of the revolving line of credit (see Note 8),
the assumption of the 10.25 Senior Notes and the 7 % convertible note.
-8-
<PAGE>
NOTE 4 - ACCOUNTING CHANGE FOR SPECIAL SURVEY AND DRYDOCK EXPENSES
Effective January 1, 1997,the Company changed its method of accounting for
special survey and drydock expenses from the accrual method to the prepaid
method. Special survey and drydock expenses had been accrued and charged to
operating expenses over the vessel's survey cycle, which is generally a two to
four year period. Under the prepaid method survey and drydock expenses are
capitalized and amortized over the period until the next survey cycle.
Management believes the prepaid method better matches costs with revenues, and
minimizes any significant changes in estimates associated with the accrual
method. The cumulative effect of this accounting change is shown separately in
the consolidated statement of operations and resulted in income of $10,063,000
(net of income taxes of $5,419,000)for the nine months ending September 30,
1997.
NOTE 5 - EARNINGS PER COMMON SHARE
The computation of basic earnings per share is based on the weighted average
number of common shares outstanding during the periods. The computation of
diluted earnings per share assumes the foregoing and the exercise of all
dilutive stock options using the treasury stock method and if dilutive, the
conversion of the 7% convertible note due 2004.
The components of the denominator for the calculation of basic earnings per
share and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------ ------ ------ ------
1998 1997 1998 1997
------ ------ ------ ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average common shares
outstanding ............................... 42,837 42,956 43,030 42,866
====== ====== ====== ======
DILUTED EARNINGS PER SHARE:
Weighted average common shares
outstanding ................................ 42,837 42,956 43,030 42,866
7 % convertible note ........................ -- -- -- 407
Options ..................................... 276 -- 276 410
Weighted average common shares- ------ ------ ------ ------
diluted .................................... 43,113 42,956 43,306 43,683
====== ====== ====== ======
BASIC EARNINGS PER COMMON SHARE:
Income (loss) before cumulative effect
of change in accounting principle .......... $ 0.19 $(0.05) $ 1.11 $ 0.10
Cumulative effect of change in
accounting principle, net of
income tax provision ....................... -- -- -- 0.23
------ ------ ------ ------
Net income (loss) per common share .......... $ 0.19 $(0.05) $ 1.11 $ 0.33
====== ====== ====== ======
DILUTED EARNINGS PER COMMON SHARE:
Income before cumulative effect
of change in accounting principle .......... $ 0.19 $(0.05) $ 1.10 $ 1.10
Cumulative effect of change in
accounting principle, net of
income tax provision ....................... -- -- -- 0.23
------ ------ ------ ------
Net income (loss) per common share $ 0.19 $(0.05) $ 1.10 $ 0.33
====== ====== ====== ======
</TABLE>
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<PAGE>
On August 4, 1998, the Board of Directors approved a plan to repurchase up to
4.4 million shares of the Company's common stock. As of September 30, 1998, the
Company purchased 2,031,700 shares at a cost of $8,888,000 or an average of
$4.38 per share. As of November 13, 1998, the Company purchased an additional
45,000 shares at a cost of $152,000 or an average of $3.38 per share.
For the nine and three months ended September 30, 1998, the conversion of the 7%
convertible note was not applicable because the average stock price was less
than stock conversion price of $7.285. The effect of the assumed exercise of
options and conversion of the 7% convertible note due 2004 was not included in
the computation of diluted earnings per share for the three months ended
September 30, 1997 because the effect was anti-dilutive.
NOTE 6 - INCOME TAXES
Management estimates that the distribution of shares to the shareholders of OMI
Corp. will result in Federal income taxes becoming currently payable by OMI
Corporation of approximately $1,900,000 representing Federal income taxes on
previously excluded foreign ("Subpart F") income and on the distribution of
shares of non-United States shareholders. As OMI will not be subject to any
additional income taxes, $38,887,000 of the balance of deferred income taxes was
credited to income, leaving a balance of $3,100,000.
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments include interest paid of approximately $5,146,000 and $5,481,000
for the nine months ended September 30, 1998 and 1997, respectively.
In March 1997 the Company delivered a vessel with net book value of $9,800,000
to new owners as part of an exchange transaction. Cash in the amount of
$11,000,000 was received and was held in an escrow account until the delivery of
the vessel in April 1997 to the Company which completed the exchange
transaction.
NOTE 8 - DEBT
The Company has a credit facility, which was assumed from Old OMI, that provides
for a line of credit in the current amount of $122,000,000 (not to exceed 70
percent of the fair market value of the vessels securing the loan and after
reductions described below). The credit facility is secured by eleven vessels
with a book value aggregating $ 173,275,000 at September 30, 1998. The Notes
under the Credit Facility bear interest at LIBOR plus a margin ranging from
60-95 basis points which is computed based on OMI's funded debt to equity ratio
and interest coverage ratio. The agreement, which expires in April 2002,
provides for nine semi-annual reductions in the amount which can be outstanding;
the first five reductions are $5,500,000, the next four are $8,875,000 and the
balance is due at maturity. At September 30, 1998, seven semi-annual reductions
remained. As long as the available balance of the credit facility exceeds the
outstanding loan balance and the collateral tests are met, current amortization
is not required. In the event any vessels collateralizing the agreement are
sold, the credit facility shall be reduced by up to 100 percent of the sales
proceeds; however, the Company is permitted to substitute other vessels as
collateral. At September 30, 1998 the outstanding loan balance was $111,090,000,
and the Company had $10,910,000 available. On October 30, 1998, OMI reduced the
outstanding loan balance by $12,000,000.
On June 4, 1998, the Company entered into a secured revolving credit agreement
in the amount of $53,000,000, to refinance two Panamax tankers and finance two
Product Carriers (see Note 11) when delivered. The loan consists of three
tranches; on June 9, 1998, the Company drew down the first tranche of
$16,000,000 to refinance two
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<PAGE>
Panamax tankers. The $16,000,000 is to be repaid in quarterly installments of
$800,000 over the next five years and bears interest at LIBOR plus a margin
ranging from 65- 95 basis points which is computed based on the Company's funded
debt to capitalization ratio. At September 30, 1998, the outstanding loan
balance was $15,200,000 and $37,000,000 was available.
On June 4, 1998, the Company entered into a $71,500,000 secured revolving credit
facility to finance two Suezmax tankers upon their delivery from the yard. On
June 9, 1998, $35,750,000 was drawn to finance the first vessel, and on August
7, 1998, $35,750,000 was drawn to finance the second vessel (see Note 11). Each
drawdown is to be repaid by semi-annual payments of $1,294,000 beginning 18
months after the initial drawdown and a balloon of $13,750,000 ten years after
the initial drawdown date. The facility bears interest at LIBOR plus a margin
ranging from 0.85%-0.95%. At September 30, 1998, the outstanding loan balance
was $71,500,000.
On July 6, 1998, the Company entered into an agreement for a $77,000,000 secured
reducing revolving credit facility to finance two Suezmax tankers upon their
delivery from the yard. The Company drew down $37,800,000 on July 20, 1998 to
finance the first newbuilding. The availability under this facility is reduced
by 14 semi-annual reductions of 3.9% of the original loan balance, and the
remaining balance is due at maturity, which is ten years after the initial draw
down. The facility bears interest at LIBOR plus a margin ranging from 60 to 100
basis points. At September 30, 1998 the outstanding loan balance was $37,800,000
and $39,200,000 is available.
The Company also has two revolving credit facilities for amounts up to
$50,000,000 and $75,000,000. These revolving credit facilities are to be used to
finance, on an interim basis, the acquisition of vessels (other than
newbuildings) and will be secured by such vessels. At September 30, 1998 the
Company has $125,000,000 available under these two facilities.
On September 2, 1998, the Company repurchased $2,470,000 of its outstanding
10.25% Senior Notes for $2,494,700. At September 30, 1998 the outstanding loan
balance was $4,357,000.
NOTE 9 - JOINT VENTURE INFORMATION
Amazon Transport, Inc. ("Amazon")and White Sea Holdings Ltd. ("White
Sea") are both 49.0 percent owned by the Company and are accounted for using the
equity method. Summarized income statement information for the three and nine
months ended September 30, 1998 and 1997 is as follows
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED SEPTEMBER 30, MONTHS ENDED SEPTEMBER 30,
------------------------------------- -------------------------------------
AMAZON WHITE SEA AMAZON WHITE SEA
------- ------- ------- ------- ------- ------- ------- -------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues .................... $ 4,101 $ 4,042 $ 2,280 $ 2,772 $12,101 $12,336 $ 7,357 $ 9,062
Expenses .................... 2,677 2,650 1,709 1,818 7,683 9,276 5,619 6,111
------- ------- ------ ------- ------- ------- ------- -------
Operating income ............ $ 1,424 $ 1,392 $ 571 $ 954 $ 4,418 $ 3,060 $ 1,738 $ 2,951
======= ======= ======= ======= ======= ======= ======= =======
Cumulative effect
of change in
accounting
principle .................. -- -- -- -- -- -- -- $ 1,196
======= ======= ======= ======= ======= ======= ======= =======
Net income .................. $ 1,518 $ 1,456 $ 620 $ 952 $ 4,630 $ 3,202 $ 1,799 $ 4,094
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE>
NOTE 10 - FINANCIAL INFORMATION RELATING TO MAJOR OPERATING SEGMENTS
The Company organizes its business principally into two segments. These segments
and their respective operations are as follows:
Crude Oil Tanker Fleet--Includes vessels that normally carry crude oil and
"dirty" products. This fleet includes three sizes of vessels, Suezmax, Aframax
and Panamax.
Product Carrier Fleet--Includes vessels that normally carry refined petroleum
products such as gasoline, naphtha and kerosene. This fleet includes two sizes
of vessels, Panamax and Handysize vessels.
The following is a summary of operations by major operating segments:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- -------- ------
(in thousands)
<S> <C> <C> <C> <C>
TOTAL REVENUES:
Crude Oil Tanker Fleet................... $26,624 $16,892 $ 75,811 $47,811
Product Carrier Fleet.................... 11,474 16,819 39,133 50,526
Other.................................... 26 (69) 39 1,396
------- ------- -------- -------
Total................................... $38,124 $33,642 $114,983 $99,733
======= ======= ======== =======
INCOME BEFORE INCOME TAXES,
EQUITY IN OPERATIONS OF JOINT VENTURES
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE:
Crude Oil Tanker Fleet................... $ 9,772 $ 1,357 $ 14,882 $ 3,073
Product Carrier Fleet.................... 206 2,494 1,234 10,109
General and administrative expense
not allocated to vessels................ (2,650) (1,115) (5,389) (3,445)
Other.................................... (283) 470 (3,465) (1,484)
------- ------- -------- -------
Total................................... $ 7,045 $ 3,206 $ 7,262 $ 8,253
======= ======= ======== =======
</TABLE>
Included in Income before income taxes, equity in operations of joint ventures
and cumulative effect of change in accounting principle for the three and nine
months ended September 30, 1998 Crude Oil Tanker Fleet is a gain of $6,625,000.
(See Note 11)
Mortgage debt of OMI Corp. prior to the Distribution and its related interest
expense were allocated to UBC (now OMI Corporation) based upon the value of the
vessel collateralizing the debt.
General and administrative expense included in determining income before income
taxes, equity in operations of joint ventures and cumulative effect of
accounting principle includes an allocation of costs of corporate administrative
services provided by OMI Corp. up to the Distribution date. UBC was charged a
fixed amount per month per vessel for vessel management and accounting
activities and is charged 1.25 percent of revenues earned by each vessel for
commercial management. General corporate activities, such as salaries (other
than those included in the aforementioned fees), legal, accounting,
communications and other administrative expenses were allocated based on the
services provided to the segment. Rent expense was allocated based on the number
of employees included in the corporate allocation. Management believes the
methods for allocating such expenses were reasonable.
NOTE 11 - VESSEL ACQUISITIONS AND DISPOSALS
In June, July and August of 1998 the Company took delivery of three new Suezmax
tankers. Each tanker cost approximately $55 million and is being depreciated
over 25 years.
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<PAGE>
The Company has contracted for two 156,000 dwt. Suezmax tankers and two 35,000
dwt. product carriers in the same shipyard. The Suezmaxes are scheduled to be
delivered in January 1999 and the second quarter of 2000. The product carriers,
which are time chartered out for two years, are to be delivered in the second
half of 1999.
On August 20, 1998, the Company sold the TANANA for $45,500,000 and recorded a
gain of $6,625,000. The Company returned a chartered-in vessel to its owner on
July 7, 1998 and is expected to redeliver another chartered-in vessel in
December 1998.
On May 20, 1997, the Company sold the ALTA for approximately $39,900,000 and
simultaneously leased the vessel for a five year term. The gain on the sale of
approximately $15,700,000 has been deferred and is being credited to income as
an adjustment to lease expense over the term of the lease. The lessor has the
option to cancel the lease at any time after two years upon the payment a
$1,000,000 termination fee. The balance of the deferred gain was $11,453,000 at
September 30, 1998.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following presentation of management's discussion and analysis of OMI
Corporation's ("OMI or the "Company") financial condition and results of
operations should be read in conjunction with the consolidated financial
statements, accompanying notes thereto and other financial information appearing
elsewhere in this document, as well as Form S-1 filed on May 15, 1998.
The information below and elsewhere in this document contains certain
forward-looking statements which reflect the current view of the Company with
respect to future events and financial performance. Wherever used, the words
"expect", "plan", "anticipate" and similar expressions identify forward-looking
statements. Any such forward-looking statements are subject to risks and
uncertainties that could cause the actual results of the Company's results of
operations to differ materially from historical results or current expectations.
The Company's does not publicly update its forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied therein will not be realized.
GENERAL
Overview
OMI provides seaborne transportation services for crude oil, refined
petroleum products, and, one ship which carries dry bulk cargoes (primarily iron
ore, coal and grain) through a joint venture. The Company is a successor to
Universal Bulk Carriers, Inc.("UBC"), a Liberian corporation, which was a wholly
owned subsidiary of OMI Corp. until June 17, 1998 at which date the Company was
separated from OMI Corp. (renamed Marine Transport Corporation "MTC") through a
tax-free distribution ("Distribution") of one share of the Company's common
stock for each share of OMI Corp. ("Old OMI") common stock. The distribution
separated Old OMI into two publicly-owned companies. OMI Corporation operates
what was OMI Corp.'s foreign shipping businesses under the management of certain
of the officers formerly of Old OMI who moved to the new company and certain
former directors of Old OMI and additional new directors. The Company continues
to trade under the symbol ("OMM") on the New York Stock Exchange.
Currently, OMI's fleet comprises 27 vessels (including three chartered-in
and three jointly owned vessels). In June, July and August of 1998, OMI took
delivery of three Suezmax newbuildings. The Company operates primarily Suezmax
and product tankers. Its fleet comprises seven wholly owned Suezmaxes, three
chartered-in Suezmaxes (one to be redelivered in December 1998), one Aframax,
three 66.0 dwt. product tankers currently carrying crude oil, and ten handysize
product carriers transporting clean products. Two 35.0 dwt. product carriers are
to be delivered in mid 1999. The Company has also contracted for two additional
156.0 dwt. Suezmax tankers from the same shipyard to be delivered in January
1999 and May 2000.
Net income for the nine months ended September 30, 1998 was $47.6 million
compared to $14.3 million for the nine months ended September 30, 1997. Included
in 1998 income of $47.6 million is a benefit of $38.9 million for federal income
taxes. In connection with the Distribution, described above, OMI became a
decontrolled corporation and the deferred income taxes which had been previously
recorded were reversed. Included in the 1997 income of $14.3 million is income
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<PAGE>
of $10.1 million, net of tax, from the cumulative effect of a change in
accounting principle.
MARKET OVERVIEW
The charter rates that the Company is able to obtain for its vessels are
determined in a highly competitive market. The industry is cyclical,
experiencing significant swings in profitability and asset values resulting from
changes in the supply of and demand for vessels. The product carrier market is
the segment of the tanker market which transports refined petroleum products
such as gasoline, jet fuel, kerosene, naphtha and gas oil. Freight rates in this
market were relatively strong from 1995 through the first quarter of 1997
showing seasonal improvement in the winter months. Product tanker rates reached
a very high level early in 1997 but receded gradually after that as a result of
reduced oil product imports in the Asia/Pacific region due to refinery capacity
additions in the area and lower oil consumption because of the financial crisis
in southeast Asia and Korea, lower heating oil consumption in the Northern
Hemisphere due to the mild weather this past winter, higher throughput in
industrialized countries, and higher product tanker fleet growth relative to
product tanker ton-mile demand. Average freight rates for handysize product
tankers in the nine months of 1998 were substantially lower than the rates
prevailing in the same period a year ago. Rates continue to be soft into the
fourth quarter.
The Company's handysize product tankers are currently employed in the spot
market. The Company's strategy has been to operate approximately 50% of its
product tankers on time charter; however, current weak product tanker market
conditions have precluded it from doing so.
OMI and Heidenreich Marine Inc. ("Heidmar"), an owner and operator of a
modern fleet of 40.0 to 80.0 dwt. tankers, have formed a jointly owned company
named "OMI-Heidmar Shipping LLC" to market tankers in the Far East. Currently,
this company operates seven handysize and handymax product tankers, including
two OMI handysize vessels. In addition, OMI has chartered one of its Panamax
product tankers to Heidmar and has put its other two Panamax product tankers
into the Heidmar/Pleiades pool of Panamax crude/product tankers which comprises
22 vessels and operates worldwide.
The improvement in tanker freight rates which began in 1995 continued in
1998 for VLCC and Suezmax tankers. The rate gains in the last few years have
been the result of growth in world oil demand which together with a modest
increase in the supply of tankers have created a better tanker supply/demand
balance. Average freight rates in the first half of 1998 were higher for VLCC
and Suezmax tankers compared to the rates prevailing in the same period a year
ago. However, in the short-term there could be rate weakness as a result of
relatively high world oil inventories, OPEC oil production cuts, weakness in oil
demand due to the Southeast Asia financial crisis and the relatively large
tanker newbuilding delivery schedule next year. OMI currently operates all but
one vessel in its Suezmax tanker fleet in the spot market.
The Suezmax market for the fourth quarter has had a weak start. OPEC and
other oil producing nations continue to cut back on oil supply to stabilize
prices which has reduced liftings from the Arabian Gulf. In addition, there have
been a number of temporary regional supply disruptions in the Atlantic basin
including pipeline closures in Nigeria and shutdowns in the North Sea.
-15-
<PAGE>
The total world tanker fleet stands at approximately 283 million dwt.
Approximately 38% of this fleet is over 20 years old. There are approximately 45
million dwt. on order. Information available to the Company indicates that oil
demand for 1998 has increased by 0.4 million barrels per day in 1998 and is
expected to increase by 1.4 million barrels in 1999. World commercial oil
inventories increased substantially in the first half of 1998 as compared to
1997. At this point inventory building has been reduced in line with OPEC cuts.
The Company's Suezmax tanker fleet is one of the largest independent fleets
in the world. OMI has targeted this market segment due to the flexibility of the
Suezmax tankers to engage in long-haul and short-haul trades, the growth
potential in the crude oil market and the fleet age distribution (more than 40%
of the fleet is 20 or more years old).
In order to renew and improve the efficiency of its Suezmax fleet, the
Company ordered five vessels from a South Korean shipyard (with an option for
two more). The Company took delivery of the first three Suezmaxes in June, July
and August of 1998. Of the remaining two Suezmax newbuildings, one is scheduled
for delivery in January 1999 and the other in May 2000.
In order to increase the Company's market share in the Suezmax trades in
the Atlantic Basin, OMI and a Norwegian owner of one of the world's largest and
modern Suezmax fleets combined Suezmax tanker fleets for commercial purposes and
created Alliance Chartering LLC ("Alliance"). Alliance currently markets 27
Suezmax tankers, comprising about 17% of the total Suezmaxes trading in the
Atlantic basin. Alliance's control of the largest modern fleet of Suezmaxes has
enabled it to strengthen relationships and contract with a number of customers.
These contracts may allow Alliance the opportunity to increase its Suezmax fleet
utilization through backhauls when cargo is available (that is, transporting
cargo on the return trip when a ship would normally be empty) which will improve
vessel earnings.
RESULTS OF OPERATIONS
Results of operations of OMI Corporation include operating activities of
the Company's vessels. The discussion that follows explains the Company's
operating results in terms of net voyage revenues, which equals voyage revenues
minus vessel and voyage expenses (including charter hire expense), because
fluctuations in voyage revenues and expenses occur based on the nature of a
charter. The Company's vessels currently operate, or have operated in prior
years, on time, bareboat or voyage ("spot") charters. Each type of charter
denotes a method by which revenues are recorded and expenses are allocated.
Under a time charter, revenue is measured based on a daily or monthly rate and
the charterer assumes certain voyage expenses, such as fuel and port charges.
Under a bareboat charter, the charterer assumes all voyage and operating
expenses; therefore, the revenue rate is likely to be lower than a time charter.
Under a voyage charter, revenue is calculated based on the amount of cargo
carried, most expenses are for the shipowner's account and the length of the
charter is one voyage. Revenue may be higher in the spot market, as the owner is
responsible for most of the costs of the voyage. Other factors affecting net
voyage revenues for voyage charters are waiting time between cargoes, port
costs, and bunker prices.
Vessel expenses included in net voyage revenue discussed above include operating
expenses such as crew payroll/benefits/travel, stores, maintenance and repairs,
-16-
<PAGE>
drydock, insurance and miscellaneous. These expenses are a function of the fleet
size, utilization levels for certain expenses, requirements under laws, by
charterers and Company standards. Insurance expense varies with the overall
insurance market conditions as well as the insured's loss record, level of
insurance and desired coverage.
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES.
Net voyage revenues of $ 32.3 million for the nine months ended
September 30, 1998 decreased by a net of $ 6.6 million from $38.9 million for
the same period in 1997. Net voyage revenue of $12.8 million decreased $507,000
million for the third quarter of 1998 compared to $13.3 million for the third
quarter of 1997. Net voyage revenues for the nine months and three months ended
1998 and 1997 are as follows by the market segments in which OMI primarily
operates.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
VOYAGE REVENUES:
Crude Oil Tanker Fleet................... $26,624 $16,892 $ 75,811 $47,811
Product Carrier Fleet.................... 11,474 16,819 39,133 50,526
All Other................................ 26 (69) 39 1,396
-------- -------- -------- -------
Total............................... $38,124 $33,642 $114,983 $99,733
======= ======= ======== =======
VESSEL, VOYAGE AND CHARTER HIRE EXPENSE:
Crude Oil Tanker Fleet................... $17,469 $12,048 $ 54,590 $33,786
Product Carrier Fleet.................... 7,839 8,265 25,395 26,025
All Other................................ (14) (8) 2,649 935
-------- ------- -------- -------
Total............................... $25,294 $20,305 $ 82,634 $60,746
======= ======= ======== =======
NET VOYAGE REVENUES:
Crude Oil Tanker Fleet................... $ 9,155 $ 4,844 $ 21,221 $14,025
Product Carrier Fleet.................... 3,635 8,554 13,738 24,501
All Other................................ 40 (61) (2,610) 461
------- ------- -------- -------
Total............................... $12,830 $13,337 $ 32,349 $38,987
======= ======= ======== =======
</TABLE>
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS SEPTEMBER
30, 1997.
Net voyage revenues decreased $6.6 million for the nine months and $0.5
million for the three months ended September 30, 1998. These decreases include
decreases in other net voyage revenue of $3.1 million and increase of $0.1
million for the nine and three months, respectively, which relate primarily to
the sale of a Liquid Petroleum Gas Carrier ("LPG") in 1997 and increases in
management fee expense not specifically allocated to vessel expenses. Other
changes are discussed as follows according to the two market segments in which
OMI primarily operates.
-17-
<PAGE>
Product Carrier Fleet
The product carrier fleet consisted of thirteen vessels (ten handysize
and three Panamaxes) in both September 30, 1998 and 1997. The three Panamaxes
have been carrying crude oil rather than petroleum products in 1998, thereby
decreasing net voyage revenue for the product or "clean" group in 1998.
Net voyage revenues decreased by $10.8 million for the nine months ended
September 30, 1998 compared to the same period in 1997. Net voyage revenue
decreased for the nine months ending September 30, 1998 for all but one product
carrier. The decreases are due primarily to the market decline in rates
mentioned in the overview. Other decreases in the clean group relate to the
three Panamaxes with net voyage revenue of approximately $4.9 million included
for the nine months 1997, which were included in the crude group for one vessel
the entire nine months 1998, and the other two vessels an aggregate of seven
months. Aggregate net voyage revenue for these three vessels of approximately
$4.3 million in the nine months 1998 are included in the crude group. Additional
decreases in 1998 net voyage revenue were related to five product carriers
drydocked for an aggregate of 114 days in 1998 versus four vessels for an
aggregate of 89 days in 1997. The product carrier that earned greater net voyage
revenues in 1998 was acquired in April 1997.
Net voyage revenues of $3.6 million decreased $4.9 million in the third
quarter of 1998 from $8.5 million in the same period in 1997. The decrease in
the third quarter was primarily attributable to lower rates for substantially
all the vessels operating in the spot market. Other decreases in the third
quarter 1998 relate to the three Panamaxes with aggregate net voyage revenue of
approximately $2.6 million included in the third quarter 1997 currently
classified in the crude group's operating results for the third quarter of 1998.
Crude Oil Tanker Fleet
At September 30, 1998, the crude fleet consisted of eight wholly owned
vessels (seven Suezmaxes and one Aframax) and three chartered-in Suezmaxes; all
but one of the vessels are currently operating in the spot market. In 1997, OMI
owned five Suezmaxes, one Aframax and chartered- in one vessel (beginning in May
1997 as part of a sale-leaseback transaction). During the third quarter of 1998,
two new Suezmax vessels were delivered and one chartered-in vessel was
redelivered to its owner in July.
Net voyage revenues of $21.2 million generated by the crude tanker fleet
increased $7.2 million for the nine months ended September 30, 1998 from $14.0
million for the comparable period in 1997. The increase in net voyage revenues
can be attributed to three reasons: three Panamaxes with net voyage revenue of
$4.3 million which had been carrying clean products began carrying crude in
1998, net voyage revenues of approximately $3.4 million from three Suezmax
vessels delivered in the summer of 1998 and an increase in the net voyage
revenues due to higher freight rates in 1998 earned by the Aframax vessel (which
also incurred 22 days offhire in 1997), Net voyage revenues were reduced by
decreases in revenues for the remainder of the fleet as a result of lower rates
in the spot market in 1998 due to the lower demand for oil explained in the
market overview. Additionally, the net voyage revenues earned by the vessels
chartered-in were substantially less due to lower current market rates than
those prevaling when the leases were fixed.
-18-
<PAGE>
Net voyage revenues of $9.1 million increased $4.3 million in the third
quarter of 1998 compared to $4.8 million in the third quarter of 1997. The
increase in the crude group for the third quarter is attributed to the delivery
of three Suezmax vessels and the inclusion in 1998 of net voyage revenues of
three Panamax vessels.
OTHER OPERATING EXPENSES.
The Company's operating expenses, other than vessel, voyage and
operating lease expenses consist of depreciation and amortization and general
and administrative expenses. For the nine months ended September 30, 1998, these
expenses increased $0.8 million to $24.7 million, from $23.9 million for the
same period in 1997. Other operating expenses increased $0.8 million for the
three months ended September 30, 1998 compared to the same period in 1997. The
increases were due to the increased depreciation expense from the delivery of
three Suezmax tankers in 1998, offset by the sale of a Suezmax tanker in August
1998 and an LPG vessel in May 1997.
OTHER INCOME (EXPENSE).
Other income (expense) consists of gain on disposal of assets-net,
interest expense-net and other-net. Net other expense decreased by $6.4 million
from $6.8 million to $0.4 million for the nine months ended September 30, 1998
compared to the same period in 1997. Gain on sale of assets-net increased $5.7
million due to gain on sale of a Suezmax tanker in August 1998 compared to the
gain on sale in March 1997 of an LPG vessel. Interest expense-net decreased by
$1.7 million for the nine months and increased $0.4 million for the three months
ended September 30, 1998 compared to 1997. The decrease for the nine months was
primarily due to the capitalization of interest on construction in progress,
while the increase in the third quarter is due to the additional mortgages for
the newbuildings delivered this year. Other-net of $1.0 million expense for the
three and nine months in 1998 represents a litigation settlement for a vessel
which was sold in 1996.
PROVISION (BENEFITS) FOR INCOME TAXES.
The income tax benefit of $ 37.2 million includes a provision for
federal income taxes of $1.7 million for the period from January 1, 1998 through
June 17, 1998 (the date of the Distribution), net of the benefit of $38.9
million representing the reversal of deferred income taxes at the distribution
date, as the Company became a decontrolled corporation.
EQUITY IN OPERATIONS OF JOINT VENTURES.
Equity in operations of joint ventures increased by $ 3.3 million to
$3.2 million for the nine months ended September 30, 1998 compared to ($0.1)
million for the same period in 1997. The net increase is primarily attributed to
the Company's share in the 1997 period of the loss of $5.1 million on the sale
of a vessel offset by a gain on the sale of another vessel of $1.9 million. In
August 1998, the Company received a $1.96 million dividend from Amazon
Transport, Inc.
Equity in operations of joint ventures increased by $4.8 million to $1.0
million for the three months ended September 30, 1998 compared to ($3.8) million
for the same period in 1997. The increase was primarily due to loss of $5.1
million on the sale of a vessel in 1997.
-19-
<PAGE>
BALANCE SHEET
In 1998 the Company took delivery of three newly constructed double
hulled Suezmax tankers increasing Vessels by approximately $166.3 million,
decreasing Construction in Progress by $27.4 million and increasing debt by
$109.3 million.
On August 12, 1998, vessels (net) decreased by $38.3 million, which was
the net book value of the TANANA which was sold for a $6.6 million gain.
During August and September, the Company purchased 2,031,700 shares of
OMI stock at an average cost of $4.37 for a total cost of $8.9 million. As of
November 13, 1998, the Company had purchased an additional 45,000 shares.
On September 4, 1998, the Company repurchased $2.5 million of its 10.25
percent Senior Notes.
The distribution of OMI affected the balance sheet as follows: deferred
taxes of $38.9 million were reversed into income, the receivable from parent-
net aggregating $76.1 million was charged to Capital surplus, the balance of
Net intercompany transactions of $40.8 million was credited to Capital surplus,
and debt increased $108.9 million for debt assumed from the parent company (see
Financing section).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash and cash equivalents of $22.4 million at September 30, 1998
decreased $8.2 million from cash and cash equivalents of $30.6 million at
December 31, 1997. The Company's working capital of $4.3 million decreased $27.2
million from working capital of $31.5 million at December 31, 1997. Current
assets decreased $8.2 million primarily due to decrease in cash and cash
equivalents. Current liabilities increased $19.0 million primarily due to the
increase in current maturities of long-term debt, which was assumed from the
parent company at the time of the Distribution (See Financing Facilities)in
addition to $12.0 drawn on a line of credit which was repaid in October 1998.
Net cash provided by operating activities decreased $ 5.0 million to $16.9
million for the nine months ended September 30, 1998 compared to the nine months
ended September 30, 1997.
Cash provided by financing activities was $70.3 million in 1998 compared
to cash used of $18.8 million for the nine months ended 1997. Payments on
long-term debt of $74.3 million were made in 1998. Included in the payments of
$74.3 million were unscheduled payments of $71.5 million from the refinancing of
$20.6 million for two vessels, the payment of debt of $31.4 million for the
vessel sold in August 1998, repurchase of $2.5 million of the Company's Senior
Notes and payments on a line of credit of $17.0 million. Proceeds from the
issuance of long-term debt of $154.3 million include proceeds of $109.3 million
for the financing of the three newly constructed vessels, $16.0 million from
refinancing of two vessels and $29.0 million drawn on a line of credit. During
the third quarter $8.9 million of the Company's stock was repurchased. In the
nine months ended September 30, 1997, $4.1 million was received from the
Company's parent, Old OMI, as a capital contribution and $22.1 million of debt
was repaid (including $16.9 million from the sale of a vessel).
The Company operates in a capital-intensive industry and augments cash
generated by operating activities with debt and sales of vessels that no longer
fit the Company's strategy. Cash used by investing activities was $95.4 million,
an increase of $91.8 million from cash used by investing activities of $3.6
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<PAGE>
million for the nine months ending September 30, 1997. Cash used by investing
activities increased in 1998 due to the acquisition of three new vessels of
$138.9 million and additions to vessels under construction. The Company received
$45.0 million in proceeds from the sale of its vessel in August 1998.
Additionally, in 1997, the Company received proceeds from the sale of the ALTA
of $39.0 million.
FINANCING FACILITIES
Prior to the Distribution, debt had been incurred for the consolidated
group at the parent company level or at a limited number of subsidiaries, rather
than at the operating company level, in order to centrally manage various cash
functions. Consequently, the mortgage debt of Old OMI and its related interest
expense, net of tax, were allocated to UBC and its subsidiaries based upon the
value of the vessel collateralizing the debt. The changes in allocated corporate
debt and the after-tax allocated interest expense and the after tax allocated
general and administrative expenses had been included in Net intercompany
transactions in Stockholder's equity. Although management believes that the
historical allocation of corporate debt and interest expense is reasonable, it
is not necessarily indicative of the Company's debt or results of operations had
the Company been on a stand alone basis for the periods presented.
The Company has a credit facility, which was assumed from Old OMI, which
provides for a line of credit in the amount of $122.0 million(not to exceed 70
percent of the fair market value of the vessels securing the loan). The credit
facility is secured by eleven vessels with a book value aggregating $ 173.2
million at September 30, 1998. The Notes under the credit facility bear interest
at LIBOR plus a margin ranging from 60-95 basis points which is computed based
on OMI's funded debt to equity ratio and interest coverage ratio. The agreement,
which expires in March 2002, provides for nine semi-annual reductions (seven
currently remaining at September 30, 1998) in the amount which can be
outstanding, the first five reductions are $5.5 million, the next four are $8.9
million and the balance is due at maturity. As long as the available balance of
the credit facility exceeds the outstanding loan balance and the collateral
tests are met, current amortization is not required. In the event any vessels
collateralizing the agreement are sold, the credit facility shall be reduced by
up to 100 percent of the sales proceeds; however, the Company is permitted to
substitute another vessels as collateral.
On June 4 , 1998, the Company entered into a new secured revolving
credit agreement with banks, in the amount of $53.0 million, to refinance two
Panamax tankers and to finance two Product Carriers when delivered. The loan
consists of three tranches; on June 9, 1998, the Company drew down the first
tranch of $16.0 million to refinance two Panamax tankers. The $16.0 million is
to be repaid in quarterly installments over the next five years and bears
interest at LIBOR plus a margin ranging from 65- 95 basis points based on the
Company's funded debt to capitalization ratio.
On June 4, 1998, the Company entered into a $71.5 million secured
revolving credit facility to finance two Suezmax tankers upon their delivery
from the yard. On June 9, 1998, $35.7 million was drawn to finance the first
vessel, and on August 7, 1998, $35.7 million was drawn to finance the second
vessel. The facility for each vessel is reduced on a semi-annual basis by $1.3
million beginning 18 months after the initial drawdown, with a balloon payment
of $13.6 million at maturity which is ten years from the initial drawdown date.
The facility bears interest at LIBOR plus a margin ranging from 0.85%-0.95%.
On July 6, 1998, the Company entered into an agreement with its current
lender for a $77.0 million secured reducing revolving Credit Facility to finance
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<PAGE>
two Suezmax tankers upon their delivery from the yard. The Company drew down
$37.8 million on July 20, 1998 to finance the delivery of the newbuilding
delivered July 23, 1998. The availability under the facility is reduced
semiannually by $3.0 million beginning 18 months after the initial drawdown,
with a balloon payment due at maturity on July 20, 2006. The facility bears
interest at LIBOR plus a margin ranging from 60-100 basis points.
The Company also has two revolving credit facilities for amounts up to
$50.0 million and $75.0 million. These revolving credit facilities are to be
used to finance, on a interim basis, the acquisition of vessels (other than the
newbuildings) and will be secured by such vessels.
Certain of the loan agreements contain restrictive covenants requiring
minimum levels of cash or cash equivalents, working capital and net worth,
maintenance of specified financial ratios and collateral values, and restrict
the ability of the Company's subsidiaries to pay dividends to the Company. These
loan agreements also contain various provisions restricting the right of OMI
and/or its subsidiaries to make certain investments, to place additional liens
on the property of certain of OMI's subsidiaries, to incur additional long-term
debt, to make certain payments, to merge or to undergo a similar corporate
reorganization, and to enter into transactions with affiliated companies. At
June 30, 1998, the Company was in compliance with all it financial covenants.
The Company believes that the actions it has taken in the last year to
improve its liquidity and financial position will give the Company greater
financial flexibility to fund its vessel acquisition program and finance its
other cash needs.
OTHER COMMITMENTS
The Company and its joint venture partners have committed to fund any
working capital deficiencies that may be incurred by their joint venture
investments. At September 30, 1998, no such deficiencies have been funded.
AGREEMENTS
As part of the Distribution, OMI is party to certain agreements with MTC,
including the following:
Distribution Agreement--The Distribution Agreement provides for, with
certain exceptions, assumptions of liabilities and cross-indemnities designed
principally to place financial responsibility for the liabilities with the
appropriate company. OMI, however, assumed the obligations of Old OMI with
respect to Old OMI's 10.25 percent Senior Notes due November 1, 2003 in exchange
for a note from MTC in the amount of $6.4 million, which is equivalent in value
to the principal amount of the Senior Notes then outstanding. The Distribution
Agreement also provides that each of MTC and OMI will indemnify the other in the
event of certain liabilities arising under the Federal securities laws. Each of
MTC and OMI will have sole responsibility for claims arising out of its
respective activities after the Distribution.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and paid by the party incurring such costs or expenses. Except as set
forth in the Distribution Agreement or any related agreement, each party shall
bear its own costs and expenses incurred after the Distribution Date.
-22-
<PAGE>
As part of the Distribution Agreement, OMI has, subject to certain
exceptions, provided indemnity to MTC for all taxes attributable to the
Distribution and to certain corporate restructuring transactions preceding the
Distribution.
Tax Cooperation Agreement--Prior to the Distribution, OMI and MTC
entered into a Tax Cooperation Agreement which sets forth each party's rights
and obligations with respect to federal, state, local and foreign taxes for
periods prior and after the Distribution and related matters such as the filing
of tax returns and the conduct of audits and to other proceedings. In general,
the Tax Cooperation Agreement provides that OMI will be liable for taxes and be
entitled to refunds for each period covered by any such return which are
attributable to OMI and its subsidiaries and that MTC will be liable for and be
entitled to refunds for each period covered by such return which are not
attributable to OMI or OMI subsidiaries. Though valid as between the parties
thereto, the Tax Cooperation Agreement is not binding on the IRS and does not
alter either party's tax liability to the IRS.
Dividends--Any determination to pay dividends in the future by OMI will
be at the discretion of the board of directors and will be dependent upon its
results of operations, financial condition, capital restrictions, covenants and
other factors deemed relevant by the board of directors. Currently, the payment
of dividends by OMI is restricted by its credit agreements.
EFFECTS OF INFLATION
The Company does not consider inflation to be a significant risk to the
cost of doing business in the current or foreseeable future. Inflation has a
moderate impact on operating expenses, drydocking expenses and corporate
overhead.
YEAR 2000
The "Year 2000 issue" arises from the fact that many computer hardware
and software systems use only two digits to represent the year. As a result,
these systems may not calculate dates beyond 1999, which may result in system
failures. The Company has taken steps to ensure that its systems will be year
2000 compliant including systems on board vessels. The Company has been in the
process over the last year of upgrading its hardware and software systems for
business reasons other than Year 2000 compliance. Therefore, the Company
believes, after conversion to the new systems, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, the Year
2000 readiness of the Company's customers, suppliers and business partners may
vary.
-23-
<PAGE>
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
A. EXHIBITS
10.1 Form of OMI Corporation Employment Agreements for Senior Executives
27 OMI Corporation - Financial Data Schedule, dated September 30, 1998.
B. REPORTS ON FORM 8-K
None
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMI CORPORATION
-------------------------------------------------------
(REGISTRANT)
DATE: NOVEMBER 13, 1998 BY: /s/CRAIG H. STEVENSON, JR.
-------------------- ----------------------------------
CRAIG H. STEVENSON, JR.
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
DATE: NOVEMBER 13, 1998 BY: /s/VINCENT DE SOSTOA
-------------------- ----------------------------------
VINCENT DE SOSTOA
SENIOR VICE PRESIDENT, AND
CHIEF FINANCIAL OFFICER
-25-
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of May 29, 1998
between OMI Corporation, a Marshall Islands corporation (the "Company") and
[________________](the "Executive").
W I T N E S S E T H
WHEREAS, the Company is newly formed, wholly-owned subsidiary of OMI Corp.,
a Delaware corporation (the "Parent"); and
WHEREAS, it is anticipated that the Parent will spin off the Company during
1998 (the "Spin Off" and the date of the Spin Off being herein called the "Spin
Off Date"), by virtue of which the Company will become an independent, publicly
traded corporation; and
WHEREAS, by virtue of an assignment (the "Assignment") of an existing
employment agreement dated November 21, 1995, as amended between the Executive
and the Parent (the "Previous Employment Agreement"), the Company will accede to
the rights and obligations of the Parent under the Previous Employment Agreement
effective on the Spin Off Date; and
WHEREAS, it is intended that on the Spin Off Date the Previous Employment
Agreement will terminate and this Agreement shall become effective; and
WHEREAS, the Executive is willing to be employed by the Company, as a
senior executive of the Company, for the period and upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the Company and the Executive hereby agree as follows:
1. EMPLOYMENT
(a) The Previous Employment Agreement is hereby terminated effective on the
Spin Off Date without further obligation thereunder to either party; and
(b) The Company shall employ the Executive, and the Executive accepts
employment by the Company, as [_____________] of the Company upon the terms and
conditions herein, for the period commencing on the Spin Off Date, and ending on
the second anniversary of the Spin Off Date, subject to termination as
hereinafter provided (such period as it may be extended as described in this
paragraph, being herein referred to as the "Employment Period"). The Executive's
term of employment hereunder shall be automatically renewed at the conclusion of
each day, so that the Employment Period shall always be two years.
<PAGE>
2. DUTIES
(a) Throughout the Employment Period, the Executive shall hold the title
described above or such other title as shall not be deemed a demotion in the
reasonable opinion of the Executive and shall report to the [PERSON DESIGNATED
BY THE CHIEF EXECUTIVE OFFICER OR BOARD OF DIRECTORS] (the "Board") of the
Company. The Executive shall at all times comply with Company policies as
established by the Board.
(b) During the Employment Period, the Executive shall devote his full-time
working hours to his duties hereunder, except during vacation time, any periods
of illness and authorized leaves of absence. The Executive shall have such
responsibilities and authorities consistent with the status, title and reporting
requirements set forth herein as are appropriate to said position, subject to
change (other than diminution in position, authority, duties or
responsibilities) from time to time by the Board.
(c) Throughout the Employment Period, the Executive shall faithfully and
diligently perform his duties under this Agreement and shall use his best
efforts to promote the interests of the Company.
3. COMPENSATION
During the Employment Period, as full compensation to the Executive for his
performance of the services hereunder and for his acceptance of the
responsibilities described herein, the Company agrees to pay the Executive, and
the Executive agrees to accept, the following salary and other benefits:
(a) Salary
The Company shall pay the Executive a salary at the annual rate of
[$__________]. The Board shall review such salary on an annual basis and may
increase but not decrease it from time to time in the sole discretion (as so
increased the "Base Salary"). The Base Salary due the Executive hereunder shall
be payable in equal installments at such times as the company pays other
executives less any amounts required to be withheld by the Company from such
Base Salary pursuant to the benefit plans refer to in Section 3(d) and
applicable laws and regulations described under Section 10(e).
(b) Bonus
The Executive shall be eligible to receive bonuses (each a "Bonus") under
programs established by or at the discretion of and in the amount and at the
times determined by the Board except that in the event there occurs a Change in
Control (as hereinafter defined) and the Executive's employment is terminated
within two years thereafter other than for "Course" or the Executive becoming
disabled (as such terms are defined in paragraph (c) and (d), respectively, of
Section 6), the Executive shall be shall entitled to receive a bonus at
termination (the "Assurance
<PAGE>
Bonus") equal to the total of all bonuses paid to the Executive during the
twelve-month period ending on the date of the Change in Control. Any additional
Change in Control after the first Change in Control to occur shall be
disregarded for this purpose. The Executive may by written request require that
the Company deposit an amount equal to the Assurance Bonus and the Security
Account referred to in the last paragraph in Section 6.
For purposes hereof, the amount of any bonuses paid by the Parent in 1998
shall be deemed to have been paid by the Company. Further, all amounts paid
(whether or not deferred) as a combination of bonus and long-term incentive,
whether in cash, stock or in other form (any such stock or other form of
compensation having the value at the time awarded), under a Company plan shall
be included as bonus.
(c) Long Term Incentives
The Executive shall be entitled to receive grants of restricted stock,
stock options and other stock awards at the discretion of the Compensation
Committee of the Board and/or other stock and cash awards granted pursuant to
any other long term incentive plans implemented by the Company for the benefit
of senior executives of the Company.
(d) Other Benefit Plans
Subject to all eligibility requirements, and to the extent permitted by
law, the Executive shall be entitled to participate in any and all employee
pension, welfare and benefit plans (including, but not limited to, retirement
security, life insurance, medical, dental, disability, and savings plans)
established by the Company from time to time for the general and overall benefit
of executives or other employees of the Company.
(e) Further Benefits
The Executive shall be entitled to a minimum of four weeks per annum paid
vacation.
(f) Deferred Compensation
Notwithstanding any other provision of the Agreement, the Executive shall
have the right to request any lawful means (including, without limitation, any
deferred compensation arrangement requested by the Executive) by which the
Executive wishes to receive any portion of Base Salary, Bonus, or other
payments, and the Company shall reasonably cooperate with the Executive to grant
such request, provided that the granting of such request does not represent
inequitable treatment as concerns other senior employees or executives (in the
Company's sole judgment), and does not impose additional costs on the Company
other than insignificant administrative costs.
3
<PAGE>
4. REASONABLE EXPENSES AND INDEMNIFICATION
The Company will reimburse the Executive for all reasonable business
expenses, including entertainment, travel and lodging, which are properly
incurred in the performance of duties hereunder, upon presentation of proper
vouchers therefor and in accordance with written policies established from time
to time by the Company for such reimbursements. The Company shall indemnify the
Executive to the fullest extent permitted under the Company's articles of
incorporation and by-laws.
5. EXECUTIVE COVENANTS
The Executive acknowledges that as a result of the services to be rendered
to the Company hereunder, the Executive will be brought into close contact with
many confidential affairs of the Company, its subsidiaries and affiliates, not
readily available to the public. The Executive further acknowledges that the
services to be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character; that the business of the Company is
international in scope; that its goods and services are marketed throughout the
world; and that the Company competes with other organizations that are or could
be located in nearly any part of the United States or elsewhere. In recognition
of the foregoing:
(a) Except to the extent required in the performance of the Executive's
duties hereunder or otherwise with the consent of or as directed by the Company,
or except if compelled by judicial or legal authorities, the Executive will keep
confidential and not divulge to any other person, during the Employment Period
or thereafter, any Confidential Information and Trade Secrets regarding the
Company, its subsidiaries and affiliates, except for information which is or
becomes publicly available other than as a result of disclosure by the
Executive. For the purposes of this Agreement "Confidential Information and
Trade Secrets" means information which is secret to the Company, its
subsidiaries and affiliates. It may include, but is not limited to, information
relating to new and future concepts and business of the Company, its
subsidiaries and affiliates, in the form of memoranda, reports, computer
software and data banks, customer lists, employee lists, books, records,
financial statements, manuals, papers, contracts and strategic plans. As a
guide, the Executive is to consider information originated, owned, controlled or
possessed by the Company, its subsidiaries or affiliates which is not disclosed
in printed publications stated to be available for distribution outside the
Company, its subsidiaries and affiliates as being secret and confidential. In
instances where doubt does or should reasonably be understood to exist in the
Executive's mind as to whether information is secret and confidential to the
Company, its subsidiaries and affiliates, the Executive agrees to request an
opinion, in writing, from the Company.
(b) All papers, books and records of every kind and description relating to
the business and affairs of the Company, its subsidiaries and affiliates,
whether or not prepared by the Executive, and all property owned by the Company,
its subsidiaries and affiliates shall be the
4
<PAGE>
sole and exclusive property of the Company, and the Executive shall surrender
any such papers, books and records (including all copies thereof) and property
then in his possession to the Company, at any time upon request during, or, in
any event, promptly after expiration or termination of the Employment Period
(E.P.).
(c) During the Employment Period and during any Severance Period (as
hereinafter defined), the Executive shall not either for his own account or for
any person, firm or company solicit or endeavor to cause any employee of the
Company, its subsidiaries and affiliates to leave such employment or induce or
attempt to induce any such employees to breach any employment agreement with the
Company, its subsidiaries and affiliates, or otherwise interfere with the
employment of any employee by the Company, it subsidiaries and affiliates.
(d) Without limiting any other provision of this Agreement, the Executive
hereby agrees to be bound by and to comply with any obligations known to the
Executive and imposed on the Company, its subsidiaries and affiliates, by law,
rule, regulation, ordinance, order, decree, instrument, agreement, understanding
or other restriction of any kind.
(e) The Executive hereby agrees to provide reasonable cooperation to the
Company, its subsidiaries and affiliates during the Employment Period and any
Severance Period (as hereinafter defined) in any litigation between the Company,
its subsidiaries and affiliates, and third parties, provided that the Company
shall pay or promptly reimburse a reasonable costs and expenses incurred in
connection with such cooperation.
(f) The parties agree that the Company shall, in addition to other remedies
provided by law, have the right and remedy to have the provisions of this
Section 5 specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any breach or threatened breach of the
provisions of this Section 5 will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company. Nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Executive.
(i) although the restrictions contained in Sections 5(a), (b), and (c)
above are considered by the parties hereto to be fair and reasonable in the
circumstances, it is recognized that restrictions of such nature may fail for
technical reasons, and accordingly it is hereby agreed that if any of such
restrictions shall be adjudged to be void or unenforceable for whatever reason,
but would be valid if part of the wording thereof were deleted, or the period
thereof reduced or the area dealt with thereby reduced in scope, the
restrictions contained in Sections 5(a), (b), and (c) shall be enforced to the
maximum extent permitted by law, and the parties consent and agree that such
scope or wording may be accordingly judicially modified in any proceeding
brought to enforce such restrictions.
5
<PAGE>
(ii) Notwithstanding that the Executive's employment hereunder may
expire or be terminated as provided in Section 1 or Section 6 hereof, this
Agreement shall continue in full force and effect insofar as is necessary to
enforce the covenants and agreements of the Executive contained in this Section
5.
6. TERMINATION OF EMPLOYMENT PERIOD AND SEVERANCE
(a) Termination by the Company without Cause. If for any reason other than
the provisions of Section 6(d) hereof, the Company wishes to terminate the
Employment Period and the Executive's employment hereunder, the Company shall
give a written notice to the Executive of such termination stating that a
severance period (the "Severance Period") will commence upon receipt of such
notice by the Executive. The Severance Period shall be for the balance of the
then-current Employment Period. Upon receipt of such notice by the Executive,
the Employment Period shall terminate (and the Executive shall have no further
duties under Section 2 hereof). During the entire Severance Period, the
Executive shall continue to receive all salary, compensation, payments and
benefits under Sections 3(a) and 3(d) of this Agreement (including, to the
extent allowable under applicable law, the accrual of additional service credits
or Company contributions under pension, profit sharing and thrift plans (or, to
the extent no so allowable, the cash equivalent thereof, subject to the
Executive's right to receive payment thereof in accordance with Section 3(f) of
this Agreement and any benefits under the Company's long term disability and
life insurance plans) available upon the date of the commencement of the
Severance Period as if the Employment Period continued throughout the Severance
Period. The Executive agrees that the payments described in this Section 6(a)
shall be full and adequate compensation to the Executive for all damages the
Executive may suffer as a result of the termination of his employment pursuant
to this Section 6(a), and hereby waives and releases the Company from any and
all obligations or liabilities to the Executive arising from or in connection
with the Executive's employment with the Company or the termination of
employment and claims the Executive may have under federal, state or local
statutes, regulations or ordinances or under any common law principles or breach
of contract or the covenant of good faith and fair dealing, defamation, wrongful
discharge, intentional infliction of emotional distress or promissory estoppel;
provided, however, that any rights and benefits the Executive may have under the
employee benefit plans and programs of the Company in which the Executive is a
participant, shall be determined in accordance with the terms and provisions of
such plans and programs.
(b) Death. If the Executive dies during the Employment Period, the
Severance Period or during the period when payments are being made pursuant to
Section 6(c), the Employment Period shall automatically terminate and the
obligations of the parties shall terminate effective the date of death.
(c) Disability. If the Executive becomes Disabled (as hereinafter defined)
during the Employment Period, the Company shall be entitled to terminate his or
her employment and the Employment Period upon written notice to the Executive
from the Company. In the event of
6
<PAGE>
such termination, the Executive shall be released from any duties hereunder, and
the Severance Period described in Section 6(a) hereof shall immediately
commence. The duties, rights, benefits and other matters during the Severance
Period shall be as set forth in Section 6(a), and the Executive (and his or her
heirs, beneficiaries and estate) shall be entitled to all compensation, payments
and benefits during the Severance Period without any offset or reduction except
by such amounts, if any, as are paid to the Executive in lieu of compensation
for services under any applicable insurance policies of the Company (or by the
Company under any self insurance plan). For purposes of this Agreement,
"Disabled" shall mean mental or physical impairment or incapacity rendering the
Executive substantially unable to perform his duties under this Agreement for a
period of longer than 180 continuous days out of any 360-day period during the
Employment Period. A determination of whether the Executive is Disabled shall be
made by the Company in its good faith discretion upon its own initiative or upon
request of the Executive or a person acting on his behalf. If the Executive
becomes Disabled during a Severance Period, he or she shall continue to receive
the compensation, payments and benefits of this Agreement during the entire
Severance Period without any offset or reduction, except by such amounts, if
any, as are paid to the Executive in lieu of compensation for services under any
applicable insurance policies of the Company (or by the Company under any self
insurance plan).
(d) Termination by the Company for Cause. The Company by written notice to
the Executive, shall have the right to terminate the Employment Period in the
event of any of the following (which shall constitute "Cause"):
(i) The Executive's breach in respect of his or her duties under this
Agreement, such breach continuing unremedied for thirty days after
written notice thereof from the Company to the Executive specifying
the acts constituting the breach and requesting that they be remedied;
or
(ii) Any misconduct, dishonesty, insubordination or other act by the
Executive materially detrimental to the goodwill of the Company, or
materially damaging to the Company's, its subsidiaries' and/or
affiliates' relationships with their customers or employees, including
without limitation, the Executive having been convicted of a felony
during the Employment Period, provided such conviction has resulted or
is likely to result in substantial detriment to the Company, its
subsidiaries and/or affiliates.
Any termination under this Section 6(d) shall be without damages or
liability to the Company for compensation and other benefits which would have
accrued to the Executive hereunder after termination, but all compensation,
benefits and reimbursements accrued through the date of termination shall be
paid to the Executive at the times normally paid by the Company. In this event,
there shall be no Severance Period. The foregoing shall not limit the ability of
the Company to seek recovery from the Executive of any amounts which the Company
may have paid to the Executive or a third party resulting from any dishonesty of
the Executive.
7
<PAGE>
(e) Voluntary Termination by the Executive. In the event of voluntary
termination of employment hereunder by the Executive, the terms of the last
paragraph of Section 6(d) shall apply, except in the event that such voluntary
termination occurs within ninety days of (i) a relocation of the Company's
offices (or the location of the performance of work by the Executive) beyond a
fifty mile radius of New York City (but only following a Change in Control),
(ii) a material diminution of the Executive's duties and responsibilities as
provided in Section 2, or (iii) a breach by the Company of any material
provision of this Agreement, including, without limitation a reduction in Base
Salary, or (iv) the failure of the Company's acquirors or successors, following
a Change in Control, to expressly assume this Agreement and agree to perform the
obligations of the Company hereunder in which cases the provisions of Section
6(a) (or 6(f), if after a Change in Control) shall apply as if the Executive's
employment hereunder were terminated by the Company as described in such Section
6(a) (or 6(f)).
(f) Termination Following a Change in Control.
(i) For purposes of this paragraph (f), the term "Change in Control"
shall mean a change in control with respect to the Company that would be
required to be reported in response to Item 1(a) of the Current Report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or equivalent
for foreign filers, other than in connection with the Spin Off; provided that,
without limitation, such a Change in Control shall be deemed to have occurred at
such time as any person or group of persons, within the meaning of Section 13(d)
or 14(d) of the Exchange Act, is or become the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly of 20% or more of the
combined voting power of the then outstanding securities of the Company (other
than, in any such event, a sale or other disposition to or for the benefit of
any employee benefit plan (or related trust) of the Company or a subsidiary of
the Company, or acquisition, or offer to acquire, by or on behalf of, the
Company or such a subsidiary, or any group comprising solely such entitles, of
shares of the Company's common stock) provided, however that a Change in Control
will not be deemed to occur if a person or group of persons who is or becomes
such a beneficial owner files and maintains a Schedule 13G pursuant to Rule
13d-1 under the Exchange Act in connection with its purchase of such securities;
provided further, however, upon the filing of a Schedule 13D pursuant to such
rule by such person or group in connection with such securities, there shall be
deemed to be an immediate Change in Control. Notwithstanding anything aforesaid
to the contrary, a Change in Control shall be deemed to have occurred if
individuals who constitute the Incumbent Board cease for any reason to
constitute at least a majority of the Board. "Incumbent Board" shall mean those
individuals who constitute the Board immediately following the Spin Off Date, or
any successor or additional individual who becomes a member of the Board and
whose election, or nomination for election by the shareholders was approved by a
vote of at least three fourths of the members of the Board comprising the
Incumbent Board (either by a specific vote or by approval of the proxy statement
of the Company in which such individual was named as a nominee for the member of
the Board without objection to such nomination). Should the executive's
employment hereunder be terminated by the Company without Cause (other than by
reason of the Executive becoming
8
<PAGE>
Disabled) within two years following a Change in Control, the Company shall pay
and the Executive shall receive in cash in addition to the Assurance Bonus an
immediate lump-sum payment in an amount equal to three times the sum of the
Executive's then current Base Salary and the Assurance Bonus (the "Termination
Amount"). If during any Severance Period there shall be a Change in Control,
then the Executive shall be entitled to the amount payable to the Executive
under this Section 6(f) as if his employment were then terminated as described
in the immediately preceding sentence, reduced by the amount that the Executive
has received under Section 6(a) up to the date of the Change in Control, and the
Executive shall not thereafter be entitled to any further payments under Section
6(a). Upon termination under this paragraph (f), the Executive shall no longer
be bound by the provisions of Section 5 of this Agreement.
To secure the obligations of the Company following termination of the
Executive's employment hereunder following a Change in Control, the Company
agrees that upon the written request of the Executive at any time following a
Change in Control it will establish at its own cost an escrow or other similar
arrangement (the "Security Account") and to pay into the Security Account the
amount the Executive would receive if the Executive's employment were terminated
without Cause within two years following the Change in Control. The Company
shall take any actions reasonably requested by the Executive designed to prevent
the Executive from being subject to any income tax with respect to any
undistributed interest in the Security Account. If the Executive is not so
terminated all amounts in the Security Account will be returned to the Company.
If the Executive's employment is so terminated the Executive shall receive from
the Security Account the Termination Amount and the Assurance Bonus. Any amount
in the Security Account in excess of the Termination Amount and the Assurance
Bonus shall be returned to the Company.
7. CONFLICTING AGREEMENTS
(a) The Executive hereby represents and warrants to the Company that his
entering into this Agreement, and the obligations and duties undertaken by him
hereunder, will not conflict with, constitute a breach of, or otherwise violate
the terms of any other employment or other agreement to which the Executive is a
party.
(b) The Company hereby represents and warrants to the Executive that this
Agreement has been duly authorized, executed and delivered on behalf of the
Company and that it has the full right, power and authority to enter into this
Agreement and carry out the provisions of this Agreement, and that neither the
execution and delivery of this Agreement nor the performance of the Company's
obligation under this Agreement will conflict with, or constitute a breach of,
or otherwise violate the terms of any Agreement to which it is a party or by
which it may be found or affected.
9
<PAGE>
8. ASSIGNMENT
(a) By the Executive. This Agreement, any part thereof and any rights
(including compensation) or obligation hereunder shall not be assigned, pledged,
alienated, sold, attached, charged, encumbered or transferred in any way by the
Executive and any attempt to do so shall be void except that (i) the Executive
may designate any beneficiaries to receive (and such beneficiaries shall
receive) any compensation, payments or other benefits payable hereunder upon the
Executive's death, (ii) any assignment by will or by laws of descent and
distribution or following the occurrence of the Executive's legal incompetence
is permitted and (iii) the Executive's executors, administrators or other legal
representatives may assign any rights hereunder to the person or persons
entitled thereto.
(b) By the Company. Provided the nature and extent of the Executive's
duties set forth in Section 2 shall not change, and provided that the
Executive's rights and benefits hereunder, including, without limitation,
compensation as set forth in Section 3, in rights under Section 6 shall not be
adversely affected as determined by the Executive and good faith, the Company
may assign or otherwise transfer this Agreement to any succeeding entity without
limitation, which entity shall assume all rights and obligations hereunder.
9. NOTICES
All notices, requests, demands and other communications hereunder must be
in writing and shall be deemed to have been duly given if delivered by hand or
mailed within the continental United States by first class, registered mail,
return receipt requested, or sent by overnight mail, such as Federal Express,
postage and registry fees prepaid, to the applicable party and addressed as
follows:
(a) if to the Company:
President
OMI Corporation
One Station Place
Stamford, CT 06902
(b) if to the Executive:
Addresses may be changed by notice in writing signed by the addressee.
10
<PAGE>
10. MISCELLANEOUS
(a) If any provision or portion of this Agreement shall, for any reason, be
adjudged by any court of competent jurisdiction to be invalid or unenforceable,
such judgment shall not affect, impair or invalidate the remainder of this
Agreement but shall be confined in its operation to the jurisdiction in which
made and to the provisions of this Agreement directly involved in the
controversy in which such judgment shall have been rendered.
(b) No course of dealing and no delay on the part of any party hereto in
exercising any right, power or remedy under or relating to this Agreement shall
operate as a waiver thereof or otherwise prejudice such party's rights, powers
and remedies. No single or partial exercise of any rights, powers or remedies
under or relating to this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
(c) This Agreement may be executed by the parties hereto in counterparts,
each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument, and all signatures need not
appear on any one counterpart.
(d) (i) Any other agreement, rule or regulation to the contrary,
notwithstanding, the parties hereby agree that any action or proceeding relating
to this Agreement or its subject matter shall be brought in a state or federal
court situated in the County of New York, State of New York and such court shall
have exclusive jurisdiction thereof; provided, however, any court with
jurisdiction over the parties may, at the election of Company, have jurisdiction
over any action brought with regard to or any action brought to enforce any
violation or claimed violation of Section 5. The parties each hereby
specifically submit to the jurisdiction of such court and further agree that
service of process may be made within or without the State of New York by giving
notice in the manner provided in Section 9. Each party further agrees to waive
and hereby waives any right to a trial by jury, and to any objection it or he
may have in any such action, based on lack of personal jurisdiction or venue, or
inconvenient forum.
(ii) In any such action or proceeding, the prevailing party shall be
entitled to recover from the other party reasonable costs, including attorney's
fees and expenses. In any action or proceeding before a court or other tribunal
relating to this Agreement with respect to which damages are an adequate remedy,
the parties agree that no damages other than compensatory damages shall be
sought or claimed by either party and each party waives any claim, right or
entitlement to punitive, exemplary, or consequential damages, or any statutory
damages, or any other damages of any kind or nature in excess of compensatory
damages, and any court or arbitration tribunal is specifically divested of any
power to award any damages in the nature of punitive, exemplary, or
consequential damages, or any statutory damages, or any other damages of any
kind or nature in excess of compensatory damages.
11
<PAGE>
(e) All payments required to be made by the Company hereunder to the
Executive or his beneficiaries, including his estate, shall be subject to
withholding and deductions as the Company may reasonably determine it should
withhold or deduct pursuant to any applicable law or regulation. In lieu of
withholding or deducting such amounts in whole or in part, the Company may, in
its sole discretion, accept other provision for payment as permitted by law,
provided it is satisfied in its sole discretion that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
(f) This Agreement embodies the entire understanding, and supersedes all
other oral or written agreements or understandings, between the parties
regarding the subject matter hereof. No change, alteration or modification
hereof may be made except in writing signed by both parties hereto. The headings
in this Agreement are for convenience of reference only and shall not be
considered part of this Agreement or limit or otherwise affect the meaning
hereof. This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the laws of the State of
New York (disregarding any choice of law rules which might look to the laws of
any other jurisdiction).
(g) The Executive acknowledges that the terms of this Agreement have been
fully explained to him or her, that the Executive understands the nature and
extent of the rights and obligations provided under this Agreement, and that the
Executive has been given the opportunity to be represented by legal counsel in
the negotiation and preparation of this Agreement.
(h) Subject to its obligations under Section 6, nothing herein contained
shall be construed to prevent or limit any acquisition, consolidation or merger
of the Company.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
By_____________________________
OMI CORPORATION
By_____________________________
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27 contains summary information extracted from OMI Corporation and
subsidiaries Consolidated condensed financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 22,364
<SECURITIES> 0
<RECEIVABLES> 13,739
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,446
<PP&E> 572,751
<DEPRECIATION> 144,264
<TOTAL-ASSETS> 530,501
<CURRENT-LIABILITIES> 40,125
<BONDS> 227,747
0
0
<COMMON> 21,838
<OTHER-SE> 228,162
<TOTAL-LIABILITY-AND-EQUITY> 530,501
<SALES> 0
<TOTAL-REVENUES> 114,983
<CGS> 0
<TOTAL-COSTS> 82,634
<OTHER-EXPENSES> 24,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,130
<INCOME-PRETAX> 10,424
<INCOME-TAX> (37,158)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,582
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
