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 June 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 AUGUST 13, 1998:
Common Stock, par value .50 per share 43,117,828 shares
================================================================================
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of
Income for the three months and six months
ended June 30, 1998 and 1997 ................................. 3
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 .......................... 4
Consolidated Statements of Changes in Stockholders'
Equity for the year ended December 31, 1997
and the six months ended June 30, 1998 ....................... 5
Consolidated Condensed Statements of Cash Flows for the
six months ended June 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 .................. 13
PART II: OTHER INFORMATION .............................................. 20
SIGNATURES ............................................................... 21
-2-
<PAGE>
<TABLE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .................................... $ 36,827 $ 32,261 $ 76,859 $ 66,091
-------- -------- -------- --------
Operating Expenses:
Vessel and voyage ......................... 23,194 18,322 42,962 39,784
Operating leases .......................... 7,223 647 14,378 657
Depreciation and amortization ............. 5,633 5,750 11,382 11,479
General and administrative ................ 2,567 2,277 4,638 4,636
-------- -------- -------- --------
Total operating expenses ................ 38,617 26,996 73,360 56,556
-------- -------- -------- --------
Operating (loss) income ..................... (1,790) 5,265 3,499 9,535
-------- -------- -------- --------
Other Income (Expense):
(Loss) gain on disposal of assets-net ..... -- (15) -- 886
Interest expense-net ...................... (1,659) (2,785) (3,282) (5,374)
-------- -------- -------- --------
Net other expense ....................... (1,659) (2,800) (3,282) (4,488)
-------- -------- -------- --------
(Loss) income before income taxes,
equity in operations of joint
ventures and cumulative effect of
change in accounting principle ............ (3,449) 2,465 217 5,047
(Benefit) provision for income taxes ........ (38,777) 1,097 (37,158) 2,424
-------- -------- -------- --------
Income before equity in
operations of joint ventures
and cumulative effect of change in
accounting principle ...................... 35,328 1,368 37,375 2,623
Equity in operations of joint
ventures .................................. 1,122 2,577 2,164 3,684
-------- -------- -------- --------
Income before cumulative effect of
change in accounting principle ............ 36,450 3,945 39,539 6,307
Cumulative effect of change in
accounting principle, net of tax
provision of $5,419 ....................... -- -- -- 10,063
-------- -------- -------- --------
Net income .................................. 36,450 3,945 39,539 16,370
Other comprehensive income:
Reversal of deferred income taxes
on cumulative translation adjustment ..... 2,530 -- 2,530 --
-------- -------- -------- --------
Comprehensive income ........................ $ 38,980 $ 3,945 $ 42,069 $ 16,370
======== ======== ======== ========
Basic earnings per common share:
Income before cumulative effect of
change in accounting principle ............ $ 0.84 $ 0.09 $ 0.92 $ 0.15
Net income .................................. $ 0.84 $ 0.09 $ 0.92 $ 0.39
Diluted earnings per common share:
Income before cumulative effect of
change in accounting principle ............ $ 0.83 $ 0.09 $ 0.90 $ 0.14
Net income .................................. $ 0.83 $ 0.09 $ 0.90 $ 0.37
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
--------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash, including cash equivalents:
1998-$7,050 1997-$25,900 ....................... $ 21,665 $ 30,608
Receivables:
Traffic ....................................... 13,630 8,151
Other ......................................... 3,359 2,957
Prepaid expenses and other current assets ....... 7,328 10,894
Vessel held for sale ............................ 38,499 --
--------- ---------
Total current assets ........................ 84,481 52,610
--------- ---------
Vessels and other property, at cost .............. 432,161 425,644
Construction in progress ......................... 60,101 56,032
Less accumulated depreciation .................... (138,170) (138,648)
--------- ---------
Vessels, construction in progress
and other property-net ......................... 354,092 343,028
--------- ---------
Investments in, and advances to joint ventures ... 30,309 27,810
Other assets and deferred charges ................ 24,302 17,260
--------- ---------
Total ............................................ $ 493,184 $ 440,708
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 2,939 $ 1,512
Accrued liabilities:
Voyage and vessel ............................ 8,148 7,230
Interest ..................................... 1,681 287
Other ........................................ 5,089 3,307
Deferred gain on sale of vessel ................ 3,151 3,151
Current portion of long-term debt .............. 60,188 5,575
--------- ---------
Total current liabilities ................... 81,196 21,062
--------- ---------
Advance time charter revenues and other
liabilities .................................... 5,075 2,828
Deferred gain on sale of vessels ................. 9,089 10,665
Payable to parent-net ............................ -- 28,691
Deferred income taxes payable .................... 3,100 45,480
Long-term debt ................................... 143,879 48,424
Stockholders' equity ............................. 250,845 283,558
--------- ---------
Total ............................................ $ 493,184 $ 440,708
========= =========
See notes to condensed consolidated financial statements.
-4-
<PAGE>
<TABLE>
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<CAPTION>
Accumulated
Net Retained Other Total
Common Stock Capital Intercompany (Deficit) Comprehensive Comprehensive Stockholders'
Shares Amount Surplus Transactions Earnings Income Income Equity
------ ------- -------- ------------ --------- ------------- ------------- -------------
<S> <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 subsidiary .................. 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 ....................... 39,539 $39,539 39,539
Reversal of deferred income
taxes on cumulative
translation adjustment ......... 2,530 2,530 2,530
-------
Comprehensive income ............... $42,069
=======
Capital distribution of net
intercompany account balance
with subsidiary .................. (76,119) (76,119)
Net intercompany transactions ...... 1,337 1,337
Capital contribution of net
intercompany transactions
with OMI Corp. ................... 40,840 (40,840) --
Exercise of stock options .......... 50 25 (25) --
Issuance of common stock ........... 560 280 (280) --
------ ------- -------- -------- -------- ------- --------
Balance at June 30, 1998 ........... 43,676 $21,838 $207,478 $ -- $ 14,087 $ 7,442 $250,845
====== ======= ======== ======== ======== ======= ========
See notes to condensed consolidated financial statements
</TABLE>
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<PAGE>
<TABLE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES:
Net income ...................................................... $ 39,539 $ 16,370
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 .............................. 11,382 11,479
Net intercompany transactions .............................. 1,337 15
Gain on disposal of assets-net ............................. -- (886)
Amortization of deferred gain on sale of vessel ............ (1,576) (364)
Equity in operations of joint ventures
over dividends received .................................. (2,164) (3,684)
Changes in assets and liabilities:
(Increase) decrease in receivables and other
current assets ........................................... (2,315) 517
Advances (from) to joint ventures-net ...................... (74) 198
Decrease in other assets and
deferred charges ......................................... 1,290 1,578
Increase (decrease) in accounts payable and
accrued liabilities ...................................... 4,858 (1,695)
Increase in advance time charter revenues
and other liabilities .................................... 1,287 11
Payable to parent-net ...................................... (3,217) 3,793
-------- --------
Net cash provided by operating activities ....................... 10,497 17,269
-------- --------
CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES:
Additions to vessels and other property ....................... (59,731) (25,145)
Proceeds from disposition of vessels and other property ....... -- 38,977
Other ......................................................... (261) --
-------- --------
Net other cash (used) provided by investing activities........... (59,992) 13,832
-------- --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from long-term debt
Payments on long-term debt .................................... 63,750 --
Payments for debt issue costs ................................. (22,600) (22,059)
Capital contribution from parent .............................. (598) (123)
-- 4,100
-------- --------
Net cash provided (used) by financing activities ................ 40,552 (18,082)
-------- --------
Net (decrease) increase in cash and cash equivalents ............ (8,943) 13,019
Cash and cash equivalents at beginning of period ................ 30,608 16,056
-------- --------
Cash and cash equivalents at end of period ...................... $ 21,665 $ 29,075
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<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
outstanding. The Distribution Agreement also provides that each MTC and OMI
will indemnify the other in the event of certain liabilities arising under
the Federal securities laws. Each of MTC and OMI will have sole
responsibility for claims arising out of its respective activities after
the Distribution.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on
or prior to the Distribution Date in connection with the Distribution will
be charged to and paid by the party incurring such costs or expenses.
Except as set forth in the Distribution Agreement or any related agreement,
each party shall bear its own costs and expenses incurred after the
Distribution Date.
As part of the Distribution Agreement, OMI has, subject to certain
exceptions, provided indemnity to MTC for all taxes attributable to the
Distribution and to certain corporate restructuring transactions preceding
the Distribution.
-7-
<PAGE>
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 MTC 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
Receivable from parent-net and 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 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 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 charged to Capital Surplus and the balance in
Receivable from parent-net aggregating $76,119,000 was credited 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.
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
three year period. Under the prepaid method survey and drydock expenses are
capitalized and amortized over the period until the next survey cycle.
Management believes the prepaid method better matches costs with revenues, and
minimizes any significant changes in estimates associated with the accrual
method. The cumulative effect of this accounting change is shown separately in
the consolidated statement of operations and resulted in income of $10,063,000
(net of income taxes of $5,419,000)for the six months ending June 30, 1997.
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<PAGE>
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 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 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 ................................ 43,271 42,856 43,172 42,820
======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Weighted average common shares
outstanding ............................... 43,271 42,856 43,172 42,820
7% convertible Note ......................... 407 407 407 407
Options .................................... 283 475 283 475
------- ------- ------- -------
Weighted average common shares-diluted....... 43,961 43,738 43,862 43,702
======= ======= ======= =======
BASIC EARNINGS PER COMMON SHARE:
Income before cumulative effect
of change in accounting principle ......... $ 0.84 $ 0.09 0.92 $ 0.15
Cumulative effect of change in
accounting principle, net of
income tax provision ...................... -- -- -- 0.24
------- ------- ------- -------
Net income per common share ................. 0.84 $ 0.09 0.92 $ 0.39
======= ======= ======= =======
DILUTED EARNINGS PER COMMON SHARE:
Income before cumulative effect
of change in accounting principle ......... $ 0.83 $ 0.09 $ 0.90 $ 0.14
Cumulative effect of change in
accounting principle, net of
income tax provision ...................... 0.23
------- ------- ------- -------
Net income per common share ................. $ 0.83 $ 0.09 $ 0.90 $ 0.37
======= ======= ======= =======
</TABLE>
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.
-9-
<PAGE>
NOTE 7 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments include interest paid of approximately $2,206,000 and $3,737,000
for the six months ended June 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
At the date of the Distribution, the Company has a credit facility which
provides for a line of credit in the amount of $122,000,000 (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
$175,643,000 at June 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 in the
amount which can be outstanding, the first five are $5,500,000, the next four
are $8,875,000 and the balance is due at maturity. At June 30, 1998, seven
semi-annual reductions remain. 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.
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 drewdown $16,000,000 to refinance two
Panamax tankers. The $16,000,000 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 which is computed based on the Company's funded debt to
capitalization ratio.
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(See Note 11).
The availability of the facility is reduced on a semi-annual basis by $1,294,000
beginning 18 months after the initial drawdown, to a balloon of $13,750,000 and
will mature 10 years after 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 $77,000,000 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 delivery of the newbuilding
delivered July 23, 1998. The availability under the facility is reduced
semiannually by $__ beginning 18 months after the initial drawdown and matures
on July 20, 2006. The facility bears interest at LIBOR plus a margin ranging
from 60 to 100 basis points.
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 a interim basis, the acquisition of vessels (other than the
newbuildings) and will be secured by such vessels.
-10-
<PAGE>
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 six months
ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED JUNE 30, MONTHS ENDED JUNE 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 .............. $5,489 $6,114 $2,545 $3,313 $8,000 $8,294 $5,077 $6,290
Expenses .............. 3,880 3,853 2,047 2,199 5,186 5,424 3,910 4,293
------ ------ ------ ------ ------ ------ ------ ------
Operating income ...... $1,609 $2,261 $ 498 $1,114 $2,814 $2,870 $1,167 $1,997
====== ====== ====== ====== ====== ====== ====== ======
Cumulative effect
of change in
accounting
principle ........... -- -- -- -- -- -- -- $1,196
====== ====== ====== ====== ====== ====== ====== ======
Net income ............ $1,868 $1,108 $ 497 $1,102 $3,112 $1,746 $1,179 $3,142
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
NOTE 10 -- FINANCIAL INFORMATION RELATING TO SEGMENTS OF FOREIGN OPERATIONS
The Company organizes its business principally into two segments. These segments
and their respective operations are as follows:
Product Carrier Fleet -- Includes vessels that normally carry refined petroleum
products such as gasoline, naphtha and kerosene. This fleet includes two sizes
of vessels, Panamaxes and Handysize vessels.
Crude Oil Tanker Fleet -- Includes vessels that normally carry crude oil and
"dirty" products. This fleet includes two sizes of vessels, Suemaxes and an
Aframax.
The following is a summary of operations by major operating segments:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
TOTAL REVENUES:
Foreign:
Product Carrier Fleet ...................... $14,393 $16,263 $27,650 $33,707
Crude Oil Tanker Fleet ..................... 22,438 15,874 49,197 30,919
Other ...................................... (4) 124 12 1,465
------- ------- ------- -------
Total .................................... $36,827 $32,261 $76,859 $66,091
======= ======= ======= =======
(LOSS) INCOME BEFORE INCOME TAXES,
EQUITY IN OPERATIONS OF JOINT
VENTURES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE:
Foreign:
Product Carrier Fleet ...................... $ 300 $ 5,760 $ 1,028 $ 7,615
Crude Oil Tanker Fleet ..................... 1,044 1,416 5,110 1,716
General and administrative expense
not allocated to vessels ................. (1,862) (1,152) (2,739) (2,330)
Other ...................................... (2,931) (3,559) (3,182) (1,954)
------- ------- ------- -------
Total .................................... $(3,449) $ 2,465 $ 217 $ 5,047
======= ======= ======= =======
</TABLE>
-11-
<PAGE>
Mortgage debt of OMI Corp. previous to the Distribution and its related interest
expense were allocated to UBC 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
On June 9,1998, the Company took delivery of a newbuilding, double-hulled
Suezmax tanker, previously under construction. Subsequent to June 30, 1998, the
Company took delivery of two additional doubled-hulled Suezmax newbuildings, one
on July 23, 1998 and one on August 11, 1998. Each of the three vessels cost
approximately $54,000,000 (before capitalized interest). The Company has
contracted for two additional 312,000 dwt Suezmax tankers and two 35,000 dwt
product carriers in the same shipyard. The Suezmaxes will be delivered in the
first quarter of 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 February 3, 1998, the Company entered into an agreement for the sale of the
TANANA for $45,500,000. The vessel, which is included in vessel held for sale,
will be delivered to the new owners in August 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 will be 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 of a
$1,000,000 termination fee. The balance of the deferred gain was $12,240,000 at
June 30, 1998.
NOTE 12 -- SUBSEQUENT EVENT
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.
-12-
<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 ("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, to a much lesser extent, 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 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 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.
Net income for the six months ended June 30, 1998 was $39.5 million
compared to $16.4 million for the six months ended June 30, 1997. Included in
1998 income of $39.5 million is a benefit of $38.9 million for federal income
taxes. In connection with the Distribution, described above, OMI became a
decontrolled corporation and the deferred income taxes which had been previously
recorded were reversed. Included in the 1997 income of $16.4 million is income
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 substantial 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 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. Rates declined to a low level in the
first quarter of this year not seen since 1992. Average freight rates for
handysize product tankers in the first half of 1998 were substantially lower
than the rates prevailing in the same period a year ago.
The Company's handysize product tankers are currently employed in the spot
market. Though 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.
-13-
<PAGE>
OMI and Heidenreich Marine Inc. ("Heidmar"), an owner and operator of a
modern fleet of 40,000 to 80,000 dwt tankers have formed a jointly owned company
named "OMI-Heidmar Shipping LLC" to market tankers in the Far East. Currently,
this company operates seven Handysize and Handymax product tankers, including
two OMI handysize vessels. In addition, OMI has time 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/products tankers which
comprises 22 vessels and operates worldwide.
The Company has on order with a South Korean shipyard two 35,000 dwt
product carriers. The product carriers, which are time chartered out for two
years, are to be delivered in the second half of 1999.
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).
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 but substantially lower for Aframax vessels compared to the
rates prevailing in the same period a year ago. However, it should be mentioned
that, in the short-term, there could be a rate weakness as a result of the
relatively high world oil inventories, the proposed 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 of it Suezmax tankers, including three chartered-in
vessels, in the spot market.
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 has taken 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.
Furthermore, in order to increase the Company's market share in the Suezmax
trades in the Atlantic Basin, OMI and a Norwegian shipping company (the owner
of one of the world's largest and more modern Suezmax fleets) combined Suezmax
tanker fleets for commercial purposes and created Alliance Chartering LLC
("Alliance"). Alliance currently markets 28 Suezmax tankers (including the
TANANA which is being held for sale), comprising about 17% of the total
Suezmaxes trading in the Atlantic basin. As result of Alliance's strong
marketing position the Company has been able to establish important
relationships and contracts with a number of large oil companies. 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, because fluctuations in voyage revenues and
expenses occur based on the nature of a charter. The Company's vessels currently
operate, or have operated in prior years, on time, bareboat or voyage ("spot")
charters. Each type of charter denotes a method by which revenues are recorded
and expenses are allocated. Under a time charter, revenue is measured based on a
daily or monthly rate and the charterer assumes certain voyage expenses, such as
fuel and port charges. Under a bareboat charter, the charterer assumes all
voyage and operating expenses; therefore, the revenue rate is likely to be lower
than a time charter. Under a voyage charter, revenue is calculated based on the
amount of cargo carried, most expenses are for the shipowner's account and the
length of the charter is one voyage. Revenue may be higher in the spot market,
as the owner is responsible for most of the costs of the voyage. Other factors
affecting net voyage revenues for voyage charters are waiting time between
cargoes, port costs, and bunker prices.
Vessel expenses included in net voyage revenue discussed above include operating
expenses such as crew payroll/benefits/travel, stores, maintenance and repairs,
drydock, insurance and miscellaneous. These expenses are a function of the fleet
size, utilization levels for certain expenses, requirements under laws, by
charterers and Company standards. Insurance expense varies with the overall
insurance market conditions as well as the insured's loss record, level of
insurance and desired coverage.
-14-
<PAGE>
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES
Net voyage revenues of $19.5 million for the six months ended June 30,
1998 decreased by a net of $6.1 million for the same period in 1997. Net voyage
revenue of $6.4 million decreased $6.9 million for the second quarter of 1998
compared to $13.3 million for the second quarter of 1997. Net voyage revenues
for the six 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- --------------------
1998 1997 1998 1997
--------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
VOYAGE REVENUES:
Product Carrier Fleet ..................... $ 14,393 $ 16,263 $ 27,650 $ 33,707
Crude Oil Tanker Fleet .................... 22,438 15,874 49,197 30,919
All Other ................................. (4) 124 12 1,465
-------- -------- -------- --------
Total ................................ $ 36,827 $ 32,261 $ 76,859 $ 66,091
======== ======== ======== ========
VESSEL, VOYAGE AND OPERATING LEASE EXPENSES:
Product Carrier Fleet ..................... $ 9,744 $ 7,822 $ 17,558 $ 17,760
Crude Oil Tanker Fleet .................... 17,983 10,865 37,125 21,738
All Other ................................. 2,690 282 2,657 943
-------- -------- -------- --------
Total ................................ $ 30,417 $ 18,969 $ 57,340 $ 40,441
======== ======== ======== ========
NET VOYAGE REVENUES:
Product Carrier Fleet ..................... $ 4,649 $ 8,441 $ 10,092 $ 15,947
Crude Oil Tanker Fleet .................... 4,455 5,009 12,072 9,181
All Other ................................. (2,694) (158) (2,645) 522
-------- -------- -------- --------
Total ................................ $ 6,410 $ 13,292 $ 19,519 $ 25,650
======== ======== ======== ========
</TABLE>
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1998 VERSUS JUNE 30, 1997
Net voyage revenues decreased $6.1 million for the six months and $6.9
million for the three months ended June 30, 1998. These decreases include
decreases in other net voyage revenue of $3.2 million and $2.5 million for the
six and three months, respectively, which relate primarily to the sale of the
LPG carrier 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.
Product Carrier
The product carrier fleet consisted of thirteen vessels (ten Handysize and
three Panamaxes) in both June 30, 1998 and 1997. At June 30, 1998, three of the
Handysize and one Panamax were on time charters. Another Panamax is on time
charter carrying crude oil in 1998, explaining a portion of the decrease in net
voyage revenue for the product or "clean" group in 1998.
Net voyage revenues decreased by $5.9 million for the six months ended June
30, 1998 compared to the same period in 1997. Net voyage revenue decreased for
the six months ending June 30, 1998 for all but two of the product carriers .
The decreases are due to the market decline in rates mentioned in the overview.
Of the two product carriers that earned greater net voyage revenues in 1998, one
was on time charter and one was acquired in April 1997.
Net voyage revenues of $4.6 million decreased $3.8 million in the second
quarter of 1998 from $8.4 million in the same period in 1997. The decrease in
the second quarter is attributable to lower rates for substantially all the
vessels operating in the spot market.
-15-
<PAGE>
Crude Tanker Fleet
For the six months ending June 30, 1998, the crude fleet consisted of seven
wholly owned vessels (six Suezmaxes and one Aframax) and four chartered-in
Suezmaxes; nine of the vessels are currently operating in the spot market. One
vessel, which had been on a long-term time charter, was redelivered in the
fourth quarter of 1997. 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 six months ended June 30, 1997, two of the vessels were
time chartered out.
Net voyage revenues of $12.1 million generated by the crude tanker fleet
increased $2.9 million for the six months ended June 30, 1998 from $9.2 million
for the comparable period in 1997. The increase in net voyage revenues can be
attributed to three reasons; a Panamax which had been carrying clean products
began carrying crude in 1998, another vessel was on time charter for the full
six months of 1998 at a better rate than the 1997 spot/time charter combined
earnings, and three additional vessels were chartered-in in 1998. 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 already explained in the market overview. Additionally, the net voyage
revenues earned by the vessel on sale leaseback is substantially less due to
lease expense (this decrease is however, compensated for by the gain on the
sale).
Net voyage revenues of $4.5 million decreased $0.5 million in the second
quarter of 1998 compared to $5.0 million in the second quarter of 1997. The
decrease in the crude group for the second quarter is attributed to the decrease
in spot rates which declined from the first quarter. Additionally, the increase
in operating lease expense for the vessel sold and leased back contributed to
the decrease. Decreases were offset in part by revenues of two vessels, a
Panamax carrying crude in 1998 and an Aframax operating on a more profitable
time charter.
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 six months ended June 30, 1998, these expenses
decreased $0.1 million to $16.0 million, from $16.1 million for the same period
in 1997. Other operating expenses increased $0.2 million for the three months
ended June 30, 1998 compared to the same period in 1997. Depreciation expense
decreased a net $0.1 million for the six months and the three months ended June
30, 1998 compared to the same periods in 1997 due to the sale of a crude oil
tanker in May 1997 offset in part by depreciation of the newbuilding delivered
in June 1998.
OTHER INCOME (EXPENSE)
Other income (expense) consists of gain on disposal of assets-net and
interest expense-net. Net other expense decreased by $1.2 million from $4.5
million to $3.3 million for the six months ended June 30, 1998 compared to the
same period in 1997. Gain on sale of assets-net decreased $0.9 million due to
the gain on sale in March 1997 of the GENERAL. No assets were disposed of during
the six months ending June 30, 1998. Interest expense-net decreased by $2.1
million for the six months and $1.1 million for the three months ended June 30,
1998 compared to 1997 due to the following; an increase in capitalized interest
for the six vessels under construction during the six and three months ending
June 30, 1998 compared to four vessels in 1997 and lower average interest rates
and average debt.
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.
-16-
<PAGE>
EQUITY IN OPERATIONS OF JOINT VENTURES
Equity in operations of joint ventures decreased by $1.5 million to $2.2
million for the six months ended June 30, 1998 compared to $3.7 million for the
same period in 1997. The decrease is primarily attributed to Mosaic Alliance
Corporation ("Mosaic"), a 49.9 percent joint in 1997, by $1.7 million, White
Sea of $0.5 million offset by an increase in Amazon of $0.7 million. In December
1997, the Company purchased its partners' 50.1 percent interest in Mosaic.
Mosaic's equity in earnings of $1.4 million for the first six months of 1997 was
a result of a $1.9 million gain on the sale of a vessel and an operating loss of
$0.5 million.
Equity in operations of joint ventures decreased by $1.5 million to $1.1
million for the three months ended June 30, 1998 compared to $2.6 million for
the same period in 1997. The decrease is primarily due to Mosaic ($1.5 million),
White Sea ($0.4 million) offset by in increase in Amazon ($0.4 million).
BALANCE SHEET
On February 3, 1998, the Company entered into an agreement for the sale of
the TANANA for $45.5 million. The vessel, which is included in current assets as
held for sale, was delivered to the new owners in August 1998. The mortgage
payable of $31.4 million related to the vessel was included in current
maturities of long-term debt at June 30, 1998.
On June 9, 1998, the Company took delivery of a newly constructed double
hulled Suezmax tanker, increasing vessels by $56.0 million and debt by $35.8
million.
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 and the balance of Net intercompany transactions
of $40.8 were charged 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 $21.7 million at June 30, 1998 decreased $8.9
million from cash and cash equivalents of $30.6 million at December 31, 1997.
The Company's working capital of $3.2 million decreased $28.3 million from
working capital of $31.5 million at June 30, 1997. Current assets increased
$31.9 million primarily due to the increase in vessel held for sale at June 30,
1998. Current liabilities increased $60.1 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) and the
balance of the debt related to the TANANA. Net cash provided by operating
activities decreased $6.8 million to $10.5 million for the six months ended
June 30, 1998 compared to the six months ended June 30, 1997.
Cash provided by financing activities was $40.6 million in 1998 compared to
cash used of $18.1 million for the six months ended 1997. Payments on long-term
debt of $22.6 million were made in 1998. Included in the payments of $22.6
million were unscheduled payments of $20.6 million from the refinancing of two
vessels. Proceeds from the issuance of long-term debt of $63.8 million include
proceeds of $35.8 million for the financing of a new vessel, $16.0 million from
refinancing of two vessels and $12.0 million drawn on a line of credit in June
1998 which was repaid in July 1998. In the six months ended June 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 $60.0 million,
a decrease of $73.8 million from cash provided by investing activities of $13.8
million for the six months ending June 30, 1997. Cash used by investing
activities increased in 1998 due to the acquisition of a new vessel and
additions to vessels under construction. Additionally, in 1997, the Company
received proceeds from the sale of the ALTA of $39.0 million and there were no
disposals in 1998.
-17-
<PAGE>
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.
At the date of the Distribution, the Company has a credit facility 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 $175.6
million at June 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 June 30, 1998) in the amount which can be outstanding,
the first five are $5.5million, 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 $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. The
availability of the facility is reduced on a semi-annual basis by $1.3 million
beginning 18 months after the initial drawdown, with a balloon payment of $13.7
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
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.
-18-
<PAGE>
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 June 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 of 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 outstanding. The Distribution
Agreement also provides that each of MTC and OMI will indemnify the other in the
event of certain liabilities arising under the Federal securities laws. Each of
MTC and OMI will have sole responsibility for claims arising out of its
respective activities after the Distribution.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and paid by the party incurring such costs or expenses. Except as set
forth in the Distribution Agreement or any related agreement, each party shall
bear its own costs and expenses incurred after the Distribution Date.
As part of the Distribution Agreement, OMI has, subject to certain
exceptions, provided indemnity to MTC for all taxes attributable to the
Distribution and to certain corporate restructuring transactions preceding the
Distribution.
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 MTC
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. The Company has been in the process over the last year in
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, supplier and business partners may vary.
-19-
<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
27 OMI Corporation - Financial Data Schedule, dated June 30, 1998.
b. REPORTS ON FORM 8-K
None
-20-
<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: AUGUST 13, 1998 BY: /s/ CRAIG H. STEVENSON, JR.
------------------------ -----------------------------------------
Craig H. Stevenson, Jr.
President, Chief Executive Officer
and Chairman of the Board
DATE: AUGUST 13, 1998 BY: /s/ VINCENT DE SOSTOA
------------------------ -----------------------------------------
Vincent De Sostoa
Senior Vice President and
Chief Financial Officer
21
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 21,665
<SECURITIES> 0
<RECEIVABLES> 16,989
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 84,481
<PP&E> 492,262
<DEPRECIATION> 138,170
<TOTAL-ASSETS> 493,184
<CURRENT-LIABILITIES> 81,196
<BONDS> 143,879
0
0
<COMMON> 21,838
<OTHER-SE> 229,007
<TOTAL-LIABILITY-AND-EQUITY> 493,184
<SALES> 0
<TOTAL-REVENUES> 76,859
<CGS> 0
<TOTAL-COSTS> 57,340
<OTHER-EXPENSES> 16,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,827
<INCOME-PRETAX> 2,381
<INCOME-TAX> (37,158)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,539
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.90
</TABLE>
