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, 1999
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 11, 1999:
Common Stock, par value $0.50 per share 41,647,387 shares
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations (unaudited) for the three months and nine months
ended September 30, 1999 and 1998 3
Condensed Consolidated Balance Sheets-
September 30, 1999 (unaudited) and December 31, 1998 4
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the year ended December 31, 1998
and the (unaudited) nine months ended September 30, 1999 5
Condensed Consolidated Statements of Cash Flows (unaudited) for
the nine months ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 26
PART II: OTHER INFORMATION 27
SIGNATURES 28
-2-
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 25,771 $ 38,124 $ 91,284 $ 114,983
--------- --------- --------- ---------
Operating Expenses:
Vessel and voyage 14,990 19,261 51,775 62,223
Charter hire 4,696 6,033 11,479 20,411
Depreciation and amortization 5,627 6,438 17,944 17,820
Provision for loss on lease
obligation (Note 10) -- -- 6,229 --
General and administrative 2,299 2,203 7,528 6,841
--------- --------- --------- ---------
Total operating expenses 27,612 33,935 94,955 107,295
--------- --------- --------- ---------
Operating (loss) income (1,841) 4,189 (3,671) 7,688
--------- --------- --------- ---------
Other Income (Expense):
Gain (loss) on disposal/write down
of assets-net (Notes 11 and 12) 92 6,625 (23,574) 6,625
Loss on disposal/write down of
joint venture investments (1,114) - (1,114) -
Interest expense-net (4,010) (2,759) (11,668) (6,041)
Other -- (1,010) -- (1,010)
--------- --------- --------- ---------
Net other (expense) income (5,032) 2,856 (36,356) (426)
--------- --------- --------- ---------
(Loss) income before income taxes,
equity in operations of joint
ventures and cumulative effect of
change in accounting principle (6,873) 7,045 (40,027) 7,262
Benefit for income taxes -- -- -- 37,158
--------- --------- --------- ---------
(Loss) income before equity in
operations of joint ventures
and cumulative effect of change in
accounting principle (6,873) 7,045 (40,027) 44,420
Equity (loss) in operations of joint
ventures (246) 998 (257) 3,162
--------- --------- --------- ---------
(Loss) income before cumulative effect
of change in accounting principle (7,119) 8,043 (40,284) 47,582
Cumulative effect of change in
accounting principle (Note 9) -- -- 2,729 --
--------- --------- --------- ---------
Net (loss) income (7,119) 8,043 (37,555) 47,582
Other comprehensive income:
Reversal of deferred income taxes
on cumulative translation adjustment -- -- -- 2,530
--------- --------- --------- ---------
Comprehensive (loss) income $ (7,119) $ 8,043 $ (37,555) $ 50,112
========= ========= ========= =========
Basic (loss) earnings per common share:
(Loss) income before cumulative effect
of change in accounting principle $ (0.17) $ 0.19 $ (0.97) $ 1.11
Net (loss) income $ (0.17) $ 0.19 $ (0.90) $ 1.11
Diluted (loss) earnings per common share:
(Loss) income before cumulative effect
of change in accounting principle $ (0.17) $ 0.19 $ (0.97) $ 1.10
Net (loss) income $ (0.17) $ 0.19 $ (0.90) $ 1.10
</TABLE>
See notes to condensed consolidated financial statements
-3-
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash, including cash equivalents:
1999-$11,651; 1998-$10,166 $ 14,654 $ 22,698
Receivables:
Traffic 7,975 12,842
Other 8,407 2,733
Vessels held for sale (Note 11) 8,420 --
Prepaid expenses and other current assets 4,062 8,822
-------- --------
Total current assets 43,518 47,095
-------- --------
Vessels, construction in progress
and other property:
Vessels and other property 526,612 544,447
Construction in progress 10,579 34,733
Less accumulated depreciation 122,643 150,585
-------- --------
Vessels, construction in progress
and other property-net 414,548 428,595
-------- --------
Investments in, and advances to joint ventures 22,031 25,507
Notes receivable 15,392 6,604
Other assets and deferred charges 21,721 22,326
-------- --------
Total $517,210 $530,127
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,248 $ 2,520
Accrued liabilities:
Voyage and vessel 7,233 11,438
Interest 2,379 4,007
Other 1,183 2,571
Deferred gain on sale of vessels 3,151 3,151
Current portion of long-term debt (Note 2) 25,928 21,494
-------- --------
Total current liabilities 45,122 45,181
-------- --------
Advance time charter revenues and other
liabilities 8,266 3,496
Deferred gain on sale of vessels 5,151 7,514
Deferred income taxes payable (Note 4) 3,100 3,100
Long-term debt (Note 2) 247,863 225,653
Stockholders' equity 207,708 245,183
-------- --------
Total $517,210 $530,127
======== ========
See notes to condensed consolidated financial statements.
-4-
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Net Retained Other
Common Stock Capital Intercompany Treasury (Deficit) Comprehensive
Shares Amount Surplus Transaction Stock Earnings Income
------ ------ ------- ------------ -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1998 43,066 $ 21,533 $ 243,062 $ 39,503 $ (25,452) $ 4,912
Comprehensive income:
Net income 42,917
Reversal of deferred income taxes on
cumulative transaction adjustment 2,530
Comprehensive income
Capital distribution of net intercompany
account balance with parent (76,119)
Net intercompany transactions 1,337
Capital distribution 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 $ (9,040)
------ -------- --------- -------- --------- ---------- -------
Balance at December 31, 1998 43,676 21,838 207,478 -- (9,040) 17,465 7,442
Comprehensive loss:
Net loss (37,555)
Net change in valuation account
Comprehensive loss
Issuance of common stock 48 24 56
------ -------- --------- -------- --------- ---------- -------
Balance at September 30, 1999 43,724 $ 21,862 $ 207,534 -- $ (9,040) $ (20,090) $ 7,442
====== ======== ========= ======== ========= ========== =======
<CAPTION>
Total
Comprehensive Stockholders'
Income Equity
------------- ------------
<S> <C> <C>
Balance as of January 1, 1998 $ 283,558
Comprehensive income:
Net income $ 42,917 42,917
Reversal of deferred income taxes on
cumulative transaction adjustment 2,530 2,530
--------
Comprehensive income $ 45,447
========
Capital distribution of net intercompany
account balance with parent (76,119)
Net intercompany transactions 1,337
Capital distribution of net intercompany
transactions with parent --
Exercise of stock options --
Issuance of common stock --
Purchase of treasury stock (9,040)
---------
Balance at December 31, 1998 245,183
Comprehensive loss:
Net loss $(37,555) (37,555)
Net change in valuation account --
--------
Comprehensive loss $(37,555)
========
Issuance of common stock 80
---------
Balance at September 30, 1999 $ 207,708
=========
</TABLE>
See notes to condensed consolidated financial statements
-5-
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1999 1998
--------- --------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net (loss) income $ (37,555) $ 47,582
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle (2,729) --
Decrease in deferred income taxes -- (39,850)
Depreciation and amortization 17,944 17,820
Net intercompany transactions -- 1,337
Loss (gain) on disposal of assets-net 23,574 (6,625)
Loss on disposal/write down of joint ventures 1,114 --
Amortization of deferred gain on sale of vessel (2,363) (2,363)
Provision for loss on lease obligation-net of
amortization 5,537 --
Equity (loss) in operations of joint ventures
over dividends received 2,193 (1,202)
Changes in assets and liabilities:
Increase (decrease) in receivables and other
current assets 7,761 (159)
Advances to joint ventures - net (355) (144)
Increase in other assets and deferred charges (658) (2,651)
(Decrease) increase in accounts payable and
accrued liabilities (4,493) 8,770
Increase (decrease) in advance time charter
revenues and other liabilities 472 (2,367)
Payable to Parent-net -- (3,217)
--------- --------
Net cash provided by operating activities 10,442 16,931
--------- --------
CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES:
Proceeds from disposition of vessels and other property 62,152 45,030
Additions to vessels and other property (89,804) (140,215)
Investment in joint ventures (1,794) --
Proceeds from notes receivable 212 --
Issuance of notes receivable (9,000) --
Other (6,756) (261)
--------- --------
Net cash used by investing activities (44,990) (95,446)
--------- --------
CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from long-term and short-term debt 133,698 154,300
Payments on long-term and short-term debt (107,054) (74,270)
Purchase of treasury stock -- (8,888)
Issuance of common stock 80 --
Payments for debt issue costs (220) (871)
--------- --------
Net cash provided by financing activities 26,504 70,271
--------- --------
Net decrease in cash and cash equivalents (8,044) (8,244)
Cash and cash equivalents at beginning of year 22,698 30,608
--------- --------
Cash and cash equivalents at end of period $ 14,654 $ 22,364
========= ========
See notes to condensed consolidated financial statements
-6-
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1
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 Corporation and subsidiaries ("OMI" or the
"Company"), all adjustments (comprising only normal recurring accruals and the
cumulative effect of the change in accounting principle) necessary for a fair
presentation of operating results have been included in the statements.
Reference is made to the OMI Corporation's Form 10-K for additional information.
The Company is the successor to Universal Bulk Carriers, Inc. ("UBC"), a
Liberian corporation, which was a wholly-owned subsidiary of OMI Corp. ("Old
OMI") until June 17, 1998 at which date the Company was separated from Old OMI
(renamed Marine Transport Corporation, "MTC") through a tax-free distribution
("Distribution") of one share of the Company's common stock for each share of
Old OMI common stock. The distribution separated Old OMI into two publicly-owned
companies. OMI Corporation operates what was Old OMI's foreign shipping
businesses under the management of certain of the officers formerly of Old OMI
who moved to the new company and certain former directors of Old OMI and
additional new directors. The Company continues to trade under the symbol OMM on
the New York Stock Exchange.
The financial statements and computations of basic and diluted earnings
per share (see Note 3) 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.
Note 2 - Credit Facilities and Loan Agreements
As of September 30, 1999, the Company's debt and credit arrangements consisted
of the following:
Outstanding
(in thousands) Balance
-----------
Fixed rate unsecured notes:
7% Convertible Note due February 2004 (A) $ 2,744
10.25% Senior Notes due November 2003 4,357
Floating rate credit facilities:
Due April 2002 99,090
Due June 2003 12,000
Due September 2009 (B) 16,000
Due August 2008 71,500
Due June 2008 36,900
Floating rate revolving lines of credit:
Due December 1999 (C) 21,200
Due February 2000 (D) 10,000
-------
Total 273,791
Less current portion of long-term debt 25,928
-------
Long-term debt $247,863
========
(A) The 7% Convertible Note is convertible into 372,100 shares at $7.375 per
share.
(B) During September 1999, $16,000,000 was drawn down under this facility to
finance the ISERE, a new product carrier delivered September 15, 1999.
-7-
<PAGE>
(C) On July 15, 1999, $21,200,000 was drawn down to finance the SEINE, a new
product tanker delivered July 19, 1999. The line of credit may be renewed
annually subject to bank approval.
(D) The line of credit may be renewed annually subject to bank approval.
Restrictive Covenants
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 restricting
the Company's ability to pay dividends. 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 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 certain transactions with affiliated
companies. In the event of a sale of a secured asset, each of the loan
agreements requires the Company to reduce the applicable loan by net proceeds of
the sale up to the outstanding loan balance, except for the Credit Facility
maturing April 2002 which permits the Company to substitute another vessel.
As of September 30, 1999, the Company is not in compliance with certain of
its covenants. The Company remains current on all principal and interest
payments. Its lenders have presented an indicative term sheet, the effect of
which is a revision of covenants, acceptable to the Company, and to increase
interest rate margins and reduce principal amortization. Documentation is
expected to be completed by year-end.
Interest Rates
The interest rates on the 10.25% unsecured Senior Notes and 7.00%
Convertible Note are fixed. The interest rates range from 0.60% to 1.05% above
London Interbank Offering Rate ("LIBOR") on the credit facilities and from 1.00%
to 1.75% above LIBOR for the lines of credit.
Security
At September 30, 1999, vessels, vessels held for sale and shares in a
joint venture with an aggregate net book value of $418,237,000 have been pledged
as collateral for debt agreements.
Note 3 - Earnings Per Common Share
The computation of basic earnings per share is based on the weighted
average number of common shares outstanding during the period. 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:
-8-
<PAGE>
<TABLE>
<CAPTION>
For The For The
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(in thousands, except per share
amounts)
Basic earnings per share:
Weighted average common shares
outstanding .......................... 41,647 42,837 41,635 43,030
======= ====== ======= =======
Diluted earnings per share:
Weighted average common shares
outstanding ........................... 41,647 42,837 41,635 43,030
7 % convertible Note ................... -- -- -- --
Options ................................ -- 276 -- 276
------- ------ ------- -------
Weighted average common shares-
diluted ................................ 41,647 43,113 41,635 43,306
======= ====== ======= =======
Basic (loss) earnings per common share:
(Loss) income before cumulative effect
of change in accounting principle ..... $ (0.17) $ 0.19 $ (0.97) $ 1.11
Cumulative effect of change in
accounting principle .................. -- -- 0.07 --
------- ------ ------- -------
Net (loss) income per common share ..... $ (0.17) $ 0.19 $ (0.90) $ 1.11
======= ====== ======= =======
Diluted (loss) earnings per common share:
(Loss) income before cumulative effect
of change in accounting principle ..... $ (0.17) $ 0.19 $ (0.97) $ 1.10
Cumulative effect of change in
accounting principle .................. -- -- 0.07 --
------- ------ ------- -------
Net (loss) income per common share ..... $ (0.17) $ 0.19 $ (0.90) $ 1.10
======= ====== ======= =======
</TABLE>
The effect of the assumed conversion of the 7% convertible note due 2004 was not
included in the the computation of diluted earnings per share for the three and
nine months ended September 30, 1999 and 1998 because the effect was
antidilutive.
Note 4 - Income Taxes
As of the Distribution date of June 17, 1998, OMI Corporation is no longer
subject to U.S. taxes on its shipping income.
The benefit for income taxes on income varies from the statutory rates as
follows:
For The Period
Ended June 17,
-------------------
(in thousands) 1998
----------
Provision calculated at
statutory rates $ 1,204
Reversal of deferred income taxes (38,887)
Adjustment for equity in operations
of certain joint ventures 525
----------
Benefit for income taxes $ (37,158)
==========
For the period ended June 17, 1998, the Company did not provide deferred
income taxes on its equity in the undistributed earnings of foreign corporate
joint ventures accounted for under the equity method other than Amazon
Transport, Inc. ("Amazon") and White Sea Holdings Ltd. ("White Sea"). These
earnings are considered by management to be invested in the business for an
indefinite period.
-9-
<PAGE>
Management estimated that the distribution of shares to the shareholders
of OMI Corp. would 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 with its respect to its shipping income, $38,887,000 of
the balance of deferred income taxes was credited to income, leaving a balance
of $3,100,000.
Note 5 - Supplemental Cash Flow Information
Cash payments include interest of approximately $14,661,000 and $5,146,000
for the nine months ended September 30, 1999 and 1998, respectively.
Note 6 - Joint Venture Information
Amazon and 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, 1999 and 1998 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
--------------------------------------- --------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Revenues $ 2,297 $ 4,101 $ 1,067 $ 2,280 $ 5,854 $12,101 $ 4,568 $ 7,357
Expenses 2,545 2,677 1,578 1,709 6,486 7,683 4,174 5,619
------- ------- ------- ------- ------- ------- ------- -------
Operating (loss) income $ (248) $ 1,424 (511) $ 571 $ (632) $ 4,418 $ 394 $ 1,738
======= ======= ======= ======= ======= ======= ======= =======
Cumulative effect
of change in
accounting principle -- -- -- -- -- -- $ 245 --
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) $ (242) $ 1,518 $ (493) $ 620 $ (477) $ 4,630 $ 687 $ 1,799
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
On September 29, 1999, OMI sold its 49 percent share in its White Sea joint
venture for approximately $2,438,000, of which $1,560,000 cash was received in
October 1999. A loss of $815,000 was recorded from the sale in September 1999.
In the third quarter, the Company wrote down $299,000 of its investment in the
OMI-Heidmar joint venture, which will dissolve in June 2000.
Note 7 - Financial Information Relating to Segments
The Company organizes its business principally into two operating
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 vessels.
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.
-10-
<PAGE>
The following is a summary of the operations by major operating segments:
For the Three For The Nine
Months Months
Ended September 30, Ended September 30,
------------------- -------------------
(in thousands) 1999 1998 1999 1998
-------- -------- -------- --------
Total Revenues:
Crude Oil Tanker Fleet............ $17,074 $ 26,206 $ 62,033 $ 75,821
Product Carrier Fleet............. 8,644 11,892 29,014 39,124
Other............................. 53 26 237 38
-------- -------- -------- --------
Total............................ $ 25,771 $ 38,124 $ 91,284 $114,983
======== ======== ======== ========
(Loss) income before income taxes,
equity in operations of joint
ventures and cumulative effect of
change in accounting principle:
Crude Oil Tanker Fleet.........(1) $(2,393) $ 8,383 $(31,609) $ 13,609
Product Carrier Fleet............. (765) (303) (228) 1,609
General and administrative expense
not allocated to vessels......... (1,565) (692) (4,996) (3,145)
Other............................. (2,150) (343) (3,194) (4,811)
-------- -------- -------- --------
Total............................ $(6,873) $ 7,045 $(40,027) $ 7,262
======= ======== ======== ========
(1) For the three and nine months ended September 30, 1999, operating income
(loss) for the crude oil fleet includes a provision for loss on lease
obligation of $6,229,000 (see Note 10) and includes the estimated loss on
disposals/write down of vessels of $23,574,000 (see Notes 11 and 12). For
the three and nine months ended September 30, 1998, income before income
taxes and equity in operations of joint ventures includes a gain on sale
of a vessel of $6,625,000 and adjustments to expense for a vessel sold of
$1,010,000.
During the three and nine months ended September 30, 1999 and 1998,
mortgage debt of OMI Corporation and its related interest expense have been
allocated to the above segments based upon the fair value of the vessels
collateralizing the debt. For the period ended June 17, 1998, general and
administrative expense included in determining income before income tax and
equity in operations of joint ventures includes an allocation of costs of
corporate administrative services provided by the Company's parent prior to the
spin-off. The foreign segments were charged a fixed amount per month per vessel
for vessel management and accounting activities and was 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 were reasonable.
Note 8 - Guarantees and Other Commitments
OMI acts as a guarantor for a portion of the debt incurred by a joint
venture with affiliates of its joint venture partner. Such debt was
approximately $13,450,000 at September 30, 1999 with OMI's guaranty of such debt
being approximately $6,725,000.
The Company and its joint venture partners have committed to fund any
working capital deficiencies which may be incurred by their joint venture
investments. At September 30, 1999, no such deficiencies have been funded.
Note 9 - Change in Accounting Principle
Prior to 1999, voyage freight for vessels operating on voyage charters was
accounted for on a load-to load ("LL") basis. Under this method, voyage revenue
is recognized evenly over the period from arrival of the vessel at the first
load port to arrival at the next load port. Under this method of revenue
recognition it is necessary to assume the next load port to complete the revenue
recognition cycle.
-11-
<PAGE>
Effective January 1, 1999, OMI changed its accounting policy on
recognition of voyage freight for vessels operating on voyage charters from LL
to discharge-to-discharge ("DD") basis. Under this method, voyage revenue is
recognized evenly over the period from the departure of a vessel from its
original discharge port to departure at the next discharge port. Each method has
its own advantages. The predominant method for shipowners is DD. The change in
revenue recognition policy is a more reliable method in recognizing voyage
revenue as it eliminates the uncertainty associated with the location of the
next load port. The cumulative effect of this accounting change is shown
separately in the Condensed Consolidated Statements of Operations and resulted
in income of $2,729,000 or $0.07 per basic and diluted earnings per share.
The cumulative effect of this change in accounting principle as of January
1, 1999 on the Company's Condensed Balance Sheet was to increase total assets by
$1,490,000, decrease total liabilities by $1,239,000 and increase total
stockholders' equity by $2,729,000.
The three and nine months ended September 30, 1998 were previously
presented using the LL method of accounting for voyages. Pro forma amounts for
these periods assuming DD had been retroactively applied are summarized as
follows:
For the periods ended September 30, 1998: Three Months Nine Months
(in thousands) ------------ -----------
Net income $ 7,466 $ 46,515
======= ========
Basic earnings per share:
Net income $ 0.17 $ 1.08
======= ========
Diluted earnings per share:
Net income $ 0.17 $ 1.07
======= ========
Note 10 - Provision for Loss on Lease Obligation
During June 1999, as part of OMI's periodic review, the Company evaluated
the forecasted future net cash flows for vessels with lease obligations. The
Company determined that the current lease obligation for a vessel whose lease
terminates September 2001 exceeded its undiscounted forecasted future net cash
flows from operations. The loss was measured by the excess of the future lease
payments, as set forth in the lease agreement, over the vessels estimated
forecasted future cash flows over the lease term. It was determined that an
impairment loss for the lease should be recognized, and a provision of
$6,229,000 was recorded in June 1999. The loss is reported as a separate item in
the Condensed Consolidated Statements of Operations.
Note 11 - Vessels Held for Sale
As of September 30, 1999, there were two vessels, a 1975 Suezmax tanker
and a 1980 aframax vessel, held for sale. These vessels were written down
in June 1999 to their estimated market values, and the loss was included in the
loss on disposal/write down on assets at that time. In November 1999, the
Company contracted to sell the 1975 Suezmax for scrap, and it intends to sell
the aframax within a year.
As a result of the current market condition and estimated losses on the
disposal of certain vessels, the Company re-evaluated the carrying value of its
remaining vessels under the provisions of FAS 121 and concluded that no further
write downs were necessary.
Note 12 - Acquisition and Disposal of Vessels
On January 19, 1999, the COLUMBIA, a new double-hulled Suezmax tanker was
delivered. The vessel which had a book value of $55,992,000 was sold on June 30,
1999 for $54,000,000 in a sale/leaseback transaction. The COLUMBIA was chartered
back from the purchaser over a period of three years. The resulting lease is
being accounted for as an operating lease.
-12-
<PAGE>
Under the agreement, the Company is responsible for operating expenses and
is required to maintain $2,000,000 in escrow over the lease term, and a cash
collateral account initially of $4,000,000 which was replaced by a stand by
letter of credit in September 1999, which will increase by $750,000 per quarter
in the first year and by $500,000 per quarter in the second year to a maximum of
$9,000,000. The letter of credit will serve as additional collateral for the
Company's obligation under the charter.
The SEINE and the ISERE, two new product tankers, were delivered in July
and September 1999, respectively. Both vessels immediately went on time charter
for two year periods.
OMI has contracted for one additional 156,000 deadweight ton ("dwt")
double-hulled Suezmax tanker to be delivered in 2000 with an expected cost of
$51,000,000.
On October 29, 1999, OMI agreed to acquire from Mega Tankers ASA of Oslo,
a Suezmax tanker currently under construction. The purchase price of the vessel
is $46,120,000. The Company will issue to the seller up to 6,300,000 shares of
OMI common stock valued at $2.50 per share in the fourth quarter. The Company
has agreed that to the extent $2.50 per share exceeds the highest of (a) $2.00
per share, (b) the average closing price of its stock from the date following
the execution of the agreement by both parties to the date of closing and (c)
the average closing price of its stock for the last five closing days where at
least 100,000 shares have traded ending on January 31, 2001, it will compensate
the sellers for the difference. In the event the stock trades for at least $2.50
for five consecutive 100,000-or-more-share trading days, the Company will have
no further obligation to reimburse the sellers (provided it was lawful for the
sellers to trade shares publicly at that time). OMI may pay any amounts (at
OMI's option) described in this paragraph with cash, shares at the then current
price or shares valued at net asset value of OMI shares as determined by an
independent party. The vessel is expected to be delivered in March 2000.
In July and August 1999, three Suezmax vessels, two built in 1975 and one
built in 1974, were sold for scrap. These vessels were written down to their
estimated net realizable value in the quarter ended June 30, 1999.
-13-
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following presentation of management's discussion and analysis of the
OMI Corporation ("OMI" or the "Company") financial condition and results of
operations should be read in conjunction with the consolidated financial
statements, accompanying notes thereto and other financial information appearing
elsewhere in this Form 10-Q.
The information below and elsewhere in this document contains certain
forward-looking statements which reflect the current view of the Company with
respect to future events and financial performance. Wherever used, the words
"believes," "estimates," "expects," "plan" "anticipates" and similar
expressions identify forward-looking statements. Any such forward-looking
statements are subject to risks and uncertainties that could cause the actual
results of the Company's results of operations to differ materially from
historical results or current expectations. The Company does not publicly update
its forward-looking statements even if experience or future changes make it
clear that any projected results expressed or implied therein will not be
realized. The information contained in the discussion of the Year 2000 Issue
("Y2K") constitutes forward-looking information. The identification and
remediation of Y2K issues is a technological effort that has never been
undertaken before and estimates of the outcome, time and expense of this project
are, for that reason, particularly hard to make with any certainty. Factors that
may cause these differences include, but are not limited to, those outlined in
the Risk Assessment category of the Year 2000 Issue.
General
OMI provides seaborne transportation services primarily for crude oil and
refined petroleum. The Company is the successor to Universal Bulk Carriers, Inc.
("UBC"), a Liberian corporation, which was a wholly-owned subsidiary of OMI
Corp. ("Old OMI") until June 17, 1998 at which date the Company was separated
from Old OMI (renamed Marine Transport Corporation, "MTC") through a tax-free
distribution ("Distribution") of one share of the Company's common stock for
each share of Old OMI common stock. The distribution separated Old OMI into two
publicly-owned companies. OMI Corporation operates what was Old OMI's foreign
shipping businesses under the management of certain of the officers formerly of
Old OMI who moved to the new company and certain former directors of Old OMI and
additional new directors. The Company continues to trade under the symbol "OMM"
on the New York Stock Exchange.
The Company's net loss was $7.1 million for the quarter ended September
30, 1999 or $0.17 basic loss per share. The quarter loss includes loss on
disposal/write down of joint venture investments of $1.1 million. Net loss for
the nine months ended September 30, 1999 was $37.6 million or $0.90 basic loss
per share after income from the cumulative effect of change in accounting
principle of $2.7 million or $0.07 per basic earnings per share. The 1999 year
to date net loss includes loss on disposal/write down of vessels of $23.6
million, a provision for loss on lease obligation of $6.2 million and the $1.1
million loss on joint venture investments. Net income for the quarter and nine
months ended September 30, 1998 was $8.0 million or $0.19 basic earnings per
share and $47.6 million or $1.11 basic earnings per share, respectively. Net
income in the third quarter 1998 included a gain on the disposal of a vessel of
$6.6 million, and net income for the nine months ended September 30, 1998
included a reversal of deferred income taxes in the amount of $38.9 million. In
connection with the Distribution described above, OMI became a decontrolled
corporation and its shipping income is no longer subject to United States
federal income tax.
OMI's Fleet
OMI's fleet comprises 25 vessels. OMI has concentrated its fleet in two
classes of vessels, Suezmax and product tankers. OMI has been implementing its
plan for fleet renewal with the delivery of four new Suezmax vessels in June,
July and August of 1998 and January 1999, and two to be delivered in 2000
(including the Suezmax tanker described below). During
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<PAGE>
July and September 1999, two 35,000 dwt. product carrier newbuildings were
delivered. These product carriers are time chartered for two year periods.
The Company's fleet comprises four wholly-owned Suezmax tankers, three
chartered-in Suezmaxes, one jointly owned Ultra Large Crude Carrier ("ULCC"),
one aframax, three Panamax product tankers (currently carrying crude oil),
twelve handysize product carriers transporting clean products and one jointly
owned drybulk carrier.
Recent Activities
On October 29, 1999, OMI agreed to acquire from Mega Tankers ASA of Oslo,
a Suezmax tanker currently under construction. The purchase price of the vessel
is $46.1 million. The Company will issue to the seller up to 6,300,000 shares of
OMI common stock valued at $2.50 per share in the fourth quarter. The Company
has agreed that to the extent $2.50 per share exceeds the highest of (a) $2.00
per share, (b) the average closing price of its stock from the date following
the execution of the agreement by both parties to the date of closing and (c)
the average closing price of its stock for the last five closing days where at
least 100,000 shares have traded ending on January 31, 2001, it will compensate
the sellers for the difference. In the event the stock trades for at least $2.50
for five consecutive 100,000-or-more-share trading days, the Company will have
no further obligation to reimburse the sellers (provided it was lawful for the
sellers to trade shares publicly at that time). OMI may pay any amounts (at
OMI's option) described in this paragraph with cash, shares at the then current
price or shares valued at net asset value of OMI shares as determined by an
independent party. The vessel is expected to be delivered in March 2000.
On September 29, 1999, OMI sold its 49 percent share in its White Sea
Holdings, Inc. ("White Sea") joint venture for approximately $2.4 million. The
loss on the disposal of the joint venture of $0.8 million was recorded in
September 1999. In addition, during the third quarter, OMI agreed with its
partner to terminate the OMI-Heidmar joint venture effective June 2000. This
venture operates a pool of product tankers which OMI time chartered three of its
vessels up until September 1999. A write down of $0.3 million was recognized in
the third quarter 1999 relating to OMI's portion of non-recoverable investments
in joint venture assets.
On July 19, 1999 and September 15, 1999, the SEINE and the ISERE, two
product tanker newbuildings were delivered at an approximate cost of $28.5
million each. Both vessels are time chartered for two years periods. During
January 1999, the Company took delivery of a Suezmax newbuilding, the COLUMBIA,
and on June 30, 1999, the Company completed a sale/leaseback of this vessel for
$54 million.
As a result of market conditions, as well as new tonnage entering the
market, OMI is disposing of its older Suezmax vessels and less competitive
vessels. By doing this, the Company will be better able to focus its capital on
areas where its resources can provide higher returns. During July and August
1999, OMI sold three Suezmax vessels built in the mid-1970's. These three
vessels were held for sale at their net realizable values on June 30, 1999. A
1975 built Suezmax tanker and a 1980 built aframax vessel were also held for
sale at their fair values at June 30, 1999. The Company has entered into an
agreement to sell the remaining Suezmax tanker vessel for scrap and the aframax
tanker is expected to be disposed of within a year.
An additional non-recurring item included in the second quarter operating
loss is a provision for loss on one of the Company's chartered-in vessels. An
accounting adjustment was required because the projected estimated future
revenue rates were less than the lease obligation for the vessel.
-15-
<PAGE>
Market Alliances
OMI has concentrated its fleet in two classes of vessels, Suezmax and
product tankers. Currently, rates for both classes of vessels are below
historical levels resulting from the imbalance of the supply and demand for
crude oil and refined products and various factors detailed in the Market
Overview.
The Company believes that concentrations in two fleets will have certain
strategic advantages. The Company has identified the advantages of owning a
large modern Suezmax fleet and has been implementing strategies to maximize such
advantages. First, the fleet will be more attractive to large customers by
providing better scheduling opportunities. A large fleet also provides
opportunities to obtain contracts for large volume movements and creates the
potential to increase vessel utilization. Second, large and concentrated fleets
create economies of scale to spread efficiently the overhead costs associated
with environmental regulations and inspections. Third, operating expertise and
efficiency are enhanced by concentration in certain vessel classes. Fourth, OMI
believes that large customers will prefer to deal with a limited number of large
shipping companies with fleets that they have inspected for quality, rather than
smaller shipping companies characteristic of the fragmented international tanker
market.
In 1998, in order to increase the Company's market share in the Suezmax
trades in the Atlantic Basin, OMI and Frontline Ltd, a Norwegian owner of one of
the world's largest and modern Suezmax fleets, combined Suezmax tanker fleets
for commercial purposes and created Alliance Chartering LLC ("Alliance").
Alliance primarily markets its Suezmax tankers in the Atlantic market.
Alliance's control of the largest modern fleet of Suezmaxes has enabled it to
strengthen relationships and obtain contracts with customers. These contracts
may allow Alliance the opportunity to increase its Suezmax fleet utilization
through backhauls, when cargo is available, which can improve vessel earnings.
OMI's strategy for its handysize fleet is to increase market share by
consolidating commercial operations of vessels through marketing joint ventures
and through concentrating trading in selected areas. In March 1999, the Company
agreed with Osprey Maritime Limited, a major international shipping company
based in Singapore, to consolidate their product tanker operations, establishing
International Product Carriers Limited ("IPC") to form a mid-size product tanker
venture. IPC intends to expand the pool to include other product carrier owners
to enhance its marketing capacity. The joint venture began operating effective
May 1, 1999.
Market Overview
The charter rates that the Company is able to obtain for its vessels are
determined in a highly competitive market. The industry is cyclical,
experiencing significant swings in profitability and asset values resulting from
changes in the supply of and demand for vessels. The following is an overview
for the two market segments OMI primarily operates in.
Product Carriers
The product carrier market is the segment of the tanker market which
transports refined petroleum products such as gasoline, jet fuel, kerosene,
naphtha and gas oil. Historically, earnings in the product tanker market have
been less volatile than earnings in the other tanker sectors. This is the result
of a stable long-term fleet growth that has matched steady ton-mile demand
growth over the years.
However, after product tanker rates reached a very high level early in
1997, they began receding gradually as a result of lower oil product imports in
the Pacific region due to the ongoing financial crisis and new refinery
capacity, higher throughput in industrialized countries as well as the
substantial growth of the product tanker fleet. Ton-mile demand for product
tankers fell by about 4% in 1998 from the preceding year level, while the
product tanker fleet grew by about 4.5%. As a result, average freight rates for
product tankers in 1998 were substantially lower than rates prevailing in the
previous year, and the lowest since 1992.
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<PAGE>
Freight rates in the product tanker market showed some seasonal
improvement in the last months of 1998, but they began falling again in 1999 as
a result of further product tanker fleet expansion, product inventory reductions
and weak oil demand in the Pacific region, notwithstanding signs of recovery of
economic activity in the area.
In the short-term, the existing high heating oil inventory levels as we
are entering the winter season, especially in the Atlantic Basin, and the
relatively high newbuilding deliveries for the rest of 1999 may tamper the
product tanker gains usually seen during the winter months. However, prospects
for recovery in this tanker sector may be enhanced as newbuilding deliveries
return to a moderate level next year and some fundamental changes in the pattern
of product trades seem to take place.
Oil product import requirements are expected to increase in the three
major world oil consuming areas (North America, Western Europe and the Pacific
region) in the next few years as oil demand growth is expected to exceed
refinery capacity in these areas. In addition, a substantial amount of new
refinery capacity in South and Southeast Asia in the next few years will cover
part of the increasing oil demand in this area lowering product import
requirements from the Middle East. This will increase oil product exports from
the Middle East to longer haul western destinations, namely the U.S. and Western
Europe, increasing product tanker ton-mile demand.
Suezmax Tankers
Freight rates in the Suezmax market recovered in the first quarter of 1999
relative to the preceding quarter, but subsequently weakened, and in the third
quarter fell to the lowest level since 1994. This was the result of
substantially lower volumes of oil transported due to the adherence by OPEC and
some non-OPEC oil producers to their agreed oil production cuts, the fact that a
high proportion of these cuts involved long-haul Middle East oil, and the draw
of oil inventories at the same time that the tanker fleet continued to grow. The
crude tanker market is expected to remain relatively weak in the near term, with
seasonal improvements, due to expected high newbuilding deliveries unless there
is substantial scrapping activity.
The world tanker fleet has increased and totaled approximately 278.2
million dwt at the end of the third quarter of 1999, up by 5.4 million dwt or
2.0% from the year-end 1998 level. At the same time, the tanker orderbook stood
at 37.3 million dwt, or 13.4% of the existing fleet. Approximately 4.9 million
dwt is scheduled for delivery in the balance of 1999, 20.5 million dwt in the
year 2000 and most of the balance in the year 2001. The tanker orderbook
includes 35 Suezmaxes of about 5.3 million dwt or 16.0% of the existing Suezmax
fleet.
However, approximately 97.1 million dwt or 34.9% of the total tanker fleet
was 20 or more years old at the end of the third quarter 1999. In addition, 80
Suezmax tankers of 11.0 million dwt, or one third of the existing Suezmax tanker
fleet, and 9.2 million dwt, or 19.3% of the existing product tanker fleet were
20 or more years old. The fall in tanker freight rates has led to increased
scrapping activity as well as restraint in ordering new tonnage relative to the
previous two years. Tanker sales for scrap or conversion totaled about 10.8
million dwt through September 1999, about two and a half times the amount of
tankers sold for scrap in the same period a year ago, while new orders totaled
9.2 million dwt. The sales for scrap include 20 VLCCs and 17 Suezmaxes. Tanker
scrapping activity should continue at high levels given the current tanker
market weakness, the relatively high orderbook, the tanker fleet age
demographic, an expensive fifth special survey and stricter environmental
regulations.
World oil demand increased marginally in 1998, is expected to grow by
about 1.0 million b/d in 1999 and increase substantially next year. The expected
gains reflect further oil demand growth in industrialized areas and the Pacific
region as economic activity is recovering from the recent financial crisis.
World oil inventories increased substantially in 1998, especially in the first
half of the year, but are expected to fall to very low levels by the end of
1999. In terms of days forward consumption, world commercial oil stocks at the
end of 1999 are expected to be below the low level prevailing at the end of
1996. Finally,
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<PAGE>
as a result of low oil inventory levels by year end 1999 and the expected world
oil demand gains in 2000, a substantial increase of oil production will be
necessary next year. The largest oil production gains are expected in West
Africa, Latin America and the long-haul Middle East.
Any improvement in freight rates in the crude as well as the product
carrier market will be largely dependent upon the continuous improvement of
economic activity in the Pacific region as well as an increase in the rate of
tanker scrapings in view of the relatively high tanker newbuilding deliveries
expected in the balance of this year and in the year 2000.
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 for a time
charter. Under a voyage charter, revenue is calculated based on the amount of
cargo carried, most expenses are for the shipowner's account and the length of
the charter is one voyage. Revenue may be higher in the spot market, as the
owner is responsible for most of the costs of the voyage. Other factors
affecting net voyage revenues for voyage charters are waiting time between
cargoes, port costs, and bunker prices.
Vessel expenses included in net voyage revenue discussed above include
operating expenses such as crew payroll/benefits/travel, stores, maintenance and
repairs, drydock, insurance and miscellaneous. These expenses are a function of
the fleet size, utilization levels for certain expenses, requirements under
laws, by charterers and Company standards. Insurance expense varies with the
overall insurance market conditions as well as the insured's loss record, level
of insurance and desired coverage.
Voyage Revenues less Vessel and Voyage Expenses.
For the Nine and Three Months Ended September 30, 1999 Versus September 30, 1998
Net voyage revenues of $28.0 million for the nine months and $6.1 million
for three months ended September 30, 1999 decreased by a net of $4.3 million and
$6.7 million, respectively, from $32.3 million for the nine months and $12.8
million for the three months ended September 30, 1998. The Crude oil fleet's net
voyage revenues decreased by $4.8 million in the nine months and $6.3 million in
the three months; the Product carrier fleet decreased by $2.1 million in the
nine months and $0.5 million in the three months, and other net voyage revenue
increased by $2.6 million in the nine months and $0.1 million in the three
months. Increases in other net voyage revenues of $2.6 million in the nine month
period is primarily related to management fee expense not specifically allocated
to vessel expenses in 1998.
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Net voyage revenues for the three and nine months ended September 30, 1999
and 1998 are as follows by market segments in which OMI primarily operates.
<TABLE>
<CAPTION>
For The Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------------------- -------------------
<S> <C> <C> <C> <C>
(in millions)
Voyage Revenues:
Crude Oil Fleet......................... $ 17.1 $ 26.2 $ 62.0 $ 75.8
Product Carrier Fleet................... 8.6 11.9 29.0 39.1
All Other .............................. 0.1 0.0 0.2 0.0
------ ------- ------- -------
Total............................. $ 25.8 $ 38.1 $ 91.2 $ 114.9
====== ======= ======= =======
Vessel and Voyage Expenses: (1)
Crude Oil Fleet (2)..................... $ 14.4 $ 17.2 $ 45.5 $ 54.5
Product Carrier Fleet................... 5.2 8.0 17.4 25.4
All Other............................... 0.1 0.1 0.3 2.7
------ ------- ------- -------
Total............................. $ 19.7 $ 25.3 $ 63.2 $ 82.6
====== ======= ======= =======
Net Voyage Revenues:
Crude Oil Fleet......................... $ 2.7 $ 9.0 $ 16.5 $ 21.3
Product Carrier Fleet................... 3.4 3.9 11.6 13.7
All Other............................... 0.0 (0.1) (0.1) (2.7)
------ ------- ------- -------
Total............................. $ 6.1 $ 12.8 $ 28.0 $ 32.3
====== ======= ======= =======
</TABLE>
(1) Includes charter hire expenses.
(2) Excludes provision for loss on lease obligation of $6.2 million.
Net changes are discussed as follows according to the two market segments
(product carrier and crude oil) in which OMI primarily operates.
Product Carrier Fleet
The product carrier fleet consisted of twelve handysize vessels at
September 30, 1999 and ten handysize vessels in 1998. In November 1997, May 1998
and July 1998 OMI placed its three Panamax vessels which previously carried
clean products, into a marketing pool. Decreases in the product carrier fleet in
the first half of 1999 pertain in part to two of the Panamaxes which were
carrying clean products in the first half 1998 and that are carrying crude oil
(included in the crude oil fleet's operating results) in 1999.
During the nine months ended September 30, 1999, the Company's handysize
product tankers were employed in the spot market. However, effective May 1,
1999, these vessels have been time chartered (at the conclusion of their
previous spot charters) to a newly formed joint venture, IPC, described in the
Market Alliance section above. Time charter rates from this venture reflect spot
market charter rates since they are adjusted periodically with pool profits.
Three vessels previously chartered to the OMI-Heidmar joint venture marketing
pool are also operating in the IPC pool effective September 1999.
Net voyage revenues of $11.6 million decreased by a net of $2.1 million
for the nine months ended September 30, 1999 compared to $13.7 million in the
same period in 1998. Decreases of approximately $1.6 million relate to two
Panamaxes which are not included with the product carriers results in 1999. The
remaining net decrease in net voyage revenue of $0.4 million in 1999 compared to
the same period in 1998 relates to spot rate fluctuations of the combined ten
vessels. Offhire relating to drydocks and other repairs aggregated approximately
120 days for the nine months ending September 30, 1999 and 140 days for the same
period in 1998. Decreases in net voyage revenue were partially offset by
earnings of $0.8 million from the two new product carriers delivered in July and
September 1999.
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<PAGE>
Net voyage revenues of $3.4 million decreased by a net of $0.5 million for
the three months ended September 30, 1999 compared to $3.9 million in the same
period in 1998. The net decrease relates to spot rate fluctuations where half
the vessels net voyage revenues increased offsetting a portion of the vessels
which had lower net voyage revenues. Net decreases in net voyage revenue were
partially offset by earnings from the two new vessels delivered in the third
quarter 1999.
Crude Oil Tanker Fleet
At September 30, 1999, the crude fleet consisted of five wholly-owned
vessels (four Suezmaxes and one aframax) and three chartered-in Suezmaxes; all
but one of the vessels is currently operating in the spot market. During July
and August 1999, three wholly-own vessels classified on the Balance Sheet as
held for sale at June 30, 1999 were sold and one Suezmax and the aframax vessel
currently remain as held for sale. Additionally, one of the three Panamax
vessels was carrying crude oil in both the 1999 and comparable 1998 periods and
the other two Panamax vessels began carrying crude oil in May 1998 and July
1998. At September 30, 1998, OMI owned eight Suezmaxes and one aframax and
chartered-in three vessels. During 1998 and January 1999, four new Suezmax
vessels were delivered (the first one June 1998), a vessel was sold in August
1998 and two chartered-in vessels were redelivered to their owners in July and
December 1998.
The COLUMBIA, a newly built Suezmax tanker, was delivered January 1999.
The vessel operated in the spot market during the six months ended June 30, 1999
and at that date was sold in a sale/leaseback transaction. The COLUMBIA was
bareboat chartered back to OMI in this transaction and continues to operate in
the spot market.
Net voyage revenues of $16.5 million generated by the crude tanker fleet
decreased a net of $4.8 million for the nine months ended September 30, 1999
from $21.3 million for the nine months ended September 30, 1998. The decrease in
net voyage revenues can be attributed primarily to decreases in revenues of
approximately $5.7 million relating primarily to lower spot rates in the spot
market earned on five older vessels (four mid-1970's built vessels and OMI's
1980's built aframax vessel), three of which were sold in the third quarter and
two of which were held for sale at September 30, 1999 and decreases in net
voyage revenues of $1.7 million earned by four vessels chartered-in for an
aggregate of 1,018 days in the nine months ended 1998, as compared to an
aggregate of 638 days from three vessels chartered-in during the nine months
ended September 30, 1999. Additionally, net voyage revenue earned in the nine
month period 1999, decreased by $3.2 million resulting from the sale of a
Suezmax vessel in August 1998. The offsetting increases in net voyage revenue,
were primarily for two reasons: net voyage revenues increased $8.0 million from
four new Suezmax vessels (three delivered in the summer of 1998 and one
delivered January 1999) and net voyage revenue from two Panamaxes that had been
carrying clean products in the first half of 1998 were carrying crude in the
first half of 1999.
Net voyage revenues of $2.7 million generated by the crude tanker fleet
decreased a net of $6.3 million for the three months ended September 30, 1999
from $9.0 million for the three months ended September 30, 1998. The explanation
for the net decrease in net voyage revenues is the same as the nine month
explanations which primarily attributes the net decrease to the decreases in
revenue earned from the five vessels disposed of and held for sale as of
September 30, 1999 and decreased earnings from chartered-in vessels offset by
increases in earnings from the delivery of the four new Suezmaxes.
Other Operating Expenses.
The Company's operating expenses, other than vessel, voyage and charter
hire expenses consist of provision for loss on lease obligation, depreciation
and amortization and general and administrative ("G & A") expenses. For the nine
and three months ended September 30, 1999, these expenses increased $7.0 million
to $31.7 million for the nine months ended September 30, 1999, from $24.7
million in 1998 and decreased $0.7 million to $7.9 million for the three months
ended September 30, 1999, from $8.6 million in 1998.
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The provision for loss on lease obligation of $6.2 million was recorded at
June 30, 1999 and relates to one of OMI's chartered-in vessels. During the
Company's periodic review, it was determined that the current lease obligation
for a vessel whose lease terminates September 2001 exceeded its undiscounted
forecasted future net cash flows from operations. The loss was measured by the
excess of the future lease payments as set forth in the lease agreement, over
the vessels estimated forecasted future discounted cash flows over the lease
term.
Additional increases in operating expenses for the nine month period
relates to net increases in depreciation expense from the delivery of three
Suezmax tankers in 1998. Decreases offsetting increases in depreciation expense
in both the nine and three months ended September 30, 1999, relates to the sale
of a Suezmax tanker in August 1998. G & A expenses increased by $0.7 million
during the nine months and $0.1 million during the three months ended September
30, 1999 compared to the same periods in 1998. The increase in the nine month
period was primarily because the G & A expenses during 1999 were actual expenses
incurred as compared to an allocation for the period up to June 17, 1998 of Old
OMI's G & A expenses to its foreign subsidiaries.
Other Income (Expense).
Other income (expense) consists of gain (loss) on disposal/write down of
assets-net, loss on disposal/write down of joint venture investments, interest
expense-net and other-net for the periods presented. Net other expense increased
by $35.9 million from $0.4 million during the nine months ended September 30,
1998 to $36.3 million for the nine months ended September 30, 1999 and by $7.9
million from net other income of $2.9 million during the third quarter of 1998
to net other expense of $5.0 million during the third quarter 1999.
Gain (loss) on disposal/write down of assets-net was $23.6 million for the
nine months ended September 30, 1999 compared to a gain on sale of a vessel in
August 1998 of $6.6 million during the nine months ended September 30, 1998, an
increase in Net other expense of $30.2 million in the nine month period and $6.5
million increase for the third quarter period ended 1999. Losses and write downs
on vessels recorded at June 30, 1999 included in disposal of assets-net of $23.7
million related to six vessels. During July and August 1999, OMI sold for scrap
two Suezmax vessels built in 1974 and one built in 1975. An aggregate loss of
$9.7 million was recognized from the sale of these three vessels, which were
held for sale at their net realizable values on June 30, 1999. Two other
vessels, a 1975 Suezmax tanker (currently under contract to sell) and an aframax
vessel were also held for sale at June 30, 1999 at their fair values and an
additional loss of $11.9 million was recognized. The COLUMBIA with a book value
of $56.0 million was sold on June 30, 1999 for $54.0 million, a loss of $2.0
million was recognized.
Loss on disposal/write down of joint venture investments was $1.1 million
for the nine and three months ended September 30, 1999. As previously mentioned
in the Recent Activities section, OMI disposed of its White Sea joint venture
effective September 29, 1999 at a loss of approximately $0.8 million and wrote
down another joint venture investment by $0.3 million as of September 30, 1999.
Net interest expense increased $5.6 million and $1.3 million in the nine
and three months ended September 30, 1999 in comparison to the same periods in
1998. The additional interest expense was primarily due to additional borrowings
to finance six newbuildings (one of which was delivered and $37.5 million
financed during January 1999 and subsequently sold and repaid June 30, 1999 in a
sale /leaseback transaction) and correspondingly a decrease in the
capitalization of interest on construction in progress. (See Financing
Activities).
Equity in Operations of Joint Ventures.
Equity in operations of joint ventures decreased by $3.4 million for the
nine months ended September 30, 1999 compared to the nine months ended September
30, 1998 and decreased $1.2 million for the three months ended September 30,
1999 compared to the same period in 1998. The decrease in both periods was
primarily attributed to lower earnings from two joint
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<PAGE>
ventures, one which operates one ULCC vessel that was in drydock during the
first half of 1999 and has earned lower revenues due to declines in TCE rates in
1999 and the other joint venture owning one Suezmax vessel also experienced a
declines in spot rates during 1999 compared to 1998, resulting from current
market conditions.
During 1999, the Company received an aggregate of $2.4 million in
dividends from joint ventures, $1.9 million from Amazon Transport, Inc. and $0.5
million from White Sea. OMI paid $1.8 million in capital contributions to two of
its joint ventures during the third quarter 1999.
Cumulative Effect of Change in Accounting Principle
During the second quarter 1999, OMI changed its method of accounting for
freight on voyage charters. The accounting change is effective for the period
beginning January 1, 1999 and income of $2.7 million was recorded for the nine
months ended September 30, 1999 as cumulative effect of change in accounting
principle. The change in the Company's method of revenue recognition for voyages
from the load-to-load basis to discharge-to-discharge basis is a more reliable
method in recognizing voyage revenue as it eliminates the uncertainty associated
with estimating location of the next load port under the load-to-load basis.
Voyage revenue is recognized evenly over the period from the departure of a
vessel from its original discharge port to departure at the next discharge port.
Balance Sheet
In January 1999, the Company took delivery of a newly constructed double
hulled Suezmax tanker, the COLUMBIA. At December 31, 1998, there was a balance
in Construction in Progress of $17.7 million relating to the COLUMBIA which was
relieved in 1999. The COLUMBIA was then sold June 30, 1999 for $54.0 million in
a sale/leaseback transaction. The $54.0 million proceeds reduced debt incurred
in January 1999 of $35.0 million and OMI has a long-term note receivable for
$6.0 million from the sale of the vessel. Additionally, the Company maintains
$2.0 million in escrow and $4.75 million in cash as collateral for a stand-by
letter of credit as required by the lease agreement (see Commitments). The
aggregate $6.75 million is included in Other assets and deferred charges.
The delivery of the two new product tankers during the third quarter 1999,
increased Vessels by an aggregate of approximately $57.0 million, decreased
construction in progress by $11.9 million, increased long-term debt by $37.2
million and decreased cash approximately $7.9 million.
Vessels held for sale of $8.4 million at September 30, 1999 comprises
amounts relating to two vessels written down to their fair values at June 30,
1999. The effects of the disposal/ write down of the five vessels in 1999 were
as follows: decreases to Vessels of $75.8 million, Accumulated depreciation of
$45.4 million, Other assets and deferred charges of $7.7 million related to the
write-off of the remaining balances for vessels prepaid drydock and goodwill,
$1.1 million accrued for selling expenses and decreases in retained earnings for
the loss on disposal of assets of $21.6 million.
Decreases in Investment and advances in joint ventures primarily relate to
decreases in Investments in two joint ventures that paid dividends of $2.4
million, as a return on investment in 1999 offset partially by additional
investment in joint ventures of $1.8 million. Additionally, the disposal/ write
down of two ventures decreased Investment in joint ventures by $3.5 million.
Other liabilities increased $5.5 million for the unamortized provision of
loss on lease obligation. This reserve will be amortized over the life of the
lease obligation that expires September 2001.
-22-
<PAGE>
Liquidity and Capital Resources
Cash Flows
Cash and cash equivalents of $14.7 million at September 30, 1999 decreased
$8.0 million from cash and cash equivalents of $22.7 million at December 31,
1998. The Company's working capital deficit of $1.6 million at September 30,
1999, decreased $3.5 million from working capital of $1.9 million at December
31, 1998. Current assets decreased $3.5 million. Net cash provided by operating
activities decreased $6.5 million to $10.4 million for the nine months ended
September 30, 1999 compared to net cash provided by operating activities of
$16.9 million for the nine months ended September 30, 1998 (see Results of
Operations).
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 $44.9 million
for the nine months ending September 30, 1999, a decrease of $50.5 million from
cash used by investing activities of $95.4 million for the nine months ending
September 30, 1998. Cash used by investing activities decreased in 1999
primarily due to decreases in additions to vessels of $50.4 million due to the
delivery of the three new Suezmax vessels in 1998 aggregating $138.9 million
compared to the 1999 additions; delivery of the COLUMBIA of $36.0 million, two
product carriers for $43.9 million and increase in Construction in progress on
the remaining Suezmax tanker of $5.5 million. Proceeds from disposal of assets
decreased $17.1 million relating to the sale of a Suezmax vessel in August 1998
compared to the disposal of three 1970's built vessels for scrap in 1999.
Decreases in investing activities were partially offset by increases relating to
notes receivable of $9.0 million and other increases in 1999.
Financing Activities
Cash provided by financing activities was $26.5 million for the nine
months ended September 30, 1999, compared to cash provided of $70.3 million for
the nine months ended 1998. In 1999, there were $107.1 million in principal
payments on long-term and short-term debt and $133.7 million in proceeds from
borrowings. The payments in 1999 included $66.0 million for short-term financing
and working capital borrowings; $37.5 million for the COLUMBIA (delivered in
January and sale/leaseback in June 1999) and $3.6 million for required payments
on two credit facilities and the 7% Convertible Note. The proceeds in 1999
included $37.5 million for the COLUMBIA, $21.2 million for the SEINE (delivered
in July), $16.0 million for ISERE (delivered in September) and $59.0 million for
short-term financing and working capital borrowings.
For the nine months ended September 30, 1998, there were $74.3 million of
principal payments on long-term and short-term debt and $154.3 million proceeds
from borrowings. The payments in 1998 included $2.8 million for scheduled
installments; $20.6 million for the payment of a loan balance that was
refinanced; $31.4 million payoff of a balance that was collateralized by the
TANANA (sold in August 1998); $2.5 million for the early redemption of bonds and
$17.0 million in payments for short-term financing and working capital
borrowings. The proceeds in 1998 included $109.3 million drawn down for the
delivery of three new Suezmax tankers (delivered in June, July and August),
$16.0 million to refinance two Panamax vessels and $29.0 million for short-term
financing and working capital.
Currently, OMI has four credit facilities with an outstanding balance of
$235.5 million and two lines of credit ("LOC") with an outstanding balance of
$31.2 million. One facility with an outstanding balance of $90.1 million was
assumed from Old OMI, and the remaining facilities and LOCs aggregating $176.6
million at September 30, 1999, were secured subsequent to the spin-off.
During December 1998, the Company entered into a revolving LOC to finance,
on an interim basis, the acquisition of vessels. The facility bears interest at
LIBOR plus a margin ranging from 1.00%-1.50% based on the Company's funded debt
to capitalization ratio and interest coverage ratio. On January 14, 1999, the
Company drew down $37.5 million to finance the
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<PAGE>
Suezmax vessel delivered. The vessel was sold on June 30, 1999 and the $37.5
million was repaid in the second quarter. In July 1999, $21.2 million was drawn
down to finance the delivery of the new product tanker.
In February 1999, OMI entered into a revolving line of credit to be used
for working capital and other general corporate purposes. The line of credit
bears interest at LIBOR plus a margin that varies with facility use, but not
greater than 1.75%. On September 30, 1999, the outstanding balance was $10.0
million.
The Company has a credit facility, which was assumed from Old OMI. At
September 30, 1999, the outstanding loan was $90.1 million. The facility bears
interest at LIBOR plus a margin ranging from 0.60%-0.95%, which is computed
based on OMI s funded debt to equity ratio and interest coverage ratio.
During June and July 1998, the Company entered into three new secured
revolving credit agreements to refinance two Panamax tankers, three Suezmax
tankers and a product carrier when delivered. As of September 30, 1999, the
total outstanding balance was $136.4 million. The facilities bear interest at
LIBOR plus a margin ranging from 0.65%-1.05%.
As of September 30, 1999, OMI had an aggregate of $266.7 million in
floating rate credit facilities and revolving lines of credit. The related loan
agreements contain covenants requiring minimum levels of cash and cash
equivalents, working capital and net worth, maintenance of specified financial
ratios and collateral values. The Company is not in compliance with certain of
its covenants as of September 30, 1999. The Company remains current on all
principal and interest payments. Its lenders have presented an indicative term
sheet, the effect of which is a revision of covenants, acceptable to the
Company, and to increase interest rate margins and reduce principal
amortization. Documentation is expected to be completed by year-end.
Faced with the current freight rate environment, OMI is implementing steps to
reduce its cost structure for vessel operations, administrative expenses and
capital expenditures to improve earnings, and cash flows. Bank loans are being
renegotiated to reduce amortization and increase cash flow.
Other Commitments
The Company has two remaining construction contracts for two Suezmax
tankers with expected capitalized costs at delivery in March 2000 of $46.1
million and in May 2000 of $51.0 million. As of September 30, 1999, total
capitalized costs for the one of the vessels is $10.5 million. The other Suezmax
vessel was purchased October 29, 1999, with capitalized cost to date of
approximately $15.8 million.
The sale/leaseback of the COLUMBIA on June 30, 1999 resulted in a three
year operating lease with the purchaser. The Company is responsible for
operating expenses of the vessel and is required to maintain $2.0 million in
escrow over the lease term, and a cash collateral account initially of $4.0
million. The cash collateral account was replaced by a stand by letter of credit
in September 1999, which will increase by $0.75 million per quarter in the first
year and by $0.50 million per quarter in the second year to a maximum of $9.0
million. The letter of credit will serve as additional collateral for the
Company's obligation under the lease.
OMI acts a guarantor for a portion of the debt incurred by a joint venture
with affiliates of its joint venture partner. Such debt was approximately $13.5
million at September 30, 1999 with OMI's guaranty of such debt being
approximately $6.7 million.
The Company and its joint venture partners have committed to fund any
working capital deficiencies that may be incurred by their joint venture
investments. As of September 30, 1999, no such deficiencies have been funded.
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<PAGE>
Effects of Inflation
The Company does not consider inflation to be a significant risk to the
cost of doing business in the current or foreseeable future. Inflation has a
moderate impact on operating expenses, drydocking expenses and corporate
overhead.
Year 2000 Issue
General
The Year 2000 issue arises from the fact that many computer hardware and
software systems use only two digits rather than four digits to define the
applicable year. As a result, these systems may not calculate dates beyond 1999,
which may result in system failure or miscalculations by computer programs which
could cause disruption of the Company's operations.
State of Readiness
The Company has taken steps to ensure that its systems will be year 2000
compliant including systems on board vessels. The Company has been in the
process over the last year of upgrading its internal hardware and software
systems for business reasons other than Year 2000 compliance. Therefore, the
Company believes, after conversion to the new systems, the Year 2000 issue will
not pose significant operational problems for its computer systems. However, the
Year 2000 readiness of the Company's customers, suppliers and business partners
may vary.
The Company developed a plan that outlines the Company's procedures to
become Y2K compliant which was approved in November 1998 by senior management of
OMI, as well as the Board of Directors. An oversight committee was formed which
includes members of senior and technical management who meet on a monthly basis
with the Company's Information Services team. The procedures in the plan or the
Project, address the following: identification of inventory and assessment as to
its Y2K readiness, remediation strategies and remediation costs. The Company has
had formal communications with vendors and other customers which the Company
does business with, to determine the extent to which the Company is vulnerable
to those third parties failure to remedy their own Y2K issue. The Company cannot
predict the outcome of other companies remediation efforts. The Project included
procedures for fixing critical systems using a combination of replacements and
upgrades.
The Company identified and scheduled a sufficient number of qualified
personnel to accomplish the Project objectives and established a process for
monitoring its progress against the Y2K plan in accordance with a timetable of
expected completion dates for the various phases of the Project.
The Company's critical systems and products are substantially Y2K
compliant. Currently, a Y2K accounting system has been implemented and
substantially all of the ship hardware which has been identified is year 2000
compliant.
Costs
The Y2K Project includes approximately costs of $0.2 million related to
financial systems. The cost that relates to fixture of ships software and
hardware has been minimal. Additionally, the Company paid $0.3 million, not
included in the estimated budget for financial systems, towards new financial
applications implementation which included the hardware, software and support
fees.
Based on responses received from vendors, to date, the Company is not
aware of any significant investments in assets that are not Y2K compliant.
There can be no guarantee that the costs incurred to date will be the
final actual results, which could differ from what has been anticipated. Based
on its current estimates and
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<PAGE>
information currently available, the Company does not anticipate that costs
associated with this Project will have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows
in future periods.
Risk Assessment
At this time, until the process is tested, the Company cannot fully
estimate the risks of its Y2K issue. To date, OMI has not identified any
material risks of not being year 2000 ready. However, if a risk should
subsequently arise, OMI would identify its effects and remedy by the contingency
plan, see below. Additionally, there is exposure to third parties because
guarantees which the Company relies on as to Y2K compliance are not specifically
verified, which can also cause disruption if not remedied in a timely manner.
Contingency Plan
The Company relies on vendor guarantees that critical systems are Y2K
compliant. Therefore, the Company anticipates that those critical systems will
function properly. OMI has full maintenance contracts with all its vendors in
the case of any system problem, they are required to resolve such problems
within a reasonable amount of time.
The Company does not anticipate that any of their critical and
non-critical systems will not be Y2K compliant. There are no critical and unique
high volume systems for which a contingency plan may not be possible. Further,
if the computer system would go down, the Company plans to revert to manual
procedures, which will be reviewed and tested during 1999.
Item 3:
Quantitative and Qualitative Disclosures about Market Risks
Market Risk
The company is exposed to various market risks, including interest rates.
The exposure to interest rate risk relates primarily to the debt and related
interest rate swaps. At September 30, 1999, the majority of the $273.8 million
debt was floating rate debt, which totaled $266.7 million. A one- percent
increase in the floating rate would increase interest expense by $2.7 million
per year.
The fixed rate debt on the balance sheet and the fair market value were
$7.1 million as of September 30, 1999. If interest rates were to increase
(decrease) by one percent with all other variables remaining constant, the
market value of the fixed rate debt would decrease (increase) by approximately
$0.3 million.
The Company has an interest rate swap agreement to manage its exposure
with interest rates by locking in fixed interest rate from floating rates. At
September 30, 1999, there was one swap with at notional principal of $10.0
million, and it would cost approximately $0.2 million to terminate the
agreement.
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<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 - Exhibits and Reports on Form 8-K
a. Exhibits
18 Deloitte & Touche LLP preferability letter regarding change in
accounting principle.
27 OMI Corporation - Financial Data Schedule, dated September 30,
1999.
b. Reports on Form 8-K
As filed on July 1, 1999
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<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 12, 1999 By: /s/ Craig H. Stevenson, Jr.
----------------------------- -----------------------------------
Craig H. Stevenson, Jr.
President, Chairman of the Board
and Chief Executive Officer
Date: November 12, 1999 By: /s/ Vincent de Sostoa
----------------------------- ------------------------------------
Vincent de Sostoa
Senior Vice President
and Chief Financial Officer
-28-
Exhibit 18
August 13, 1999
The Board of Directors
OMI Corporation
One Station Place
Stamford, CT 06902
Dear Sirs and Madam:
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended
June 30, 1999 of the facts relating to OMI Corporation's (the "Company") change,
effective January 1, 1999, in its accounting policy for recognizing revenue. We
believe, on the basis of the facts so set forth and other information furnished
to us by appropriate officials of the Company, that the accounting change
described in your Form 10-Q is to an alternative accounting principle that is
preferable under the circumstances.
We have not audited any consolidated financial statements of OMI Corporation and
its consolidated subsidiaries as of any date or for any period subsequent to
December 31, 1998. Therefore, we are unable to express, and we do not express,
an opinion on the facts set forth in the above-mentioned Form 10-Q, on the
related information furnished to us by officials of the Company, or on the
financial position, results of operations, or cash flows of OMI Corporation and
its consolidated subsidiaries as of any date or for any period subsequent to
December 31, 1998.
Yours truly,
Deloitte & Touche LLP
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