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, 2000
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 8, 2000:
Common Stock, par value $0.50 per share 59,345,626 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, 2000 3
Condensed Consolidated Balance Sheets-
September 30, 2000 (unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the year ended December 31, 1999 and the
(unaudited) nine months ended September 30, 2000 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 31
PART II: OTHER INFORMATION 32
SIGNATURES 33
2
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $54,855 $25,771 $122,055 $ 91,284
------- ------- -------- --------
Operating Expenses:
Vessel and voyage 14,209 14,990 39,632 51,775
Charter hire 4,027 4,696 11,578 11,479
Depreciation and amortization 4,514 5,627 11,949 17,944
Provision for loss on lease obligation -- -- -- 6,229
General and administration 2,817 2,299 8,528 7,528
Loss (gain) on disposal/write down
on assets 1,432 (92) 14,051 23,574
------- ------- -------- --------
Total operating expenses 26,999 27,520 85,738 118,529
------- ------- -------- --------
Operating income (loss) 27,856 (1,749) 36,317 (27,245)
------- ------- -------- --------
Other Income (Expense):
Interest expense-net (7,074) (4,010) (18,310) (11,668)
Loss on disposal of joint venture
investments -- (1,114) (536) (1,114)
Other-net 588 -- 2,213 --
------- ------- -------- --------
Net other expense (6,486) (5,124) (16,633) (12,782)
-------- ------- -------- --------
Income (loss) before equity in
operations of joint ventures
and cumulative effect
of change in accounting principle 21,370 (6,873) 19,684 (40,027)
Equity (loss) in operations of
joint ventures 1,005 (246) 2,049 (257)
------- -------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle 22,375 (7,119) 21,733 (40,284)
Cumulative effect of change in
accounting principle -- -- -- 2,729
------- ------- -------- --------
Net income (loss) $22,375 $(7,119) $ 21,733 $(37,555)
======= ======= ======== ========
Basic earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.38 $(0.17) $ 0.39 $(0.97)
Net income (loss) $ 0.38 $(0.17) $ 0.39 $(0.90)
Diluted earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.37 $(0.17) $ 0.39 $(0.97)
Net income (loss) $ 0.37 $(0.17) $ 0.39 $(0.90)
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, including cash equivalents:
2000-$16,900; 1999-$5,172 $ 23,625 $ 7,381
Receivables:
Traffic receivables, net of allowance for
doubtful accounts of $1,027 in 2000 and
$1,085 in 1999 21,847 9,245
Other 3,978 9,136
Assets to be disposed of (Note 9) 15,130 90,996
Prepaid expenses and other current assets 1,855 4,437
-------- --------
Total current assets 66,435 121,195
-------- --------
Vessels, construction in progress and other property:
Vessels and other property (Notes 6 and 9) 488,841 334,342
Construction in progress -- 25,340
-------- --------
Total vessels and other property 488,841 359,682
Less accumulated depreciation (44,235) (42,926)
--------- --------
Vessels, construction in progress
and other property-net (Note 3) 444,606 316,756
-------- --------
Investments in, and advances to joint
ventures 7,928 11,519
Notes receivable 6,924 9,262
Other assets and deferred charges 19,132 13,683
-------- --------
Total $545,025 $472,415
======== ========
LIABILITIES AND STOCKHOLERS' EQUITY
Current liabilities:
Accounts payable $ 2,349 $ 7,017
Accrued liabilities:
Voyage and vessel 1,619 4,285
Interest 3,776 2,762
Other 5,250 5,190
Deferred gain on sale of vessels 3,151 3,151
Current portion of long-term debt (Note 3) 45,579 54,834
-------- --------
Total current liabilities 61,724 77,239
-------- --------
Deferred income taxes 3,100 3,100
Other liabilities 884 3,034
Deferred gain on sale of vessels 1,999 4,363
Long-term debt (Note 3) 254,206 212,913
Stockholders' equity (Notes 6, 10 and 11) 223,112 171,766
-------- --------
Total $545,025 $472,415
======== ========
</TABLE>
4
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
Common Stock Capital Treasury Deferred
Shares Amount Surplus Stock Compensation
------ ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1999 43,694 $21,847 $207,469 $(9,040)
Comprehensive loss:
Net loss
Realization of cumulative
translation adjustment
Comprehensive loss
Issuance of common stock 5,700 2,850 11,400
Issuance of treasury stock 206
------ -------- -------- -------
Balance at December 31, 1999 49,394 24,697 218,869 (8,834)
Comprehensive income:
Net income
Net change in valuation account
Comprehensive income
Issuance of common stock 11,710 5,855 20,984
Issuance of stock options 3,417 $(1,879)
Amortization of deferred compensation 172
Exercise of stock options 240 120 944
------ -------- -------- -------- -------
Balance at September 30, 2000
(unaudited) 61,344 $30,672 $244,214 $ (8,834) $(1,707)
====== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Retained Other Total
Earnings Comprehensive Comprehensive Stockholders'
(Deficit) Income (Loss) Income Equity
-------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1999 $ 17,465 $ 7,442 $245,183
Comprehensive loss:
Net loss (80,305) $(80,305) (80,305)
Realization of cumulative
translation adjustment (7,442) (7,442) (7,442)
--------
Comprehensive loss $(87,747)
========
Issuance of common stock 14,250
Issuance of treasury stock (126) 80
------ -------- --------
Balance at December 31, 1999 (62,966) -- 171,766
Comprehensive income:
Net income 21,733 $ 21,733 21,733
Net change in valuation account --
--------
Comprehensive income $ 21,733
========
Issuance of common stock 26,839
Issuance of stock options 1,538
Amortization of deferred compensation 172
Exercise of stock options 1,064
-------- -------- --------
Balance at September 30, 2000
(unaudited) $(41,233) $ -- $223,112
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
2000 1999
--------- -------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $ 21,733 $(37,555)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of change in accounting principle -- (2,729)
Depreciation and amortization 11,949 17,944
Loss on disposal/write down of assets 14,051 23,574
Loss on disposal/write down of joint ventures 536 1,114
Provision for loss on lease obligation -- 6,229
Amortization of lease reserve (2,076) (692)
Amortization of deferred gain on sale of vessel (2,364) (2,363)
(Equity) loss in operations of joint ventures-
net of dividends received (841) 2,193
Changes in assets and liabilities:
(Increase) decrease in receivables and other
current assets (6,129) 7,761
Advances to joint ventures-net (601) (355)
Increase in other assets and deferred charges (523) (658)
Decrease in accounts payable and accrued liabilities (8,931) (4,493)
(Decrease) increase in advance time charter
revenues and other liabilities (74) 472
Other 668 80
--------- --------
Net cash provided by operating activities 27,398 10,522
--------- --------
CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES:
Additions to vessels and other property (105,562) (89,804)
Proceeds from disposition of vessels 46,888 62,152
Payments for the purchase of a joint venture interest-net (4,809) --
Proceeds from disposition of a joint venture 2,657 --
Issuance of notes receivable -- (9,000)
Proceeds from notes receivable 5,712 212
Payments for investments (2,436) (1,794)
Other -- (6,756)
--------- --------
Net cash used by investing activities (57,550) (44,990)
--------- --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from the refinancing of long-term and
short-term debt 264,500 --
Payments on long-term and short-term debt refinanced (257,850) --
Proceeds from issuance of long-term and short-term debt 50,000 133,698
Payments on long-term and short-term debt (24,612) (107,054)
Payments for debt issue costs (4,298) (220)
Proceeds from issuance of common stock 18,656 --
--------- --------
Net cash provided (used) by financing activities 46,396 26,424
--------- --------
Net increase (decrease) in cash and cash equivalents 16,244 (8,044)
Cash and cash equivalents at beginning of year 7,381 22,698
--------- --------
Cash and cash equivalents at end of period $ 23,625 $ 14,654
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1
The consolidated interim financial statements of OMI Corporation ("OMI" or the
"Company") are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim periods. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K and Form 10-K/A for the
fiscal year ended December 31, 1999. The results of operations for the three and
nine months ended September 30, 2000, are not necessarily indicative of the
results for the entire fiscal year ending December 31, 2000.
The Company is a bulk shipping company incorporated on January 9, 1998 in the
Republic of the Marshall Islands, and is the successor company to Universal Bulk
Carriers, Inc., a company which was a wholly-owned subsidiary of OMI Corp.
(renamed Marine Transport Corporation) until June 17, 1998. OMI provides
seaborne transportation services primarily of crude and refined petroleum
products. The Company trades under the symbol OMM on the New York Stock
Exchange.
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although OMI believes such forward-looking
statements are based on reasonable assumptions, no assurance can be given that
every objective will be achieved. Such statements are made in reliance on the
"safe harbor" protections provided under the Private Securities Reform Act of
1995. Additional information about issues that could lead to material changes in
performance is contained in OMI's 1999 Annual Report on Form 10-K and 2000 First
and Second Quarter Reports on Form 10-Q.
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
NOTE 2- NEWLY ISSUED ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 138 ("SFAS 138"), "Accounting for
Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.
133", which deferred the effective date of SFAS 133 to interim periods and
fiscal years beginning after June 15, 2000. SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", established accounting and reporting
standards for derivative instruments and for hedging activities. Generally, it
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value, as well as identifies the conditions for which a derivative may
be specifically designated as a hedge. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. This Statement amends guidance on accounting for certain
derivatives and hedging activities and supercedes Statements previously issued.
At the present time management believes the adoption of SFAS 138 will not have a
material effect on the Company's financial condition or results of operations.
7
<PAGE>
NOTE 2- NEWLY ISSUED ACCOUNTING STANDARD (CONTINUED)
In March 2000, FASB issued FASB Interpretation ("FIN") No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an interpretation of
Accounting Principles Board ("APB") Opinion No. 25". FIN No. 44 defines an
employee for purposes of applying APB Opinion No. 25, the criteria for
determining whether a plan qualifies as a non compensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. This interpretation was effective July 1, 2000.
Adoption of this interpretation has not had a material impact on the Company's
financial position, results of operations or cash flows.
Additionally, in December 1999, the United States Securities and Exchange
Commission ("SEC")issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements", as amended, which for the Company is
effective no later than the fiscal quarter beginning October 1, 2000. SAB No.
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has evaluated the criteria for revenue recognition established by SAB
No. 101 and believes its revenue recognition policies comply with the criteria.
NOTE 3 - CREDIT FACILITIES AND LOAN AGREEMENT
As of September 30, 2000, the Company's debt and credit arrangements consisted
of the following:
(in thousands)
Loans under bank credit agreements at a margin plus
Variable rates of the London Interbank Offering
Rate ("LIBOR")(1)........................................... $293,222
10.25% Unsecured Senior Notes due 2003......................... 4,357
7.00% Convertible Note due 2004............................... 2,206
--------
Total................................................ 299,785
Less current portion of long-term debt............... 45,579
--------
Long-term debt................................................. $254,206
========
-----------
(1) Rates at September 30, 2000 ranged from 8.50 percent to 12.75 percent
(including margins).
On February 11,2000, OMI completed its refinancing with its previous lenders for
a credit agreement, as amended, in the amount of $264,500,000. There were three
primary facilities under this agreement. Facility A, with an original amount of
$218,000,000, matured five years from the drawdown date. On May 10, 2000,
Facility A was reduced by $36,000,000 to $182,000,000 when Facility C was drawn
down. Facility A was to be repaid in ten semi-annual installments commencing six
months from the drawdown date, the first four installments in the amount of
$1,000,000, the next two installments in the amount of $2,500,000 and the
remaining four installments in the amount of $12,500,000, in addition to a
balloon payment for the remaining balance on maturity. As of September 30, 2000,
the outstanding balance of Facility A was $174,685,000, and it had an interest
rate of LIBOR plus a margin of 1.75%. The facility was secured by eleven
vessels.
Additionally, Facility B, a short-term component of the credit facility, had an
original principal balance of $46,500,000 and matured two years after the
drawdown date. The principal of this Facility was to be repaid with proceeds
8
<PAGE>
NOTE 3 - CREDIT FACILITIES AND LOAN AGREEMENTS (CONTINUED)
from the sale of vessels secured by this Facility. As of September 30, 2000, the
outstanding balance of this facility was $43,420,000, and it was secured by six
vessels. The interest rate on this facility was LIBOR plus a margin of 3.00%.
On May 10, 2000, Facility C was converted from a letter of credit to a
secured-term loan of $36,000,000, which reduced Facility A by the same amount.
Facility C was to be repaid in six semi-annual installments commencing six
months from the refinancing. The first four installments of $4,000,000, and the
next two installments of $10,000,000 and the remaining balance of the loan. At
September 30, 2000, the interest rate for Facility C was LIBOR plus a margin of
6.00%, and it had a balance of $28,977,000.
On March 15, 2000, OMI agreed with an existing lender to finance $27,000,000 for
the new Suezmax vessel delivered on March 21, 2000. The bank facility was for a
two year term and was secured by the vessel delivered. Terms required eight
consecutive quarterly payments of $430,000 with the final installment equal to
the balance of the loan. The balance of the loan was $26,140,000 at September
30, 2000. The interest rate for this facility was interest at LIBOR plus a
margin of 1.75% at September 30, 2000.
During May 2000, $30,000,000 of the proceeds from sale of three vessels were
used to acquire the Suezmax vessel delivered May 17, 2000, (see Note 6) which
replaced these vessels as collateral in Facilities A and C. The remaining
proceeds of $1,838,000 from the sale of the three vessels were paid to the bank
to reduce the outstanding balance of Facility C in June.
On October 12, 2000, OMI amended its credit agreements increasing the principal
amount to $310,000,000, with $270,000,000 received at closing, $20,000,000
received at the delivery of the product carrier on September 27, 2000 (see Note
6)and $20,000,000 to be received at the delivery of the product carrier in
November 2000. The facility is secured by 19 vessels as of the closing date. The
Credit Facility is to be repaid in 20 consecutive quarterly installments,
commencing 3 months after the closing date, the first eight in the amount of
$10,000,000 each, the next 12 in the amount of $6,250,000 each, with a balloon
payment in the amount of $155,000,000 due and payable together with the last
installment. Upon the sale of a vessel, the Credit Facility is to be prepaid by
an amount equal to the then outstanding amount of the Credit Facility multiplied
by an agreed upon prepayment percentage based upon the ratio of the market value
of the vessel to the total value of the collateral. The outstanding balance of
the Credit Facility bears interest at LIBOR plus an applicable margin which is
based on OMI's ratio of consolidated funded debt to consolidated adjusted EBITDA
on a trailing four quarter basis. This pricing ratio ranges from 2.0 to 5.0 and
the interest rate margin associated with this range is 1% to 2%. At the closing
date the applicable margin was 1.5%.
Restrictive Covenants
Certain of the loan agreements contain restrictive covenants as to working
capital and net worth; maintaining specified financial ratios and collateral
values; and restricting the Company's ability to pay dividends. The loan
agreements also contain various provisions restricting the right of OMI and/or
its subsidiaries to place additional liens on the property of certain of OMI's
subsidiaries, limitation on mergers and consolidations, restricts
9
<PAGE>
NOTE 3 - CREDIT FACILITIES AND LOAN AGREEMENTS (CONTINUED)
changes of flag or class and change of business, permits transactions with
affiliates on an arm's length basis, and restricts the change of vessel
management. As of September 30, 2000, the Company was in compliance with its
financial covenants.
Interest Rates
The interest rates on the 10.25% unsecured Senior Notes and 7.00% Convertible
Note are fixed. The interest rates at September 30, 2000 ranged from 1.75% to
6.00% above LIBOR on the credit facilities until October 12, 2000 at which time
the margin above LIBOR was reduced to 1.5%.
Security
At September 30, 2000, vessels with an aggregate net book value of $442,860,000
have been pledged as collateral for debt agreements.
NOTE 4 - 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 the conversion of the
7.00% convertible note due 2004.
The Company calculates its earnings per share ("EPS") under SFAS No. 128,
"Earnings per Share". The calculations of EPS under SFAS No. 128 for the three
and nine months ended September 30, 2000 and 1999 are detailed below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
-------- ------- ------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average common shares
outstanding............................. 59,211 41,647 55,749 41,635
====== ======= ======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average common shares
outstanding............................... 59,211 41,647 55,749 41,635
Options..................................... 260 -- 260 --
7% Convertible notes........................ 407 -- 407 --
------ ------- ------- -------
Weighted average common shares
Outstanding-diluted....................... 59,878 41,647 56,416 41,635
====== ======= ======= =======
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative
effect of change in accounting
principle................................. $ 0.38 $(0.17) $ 0.39 $ (0.97)
Cumulative effect of change in
accounting principle...................... -- -- -- 0.07
------- ------ ------ -------
Net income (loss)........................... $ 0.38 $(0.17) $ 0.39 $ (0.90)
======= ====== ====== =======
</TABLE>
10
<PAGE>
NOTE 4 - EARNINGS PER COMMON SHARE (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
-------------- ------------- -------------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE:
Net income (loss) before cumulative
effect of change in accounting
principle................................. $0.37 $(0.17) $0.39 $(0.97)
Cumulative effect of change in
accounting principle...................... -- -- -- 0.07
----- ------ ------ ------
Net income (loss)........................... $0.37 $(0.17) $0.39 $(0.90)
===== ====== ===== ======
</TABLE>
The effect of the assumed conversion of the 7% convertible note due 2004 was not
included in the computation of diluted earnings per share for the three and nine
month periods presented for 1999 because the effect of the average price of
OMI's stock was less than the stock conversion price of $7.375. The effect of
the assumed exercise of options was not included in the computation of diluted
earnings per share for the three and nine months ended September 30, 1999
because the grant prices exceeded the average price of OMI stock.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments include interest paid of approximately $17,764,000 and $14,661,000
for the nine months ended September 30, 2000 and 1999, respectively.
NOTE 6 - ACQUISITIONS
On July 31, 2000, OMI contracted to purchase two 47,000 deadweight ton product
carrier newbuildings from another shipowner at a cost of $30,300,000 each. The
first newbuilding was delivered on September 27, 2000 and the other delivery is
scheduled for late November 2000. The Company has secured a two-year time
charter with an oil company for both vessels following their delivery. OMI
financed $20,000,000 from the amended Credit Facility (see Note 3) for the first
vessel delivered and expects to finance $20,000,000 from the same Credit
Facility for the November delivery.
During October 2000, OMI agreed to acquire from another owner a contract for one
new Suezmax tanker with a cost of approximately $60,000,000 that is being built
by Daewoo Heavy Industries Ltd. OMI expects to finance a portion of the vessel
cost at delivery. Delivery of the vessel is in January 2001. OMI has also
entered into a contract with Onomichi Dockyard Co. Ltd. to build one new 47,000
deadweight ton product carrier with an approximate cost of $28,750,000 for
delivery in February 2002. OMI has options to acquire two additional product
carriers in 2003, the first at an approximate cost of $28,750,000 and the second
at a cost of $29,000,000.
On June 30, 2000, OMI purchased its partner's 51% interest in Amazon Transport,
Inc., which owned one ultra large crude carrier ("ULCC"). The purchase price was
based on a notional vessel value set at $30,000,000 plus the allocation of cash
for the remaining net assets. OMI issued 1,500,000 shares of OMI common stock at
$5.125 aggregating $7,687,500 and paid $7,462,500 to its partner for the
purchase.
11
<PAGE>
NOTE 6 - ACQUISITIONS (CONTINUED)
The Soyang, a new Suezmax vessel, was delivered from the shipyard on May 17,
2000 for an aggregate purchase price of $51,348,000.
On February 11, 2000 OMI issued 599,998 shares of common stock to affiliates of
Mega Tankers Newbuilding AS, which combined with the 5,700,000 shares issued in
November 1999 aggregated 6,299,998 shares issued for $15,750,000 (at $2.50 per
share) excluding expenses of $589,000. These shares were issued in exchange for
a Suezmax construction contract. The Suezmax tanker was delivered to OMI in
March 2000 for an aggregate cost of approximately $46,900,000, of which
$27,000,000 was financed upon delivery (see Note 3).
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 the following sizes of vessels, ULCC,
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 handysize
and handymax vessels.
The following is a summary of the operations by major operating segments:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- --------------------------
2000 1999 2000 1999
-------------- --------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Total Revenues:
Crude Oil Tanker Fleet.................. $44,243 $ 17,074 $ 92,284 $ 62,033
Product Carrier Fleet....................... 10,612 8,644 29,771 29,014
Other....................................... -- 53 -- 237
------- ------- --------- --------
Total..................................... $54,855 $ 25,771 $ 122,055 $ 91,284
======= ======== ========= ========
INCOME (LOSS) BEFORE EQUITY IN OPERATIONS
OF JOINT VENTURES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE:
Crude Oil Tanker Fleet...................(1) $21,607 $ (2,393) $ 34,491 $(31,609)
Product Carrier Fleet....................(2) 2,537 (765) (6,281) (228)
General and administrative expense
not allocated to vessels.................. (2,071) (1,565) (6,524) (4,996)
Other....................................... (703) (2,150) (2,002) (3,194)
------- -------- --------- --------
Total..................................... $21,370 $ (6,873) $ 19,684 $(40,027)
======= ======= ========== ========
</TABLE>
12
<PAGE>
NOTE 7 - FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED)
(1) The three and nine months ended September 30, 1999 Crude Oil Tanker Fleet
balances include losses from the disposal of three vessels and the write
down of two vessels, aggregating $23,574,000 and the provision for loss
on lease obligation of $6,229,000.
(2) The three and nine months ended September 30, 2000 Product Carrier Fleet
balance includes losses from the disposal of vessels of $1,432,000 in the
three months and $11,067,000 in the nine months and write down of vessels
aggregating $3,000,000 in the nine month period 2000.
During the three and nine months ended September 30, 2000 and 1999, mortgage
debt of OMI Corporation and its related interest expense have been allocated to
the above segments based upon the relative value of the vessels collateralizing
the debt.
NOTE 8 - OTHER COMMITMENTS
The Company and its joint venture partner have committed to fund any working
capital deficiencies which may be incurred by the joint venture. At September
30, 2000, there were no such deficiencies to be funded.
NOTE 9 - ASSETS TO BE DISPOSED OF
During August 2000, a vessel previously recorded as Assets to be disposed of on
the Consolidated Balance Sheets at December 31, 1999 was sold. An adjustment to
record an additional loss to loss on disposal of assets of $1,432,000 was
recorded in the third quarter ended September 30, 2000.
During March and April 2000, three product carriers were contracted for sale.
Two of these vessels were recorded on the Consolidated Balance Sheet at December
31, 1999 as Assets to be disposed of. Adjustments to the carrying amount of
these vessels aggregating $4,833,000 were recorded to loss on assets to be
disposed of as of March 31, 2000. The third product carrier contracted for sale
in April 2000 was reclassified to Assets to be disposed of at March 31, 2000.
This vessel was written down to its sale price, which was equivalent to its net
realizable value and a charge of $4,801,000 was recorded to loss on disposal of
vessels. The three vessels were delivered to their new owners in May 2000.
Additionally, during March 2000, OMI adjusted two vessels which were classified
as Assets to be disposed of at year end 1999 to reflect values of similar
vessels contracted for sale during March 2000. A charge of $3,000,000 was
recorded to loss on disposal/write down of assets during the first quarter 2000.
In connection with the amended loan agreement, which was signed on October 12,
2000 (see Note 3), OMI is no longer required to sell certain vessels; therefore,
three vessels, which were previously held as vessels to be disposed of, were
reclassified to vessels as of September 30, 2000. The book value of the three
vessels on September 30, 2000 was equal to the approximate market value on that
date.
13
<PAGE>
NOTE 10 - COMMON STOCK ISSUED
On March 28, 2000, OMI sold in a private placement to four unrelated investors,
9,583,000 shares of common stock for $2.00 per share, ($1.92 net of
commissions). Part of the funds received were used to pay for the two
newbuildings delivered in May and March 2000.
On March 7, 2000, OMI issued an aggregate of 26,667 shares of common stock to
three non-employee directors at $2.25 per share in lieu of the year 2000 annual
cash payment to them.
NOTE 11-STOCK BASED COMPENSATION
During the quarter and nine months ended September 30, 2000, in accordance with
APB No. 25, the Company recorded compensation expense of $699,000 and
$1,240,000, respectively, relating to stock options. There was no compensation
expense related to stock options for the quarter and nine months ended September
30, 1999. The 2000 compensation expense is recorded in general and
administrative expense in the statements of operations.
On June 20, 2000, the OMI Corporation 1998 Performance Unit Plan (for years
1998-2002) was modified and in lieu of performance units, options were granted
pursuant to Stock Option Award Agreements. The modifications included the
redemption of 394,000 performance units relating to 1998 and 1999 deferred units
and 2000 units in exchange for 394,000 stock options granted at $1.50 per share
and cash bonus for the units at $1.50 per share, which are payable in the first
quarter of 2001. The 394,000 options granted at $1.50 per share vest on January
1, 2001 and expire January 1, 2006. Each grantee may cause the applicable stock
options to be exercised prior to the vesting date but is not entitled to the
proceeds until the vesting date. At of June 20, 2000, capital surplus was
credited for the difference between the stock options granted at $1.50 per share
and the market price of OMI stock on that date of $4.938 per share, which
aggregated $1,354,000.
Performance units relating to years 2001 and 2002 aggregating 400,000 units were
converted to stock options at a grant price of $4.938, which was the market
price of OMI common stock at the grant date. A cash bonus for the number of
units times the grant price of $4.938 for 2001 performance units will be payable
in the first quarter of 2002 and for the 2002 units, a cash bonus will be paid
in the first quarter of 2003. Stock options relating to 2001 performance units
vest January 1, 2002 and expire January 1, 2007. Stock options relating to 2002
performance units vest January 1, 2003 and expire January 1, 2008. Each grantee
may cause the applicable stock options to be exercised prior to the vesting date
but is not entitled to the proceeds until the vesting date.
As of September 30, 2000, capital surplus was credited $2,063,000 for
adjustments to record the current quarter's compensation expense and deferred
compensation relating to the above option plan at OMI's stock price at September
30, 2000.
NOTE 12-SUBSEQUENT EVENTS
On October 17, 2000, OMI was given notice of termination on the operating leases
of two of its chartered-in vessels by the shipowners. The leases had been
scheduled for termination in 2001 and 2002. In accordance with the
14
<PAGE>
NOTE 12-SUBSEQUENT EVENTS (CONTINUED)
contracts the owners are required to pay a termination fee of $1,000,000 for
each vessel at redelivery, which is 90 days and certain other time plus offhire
days (during the lease) from the date of notice. Gains from the termination will
be reflected in appropriate future periods.
15
<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 condensed consolidated
financial statements and accompanying notes appearing elsewhere in this Form
10-Q.
GENERAL
Overview
OMI is one of the largest publicly-traded providers of energy
transportation services in the world. Its ships carry crude oil and refined
petroleum products in international markets for major oil companies. The Company
is the successor to Universal Bulk Carriers, Inc., 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)
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. The Company trades under the symbol
"OMM" on the New York Stock Exchange.
OMI's net income was $22.4 million or $0.38 basic and $0.37 diluted
earnings per share (EPS) for the third quarter 2000 (net income of $23.8 million
or $0.40, excluding the loss on the disposal of a vessel) compared to a net loss
of $7.1 million or $0.17 basic/diluted loss per share for the third quarter
1999. For the nine months ended September 30, 2000, net income was $21.7 million
or $0.39 basic/diluted EPS compared to the net loss of $37.6 million or $0.90
basic/diluted loss per share (including $0.07 income from the cumulative effect
of the change in accounting principle) for the nine months ended September 30,
1999.
For the nine months ended September 30, 2000, excluding $14.6 million in
net losses from the disposal of four product carriers, disposal of a joint
venture and the write down of two other vessels to be disposed of, net income
was $36.3 million or $0.65 earnings per basic share. Included in the nine months
ended September 30, 1999 net loss of $37.6 million, were losses aggregating
$30.9 million, which were from the following non-recurring adjustments; the
provision for loss on lease obligation of $6.2 million, losses from the write
down and disposal of five older crude carriers and the sale leaseback of a
Suezmax tanker aggregating $23.6 million and losses on the write down and
disposal of two joint venture investments aggregating $1.1 million. Such losses
were offset by income from the cumulative change in accounting principle of $2.7
million.
During the third quarter, the Company's spot market vessels (seven
Suezmaxes, one ultra large crude carrier ("ULCC"), three Panamaxes and six
product carriers) averaged daily Time Charter Equivalents (TCEs) of $42,041 for
Suezmaxes, $29,044 for the ULCC, $22,257 for Panamaxes and $12,774 for the
product carriers on spot charters. Market rates for spot market voyages in the
fourth quarter are higher than the previous quarter averages in all categories.
16
<PAGE>
OMI's Fleet- Currently, OMI's fleet comprises 21 vessels, including three
chartered-in vessels. The fleet includes five wholly-owned Suezmaxes, three
chartered-in Suezmaxes, three 66,000 dwt product tankers currently carrying
crude oil, eight handysize product carriers and one handymax product carrier
carrying clean products and one ULCC. During September 2000, OMI took delivery
of a handymax newbuilding and will take delivery of another handymax newbuilding
in November 2000.
The Company has concentrated its fleet in two sectors of the energy
transportation industry, Suezmax crude oil tankers and petroleum product
carriers. OMI's Suezmax tanker fleet is one of the largest and youngest fleets
in the world as all of its owned Suezmax tankers are two years old or younger.
OMI is focused on continuing to build its leadership positions in both Suezmax
tankers and product carriers.
The Company participates in three marketing alliances to enhance market
share for its Suezmax, Panamax and product carrier fleets. The alliances combine
strengths to better serve customers by giving them more options, at the same
time giving the Company cost savings and access to cargoes which it might
otherwise be unable to carry. In 1998, OMI formed a joint venture, Alliance
Chartering LLC ("Alliance"), with Frontline Ltd., to charter both companies'
Suezmaxes. Alliance currently markets the services of approximately 40
Suezmaxes. In 1999, OMI entered into a joint venture, International Product
Carriers Limited ("IPC") with Osprey Maritime Limited for midsize product
tankers. IPC began operations on May 1, 1999 and currently markets the services
of approximately 30 vessels. Currently, six of OMI's product carriers are
operating under adjustable rate time charters with IPC. While the vessels are
committed by time charters, the revenues are dependent on the spot market. OMI
also has its three Panamax tankers operating in the Star Tankers Pool, which is
the largest commercial operator of Panamaxes in the world.
MARKET OVERVIEW
Suezmax Tanker Overview
Tanker TCE's have recovered sharply this year as a result of increasing
world oil demand at a time of very low oil inventory levels, and increased crude
oil seaborne volumes as OPEC has raised production by 3.2 million b/d to date in
2000. In addition, the tanker fleet has remained relatively stable this year as
high tanker scrapping activity has almost offset tanker newbuilding deliveries.
World oil demand is expected to increase this year. The expected increase
reflects strong economic activity in industrialized areas, especially in the
United States and in the Pacific region, which is recovering from the economic
crisis of few years ago. At the same time, world oil inventories continue to be
at historically very low levels. Currently, commercial crude oil stocks in the
three main oil consuming areas - the U.S., Western Europe and Japan - are 4.5%
below a year ago level and at the lowest level in at least the last ten years.
The tanker orderbook for delivery over the next few years totaled
approximately 51.5 million dwt, or 18.5% of the existing tanker fleet, at the
end of September 2000. However, approximately 82.3 million dwt or 29.6% of the
existing fleet is 20 years old or more, and about 29.1 million dwt or 10.5% of
the existing fleet is 25 years old or more. These old vessels are facing
increasingly stricter environmental regulations. Approximately 4.3
17
<PAGE>
million dwt of the orderbook is scheduled for delivery in the balance of 2000,
16.3 million dwt in 2001, 23.1 million dwt in 2002 and the balance in 2003. In
addition, the orderbook of the Suezmax tanker fleet for international trades
totaled 60 vessels of approximately 9.4 million dwt, or 27.8% of the existing
Suezmax tanker fleet. Furthermore, 60 Suezmax tankers of about 8.4 million dwt
or 24.8% of the existing Suezmax tanker fleet was 20 or more years old.
In calendar 1999, tanker sales for scrap accelerated as tanker TCE's
reached low levels. Tanker sales for scrap have been relatively high in the
first three quarters of 2000, notwithstanding a substantial improvement of
tanker TCE's that reached very profitable levels, due to the tanker fleet
demographics, stricter enforcement of existing tanker regulations by
classification societies, stricter inspections by charterers and the planning of
new tanker regulations by the European Union. These proposed regulations,
similar to the OPA regulations in the United States, would tighten controls of
tankers trading in European waters and make employment of old tankers more
difficult. Tanker sales for scrap totaled about 16.7 million dwt in 1999 and
12.2 million dwt through September 2000, including a total of 19 Suezmaxes.
Tanker scrapping is expected to continue at high levels given the tanker fleet
age demographics and stricter environmental regulations.
The positive outlook for the crude tanker market is expected to continue as
a result of the need for additional oil production by OPEC, beyond the recently
announced amounts, to accommodate the seasonal world oil demand gains in the
winter months at a time when oil inventories are at very low levels. In
addition, a relatively stable tanker supply, given the fleet age demographics
and the continued focus of governments and charterers on safe, high-quality
modern tonnage, coupled with the strength of the world economy and the resultant
growth in demand for oil, should lead to a strong freight environment in the
future.
In the U.S. market, the Company does not believe that the President's
recent decision to tap the country's strategic petroleum reserves will have an
impact on the demand for tankers.
Product Tanker Overview
The product carrier market operates in a more stable rate environment than
the crude oil market and has traditionally provided shipowners with a
predictable stream of revenues. The product carrier market is a segment of the
overall tanker market which facilitates seaborne transportation of petroleum
products such as gasoline, jet fuel, kerosene, naphtha and gas oil. While crude
oil tankers carry oil from production areas to refineries, product carriers move
refined products from refineries to distribution points.
The product tanker market continued to improve with each quarter in 2000
and TCE's for handysize product tankers in the Caribbean reached levels not seen
since the very strong product tanker market early in 1997. This was the result
of continued strong oil demand growth in the Atlantic region at a time that oil
product inventories, especially stocks for the seasonal distillates, were very
low, and the modest product tanker fleet increase so far this year.
The Company believes that product carrier demand will continue to increase
in the foreseeable future. First, world oil demand is expected to
18
<PAGE>
increase at a higher rate compared to the second half of the 1990's.
Additionally, the major oil consuming areas- North America, Western Europe and
Asia- have a shortage of refinery capacity, while Latin America, Africa and the
Middle East have a surplus. Furthermore, refinery capacity is expanding in the
Middle East and Latin America while the shortage of refinery capacity in the
major oil consuming areas is expected to persist. Finally, there have been some
fundamental changes in the pattern of product trades toward longer-haul
movements.
RESULTS OF OPERATIONS
Results of operations of OMI Corporation include operating activities of
the Company's vessels. The following discussion explains the Company's operating
results in terms of net voyage revenues and TCE revenues. Net voyage revenues
are voyage revenues minus vessel and voyage expenses (including charter hire
expense). TCE revenue (voyage revenue less voyage expenses) equates revenue
generated from a voyage charter to time charter revenue.
Under a voyage charter, the operator of a vessel agrees to provide the
vessel for the transport of specific goods between specific ports in return for
the payment of an agreed upon freight per ton of cargo or, alternatively, for a
specified total amount. All operating costs are for the operator's account. A
single voyage charter (generally two to ten weeks) is often referred to as a
"spot market" charter. Vessels in the spot market may also spend time idle or
laid up as they await business. A voyage charter involving more than one voyage
with the same charterer is commonly known as a "consecutive voyage" charter.
A time charter involves the placing of a vessel at the charterer's disposal
for a set period of time during which the charterer may use the vessel in return
for the payment by the charterer of a specified daily or monthly hire rate. In
time charters, operating costs such as for crews, maintenance and insurance are
typically paid by the owner of the vessel and voyage costs such as fuel and port
charges are paid by the charterer.
Under a bareboat charter, the charterer takes possession of the vessel in
return for a specified amount payable to the owner of the vessel. The bareboat
charterer must provide its own crew, pay all operating and voyage expenses and
is responsible for the operation and management of the vessel.
Voyage, time and bareboat charters are available for varying periods,
ranging from a single trip to a long-term arrangement approximating the useful
life of the ship to commercial firms (such as oil companies) and governmental
agencies (both foreign and domestic) on a worldwide basis. In general, a
long-term charter affords the vessel owner greater assurance that it will be
able to cover its costs, including depreciation, interest, and operating costs.
Operating the vessel in the spot market affords the owner greater speculative
opportunity, which may result in high rates when ships are in high demand or low
rates (possibly insufficient to cover costs) when ship availability exceeds
demand. Ship charter rates are affected by world economics, international
events, weather conditions, strikes, governmental policies, supply and demand,
and many other factors beyond the control of OMI.
19
<PAGE>
Currently, all of OMI's fleet, except one Suezmax and three product
carriers, operate in the spot market. An additional new product carrier being
acquired by the Company in late November of this year will be on time charter
beginning at the time of its delivery.
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 charterer 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 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Net voyage revenues of $36.6 million for the three months ended September
30, 2000 increased by a net of $30.5 million from $6.1 million for the three
months ended September 30, 1999. Net voyage revenues of $70.8 million for the
nine months ended September 30, 2000 increased by a net of $42.8 million from
$28.0 million for the nine months ended September 30, 1999. Net voyage revenues
for the three and nine months ended September 30, 2000 and 1999 are as follows
by market segments in which OMI primarily operates.
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- ------- -------- ---------
(in millions)
Voyage Revenues:
Crude Oil Fleet $ 44.2 $ 17.1 $ 92.3 $ 62.0
Product Carrier Fleet 10.6 8.6 29.8 29.0
All Other -- 0.1 -- 0.2
------- ------- -------- -------
Total $ 54.8 $ 25.8 $ 122.1 $ 91.2
======= ======= ======== =======
Vessel and Voyage Expenses:
Crude Oil Fleet (1) $ 14.8 $ 14.4 $ 40.2 $ 45.5
Product Carrier Fleet 3.3 5.1 10.9 17.4
All Other 0.1 0.2 0.2 0.3
------- ------- -------- -------
Total $ 18.2 $ 19.7 $ 51.3 $ 63.2
======= ======= ======== =======
Net Voyage Revenues:
Crude Oil Fleet $ 29.4 $ 2.7 $ 52.1 $ 16.5
Product Carrier Fleet 7.3 3.5 18.9 11.6
All Other (0.1) (0.1) (0.2) (0.1)
------- ------- -------- -------
Total $ 36.6 $ 6.1 $ 70.8 $ 28.0
======= ======= ======== =======
------------
(1) Includes charter hire expenses. Excludes June 1999 Provision for Loss on
Lease Obligation of $6.2 million.
Net changes are discussed as follows according to the two market segments
(crude oil and product carrier) in which OMI primarily operates.
20
<PAGE>
Crude Oil Tanker Fleet
At September 30, 2000 and September 30, 1999, the crude fleet consisted of:
2000 1999
----- -----
1998-2000 built Suezmax vessels 5 3
1989-1999 Suezmax vessels chartered-in 3 3
1970's built Suezmax vessels 0 1
1980's built Panamax vessels 3 3
1980's built Aframax vessel 0 1
1986 built ULCC 1 0
----- -----
Total 12 11
----- -----
During 2000, OMI owned or operated 12 crude carriers, including one ULCC
vessel, which was purchased on June 30, 2000 (the Company previously owned 49
percent) from OMI's joint venture partner. OMI took delivery of a new Suezmax
vessel in May 2000, which began its first voyage early June and in March 2000,
OMI took delivery of another Suezmax newbuilding, which began its first voyage
early April. During March 2000, OMI sold its aframax vessel. OMI disposed of its
four older crude carriers in the second half of 1999 and completed a
sale/leaseback in June 1999 for a new Suezmax vessel delivered January 1999.
Net Voyage revenues earned by the crude oil fleet in the three months and
nine months ended September 30, 2000 were $29.4 million and $52.1 million an
increase of $26.7 million and $35.6 million, respectively, over the comparable
periods in 1999.
The following table sets forth comparative operating results for the crude
oil fleet for the three and nine months ended September 30, 2000 versus the
three and nine months ended September 30, 1999.
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ---------------------
2000 1999 2000 1999
------- ------- ----- -------
(in millions)
CRUDE FLEET:
NEW SUEZMAXES:
TCE revenue $ 28.1 $ 8.0 $ 55.7 $ 27.1
------- ------ ------- -------
Vessel expenses 1.7 2.1 5.5 5.2
Charter hire expenses 4.0 4.6 11.6 11.5
------- ------ ------- -------
Net voyage revenue $ 22.4 $ 1.3 $ 38.6 $ 10.4
======= ====== ======= =======
ULCC:
TCE revenue $ 2.7 $ -- $ 2.7 $ --
------- ------ ------- -------
Vessel expenses 0.6 -- 0.6 --
Charter hire expenses -- -- -- --
------- ------ ------- -------
Net voyage revenue $ 2.1 $ -- $ 2.1 $ --
======= ====== ======= =======
PANAMAXES:
TCE revenue $ 6.1 $ 2.9 $ 14.5 $ 9.1
------- ------ ------- -------
Vessel expenses 1.2 1.7 3.9 4.5
Charter hire expenses -- -- -- --
------- ------ ------- -------
Net voyage revenue $ 4.9 $ 1.2 $ 10.6 $ 4.6
======= ====== ======= =======
21
<PAGE>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in millions)
CRUDE FLEET:
OLD SUEZMAXES/AFRAMAX: (SOLD IN
1999 & 2000)
TCE revenue $ -- $ 1.1 $ 1.1 $ 9.3
------ ------ ------- -------
Vessel expenses -- 0.9 0.3 7.8
Charter hire expense -- -- -- --
------ ------ ------- -------
Net voyage revenue $ -- $ 0.2 $ 0.8 $ 1.5
====== ====== ======= =======
TOTAL CRUDE FLEET $ 29.4 $ 2.7 $ 52.1 $ 16.5
====== ====== ======= =======
Fluctuations in each of the crude oil fleet vessel types were as
follows:
New Suezmaxes- The largest increase in the crude fleet's net voyage revenue
was earned by this group. Included in this group are the three chartered-in
vessels, built 1989, 1990 and 1999. The increase in net voyage revenue in the
three and nine months ended September 30, 2000 over the comparable 1999 periods
were a $21.1 million increase in the three months and a $28.1 million increase
in the nine month period. Increases in the third quarter and nine months 2000
over 1999 were primarily earnings by the wholly owned Suezmaxes (built
1998-2000) and the chartered-in vessels (operating in the spot market). The
largest of the increases in net voyage revenues of $8.5 million in the three
months and $11.6 million in the nine months were attributed to the two
newbuildings delivered in the first half of 2000. The remaining increase in net
voyage revenue in both the three and nine month periods were from the
improvement in TCE rates above the increase in bunker costs in 2000 resulting
from better market conditions as described in the Market Overview.
ULCC- Increase in net voyage revenues in 2000 was the result of OMI's
purchase of its joint venture partner's interest. The venture owned one ULCC
vessel, which became wholly owned by OMI on June 30, 2000.
Panamaxes- Increase in the Panamax net voyage revenues in the 2000 periods
over the comparable 1999 periods of $3.7 million in the three month periods and
$6.0 million in the nine month period was the result of better performance due
to improvement for crude oil TCEs. These three vessels operate in a pool which
primarily trades in the Far East. Increased rates for Panamax vessels operating
in the pool during 2000 resulted from steady demand. This demand has continued
to improve rates during the third quarter and into the fourth as well.
Old Suezmax/Aframax-Earnings for the Old Suezmax/Aframax group for the nine
months ended September 30, 2000 reflect earnings for the first quarter 2000 of
$0.9 million, which primarily relates to the aframax vessel sold March 2000. Net
voyage revenues of $0.2 million and $1.5 million for the three and nine months
ended September 30,1999 included earnings from four older Suezmax vessels sold
in the second half of 1999 and the aframax vessel. During 1999, the older
Suezmax vessels incurred operating losses or small profits.
22
<PAGE>
Product Carrier Fleet
At September 30, 2000 and September 30, 1999, the product carrier fleet
consisted of:
2000 1999
------ ------
2000 built handymax product carrier 1 0
1999 built handysize product carrier 2 2
1984-1991 built product carriers 6 10
------ ------
9 12
====== ======
On September 27, 2000, one handymax newbuilding was delivered and began a
two-year time charter with an oil company. During 1999, two handysize product
carrier newbuildings were delivered in July and September and time chartered for
two-years to another oil company. During 2000 four product carriers were sold,
three in May and one in August 2000. Two product carriers are classified as
Assets to be disposed of on the Condensed Consolidated Balance Sheet as of
September 30, 2000.
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in millions)
CLEAN FLEET:
PRODUCTS (IPC POOL BEGINNING
SECOND QUARTER 1999):
TCE revenue $ 7.6 $ 7.4 $ 22.2 $ 23.5
------ ------ ------ ------
Vessel expenses 2.9 4.7 9.2 12.7
Charter hire expenses -- -- -- --
------ ------ ------ ------
Net voyage revenue $ 4.7 $ 2.7 $ 13.0 $ 10.8
====== ====== ====== ======
PRODUCTS-ON TIME CHARTER:
TCE revenue $ 3.0 $ 1.1 $ 7.6 $ 1.1
------ ------ ------ ------
Vessel expenses 0.4 0.3 1.7 0.3
Charter hire expenses -- -- -- --
------ ------ ------ ------
Net voyage revenue $ 2.6 $ 0.8 $ 5.9 $ 0.8
====== ====== ====== ======
TOTAL CLEAN FLEET $ 7.3 $ 3.5 $ 18.9 $ 11.6
====== ====== ====== ======
The following table sets forth comparative operating results for the
product carrier fleet for the three and nine months ended September 30, 2000
versus the three and nine months ended September 30, 1999.
Net Voyage revenues earned by the product carrier fleet in the three months
and nine months ended September 30, 2000 were $7.3 million and $18.9 million an
increase of $3.8 million and $7.3 million, respectively, over the comparable
periods in 1999. Fluctuations in each of the product carrier groups were as
follows:
Product Carriers (IPC Pool)-During the three and nine months ended
September 30, 2000, six (10 before the sale of the three product carriers in May
2000 and one in August 2000) of the Company's handysize product tankers have
been operating on time charters to a joint venture, IPC, in a marketing
alliance. Time charter rates from this venture reflect spot market rates since
they are adjusted periodically with pool profits. The vessels have been
operating in this marketing pool since its inception in May 1999. Previous to
May 1999, seven vessels were operating in the spot market. Three
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vessels coming off a previous time charter began operating with the IPC pool in
the third quarter of 1999.
Increases in net voyage revenues of $2.0 million and $2.1 million in the
three months and nine months ended September 30, 2000, respectively, reflect the
increase in profits earned primarily since the upswing in rates beginning in the
second quarter 2000 compared to earnings from prior year spot charters for these
vessels. The increase in rates for the vessels operating in both 1999 and 2000
periods were offset by lower earnings from four vessels disposed of in 2000 (the
four vessels sold in 2000 operated a total of 504 more days in 1999)
During the third quarter, the Company's six spot market vessels averaged
daily TCEs (which includes waiting time) was $12,774 compared to the 1999 third
quarter average of 10 product carriers daily TCE of $8,059. Improvement in the
2000 rates is consistent with the rise in the TCE rates for this sector
resulting from increased demand and other factors discussed in the Market
Overview.
Product Carriers (on time charter)- Increases in net voyage revenue of $1.8
million and $5.1 million in the three months and nine months ended September 30,
2000, respectively, relate to earnings from two 1999 built product carriers,
which were delivered in the third quarter of 1999 and minimal earnings from one
handymax product carrier delivered September 27, 2000. Earnings for this group
increased primarily from more operating days in 2000 and additional income for
profit sharing based upon certain conditions included in the two time charter
agreements, which began in 1999. All three vessels have been operating on time
charters since their deliveries.
PROVISION FOR LOSS ON LEASE OBLIGATION (1999).
The provision for loss on lease obligation of $6.2 was recorded at June 30,
1999 and relates to OMI's chartered in vessels. During the Company's periodic
review, it was determined that the current lease obligations exceeded the
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
agreements, over the vessels estimated forecasted future cash flows over the
lease term.
OTHER OPERATING EXPENSES.
The Company's operating expenses, other than vessel, voyage and operating
lease expenses consist of depreciation and amortization and general and
administrative ("G & A") expenses. These expenses decreased $0.6 million for the
three months ended September 30, 2000 and $5.0 million for the nine months ended
September 30, 2000 compared to the same periods in 1999. The decreases in other
operating expenses in both the three and nine month periods are due to decreases
in depreciation expense for vessels sold or classified as Assets to be Disposed
Of. The 1999 periods included depreciation expense for the five older crude
vessels (all sold between July 1999 and March 2000) for the first six months of
1999, and also depreciation expense for eight vessels held for sale at December
31, 1999. The decreases in depreciation expense were offset in part by
depreciation expense accounted for on the two new Suezmaxes, which began
operating in the second quarter 2000.
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During the quarter and nine months ended September 30, 2000, in accordance
with APB No. 25, the Company recorded compensation expense included in G&A of
$0.7 million and $1.2 million, respectively, relating to stock options. There
was no compensation expense related to stock options for the quarter and nine
months ended September 30, 1999.
LOSS (GAIN) ON DISPOSAL/WRITE DOWN OF ASSETS.
Loss (gain) on disposal of assets was $1.4 million in the three months and
$14.1 million in the nine months, which relate to the disposals of four vessels
and write downs of two vessels in 2000. Adjustments for three vessels previously
classified as Assets to be disposed of at December 31, 1999 resulted in losses
aggregating $6.2 million, $1.4 million of which was recorded in the third
quarter upon the sale of a vessel in August 2000. Two similar vessels' net
realizable values, which also were previously classified as Assets to be
disposed of at December 31,1999 were adjusted during the first quarter 2000 by
an aggregate of $3.0 million. A vessel sold in May 2000 resulted in a loss on
disposal of $4.8 million.
Loss on disposal/ write down of assets of $23.6 million for the nine months
ended September 30, 1999, included the loss on the sale of five vessels held to
be disposed of at June 30, 1999 and the loss on the sale of a Suezmax vessel
which, was sold on June 30, 1999 in a sale/leaseback transaction.
OTHER INCOME (EXPENSE).
Other income (expense) consists of net interest expense, loss on
disposal/write down of joint venture investments and other-net. Net other
expense increased $1.4 million for the three months and increased $3.9 million
for the nine months ended September 30, 2000 compared to the three and nine
months ended September 30, 1999.
Net Interest expense increased $3.1 million for the three months and $6.6
million for the nine months ended September 30, 2000 compared to the three and
nine months ended September 30, 1999. The increases were primarily due to
interest expense on additional borrowings to finance one Suezmax vessel
delivered March 2000 and two product carrier newbuildings delivered in 1999.
Capitalized interest was reduced corresponding with the delivery of the new
ships. Additional increases in interest expense during 2000 resulted from
increased interest rates and interest margins increased as a result of the
refinancing of debt in February 2000, which will decrease with the amended
credit facility in October 2000(see Financing Activities).
Additionally, loss from the sale of a joint venture in the first quarter
2000 of $0.5 million was recorded. Loss on disposal/write down of joint venture
investments during the nine months ended September 30, 1999 represents the loss
on OMI's sale of its 49 percent interest in White Sea Holdings Inc. of
approximately $0.8 million and a write down of its investment in OMI-Heidmar
joint venture of approximately $0.3 million.
Other-net of $0.6 million for the three months and $2.2 million for the
nine months ended September 30, 2000 was primarily attributed to the settlement
of various insurance claims from prior years.
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EQUITY (LOSS) IN OPERATIONS OF JOINT VENTURES.
Equity (loss) in operations of joint ventures increased $1.3 million for
the three months ended September 30, 2000 and $2.3 million for the nine months
ended September 30, 2000 compared to the same periods in 1999. During 2000, OMI
participated in one vessel-owning joint venture, which operated a ULCC vessel.
OMI acquired the joint venture company from its partner on June 30, 2000.
Improvement in rates for the ULCC vessel operating in the spot market during the
first half of 2000 increased equity during the nine month period 2000 over the
comparable period in 1999. Additionally, OMI recorded $1.0 million during the
third quarter 2000 and $1.5 million during the nine months ended September 30,
2000 for profit sharing from a 49 percent owned joint venture, which OMI
previously chartered vessels to in 1999. Three joint ventures operating during
1999 have been sold (see paragraphs below for the two sold in 2000).
On June 30, 2000, OMI purchased the additional interest in Amazon
Transport, Inc., a company previously 49 percent owned. The acquisition was
based on a nominal ship value for the Company's ULCC vessel of $30 million. OMI
paid the purchase price partially with cash and by issuing 1.5 million shares of
its common stock to its venture partner at a price of $5.125.
During 2000, OMI sold its 49.9 percent investment in Geraldton Navigation
Company Inc. ("Geraldton") to its partner. An adjustment for an additional loss
of $0.5 million was recorded in the first quarter relating to the disposal of
this venture for which the Company received $2.4 million. Additionally, a
dividend was paid to OMI of $1.2 million in February 2000.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1999)
During the second quarter of 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 in 1999 as a
cumulative effect of change in accounting principle.
BALANCE SHEET
Assets to be disposed of, aggregating $15.1 million at September 30, 2000
represents the aggregate net realizable value of two vessels. The decrease of
$75.9 million from the December 31, 1999 balance of $91.0 million is the result
of the sale of four vessels,(which also increased cash proceeds by $25.5
million), an additional write down aggregating $3.0 million on the two remaining
vessels' net realizable values, and an adjustment to reclass three vessels to
the Vessels category at September 30, 2000.
In connection with the amended loan agreement, dated October 12, 2000 (see
Financing Activities) OMI is no longer required to sell certain vessels.
Therefore, three vessels that had been classified as held for sale have been
reclassed to Vessels and are being depreciated over their remaining lives. The
related current portion of debt has also been adjusted for the amended loan
agreement.
On June 30, 2000, OMI purchased its partners' 51 percent interest in Amazon
Transport, Inc. The purchase price was based on the ULCC's value set at $30.0
million plus the allocation of cash for the remaining net assets. OMI issued 1.5
million shares at $5.125 aggregating $7.7 million and paid $7.4 million to its
partner for the purchase. OMI's investment in joint
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<PAGE>
ventures decreased $14.9 million and Vessels increased by $20.6 million at June
30, 2000.
On May 17, 2000, OMI took delivery of a new Suezmax vessel. As of September
30, 2000, capitalized costs included in Vessels were $51.5 million.
On February 11, 2000 OMI issued 599,998 shares of common stock to
affiliates of Mega Tankers Newbuilding AS, which combined with the 5,700,000
shares issued in November 1999 aggregated 6,299,998 shares issued for $15.8
million (at $2.50 per share) excluding expenses of $0.6 million. These shares
were issued in exchange for a Suezmax construction contract. The Suezmax tanker
was delivered to OMI in March 2000. The aggregate capitalized costs as of
September 30, 2000 of $47.2 million include costs of $14.4 million included in
Construction in progress at year-end 1999, of which $27.0 million was financed
upon delivery (see Financing Activities).
On March 28, 2000, OMI sold in a private placement to four unrelated
investors, 9,583,000 shares of common stock for $2.00 per share ($1.92 net of
commissions). A portion of the funds received, were used to pay for the
newbuildings delivered in March and May 2000.
During February 2000, MTC paid OMI $5.1 million for a note, which was due
in November 2003 in exchange for a discount. At December 31, 1999, the note
receivable of $5.1 million was included with Other receivables in current
assets.
On June 20, 2000, the OMI Corporation 1998 Performance Unit Plan (for years
1998-2002) was modified and in lieu of performance units, options were granted
pursuant to Stock Option Award Agreements. By converting the performance units
to stock options in 2000 for units in the plan for years 1998-2000, the Company
reduced the amount of cash to be used for such operating activities. The
modifications included the redemption of 394,000 performance units relating to
1998 and 1999 deferred units and 2000 units in exchange for 394,000 stock
options granted at $1.50 per share and cash bonus for the units at $1.50 per
share, which are payable in the first quarter of 2001. As of June 20, 2000,
capital surplus was credited for the differences between the stock options
granted at $1.50 per share and the market price of OMI stock on that date of
$4.938 per share, which aggregated $1.4 million.
Performance units relating to years 2001 and 2002 aggregating 400,000 were
converted to stock options at a grant price of $4.938, which was the market
price of OMI common stock at the grant date. As of September 30, 2000, capital
surplus was credited $2.1 million for adjustments to record the current
quarter's compensation expense and deferred compensation relating to the above
option plan at OMI's stock price at September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents of $23.6 million at September 30, 2000 increased
$16.2 million from cash and cash equivalents of $7.4 million at December 31,
1999. The Company's working capital of $4.7 million at September 30, 2000
decreased $39.2 million from working capital of $43.9 million at December 31,
1999. Current assets decreased $54.8 million primarily because of the decreases
in Assets to be disposed of $75.9 million offset by
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<PAGE>
increases in cash and cash equivalents of $16.2 million primarily from the
proceeds from the sale of vessels sold in 2000. Cash also increased by financing
activities such as new equity through the issuance of common stock of $17.7
million (see below uses of cash for investing activities). Net cash provided by
operating activities increased $16.9 million to $27.4 million for the nine
months ended September 30, 2000 compared to net cash provided by operating
activities of $10.5 million for the nine months ended September 30, 1999 (see
Results of Operations).
Cash used by investing activities was $57.6 million for the nine months
ended September 30, 2000, compared to cash used by investing activities of $45.0
million for the nine months ended September 30, 1999. Cash was used by investing
activities during the nine months ended September 30,2000 primarily due to
increases in additions to vessels of $15.8 million from $89.8 million for the
nine months ended September 30, 1999 to $105.6 million for the 2000 period. The
increase in cash used for purchase of vessels resulted from the delivery of one
new Suezmax vessel and two product carriers in 1999 compared to the delivery of
two new Suezmax vessels and one product carrier during the 2000 period. Proceeds
of $46.9 million included in investing activities were from the sale of the
aframax vessel in the first quarter 2000 and the sale of four product carriers,
three in May and one in August 2000. Proceeds of $62.2 million included in
disposal of assets during the nine months ended 1999 were from the sale of a
vessel purchased in January 1999 in a sale lease back transaction and the sale
of three older crude carriers. Additionally in 2000, proceeds of $5.1 million
were received from the repayment of a note receivable and proceeds of $2.4
million received for the sale of a joint venture. Payments of $4.8 million
relate to the net cash paid to purchase OMI's partners' 51 percent interest in a
previously owned joint venture.
Adjusted EBITDA
Adjusted EBITDA represents operating income (loss) from operations before
depreciation and amortization expense, loss on disposal/write down of assets-net
and lease provision. Cash flows for the third quarter 2000 were stronger than
the comparable 1999 quarter, and adjusted EBITDA of $33.8 million in the third
quarter was $30.0 million above the third quarter 1999 balance of $3.8 million.
The increase in adjusted EBITDA is due to higher earnings, net of operating
expenses in the third quarter of 2000 due to the disposal of five older crude
carriers and the delivery of four new vessels (two Suezmaxes and two products,
not including the handymax delivered in September 2000). The new vessels are
more marketable than the older vessels disposed of and earn a higher TCE rate
and are more cost efficient.
Financing Activities
Cash provided by financing activities was $46.4 million for the nine months
ended September 30, 2000, compared to cash used for financing activities of
$26.4 million for the nine months ended September 30, 1999. During the nine
months ended September 30, 2000, there were $24.6 million in principal payments
($9.2 million were scheduled payments and $15.4 million in unscheduled payments
due to sale of vessels) on long-term and short-term debt and $50.0 million in
proceeds, $20.0 million to purchase the handymax in September 2000, $3.0 million
towards the purchase the joint venture and $27.0 million of such borrowings used
for the purchase of the new Suezmax vessel in March 2000. In February 2000, the
Company refinanced its bank debt with its lenders in the amount of $264.5
million, which resulted in payments of $257.9
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<PAGE>
million on long and short-term debt related to the refinancing in the first
quarter 2000. The effect of the February refinancing revised debt covenants,
increased interest rate margins and reduced principal amortization, which was
later amended on October 12, 2000. As of September 30, 2000, OMI was in
compliance with its covenants.
During May 2000, $30.0 million of the proceeds from sale of three vessels
were used to acquire the Suezmax vessel delivered May 17, 2000, which replaced
these vessels as collateral in the Credit Agreement. The remaining proceeds of
$1.8 million from the sale of the three vessels were paid to the bank to reduce
the outstanding balance in June.
On October 12, 2000, OMI amended its credit agreement in 2000 increasing
the principal amount to $310.0 million with $270.0 million received at closing,
$20.0 million received at delivery of the product carrier on September 27, 2000
and $20.0 million proceeds to be received at the delivery of the product carrier
in November 2000. The facility is secured by 19 vessels. The amended credit
facility reduces interest margins, does not require the disposal of assets,
reduces operating restrictions and as previously mentioned provides financing
for the November handymax newbuilding. Amortization will be $40.0 million per
year for the first two years and $25.0 million for each of the following three
years with a balloon payment at maturity.
During the nine months ended September 30, 2000, OMI raised $17.7 million
in cash by selling 9,583,000 shares of OMI common stock in a private placement.
A portion of the funds received were used to pay for the newbuildings delivered
in March and May 2000.
OTHER COMMITMENTS
During October 2000, OMI agreed to acquire from another owner a contract
for one new Suezmax tanker with a cost of approximately $60.0 million being
built by Daewoo Heavy Industries Ltd. OMI expects to finance a portion of the
vessel cost at delivery, which is currently scheduled in January 2001. OMI has
also entered into a contract with Onomichi Dockyard Co. Ltd. to build one new
47,000-dwt-product carrier for an approximate cost of $28.8 million for delivery
in February 2002. OMI has options to acquire two additional product carriers at
an approximate cost of $29.0 million each for delivery in 2003.
On July 31, 2000, OMI contracted to purchase a 47,000-dwt-ton product
carrier newbuilding from another shipowner at a cost of $30.3 million with
delivery scheduled for late November 2000. The Company has secured a two-year
time charter with an oil company following delivery of the vessel. OMI expects
to finance $20.0 million (included in the amended Credit Facility) of this
purchase and use cash from operations for the remaining balance.
The Company and its joint venture partner have committed to fund any
working capital deficiencies that may be incurred by IPC. As of September 30,
2000, there were no such deficiencies to be funded.
SUBSEQUENT EVENTS
On October 17, 2000, OMI was given notice of termination on the operating
leases of two of its chartered-in vessels by the shipowners. The leases had been
scheduled for termination in 2001 and 2002. In accordance
29
<PAGE>
with the contracts the owners are required to pay a termination fee of
$1,000,000 for each vessel at redelivery, which is 90 days and certain other
time plus offhire days (during the lease) from the date of notice. Gains from
the termination will be reflected in appropriate future quarters.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board Statement ("FASB")
issued Statement of Financial Accounting Standards No. 138 ("SFAS 138"),
"Accounting for Derivative Instruments and Hedging Activities-an amendment of
FASB Statement No. 133", which deferred the effective date of SFAS 133 to
interim period and fiscal years beginning after June 15, 2000. SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", established
accounting and reporting standards for derivative instruments and for hedging
activities. Generally, it requires that an entity recognizes all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value, as well as identifies the conditions for which
a derivative may be specifically designated as a hedge. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. This Statement amends guidance on
accounting for certain derivatives and hedging activities and supercedes
Statements previously issued. At the present time management believes the
adoption of SFAS 138 will not have a material effect on the Company's financial
condition or results of operations.
In March 2000, FASB issued FASB Interpretation ("FIN") No. 44, "Accounting
for Certain Transactions Involving Stock Compensation--an interpretation of
Accounting Principles Board ("APB") Opinion No. 25". FIN No. 44 defines an
employee for purposes of applying APB Opinion No. 25, the criteria for
determining whether a plan qualifies as a non compensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. This interpretation was effective July 1, 2000.
Adoption of this interpretation has not had a material impact on the Company's
financial position, results of operations or cash flows.
Additionally, in December 1999, the United States Securities and Exchange
Commission ("SEC")issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements", as amended, which for the Company is
effective no later than the fiscal quarter beginning October 1, 2000. SAB No.
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has evaluated the criteria for revenue recognition established by SAB
No. 101 and believes its revenue recognition policies comply with the criteria.
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.
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FORWARD-LOOKING INFORMATION
The information in this Management Discussion and Analysis 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.
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market Risk
The company is exposed to various market risks, including changes in
interest rates. The exposure to interest rate risk relates primarily to the
debt. At September 30, 2000, $293.2 million of the $299.8 million total debt was
floating rate debt, and the weighted-average margin over LIBOR was 2.36 percent.
A one-percent increase in LIBOR would increase interest expense by $2.9 million
per year.
As of September 30, 2000, the fixed rate debt on the balance sheet was $6.6
million and the fair market value was approximately $6.9 million because of the
convertible notes, which can be exchanged into OMI stock at $7.375 per share.
The convertible notes had a balance of $2.2 million on that date. 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 $0.2 million.
When management finds it necessary, the Company enters into financial
instrument agreements to limit exposure. As of September 30, 2000, there were no
financial instrument agreements, and the Company is not a holder or issuer of
financial instruments.
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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 September 30, 2000.
B. REPORTS ON FORM 8-K
On September 15, 2000, OMI filed on Form 8-K an announcement of the
refinancing of its debt and promotion of Kathleen C. Haines to Chief
Financial Officer and Treasurer.
On October 25, 2000, OMI filed on Form 8-K announcing its third quarter
earnings on October 11, 2000 and to also announce that OMI agreed to
acquire one new Suezmax tanker from another owner.
On November 1, 2000, OMI filed on Form 8-K an announcement that on
October 13, 2000, OMI issued a press release announcing that market
reports that it was seeking to raise equity in a private placement were
correct but that it had ceased the effort. The Company also confirmed
that its previously announced bank refinancing closed as scheduled on
October 12, 2000.
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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 8, 2000 BY: /S/ CRAIG H. STEVENSON, JR.
---------------------------- ---------------------------------------
Craig H. Stevenson, Jr.
President, Chairman of the Board
and Chief Executive Officer
DATE: NOVEMBER 8, 2000 BY: /S/ KATHLEEN C. HAINES
----------------------------- --------------------------------------
Kathleen C. Haines
Chief Financial
Officer, Vice President and
Treasurer
33
