Being Filed Pursuant to Rule 901(d) of Regulation S-T
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 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 AUGUST 10, 2000 :
---------------------------
Common Stock, par value $0.50 per share 59,197,626 shares
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of
Operations and Comprehensive Income (unaudited) for the
three months and six months ended June 30, 2000 3
Condensed Consolidated Balance Sheets- June 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) six months ended June 30, 2000 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 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 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 AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 36,384 $ 30,535 $ 67,200 $ 65,513
-------- -------- -------- --------
Operating Expenses:
Vessel and voyage 12,516 17,840 25,423 36,785
Charter hire 2,952 3,557 7,551 6,783
Depreciation and amortization 3,879 6,130 7,435 12,317
Provision for loss on lease
obligation -- 6,229 -- 6,229
General and administration 3,005 2,543 5,711 5,229
Loss on disposal/write down of
assets-net -- 23,666 13,155 23,666
-------- -------- -------- --------
Total operating expenses 22,352 59,965 59,275 91,009
-------- -------- -------- --------
Operating income (loss) 14,032 (29,430) 7,925 (25,496)
-------- -------- -------- --------
Other Income (Expense):
Interest expense-net (6,066) (3,921) (11,236) (7,658)
Other-net 177 -- 1,625 --
-------- -------- -------- --------
Net other expense (5,889) (3,921) (9,611) (7,658)
-------- -------- -------- --------
Income (loss) before equity in
operations of joint ventures
and cumulative effect of
change in accounting principle 8,143 (33,351) (1,686) (33,154)
Equity (loss) in operations of
joint ventures 1,185 179 1,044 (11)
-------- -------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle 9,328 (33,172) (642) (33,165)
Cumulative effect of change in
accounting principle -- -- -- 2,729
-------- -------- -------- --------
Net income (loss) 9,328 (33,172) (642) (30,436)
Other comprehensive income -- -- -- --
-------- -------- -------- --------
Comprehensive income (loss) $ 9,328 $(33,172) $ (642) $(30,436)
======== ======== ======== --------
Basic earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.16 $ (0.80) $ (0.01) $ (0.80)
Net income (loss) $ 0.16 $ (0.80) $ (0.01) $ (0.73)
Diluted earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.16 $ (0.80) $ (0.01) $ (0.80)
Net income (loss) $ 0.16 $ (0.80) $ (0.01) $ (0.73)
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2000 1999
---------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash, including cash equivalents:
2000-$12,000; 1999-$5,172 $ 20,824 $ 7,381
Receivables:
Traffic 14,245 9,245
Other 7,825 9,136
Assets to be disposed of 55,722 90,996
Prepaid expenses and other current assets 4,742 4,437
--------- ---------
Total current assets 103,358 121,195
--------- ---------
Vessels, construction in progress and
other property:
Vessels and other property 429,094 334,342
Construction in progress -- 25,340
Less accumulated depreciation (39,721) (42,926)
--------- ---------
Vessels, construction in progress
and other property-net 389,373 316,756
--------- ---------
Investments in, and advances to joint
ventures 6,350 11,519
Notes receivables 6,924 9,262
Other assets and deferred charges 15,921 13,683
--------- ---------
Total $ 521,926 $ 472,415
========= =========
LIABILITIES AND STOCKHOLERS' EQUITY
Current liabilities:
Accounts payable $ 7,714 $ 7,017
Accrued liabilities:
Voyage and vessel 2,646 4,285
Interest 3,407 2,762
Other 5,215 5,190
Deferred gain on sale of vessels 3,151 3,151
Current portion of long-term debt (Note 3) 55,697 54,834
--------- ---------
Total current liabilities 77,830 77,239
--------- ---------
Deferred income taxes 3,100 3,100
Other liabilities 1,856 3,034
Deferred gain on sale of vessels 2,787 4,363
Long-term debt (Note 3) 237,292 212,913
Stockholders' equity 199,061 171,766
--------- ---------
Total $ 521,926 $ 472,415
========= =========
See notes to condensed consolidated financial statements
4
<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)
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
Accumulated
Common Stock Retained Other
------------------- Capital Treasury Deferred Earnings Comprehensive
Shares Amount Surplus Stock Compensation (Deficit) Income
------ -------- --------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1999 43,694 $ 21,847 $ 207,469 $ (9,040) $ 17,465 $ 7,442
Comprehensive loss:
Net loss (80,305)
Realization of cumulative
translation adjustment (7,442)
Comprehensive loss
Issuance of common stock 5,700 2,850 11,400
Issuance of treasury stock 206 (126)
------ -------- --------- -------- --------- -------
Balance at December 31, 1999 43,394 24,697 218,869 (8,834) (62,966) --
Comprehensive loss:
Net loss (642)
Net change in valuation account
Comprehensive loss
Issuance of common stock 11,710 5,855 20,984
Issuance of stock options 1,354 (344)
Exercise of stock options 22 11 77
------ -------- --------- -------- --------- --------- -------
Balance at June 30, 2000 (unaudited) 61,126 $ 30,563 $ 241,284 $ (8,834) $ (344) $ (63,608) $ --
====== ======== ========= ======== ========= ========= =======
<CAPTION>
Total
Comprehensive Stockholders'
(Loss) Income Equity
--------- -------
<S> <C> <C>
Balance as of January 1, 1999 $245,183
Comprehensive loss:
Net loss $ (80,305) (80,305)
Realization of cumulative
translation adjustment (7,442) (7,442)
---------
Comprehensive loss $ (87,747)
=========
Issuance of common stock 14,250
Issuance of treasury stock 80
--------
Balance at December 31, 1999
171,766
Comprehensive loss:
Net loss $ (642) (642)
Net change in valuation account --
---------
Comprehensive loss $ (642)
=========
Issuance of common stock 26,839
Issuance of stock options 1,010
Exercise of stock options 88
--------
Balance at June 30, 2000 (unaudited)
$199,061
========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
OMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss $ (642) $ (30,436)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle -- (2,729)
Depreciation and amortization 7,435 12,317
Loss on disposal/write down of assets-net 13,155 23,666
Provision for loss on lease obligation -- 6,229
Amortization of lease reserve (1,384) --
Amortization of deferred gain on sale of vessel (1,576) (1,576)
Equity (loss) in operations of joint ventures-
net of dividends received 164 2,439
Changes in assets and liabilities:
(Increase) decrease in receivables and other
current assets (5,193) 1,914
Advances to joint ventures-net (497) (965)
Decrease (increase) in other assets and
deferred charges 233 (1,158)
Increase (decrease) in accounts payable and
accrued liabilities (2,893) 669
Increase in advance time charter
revenues and other liabilities 206 45
Other (7) 80
--------- ---------
Net cash provided by operating activities 9,001 10,495
--------- ---------
CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES:
Additions to vessels and other property (71,862) (45,267)
Proceeds from disposition of vessels 36,663 54,000
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 5,137 212
Payments for investments (1,967) --
Other -- (6,000)
--------- ---------
Net cash used by investing activities (34,181) (6,055)
--------- ---------
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 27,000 86,498
Payments on long-term and short-term debt (8,408) (88,998)
Payments for debt issue costs (4,298) (220)
Proceeds from issuance of common stock 17,679 --
--------- ---------
Net cash provided (used) by financing activities 38,623 (2,720)
--------- ---------
Net increase in cash and cash equivalents 13,443 1,720
Cash and cash equivalents at beginning of year 7,381 22,698
--------- ---------
Cash and cash equivalents at end of period $ 20,824 $ 24,418
========= =========
</TABLE>
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) 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 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 reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
NOTE 2 - NEWLY ISSUED ACCOUNTING STANDARD
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 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 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.
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 is effective July 1, 2000. The
Company does not anticipate that this interpretation will have a material impact
on its financial position, results of operations or cash flows.
7
<PAGE>
NOTE 2 - NEWLY ISSUED ACCOUNTING STANDARD (CONTINUED)
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. Management
does not expect there to be a material impact as a result of this bulletin on
the Company's consolidated financial statements.
NOTE 3 - CREDIT FACILITIES AND LOAN AGREEMENT
As of June 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)....... $286,152
10.25% Unsecured Senior Notes due 2003........................... 4,357
7.00% Convertible Note due 2004.................................. 2,480
--------
Total................................................... 292,989
Less current portion of long-term debt:
Scheduled amortization payments of debt........................ 12,277
Debt related to Assets to be disposed of....................... 43,420
--------
Total Current Portion................................... 55,697
--------
Long-term debt................................................... $237,292
========
----------
(1) Rates at June 30, 2000 ranged from 8.125 percent to 10.719 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 are three
primary facilities under the new agreement. Facility A, with an original amount
of $218,000,000 ($182,000,000 as of June 30, 2000), matures five years from
drawdown date. Facility A will 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 in the amount of $123,000,000 as the last installment on
maturity. The outstanding balance of Facility A bears interest at LIBOR plus a
margin of 1.75% and is secured by eleven vessels. On May 10, 2000, Facility A
was reduced by $36.0 million to $182,000,000 when Facility C was drawn down.
Facility B was in the amount of $46,500,000 ($43,420,000 at June 30, 2000) and
is a short-term facility which matures two years after the drawdown date. The
principal of this Facility will be repaid with proceeds on the sale of vessels
secured by this Facility, which are classified as vessels to be disposed of on
the Condensed Consolidated Balance Sheets at June 30, 2000. The outstanding
balance of this Facility bears interest at LIBOR plus a margin of 3% and is
secured by six vessels.
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.
This Facility will be repaid in six semi-annual installments commencing six
months from the refinancing. The first four installments are
8
<PAGE>
NOTE 3 - CREDIT FACILITIES AND LOAN AGREEMENTS (CONTINUED)
$4,000,000, and the next two installments are $10,000,000 and the remaining
balance of the loan. The outstanding balance of Facility C bears interest at
LIBOR plus a margin of 4 percent.
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 is for a
two year term and is secured by the vessel delivered. The Facility includes
three options to the Company to extend the term of the loan by one year for each
option or for a total of three years if all options are exercised. Terms require
eight consecutive quarterly payments of $430,000 with the final installment
equal to the balance of the loan. The balance of the loan was $26,570,000 at
June 30, 2000. The Facility bears interest at LIBOR plus a margin of 1.75%.
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. The outstanding balance
in Facility C at June 30, 2000 was $34,163,000.
Restrictive Covenants
Certain of the loan agreements contain restrictive covenants requiring minimum
levels of cash or cash equivalents, working capital and net worth; maintaining
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 incur additional long-term debt, to make certain payments, to
merge or to undergo a similar corporate reorganization, and to enter into
transactions with affiliated companies. 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. As of June
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 range from 1.75% to 4.00% above London
Interbank Offering Rate ("LIBOR") on the credit facilities.
Security
At June 30, 2000, vessels with an aggregate net book value of $336,374,000 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% convertible note due 2004.
9
<PAGE>
NOTE 4 - EARNINGS PER COMMON SHARE (CONTINUED)
The components of the denominator for the calculation of basic earnings per
share and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 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 ....................... 57,594 41,647 53,964 41,629
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average common shares
outstanding ..................... 57,594 41,647 53,964 41,629
Options ........................... 183 -- -- --
---------- ---------- ---------- ----------
Weighted average common shares
Outstanding-diluted ............. 57,777 41,647 53,964 41,629
========== ========== ========== ==========
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) before cumulative
effect of change in accounting
principle ....................... $ 0.16 $ (0.80) $ (0.01) $ (0.80)
Cumulative effect of change in
accounting principle ............ -- -- -- 0.07
---------- ---------- ---------- ----------
Net income (loss) ................. $ 0.16 $ (0.8) $ (0.01) $ (0.73)
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE:
Net income (loss) before cumulative
effect of change in accounting
principle ....................... $ 0.16 $ (0.80) $ (0.01) $ (0.80)
Cumulative effect of change in
accounting principle ............ -- -- -- 0.07
---------- ---------- ---------- ----------
Net income (loss) ................. $ 0.16 $ (0.80) $ (0.01) $ (0.73)
========== ========== ========== ==========
</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 periods
presented for 2000 and 1999 because the effect of the average price of OMI's
stock was less than the stock conversion price of $7.285. The effect of the
assumed exercise of options was not included in the computation of diluted
earnings per share for the six months ended June 30, 2000 and the three and six
months ended June 30, 1999 because the grant prices exceeded the average price
of OMI stock.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments include interest of approximately $11,251,000 and $9,327,000 for
the six months ended June 30, 2000 and 1999, respectively.
NOTE 6 - ACQUISITIONS
On June 30, 2000, OMI purchased its partners' 51% interest in Amazon Transport,
Inc., which owns one Ultra Large Crude Carrier. 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
10
<PAGE>
NOTE 6 - ACQUISITIONS (CONTINUED)
of OMI common stock at $5.125 aggregating $7,687,500 and paid $7,462,500 to its
partner for the purchase.
The Soyang, a new Suezmax vessel, was delivered from the shipyard on May 17,
2000 for an aggregate purchase price of $51,348,000. The vessel was financed by
Facility A in the amount of $30,000,000 (see Note 3).
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 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 handysize
vessels.
The following is a summary of the operations by major operating segments:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Total Revenues:
Crude Oil Tanker Fleet .............. $ 26,024 $ 20,880 $ 48,041 $ 44,959
Product Carrier Fleet ............... 10,360 9,535 19,159 20,370
Other ............................... -- 120 -- 184
-------- -------- -------- --------
Total ............................. $ 36,384 $ 30,535 $ 67,200 $ 65,513
======== ======== ======== ========
INCOME BEFORE EQUITY IN OPERATIONS
OF JOINT VENTURES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE:
Crude Oil Tanker Fleet(1) ........... $ 7,690 $(31,625) $ 12,884 $(29,216)
Product Carrier Fleet(2) ............ 3,011 159 (8,818) 537
General and administrative expense
not allocated to vessels .......... (2,296) (1,361) (4,453) (3,431)
Other ............................... (262) (524) (1,299) (1,044)
-------- -------- -------- --------
Total ............................. $ 8,143 $(33,351) $ (1,686) $(33,154)
======== ======== ======== ========
</TABLE>
11
<PAGE>
NOTE 7 - FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED)
(1) The three and six months ended June 30, 1999 Crude Oil Tanker Fleet
balances include losses from the disposal of one vessel and the write down
of five vessels, aggregating $23,666,000 and the provision for loss on
lease obligation of $6,229,000.
(2) The six months ended June 30, 2000 Product Carrier Fleet balance includes
losses from the disposition and write down of vessels aggregating
$12,619,000.
During the three and six months ended June 30, 2000 and 1999, mortgage debt of
OMI Corporation and its related interest expense have been allocated to the
above segments based upon the value of the vessel 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 June 30,
2000, no such deficiencies have been funded.
NOTE 9 - ASSETS TO BE DISPOSED OF
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 disposal of assets
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 assets. 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-net during the first quarter
2000.
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.
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<PAGE>
NOTE 11-STOCK OPTIONS
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. As of June 30, 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. Accrued liabilities were debited for $1,010,000 (for the
amount of performance units earned through June 2000), and Deferred compensation
was debited for $344,000, which represents the unvested amount of options to be
amortized to December 31, 2000.
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.
NOTE 12-SUBSEQUENT EVENTS
On July 31, 2000, OMI contracted to purchase two 47,000 deadweight ton product
carrier newbuildings from another ship owner at a cost of $30,300,000 each with
deliveries scheduled in September and November 2000. The Company has secured
two-year time charters with a major oil company following delivery of each of
the vessels. OMI expects to partially finance the purchases.
Also on July 31, 2000, OMI contracted to sell a vessel with delivery expected to
be in mid-August. The vessel was held for sale at December 31, 2000. Proceeds of
$10,000,000 for the sale will be used to pay down debt. A loss of approximately
$1,515,000 relating to the sale will be recorded in the third quarter 2000.
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 condensed consolidated
financial statements and accompanying notes appearing elsewhere in this Form
10-Q.
GENERAL
Overview
OMI provides seaborne transportation services primarily for crude oil
and refined petroleum. 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, "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. The
Company trades under the symbol "OMM" on the New York Stock Exchange.
OMI's net income was $9.3 million or $0.16 basic/diluted earnings per
share (EPS) for the second quarter 2000 compared to a net loss of $33.2 million
or $0.80 basic/diluted loss per share for the second quarter 1999. For the six
months ended June 30, 2000, the net loss was $0.6 million or $0.01 basic/diluted
loss per share compared to the net loss of $30.4 million or $0.73 basic/diluted
loss per share (including $0.07 income from the cumulative effect of the change
in accounting principle) for the six months ended June 30, 1999. Increases in
the second quarter 2000 EPS of $0.96 per share ($0.24 increase, excluding the
$0.72 increase in EPS from nonrecurring losses from disposal/write downs in 1999
relating to six vessels and a lease obligation) from the second quarter 1999,
resulted from a 31 percent improvement in consolidated time charter equivalent
(TCE) revenues and lower operating costs. TCE revenues are voyage revenues less
voyage expenses in a spot charter or revenue from a time charter. Consolidated
TCE revenue increased 19 percent in the second quarter of 2000 compared to the
first quarter of 2000. The tanker rates in the second quarter 2000 were stronger
than the first quarter, due to high demand for oil, depleted oil inventory
levels and good tanker fundamentals. The Suezmax tanker rates have increased to
their highest levels since the last Gulf War.
Rates for voyages thus far booked in the third quarter are higher than
the previous quarter's average in all vessel categories, significantly so for
the Suezmaxes. OMI believes that continued improvements in the third quarter
rates will lead to an even stronger fourth quarter. Traditionally, the winter
season has been the strongest season in a year.
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 Ultra Large Crude Carrier (ULCC)
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.
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<PAGE>
On July 31, 2000, OMI agreed to acquire from another shipowner two
47,000 dwt product carriers currently under construction at Onomichi Dockyard in
Japan. The vessels aggregate cost will approximate $60.6 million and will be
delivered to the Company in September and late November of 2000. Upon delivery,
the vessels will commence two year time charters to a major oil company. The
Company also agreed to sell a 1989 built, 29,996 dwt product carrier. In
connection with the sale of the product carrier, the Company will book a loss of
approximately $1.5 million in the third quarter.
OMI's Fleet
OMI is a major international tanker owner and operator. During May
2000, OMI took delivery of a Suezmax newbuilding, which was its sixth Suezmax
newbuilding delivered to the Company since mid-1998. Currently, OMI's fleet
comprises 20 vessels (excluding a vessel sold in August 2000), 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 transporting clean products and one
ULCC purchased from a joint venture partner on June 30, 2000.
The Company also participates in marketing alliances for its Suezmax
and product carrier fleets. The alliances combine strengths for the benefit of
our customers and give them more options, at the same time giving the Company
greater cost savings. In 1998, OMI formed a joint venture, Alliance Chartering
LLC, with Frontline Ltd., to charter both companies' Suezmaxes. This joint
venture currently maintains a significant market share in the Suezmax market
segment. In 1999, OMI entered into a joint venture, International Product
Carriers Limited ("IPC") with Osprey Maritime Limited for midsize product
tankers. This joint venture began operations on May 1, 1999. During the first
half of 2000, seven of OMI's nine product carriers were operating under
adjustable rate time charters with IPC.
EBITDA
"EBITDA" represents net income (loss) from operations before net
interest expense, depreciation and amortization expense, loss on disposal/write
down of assets-net and lease provision, other non-cash items, and cumulative
effect of change in accounting principle. Cash flows as of the second quarter
2000 were stronger than the comparable 1999 quarter, as EBITDA of $18.8 million
in the second quarter was $12.1 million above the second quarter 1999 balance of
$6.7 million. The increase in EBITDA is due to higher earnings, net of operating
expenses in the second quarter of 2000 due to the disposal of five older crude
carriers and the delivery of four new vessels (two Suezmaxes and two products).
The new vessels are more marketable than the older vessels disposed of and earn
a higher TCE rate and are more cost efficient.
MARKET OVERVIEW
Suezmax Tanker Overview
After a very difficult tanker market in 1999, TCEs for crude carriers
have recovered sharply in the first half of 2000, and in the second quarter
reached very high levels not seen since the last Iraqi/Kuwaiti brief conflict
15
<PAGE>
in early 1991. It should be noted that in contrast to the freight rate gains
during the Iraqi/Kuwaiti political crisis, the current tanker market improvement
reflects market fundamentals and as a result is expected to last longer than the
previous spike.
The crude tanker rate improvement has been the result of increasing
world oil demand at a time of very low oil inventory levels, increased crude oil
seaborne volumes as OPEC oil producers have raised oil production twice this
year by the total of 2.4 million b/d, relatively high tanker scrapping activity
in the first half of 2000, as well as a reduction of the tanker supply from the
year-end 1999 level.
The world tanker fleet totaled approximately 276.1 million dwt at the
end of June 2000, down by 0.6 million dwt from the year-end 1999 level, and the
tanker orderbook stood at 44.9 dwt or 16.3% of the existing fleet. However,
about 85 million dwt, or 31% of the existing tanker fleet is 20 or more years
old and face increasingly stricter environmental regulations. Approximately 9.2
million dwt is schedule for delivery in the balance of 2000, 15.6 million dwt in
2001, 17.5 million dwt in 2002 and the balance in 2003. The tanker orderbook
includes 55 Suezmaxes of 8.7 million dwt or 25.7% of the existing Suezmax fleet,
and 81 VLCCs of 24.4 million dwt or 19.9% of the existing VLCC fleet.
Though tanker freight rates have been high throughout the first half of
2000, tanker sales for scrap totaled 10.3 million dwt, 46.4% more compared to
the same period last year, while new orders totaled 18.6 million dwt. Sales for
scrap include 20 VLCCs and 16 Suezmaxes. Tanker scrapping activity should
continue given the tanker fleet age demographics and stricter environmental
regulations.
World oil demand is expected to increase by about 1.3 million b/d in
2000, about 40% more than last year's gains. The expected increase reflects
strong economic activity in industrialized areas and the ongoing economic
recovery in the Pacific region. At the same time, world oil inventories continue
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 8.1%
below a year ago level and at the lowest level in at least the last ten years.
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
that announced recently, to accommodate the seasonal world oil demand gains in
the winter months at a time when oil inventories are expected to continue at
very low levels. To the extent that most of the excess world crude oil
production capacity is in the long-haul Middle East, the need for more oil will
enhance tanker tonne-mile demand with a positive effect on tanker TCEs. In
addition, stricter enforcement of existing tanker regulations by classification
societies, stricter inspections by charterers and the planning of new tanker
regulations by the European Union, in line with the U.S. OPA 90, will tighten
controls of tankers trading in European waters, make employment of old tankers
more difficult and force disposals of unsuitable tonnage. Given the tanker
orderbook for delivery in the balance of 2000, the relatively low newbuilding
deliveries next year and the tanker fleet age demographics the level of tanker
scrappings will determine the degree of tanker TCE increases.
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<PAGE>
Product Tanker Overview
The product tanker market improved further in the second quarter of
2000, and TCEs for handysize product tankers in the Caribbean reached levels not
seen since the same period three years ago. This was due to tightness in the
gasoline and distillate markets in the Atlantic region that has created long
haul trading opportunities, and a smaller than expected increase in the product
tanker fleet due to high scrapping activity.
A firm product tanker market is expected for the foreseeable future as
a result of increasing world oil demand, very low oil product inventories in the
U.S. and Western Europe, regional imbalances in oil product consumption and
production that have created changes in the pattern of petroleum product trades
toward longer haul movements, and continuous scrapping of old tonnage as
charterers focus more on tonnage quality. Furthermore, oil product imports are
expected to increase in the U.S., Western Europe and the Pacific region as oil
demand growth is expected to exceed refinery capacity growth in these areas in
the next few years.
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). In spot charters, voyage revenues and expenses fluctuate 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 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.
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<PAGE>
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES.
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 VERSUS JUNE 30, 1999
Net voyage revenues of $20.9 million for the three months ended June 30, 2000
increased by a net of $11.8 million from $9.1 million for the three months ended
June 30, 1999. Net voyage revenues of $34.2 million for the six months ended
June 30, 2000 increased by a net of $12.3 million from $21.9 million for the six
months ended June 30, 1999. Net voyage revenues for the three and six months
ended June 30, 2000 and 1999 are as follows by market segments in which OMI
primarily operates.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -------------------
2000 1999 2000 1999
------- ------- ------- -------
(in millions)
Voyage Revenues:
Crude Oil Fleet ............ $ 26.0 $ 20.9 $ 48.0 $ 44.9
Product Carrier Fleet ...... 10.4 9.5 19.2 20.4
All Other .................. -- 0.1 -- 0.2
------- ------- ------- -------
Total ...................... $ 36.4 $ 30.5 $ 67.2 $ 65.5
======= ======= ======= =======
Vessel and Voyage Expenses:
Crude Oil Fleet (1) ........ $ 12.1 $ 15.8 $ 25.3 $ 31.1
Product Carrier Fleet ...... 3.4 5.5 7.6 12.2
All Other .................. -- 0.1 0.1 0.3
------- ------- ------- -------
Total ...................... $ 15.5 $ 21.4 $ 33.0 $ 43.6
======= ======= ======= =======
Net Voyage Revenues:
Crude Oil Fleet ............ $ 13.9 $ 5.1 $ 22.7 $ 13.8
Product Carrier Fleet ...... 7.0 4.0 11.6 8.2
All Other .................. -- -- (0.1) (0.1)
------- ------- ------- -------
Total ...................... $ 20.9 $ 9.1 $ 34.2 $ 21.9
======= ======= ======= =======
----------
(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.
Crude Oil Tanker Fleet
At June 30, 2000 and June 30, 1999, the crude fleet consisted of:
2000 1999
---- ----
1998-2000's built Suezmax vessels ......... 5 3
1989-1990's Suezmax vessels chartered-in .. 3 3
1970's built Suezmax vessels .............. 0 4
1980's built Panamax vessels .............. 3 3
1980's built Aframax vessel ............... 0 1
1986 built ULCC ......................... 1 0
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<PAGE>
At the end of the second quarter 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.
The following table sets forth comparative operating results for the
crude oil fleet for the three and six months ended June 30, 2000 versus the
three and six months ended June 30, 1999.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- ------------------
2000 1999 2000 1999
------- ------ ------- -------
CRUDE FLEET: (in millions)
New Suezmaxes:
TCE revenue ..................... $ 15.6 $ 8.7 $ 27.6 $ 19.2
------- ------ ------- -------
Vessel expenses ................. 2.2 1.6 3.9 3.1
Charter hire expenses ........... 3.0 3.6 7.6 6.8
------- ------ ------- -------
Net voyage revenue .............. $ 10.4 $ 3.5 $ 16.1 $ 9.3
======= ====== ======= =======
Panamaxes:
TCE revenue ..................... $ 4.6 $ 2.9 $ 8.3 $ 6.2
------- ------ ------- -------
Vessel expenses ................. 1.2 1.4 2.7 2.8
Charter hire expenses ........... -- -- -- --
------- ------ ------- -------
Net voyage revenue .............. $ 3.4 $ 1.5 $ 5.6 $ 3.4
======= ====== ======= =======
Old Suezmaxes/Aframax:
(sold in 1999 & 2000)
TCE revenue ..................... $-- $ 3.5 $ 1.1 $ 8.0
------- ------ ------- -------
Vessel expenses ................. -- 3.4 0.2 7.0
Charter hire .................... -- -- -- --
------- ------ ------- -------
Net voyage revenue .............. $-- $ 0.1 $ 0.9 $ 1.0
======= ====== ======= =======
Total Crude Fleet Net Voyage Revenue $ 13.8 $ 5.1 $ 22.6 $ 13.7
======= ====== ======= =======
Net Voyage revenues earned by the crude oil fleet in the three months
and six months ended June 30, 2000 were $13.8 million and $22.6 million an
increase of $8.7 million and $8.9 million, respectively, over the comparable
periods in 1999. Fluctuations in each of the crude groups were as follows:
New Suezmaxes- Increase in net voyage revenues in the 2000 periods over
the 1999 periods were $6.9 million in the three months and $6.8 million in the
six month period. Increases in the second quarter and six months 2000 over 1999
were primarily from the increase in earnings from the two new Suezmaxes, which
aggregated $3.2 million of the increase in earnings. The remaining increase in
net voyage revenue in both 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.
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<PAGE>
Panamaxes- Increase in the Panamax net voyage revenues in the 2000
quarters over the 1999 periods of $1.9 million in the three months and $2.2
million in the six 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 the second quarter 2000 resulted from steady demand. This
demand has continued to improve rates during the third quarter as well, as
Panamax vessels have been utilized by charterers to transport aframax cargoes
(due to lack of aframax vessels available) for similar rates.
Old Suezmax/Aframax-Earnings for the Old Suezmax/Aframax group reflect
earnings for the first quarter 2000 of $0.9 million, which is primarily for the
aframax vessel sold March 2000. Net voyage revenues of $0.1 million and $1.0
million for the three and six months ended June 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.
Product Carrier Fleet
At June 30, 2000 and June 30, 1999, the product carrier fleet consisted
of:
2000 1999
---- ----
1999's built product carriers ..... 2 0
1984-1991 built product carriers .. 7 10
During 1999, two product carrier newbuildings were delivered in July
and September and time chartered for two years to a major oil company. During
May 2000, three product carriers were sold. Three other product carriers are
classified as Assets to be disposed of on the Condensed Consolidated Balance
Sheet. Additionally, during August 2000, a 1989 built product carrier was sold.
The following table sets forth comparative operating results for the
product carrier fleet for the three and six months ended June 30, 2000 versus
the three and six months ended June 30, 1999.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------- ----------------
2000 1999 2000 1999
----- ----- ------ ------
PRODUCT CARRIER FLEET: (in millions)
Products (IPC Pool
beginning second quarter 1999):
TCE revenue $ 8.1 $ 8.0 $ 14.6 $ 16.2
----- ----- ------ ------
Vessel expenses 2.7 4.0 6.3 8.0
Charter hire expenses -- -- -- --
----- ----- ------ ------
Net voyage revenue $ 5.4 $ 4.0 $ 8.3 $ 8.2
===== ===== ====== ======
Products-on time charter
(delivered July & Sept. 1999):
TCE revenue $ 2.2 $ -- $ 4.5 $ --
----- ----- ------ ------
Vessel expenses 0.6 -- 1.2 --
Charter hire expenses -- -- -- --
----- ----- ------ ------
Net voyage revenue $ 1.6 $ -- $ 3.3 $ --
===== ===== ====== ======
Total Product Carrier Fleet Net
Voyage Revenue $ 7.0 $ 4.0 $ 11.6 $ 8.2
===== ===== ====== ======
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<PAGE>
Net Voyage revenues earned by the product carrier fleet in the three
months and six months ended June 30, 2000 were $7.0 million and $11.6 million an
increase of $3.0 million and $3.4 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 six months ended June
30, 2000, seven (10 before the sale of the three product carriers in May 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 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 $1.4 million and $0.1 million in
the three months and six months ended June 30, 2000, respectively, reflect the
increase in profits earned primarily in the second quarter 2000 compared to
earnings from prior year spot charters for seven vessels and time charters for
three of the vessels. Improvement in the second quarter 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
$1.6 million and $3.3 million in the three months and six months ended June 30,
2000, respectively, relate to earnings from two 1999 built product carriers,
which were delivered in the third and fourth quarters of 1999. The two new
vessels have been operating on time charter since their deliveries.
PROVISION FOR LOSS ON LEASE OBLIGATION.
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 $1.8 million for
the three months ended June 30, 2000 and $4.4 million for the six months ended
June 30, 2000 compared to the same periods in 1999. The decreases in other
operating expenses in both the three and six 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 for the older crude vessels, which
have been disposed of 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
depreciating in the second quarter 2000 and two new product carriers delivered
in the second half of 1999.
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<PAGE>
LOSS ON DISPOSAL/WRITE DOWN OF ASSETS-NET.
Loss on disposal/write down of assets-net was $13.2 million relate to
the disposals and write downs in the first quarter 2000. A vessel contracted for
sale in April 2000 was classified on the financials to Assets to be disposed of
and written down to its net realizable value as of March 31, 2000 resulting in a
loss of $4.8 million. This vessel was delivered to new owners in May 2000.
Adjustments for four vessels previously classified as Assets to be disposed of
at December 31, 1999 resulted in losses aggregating $7.8 million, which were
recorded in the first quarter 2000. Two of the four vessels adjusted were
contracted for sale in March 2000 and delivered to new owners May 2000.
Additionally, a loss from the sale of a joint venture in the first quarter 2000
of $0.5 million was recorded.
OTHER INCOME (EXPENSE).
Other income (expense) consists of net interest expense and other-net.
Net other expense increased $2.0 million for the three months and $1.9 million
for the six months ended June 30, 2000 compared to the three and six months
ended June 30, 1999.
Net Interest expense increased $2.2 million for the three months and
$3.5 million for the six months ended June 30, 2000 compared to the three and
six months ended June 30, 1999. The increases were primarily due to interest
expense on additional borrowings to finance one Suezmax vessel delivered March
2000, two product carrier newbuildings delivered in 1999, and the corresponding
reduction of capitalized interest, in addition to increased interest rates and
interest rate margins after the refinancing of debt in February 2000 (see
Financing Activities).
Other-net of $1.6 million for the six months ended June 30, 2000 was
primarily attributed to the settlement of various insurance claims from prior
years.
EQUITY (LOSS) IN OPERATIONS OF JOINT VENTURES.
Equity (loss) in operations of joint ventures increased $1.0 million
for the three months ended June 30, 2000 and $1.1 million for the six months
ended June 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 in 2000
increased equity in both periods over the comparable periods in 1999.
Additionally, OMI recorded a final settlement of $0.5 million in the second
quarter 2000 from a joint venture that was sold in 1999. Two joint ventures
operating in the first half 1999 have been sold.
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.
22
<PAGE>
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
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 $55.7 million at June 30, 2000
decreased by a net of $35.3 million from the December 31, 1999 balance. Assets
to be disposed of decreased an aggregate of $25.3 million in May 2000 upon the
sale of the two vessels. The aframax sold in March 2000 decreased Assets to be
disposed of by $4.2 million and related debt currently due by $3.1 million. Two
vessels included in this classification at year-end were adjusted to further
write down the vessels values by $3.0 million in March 2000. Cash of $2.4
million was received in 2000 for a joint venture investment, which was to be
disposed of at year-end 1999, and the remaining balance of $0.3 million was
reclassified to receivables.
Vessels-net decreased by $11.2 million for a vessel sold in May 2000.
The following fluctuations in the Condensed Consolidated Balance Sheet relate to
the sale of the vessel to its net realizable value, which was equivalent to its
sales price less expenses. Decreases from year-end 1999 include Vessels by $24.6
million, Accumulated depreciation by $10.6 million, Other assets and deferred
charges for goodwill and prepaid drydock of $2.0 and decreased equity by $4.8
million for the loss.
On June 30, 2000, OMI purchased its partners' 51 percent interest in
Amazon Transport, Inc. The purchase price was based on the ULCCs 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 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 June
30, 2000, capitalized costs included in Vessels were $51.4 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 for an aggregate cost of approximately $46.9
million (including 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.
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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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents of $20.8 million at June 30, 2000 increased
$13.4 million from cash and cash equivalents of $7.4 million at December 31,
1999. The Company's working capital of $25.5 million at June 30, 2000 decreased
$18.5 million from working capital of $44.0 million at December 31, 1999.
Current assets decreased $17.8 million primarily because of the decreases in
Assets to be disposed of $35.3 million offset by increases in cash and cash
equivalents. Cash increased primarily by financing activities such as new equity
through the issuance of common stock of $17.7 million. Net cash provided by
operating activities decreased $1.5 million to $9.0 million for the six months
ended June 30, 2000 compared to net cash provided by operating activities of
$10.5 million for the three months ended June 30, 1999 (see Results of
Operations).
Cash used by investing activities was $34.2 million for the six months
ended June 30, 2000, compared to cash used by investing activities of $6.1
million for the six months ended June 30, 1999. Cash was used by investing
activities during the six months ended June 30,2000 primarily due to increases
in additions to vessels of $26.6 million from $45.3 million for the six months
ended June 30, 1999 to $71.9 million for the 2000 period. The decrease resulted
from the delivery of one new Suezmax vessel in January 1999 compared to the
delivery of two new Suezmax vessels during the 2000 period. Proceeds of $36.7
million included in investing activities were from the sale of the aframax
vessel in the first quarter 2000 and the sale of three product carriers in May
2000. Proceeds of $54.0 million included in disposal of assets during the six
months ended 1999 were from the sale of a vessel purchased in January 1999 in a
sale lease back transaction. 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.
Financing Activities
Cash provided by financing activities was $38.6 million for the six
months ended June 30, 2000, compared to cash used for financing activities of
$2.7 million for the six months ended June 30, 1999. In the first half of 2000,
there were $8.4 million in principal payments ($3.1 million from the sale of the
aframax vessel) on long-term and short-term debt and $27.0 million in proceeds
from borrowings used for the purchase of the new Suezmax vessel. 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 million on long and
short-term debt related to the refinancing in the first quarter 2000. The effect
of the refinancing revised debt covenants, increased interest rate margins and
reduced principal amortization. As of June 30, 2000, OMI is in compliance with
its covenants.
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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.
During the six months ended June 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
On July 31, 2000, OMI contracted to purchase two 47,000 deadweight ton
product carrier newbuildings from another ship owner at a cost of $30.3 million
each with deliveries scheduled in September and November 2000. The Company has
secured two-year time charters with a major oil company following delivery of
each of the vessels. OMI expects to partially finance the purchases and use cash
from operations for the remaining balance.
Also on July 31, 2000 OMI contracted to sell a vessel, which is to be
delivered in August 2000. Proceeds of $10,000,000 for the sale will be used to
pay down debt.
The Company and its joint venture partner have committed to fund any
working capital deficiencies that may be incurred by IPC. As of June 30, 2000,
no such deficiencies have been funded.
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. The adoption of SFAS 138 has not had 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 is
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effective July 1, 2000. The Company does not anticipate that this interpretation
will have a material impact on its 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. Management
has not yet determined the impact of this bulletin on the Company's consolidated
financial statements.
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.
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 June 30, 2000, $286.2 million of the $293.0 million total debt was
floating rate debt, and the weighted average margin over LIBOR was 2.21 percent.
A one-percent increase in the rate would increase interest expense by $2.9
million per year.
As of June 30, 2000, the fixed rate debt on the balance sheet was $6.8
million and the fair market value was also approximately $6.8 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 the management finds it necessary, the Company enters into
financial instrument agreements to limit exposure. As of June 30, 2000, there
were no financial instrument agreements, and the Company is not a holder or
issuer of financial instruments for trading purposes.
26
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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
The 2000 annual meeting of stockholders of the Company was held on May 18, 2000.
The following matters were voted upon at the meeting:
(i) Pursuant to OMI's Articles of Incorporation, as amended, and By-Laws, the
Board of Directors of OMI is divided into three classes. The directors in each
class hold office for staggered terms of three years. The three Class II
directors below whose terms expired in 2000 were re-elected for new three year
terms (expiring in 2003) at this Annual Meeting.
NUMBER OF VOTES FOR WITHHELD
------------------- --------
Edward Spiegal 36,770,166 339,457
Craig H. Stevenson, Jr. 36,688,973 420,680
James D. Woods 36,769,558 340,065
Directors whose terms continue include Messrs. Robert Bugbee and James N. Hood,
Class I directors whose terms expire 2002 and Michael Klebanoff, Class III
director whose term expires 2001.
(ii) The Board of Directors appointed Deloitte & Touche LLP as auditors of OMI
and various subsidiaries for the year 2000. Deloitte & Touche LLP were ratified
as auditors for 2000.
NUMBER OF VOTES FOR AGAINST WITHHELD
------------------- ------- --------
36,926,444 126,023 57,156
Note: 37,109,623 shares of common stock voted in person/proxy.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
A. EXHIBITS
27 OMI Corporation - Financial Data Schedule, dated June 30, 2000.
B. REPORTS ON FORM 8-K
None.
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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: AUGUST 10, 2000 BY: /s/ CRAIG H. STEVENSON, JR.
--------------- ---------------------------------
Craig H. Stevenson, Jr.
President, Chairman of the Board,
Chief Financial Officer
and Chief Executive Officer
DATE: AUGUST 10, 2000 BY: /s/ KATHLEEN C. HAINES
--------------- ---------------------------------
Kathleen C. Haines
Controller and Vice President
28
