AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 2000
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
----------------
COMMISSION FILE NUMBER 001-14135
OMI CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
MARSHALL ISLANDS 52-2098714
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
REGISTRANT'S ADDRESS:
ONE STATION PLACE
STAMFORD, CONNECTICUT 06902
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (203) 602-6700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.50 PER SHARE NEW YORK STOCK EXCHANGE
- -------------------------------------- ------------------------------------
Title of Class Name of Exchange on which Registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
----------------
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 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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THE FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K/A.
YES X NO
----- -----
AGGREGATE MARKET VALUE OF REGISTRANT'S VOTING STOCK, HELD BY
NON-AFFILIATES, BASED ON THE CLOSING PRICE ON THE NEW YORK STOCK EXCHANGE AS OF
THE CLOSE OF BUSINESS ON MARCH 24, 2000:
$215,728,793
NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF MARCH
24, 2000:
57,527,678
THE FOLLOWING DOCUMENT IS HEREBY INCORPORATED BY REFERENCE INTO PART III OF
THE FORM 10-K:
(1) PORTIONS OF THE OMI CORPORATION 2000 PROXY STATEMENT TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
================================================================================
<PAGE>
INDEX
------------------
PART I
<TABLE>
<CAPTION>
ITEMS PAGE(S)
-------------
<S> <C> <C>
1. and 2. Business and Properties ........................................... 1
3. Legal Proceedings ................................................. 6
4. Submission of Matters to a Vote of Security Holders ............... 6
PART II
5. Market for OMI Corporation's Common Stock and Related
Stockholder Matters ............................................. 7
6. Selected Financial Data ........................................... 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 9
7A. Quantitative and Qualitative Disclosures about Market Risk ........ 22
8. Financial Statements and Supplementary Data ....................... 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 59
PART III
10. Directors and Executive Officers of OMI Corporation ............... 59
11. Executive Compensation ............................................ 59
12. Security Ownership of Certain Beneficial Owners and Management .... 59
13. Certain Relationships and Related Transactions .................... 59
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 59
SIGNATURES ........................................................ 61
</TABLE>
i
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES (Note 4) .................................................................. $ 115,992 $ 149,228 $ 141,985
--------- --------- ---------
OPERATING EXPENSES:
Vessel and voyage ................................................................ 66,842 82,368 77,686
Charter hire ..................................................................... 15,234 25,529 8,906
Depreciation and amortization .................................................... 23,835 24,314 22,675
Provision for loss on lease obligations (Note 10) ................................ 6,229 -- --
General and administrative ....................................................... 10,486 10,773 12,540
--------- --------- ---------
Total operating expenses ........................................................... 122,626 142,984 121,807
--------- --------- ---------
OPERATING (LOSS) INCOME ............................................................ (6,634) 6,244 20,178
--------- --------- ---------
OTHER (EXPENSE) INCOME:
(Loss) gain on disposal/write down of assets-net (Notes 9, 11, 12) ............... (48,692) 6,485 885
Loss on disposal/write down of joint venture investments (Note 4) ................ (7,771) -- --
Interest expense ................................................................. (17,945) (11,118) (11,756)
Interest income .................................................................. 1,455 1,346 2,222
Other-net (Note 2) ............................................................... (1,209) (882) --
--------- --------- --------
Net other expense ................................................................ (74,162) (4,169) (8,649)
--------- --------- ---------
(Loss) income before income taxes, equity in operations of joint ventures,
extraordinary loss and cumulative effect of
change in accounting principles ................................................ (80,796) 2,075 11,529
Provision (benefit) for income taxes (Note 13) ................................... 475 (37,158) 5,407
--------- --------- ---------
(Loss) income before equity in operations of joint ventures,
extraordinary loss and cumulative effect of change in
accounting principles .......................................................... (81,271) 39,233 6,122
Equity (loss) in operations of joint ventures (Note 4) ........................... (510) 3,684 737
--------- --------- ---------
(Loss) income before extraordinary loss and cumulative effect
of change in accounting principles ............................................... (81,781) 42,917 6,859
Extraordinary loss (Note 5) ........................................................ (1,253) -- --
--------- --------- ---------
(Loss) income before cumulative effect of change in accounting
principles ....................................................................... (83,034) 42,917 6,859
Cumulative effect of change in accounting principles, net of
income tax provision (Notes 7, 8) ................................................ 2,729 -- 10,063
--------- --------- ---------
NET (LOSS) INCOME .................................................................. (80,305) 42,917 16,922
OTHER COMPREHENSIVE INCOME:
Realization of cumulative translation adjustment (Note 12) ....................... (7,442) -- --
Reversal of deferred income taxes on cumulative translation
adjustment ..................................................................... -- 2,530 --
--------- --------- ---------
COMPREHENSIVE (LOSS) INCOME ...................................................... $ (87,747) $ 45,447 $ 16,922
========= ========= =========
BASIC (LOSS) EARNINGS PER COMMON SHARE:
(Loss) income before extraordinary loss and cumulative effect
of change in accounting principles ............................................. $ (1.94) $ 1.01 $ 0.16
Extraordinary loss ............................................................... (0.03) -- --
Cumulative effect of change in accounting principles ............................. 0.07 -- 0.23
--------- --------- ---------
NET (LOSS) INCOME .................................................................. $ (1.90) $ 1.01 $ 0.39
========= ========= =========
DILUTED (LOSS) EARNINGS PER COMMON SHARE:
(Loss) income before extraordinary loss and cumulative effect
of change in accounting principles ............................................. $ (1.94) $ 1.00 $ 0.16
Extraordinary loss ............................................................... (0.03) -- --
Cumulative effect of change in accounting principles ............................. 0.07 -- 0.23
--------- --------- ---------
NET (LOSS) INCOME .................................................................. $ (1.90) $ 1.00 $ 0.39
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash, including cash equivalents of:
1999-$5,172; 1998-$10,166 ...................................... $ 7,381 $ 22,698
Receivables:
Traffic ........................................................ 9,245 12,842
Other (Note 2) ................................................. 9,136 2,733
Assets to be disposed of (Notes 4, 12) ............................. 90,996 --
Prepaid drydock expense (Note 8) ................................... 250 3,550
Other prepaid expenses and other current assets .................... 4,187 5,272
-------- --------
Total current assets ....................................... 121,195 47,095
-------- --------
VESSELS, CONSTRUCTION IN PROGRESS AND OTHER PROPERTY
Vessels (Note 5) ................................................... 331,988 543,040
Construction in progress (Note 19) ................................. 25,340 34,733
Other property ..................................................... 2,354 1,407
-------- --------
Total vessels, construction in progress and other property ... 359,682 579,180
Less accumulated depreciation ................................ 42,926 150,585
-------- --------
Vessels, construction in progress and other property-net ..... 316,756 428,595
-------- --------
INVESTMENTS IN, AND ADVANCES TO JOINT VENTURES (Note 4) ............ 11,519 25,507
NOTES RECEIVABLE (Note 9) .......................................... 9,262 6,604
OTHER ASSETS AND DEFERRED CHARGES (Note 8) ......................... 13,683 22,326
-------- --------
TOTAL ............................................................ $472,415 $530,127
======== ========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-------- --------
1999 1998
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ................................................. $ 7,017 $ 2,520
Accrued liabilities:
Voyage and vessel .............................................. 4,285 11,438
Interest ....................................................... 2,762 4,007
Other .......................................................... 5,190 2,571
Deferred gain on sale of vessel (Note 9) ......................... 3,151 3,151
Current portion of long-term debt (Notes 5, 6) ................... 54,834 21,494
-------- --------
Total current liabilities .................................. 77,239 45,181
-------- --------
OTHER LIABILITIES .................................................. 3,034 3,496
LONG-TERM DEBT (Notes 2, 5, 6) ..................................... 212,913 225,653
DEFERRED GAIN ON SALE OF VESSEL (Note 9) ........................... 4,363 7,514
DEFERRED INCOME TAXES (Note 13) .................................... 3,100 3,100
COMMITMENTS AND CONTINGENCIES (Note 19)
STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value; 150,000,000 shares
authorized; shares issued and outstanding: 1999-49,394,000
1998-43,694,000 (Notes 3, 7, 16, 18) ........................... 24,697 21,847
Capital surplus (Note 2) ......................................... 218,869 207,469
Retained (deficit) earnings (Note 2) ............................. (62,966) 17,465
Cumulative translation adjustment (Note 12) ...................... -- 7,442
Treasury stock (Note 18) ......................................... (8,834) (9,040)
-------- --------
Total stockholders' equity ................................. 171,766 245,183
-------- --------
TOTAL ............................................................ $472,415 $530,127
======== ========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income ............................................ $ (80,305) $ 42,917 $ 16,922
Adjustments to reconcile net (loss) income to net
cash (used) provided by operating activities:
Extraordinary loss ....................................... 1,253 -- --
Cumulative effect of change in accounting
principles, net of tax ................................. (2,729) -- (10,063)
Decrease in deferred income taxes ........................ -- (39,850) (2,314)
Depreciation and amortization ............................ 23,835 24,314 22,675
Loss (gain) on disposal/write down of assets--net ........ 48,692 (6,485) (885)
Loss on disposal/write down of joint venture
investments ............................................ 7,771 -- --
Net intercompany transactions ............................ -- 1,337 11,357
Amortization of deferred gain on sale of vessel .......... (3,151) (3,151) (1,940)
Provision for loss on lease obligations--net of
amortization ........................................... 4,845 -- --
Loss (equity) in operations of joint ventures--net
of dividends received .................................. 1,940 (254) (2)
Changes in assets and liabilities:
Decrease (increase) in receivables and other
current assets ......................................... 8,664 (2,460) (4,532)
(Decrease) increase in accounts payable and
accrued liabilities .................................... (4,087) 8,292 2,508
Advances from joint ventures--net ........................ 2,665 (185) (254)
(Increase) decrease in other assets and deferred
charges ................................................ (95) (3,347) 4,092
Decrease in other liabilities ............................ (1,299) (240) (1,220)
Payable to parent--net ................................... -- (3,217) (16,687)
Other .................................................... 80 -- --
--------- --------- ---------
Net cash provided by operating activities ............ 8,079 17,671 19,657
--------- --------- ---------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from disposition of vessels and other
property ............................................... 65,250 44,877 38,977
Additions to vessels and other property .................. (90,999) (147,407) (55,285)
Proceeds from dispositions of joint ventures ............. 1,561 2,989 32,301
Issuance of notes receivable ............................. (9,000) -- --
Investments in joint venture ............................. (637) (247) (343)
Escrow of funds .......................................... (7,548) -- --
Proceeds from notes receivable ........................... 424 -- --
Other .................................................... (2,769) -- --
--------- --------- ---------
Net cash (used) provided by investing activities ..... (43,718) (99,788) 15,650
--------- --------- ---------
CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term and
short-term debt ........................................ 133,698 171,300 --
Payments on long-term and short-term debt ................ (113,098) (87,070) (24,732)
Purchase of treasury stock ............................... -- (9,040) --
Capital contribution from Old OMI ........................ -- -- 4,100
Payments for debt issue costs ............................ (278) (983) (123)
--------- --------- ---------
Net cash provided (used) by financing activities ..... 20,322 74,207 (20,755)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........... (15,317) (7,910) 14,552
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................. 22,698 30,608 16,056
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 7,381 $ 22,698 $ 30,608
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER COMPRE- TOTAL
COMMON STOCK RETAINED NET COMPRE- HENSIVE- STOCK-
----------------- CAPITAL EARNING INTERCOMPANY TREASURY HENSIVE INCOME HOLDERS'
SHARES AMOUNT SURPLUS (DEFICIT) TRANSACTIONS STOCK INCOME (LOSS) EQUITY
------ -------- -------- -------- -------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 ...... 42,709 $ 21,355 $238,363 $(42,374) $ 28,146 $4,912 $250,402
Comprehensive income:
Net income .................... 16,922 $ 16,922 16,922
Net change in valuation --
account ..................... --------
Comprehensive income ............ $ 16,922
========
Capital contribution of
intercompany account balance
with parent ................... 4,100 4,100
Retirement of partner's equity
interest in joint venture ..... 777 777
Net intercompany transactions ... 11,357 11,357
Issuance of common stock ........ 375 187 (187) --
------ -------- -------- -------- ------- ------ --------
BALANCE AT DECEMBER 31, 1997 .... 43,084 21,542 243,053 (25,452) 39,503 4,912 283,558
Comprehensive Income:
Net Income .................... 42,917 $ 42,917 42,917
Reversal of deferred income
taxes on cumulative
translation adjustment ...... 2,530 2,530 2,530
--------
Comprehensive income ............ $ 45,447
========
Capital distribution of net
intercompany account balance
with parent (Note 2) .......... (76,119) (76,119)
Net intercompany transactions ... 1,337 1,337
Capital distribution of net
intercompany transactions
with parent (Note 2) .......... 40,840 (40,840) --
Exercise of stock options ....... 50 25 (25) --
Issuance of common stock ........ 560 280 (280) --
Purchase of treasury stock
(Note 18) ..................... $(9,040) (9,040)
------ ------ ------- ------ ------- ------ ------ -------
BALANCE AT DECEMBER 31, 1998 .... 43,694 21,847 207,469 17,465 -- (9,040) 7,442 245,183
Comprehensive loss:
Net loss ...................... (80,305) $(80,305) (80,305)
Realization of cumulative
translation adjustment
(Note 12) ................... (7,442) (7,442) (7,442)
--------
Comprehensive loss .............. $(87,747)
========
Issuance of common stock
(Note 11) ..................... 5,700 2,850 11,400 14,250
Issuance of treasury stock
(Note 18) ..................... (126) 206 80
------ ------- -------- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1999 .... 49,394 $24,697 $218,869 $(62,966) $ -- $(8,834) $ -- $171,766
====== ======= ======== ======== ======= ======= ====== ========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--OMI Corporation ("OMI" or the "Company"), is a bulk shipping
company incorporated in the Republic of the Marshall Islands, which provides
seaborne transportation services primarily of crude oil and refined petroleum
products. The Company is a successor to Universal Bulk Carriers, Inc. ("UBC"), a
Liberian corporation, which was a wholly-owned subsidiary of OMI Corp. until
June 17, 1998 at which date the Company was separated from OMI Corp. (renamed
Marine Transport Corporation "MTC") through a tax-free distribution
("Distribution") to OMI Corp.'s shareholders of one share of UBC common stock
for each share of OMI Corp. ("Old OMI") common stock. The Distribution separated
Old OMI into two publicly-owned companies. In connection with the Distribution,
the Company's common stock was recapitalized with 150,000,0000 shares authorized
(par value 50 cents), with 43,084,000 shares outstanding. This recapitalization
has been reflected for the earliest year presented. OMI Corporation operates
what was OMI Corp.'s foreign shipping businesses under the management of certain
officers formerly of Old OMI who moved to the new company and certain former
directors of Old OMI and additional new directors. The Company continues to
trade under the symbol "OMM" on the New York Stock Exchange.
Basis of Presentation--The accompanying consolidated financial statements
reflect the results of operations, financial position, changes in stockholders'
equity and cash flows of OMI and subsidiaries.
The financial statements have been prepared using the historical basis in
the assets and liabilities and the historical results of operations directly
attributable to OMI and all intercompany accounts and transactions between OMI
and its subsidiaries have been eliminated.
The financial statements and computations of basic and diluted earnings per
share (See Note 3) have been presented giving effect to the Distribution as
though it occurred at the beginning of the earliest year presented.
Reclassifications--Certain reclassifications have been made to the 1998 and
1997 financial statements to conform to the 1999 presentation.
Principles of Consolidation--The consolidated financial statements include
all subsidiaries which are more than 50 percent owned by OMI. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in joint ventures, in which the Company's interest is 50
percent or less and where it is deemed that the Company's ownership gives it
significant influence over operating and financial policies, are accounted for
by the equity method.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Operating Revenues and Expenses--Voyage revenues and expenses are
recognized on the percentage of completion method of accounting based on voyage
costs incurred to date as compared to estimated total voyage costs. Estimated
losses on voyages are provided for in full at the time such losses become
evident.
Effective January 1, 1999, OMI changed its accounting policy on recognition
of voyage freight for vessels operating on voyage charters from load-to-load to
the discharge-to-discharge basis. Under this method, voyage revenue is
recognized evenly over the period from the departure of a vessel from its
original discharge port to departure from the next discharge port. Management
believes that the discharge-to-discharge method is preferable because (a) it is
the predominant method for shipowners, and (b) it eliminates the uncertainty
associated with the location of the next load port (See Note 7).
29
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective January 1, 1997, special survey and drydock expenses are
accounted for using the prepaid method. Under the prepaid method, expenses are
capitalized and amortized over the survey cycle, which is generally a two to
five year period. Prior to 1997, special survey and drydock expenses were
accrued and charged to operating expenses over the survey cycle. The accruals of
such expenses were based on management's best estimates of future costs and the
expected length of the survey cycle. However, the ultimate liability may have
been more or less than such estimates (See Note 8).
Vessels, Construction in Progress and Other Property--Vessels and other
property are recorded at cost. Depreciation for financial reporting purposes is
provided principally on the straight-line method based on the estimated useful
lives of the assets up to the assets' estimated salvage value. The useful lives
of the vessels range from 20 to 25 years. Salvage value is based upon a vessel's
lightweight tonnage multiplied by a scrap rate.
Interest costs incurred during the construction of vessels (until the
vessel is substantially complete and ready for its intended use) are
capitalized. The amount of interest capitalized was $1,384,000 in 1999,
$3,762,000 in 1998 and $2,207,000 in 1997.
Other property and leasehold improvements are amortized on the
straight-line method over the terms of the lease or estimated useful lives of
the assets.
Expenditures for maintenance, repairs and minor renewals are expensed.
Major replacements and renewals are capitalized. In the event that facts and
circumstances indicate that the carrying amount of a vessel may be impaired, an
evaluation of recoverability is performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the vessel are compared
to the vessel's carrying value to determine if a write down to fair value is
required.
Goodwill--Goodwill, included in Other Assets and Deferred Charges,
recognized in business combinations accounted for as purchases, was $1,827,000
and $11,079,000 at December 31, 1999 and 1998, respectively, and is being
amortized over the remaining lives of assets, which were acquired in such
combinations. During 1999, $8,600,000 of goodwill was charged to loss on
disposal/write down of assets for vessels sold (See Note 11) and for vessels to
be disposed of at December 31, 1999 (See Note 12). The carrying value of
goodwill is reviewed periodically based on the estimated future undiscounted
cash flows of the entity acquired over the remaining amortization period in
order to ensure that the carrying value of goodwill has not been impaired.
Earnings (Loss) Per Common Share--Effective January 1, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128")
"Earnings per Share" which was adopted for interim and annual reports. SFAS 128
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS"). It replaces the presentation of primary and fully
diluted EPS with Basic and Diluted EPS. Basic EPS excludes the dilutive effect
of stock options. It is based upon the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
Federal Income Taxes--Management estimated that the distribution of shares
to the shareholders of Old OMI would result in Federal income taxes becoming
payable by OMI Corporation of approximately $1,900,000 representing Federal
income taxes on previously excluded foreign ("Subpart F") income and on the
distribution of shares of non-United States shareholders. As OMI will not be
subject to any additional income taxes (other than adjustments to previously
reported amounts), $38,887,000 of the balance of deferred income taxes was
credited to income in 1998, leaving a balance of $3,100,000 (See Notes 2 and
13).
Stock Options--The Company has elected to follow Accounting Principles
Board Opinion No. 25 ("APB 25") "Accounting of Stock Issued to Employees" in
accounting for its employee stock options, and other stock based awards. Under
APB 25, if the exercise price of an employee's stock option equals or exceeds
the market price of the underlying stock on the date of grant, no compensation
expense is recognized (See Note 16).
30
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Flows--Cash equivalents represent liquid investments which mature
within 90 days. The carrying amount approximates fair value.
Newly Issued Accounting Standards--In June 1999, the Financial Accounting
Standards Board Statement ("FASB") issued Statement of Financial Accounting
Standards No. 137 ("SFAS 137"), Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB No. 133", which defers
the effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
establishes 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 and
supercedes Statements previously issued. The Company does not expect that the
adoption of SFAS 133 will have a material effect on the Company's financial
condition of results of operations.
NOTE 2--DISTRIBUTION
As part of the Distribution, OMI was party to certain agreements with MTC,
including the following:
Distribution Agreement--The Distribution Agreement provides for, with
certain exceptions, assumptions of liabilities and cross-indemnities designed
principally to place financial responsibility for the liabilities with the
appropriate company. OMI, however, assumed the obligations of Old OMI with
respect to Old OMI's 10.25 percent Senior Notes due November 1, 2003 in exchange
for a note from MTC in the amount of $6.4 million, which was equivalent in value
to the principal amount of the Senior Notes then outstanding. During February
2000, MTC paid $5.1 million in full settlement of the note, which was due in
2003. As a result, a loss of $1,209,000 was recorded in the Consolidated
Statements of Operations for the year ended December 31, 1999 in Net other
expense. The Distribution Agreement also provides that each of MTC and OMI will
indemnify the other in the event of certain liabilities arising under the
Federal securities laws. Each of MTC and OMI will have sole responsibility for
claims arising out of its respective activities after the Distribution.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution date in connection with the Distribution will be
charged to and paid by the party incurring such costs or expenses. Except as set
forth in the Distribution Agreement or any related agreement, each party shall
bear its own costs and expenses incurred after the Distribution date.
Prior to Distribution--Prior to the distribution, debt had been incurred
for the consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, in order to centrally
manage various cash functions. Consequently, the mortgage debt of Old OMI and
its related interest expense (net of tax benefit) were allocated to OMI
(formerly UBC) and its subsidiaries based upon the value of the vessel
collateralizing the debt. The changes in allocated corporate debt, the after-tax
allocated interest expense and the after tax allocated general and
administrative expenses have been included as Net intercompany transactions in
Stockholders' equity. Although management believes that the historical
allocation of corporate debt and interest expense is reasonable, it is not
necessarily indicative of the Company's debt or results of operations had the
Company been on a stand alone basis for the periods up to June 17, 1998.
Net intercompany transactions represent an aggregate of allocations for
income taxes, interest expense on unsecured corporate debt and general corporate
purposes. As of the Distribution date, the cumulative balances of the Net
intercompany transactions of $40,840,000 were credited to Capital Surplus and
the balance at June 17, 1998 in Receivable from parent-net aggregating
$76,119,000 was charged to Capital Surplus. Included in the net receivable from
parent was the assumption by OMI (formerly UBC) of the revolving line of credit,
the assumption of the 10.25% Senior Notes and the 7% convertible note due 2004
(See Note 5).
31
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--EARNINGS (LOSS) PER COMMON SHARE
The computation of basic (loss) earnings per share is based on the weighted
average number of common shares outstanding during the year. The computation of
diluted earnings per share assumes the foregoing and the exercise of all stock
options (See Note 16) using the treasury stock method and the conversion of the
7% convertible note due 2004 (See Note 5), to the extent dilutive.
The components of the denominator for the calculation of basic earnings per
share and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Basic earnings per share:
Weighted average common shares outstanding ........... 42,250 42,671 42,914
======= ======= =======
Diluted earnings per share:
Weighted average common shares outstanding ........... 42,250 42,671 42,914
7% Convertible Note .................................. -- -- 407
Options .............................................. -- 189 336
------- ------- -------
Weighted average common shares--diluted .............. 42,250 42,860 43,657
======= ======= =======
Basic (loss) earnings per common share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting principles $ (1.94) $ 1.01 $ 0.16
Extraordinary loss ................................... (0.03) -- --
Cumulative effect of change in accounting
principles, net of income tax provision ............ 0.07 -- 0.23
------- ------- -------
Net (loss) income per common share ..................... $ (1.90) $ 1.01 $ 0.39
======= ======= =======
Diluted (loss) earnings per common share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting
principles ......................................... $ (1.94) $ 1.00 $ 0.16
Extraordinary loss ................................... (0.03) -- --
Cumulative effect of change in accounting
principles, net of income tax provision ............ 0.07 -- 0.23
------- ------- -------
Net (loss) income per common share ..................... $ (1.90) $ 1.00 $ 0.39
======= ======= =======
</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 in 1999 and
1998 because 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 because the grant prices
exceeded the average price of OMI stock in 1999.
32
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--INVESTMENTS IN JOINT VENTURES
The operating results of the joint ventures have been included in the
accompanying consolidated financial statements on the basis of ownership as
follows:
PERCENT OF
OWNERSHIP
-----------
Alliance Chartering LLC .............................. 50.0(1)
Amazon Transport, Inc. ("Amazon") .................... 49.0
Gainwell Investments Ltd ("Gainwell") ............... 25.0(2)
Geraldton Navigation Company Inc. ("Geraldton") ...... 49.9(3)
International Product Carriers Limited ("IPC") ....... 50.0(4)
Kanejoy Corporation ("Kanejoy") ...................... 49.9(2)
Mosaic Alliance Corporation ("Mosaic") ............... 49.9(5)
OMI-Heidmar Shipping Ltd. ("OMI-Heidmar") ............ 50.0(6)
White Sea Holdings Ltd. ("White Sea") ................ 49.0(7)
- ----------
(1) The venture was begun on May 8, 1998.
(2) Liquidated January 27, 1999.
(3) The Company sold its interest to its partner in March 2000.
(4) The venture was formed on April 15, 1999, and began operating effective May
1, 1999.
(5) Partner's interest acquired on December 10, 1997.
(6) The Company sold its interest to its partner on August 17, 1999.
(7) The Company sold its interest to its partner on September 29, 1999.
At December 31, 1999, OMI wrote down its investment in Geraldton to its net
realizable value of approximately $2,700,000. The investment is to be liquidated
in 2000. A dividend of $2,421,000 was paid in 2000 of which OMI's portion was
$1,209,000. A loss of $6,605,000 was recorded in the Company's Consolidated
Statements of Operations at December 31, 1999 relating to the disposal of this
investment in 2000.
On September 29, 1999, OMI sold its 49 percent share in its White Sea joint
venture for approximately $2,427,000, of which $1,560,000 cash was received in
October 1999. A loss of $867,000 was recorded from the sale of the venture.
In 1999, the Company chartered ten vessels for an aggregate of $14,237,000
to IPC. This amount is included in the revenue of the Company since the
operations of IPC are not consolidated. Voyage revenues from IPC in 1999 in
aggregate were 12 percent of OMI's consolidated revenues. The revenues are
received by IPC from numerous customers into a pool which is divided among the
vessels in the pool.
In 1999 and 1998, the Company chartered three vessels for an aggregate of
$4,227,000 and $6,720,000, respectively, to OMI-Heidmar. This amount is included
in the revenue of the Company since the operations of OMI-Heidmar are not
consolidated. During 1999, the Company wrote down its investment in OMI-Heidmar
by $299,000, as the partners agreed to dissolve this venture in June 1999.
For the years ended December 31, 1999 and 1998, aggregate revenues of
$6,333,000 and $17,385,000, respectively, included in the Consolidated
Statements of Operations related to vessels chartered to a company partially
owned by an individual who was a Director of OMI.
On March 14, 2000, OMI announced it was an investor in MarineProvider ASA,
which will offer on line services to shipowners, including bunker and supply
acquisition. The Company invested approximately $500,000 in the first quarter of
2000.
33
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--INVESTMENTS In JOINT VENTURES (CONTINUED)
In November 1998, Gainwell sold the property it owned at a loss. Gainwell
repaid its outstanding obligations with proceeds from the sale, including an
outstanding loan with Kanejoy, another joint venture. Gainwell and Kanejoy were
both liquidated in January 1999, OMI received $2,989,000 cash from return of
capital in its Kanejoy venture, and recorded a loss from Gainwell of $678,000.
In September 1997, Mosaic sold a vessel to one of its joint venture
partners (the majority shareholder) at a loss, of which OMI's proportionate
share was $5,244,000.On December 10, 1997, Mosaic acquired that shareholder's
interest in the venture for cash of $32,332,000 and 50.1 percent of the stock in
its subsidiary (Kanejoy) with a proportionate book value of $3,501,535, and
Mosaic became a 100 percent owned subsidiary of OMI.
Summarized combined financial information pertaining to all affiliated
companies accounted for by the equity method is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Results of operations:
Revenues .............................................. $80,263 $55,698 $41,804
Operating (loss) income ............................... (795) 9,637 10,762
Loss on disposal of assets--net ....................... -- (423) (8,765)
Cumulative effect of change in accounting principle ... 245 -- 1,196
Net income ............................................ 1,005 7,626 2,502
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Net Assets:
Current assets ......................................... $19,221 $19,888
Vessels and other property--net ........................ 44,404 51,824
Other assets ........................................... 2,244 2,402
------- -------
Total assets ........................................... 65,869 74,114
------- -------
Less:
Current liabilities .................................... 10,353 10,880
Long-term debt ......................................... 11,786 13,450
Other liabilities ...................................... 1,232 1,243
------- -------
Total liabilities ...................................... 23,371 25,573
------- -------
Shareholders' and partners' equity ....................... $42,498 $48,541
======= =======
Dividends received from joint ventures were as follows:
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
White Sea .............................................. $ 490 $1,470 $735
Amazon(1) .............................................. 1,960 1,960 --
------ ------ ----
Total ................................................ $2,450 $3,430 $735
====== ====== ====
- ------------
(1) OMI contributed $637,000 to Amazon during 1999.
</TABLE>
34
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt payable to banks consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Loans under bank credit agreements at a margin plus variable
rates of the London Interbank Offering Rate ("LIBOR")(1) ....... $260,646 $239,790
10.25% Unsecured Senior Notes due 2003 ........................... 4,357 4,357
7.00% Convertible Note due 2004 .................................. 2,744 3,000
-------- --------
Total ........................................................ 267,747 247,147
-------- --------
Less current portion of long-term debt:
Scheduled amortization payments of debt ........................ 8,334 21,494
Debt related to Assets to be disposed of ....................... 46,500 --
-------- --------
Total Current Portion ........................................ 54,834 21,494
-------- --------
Long-term debt ................................................... $212,913 $225,653
======== ========
</TABLE>
- -----------
(1) Rates at December 31, 1999 were 6.468 percent to 7.875percent (including
margins).
Rates at December 31, 1998 were 5.6384 percent to 6.60 percent (including
margins).
As of December 31, 1999, OMI had an aggregate of $260,646,000 in floating
rate credit facilities and revolving lines of credit. The following paragraphs
below describe these facilities and revolving lines of credit that OMI used
during 1999, which were refinanced in February 2000. On February 11, 2000, OMI
completed its refinancing with its previous lenders for a credit agreement in
the amount of $264,500,000. Prior to the refinancing and at December 31, 1999,
OMI was not in compliance with certain of its covenants under previous credit
agreements. The effect of the refinancing revises debt covenants, interest rate
margins and principal amortization. There are two primary facilities under the
new agreement. Facility A is in the amount of $218,000,000 and matures five
years from the drawdown date. It will be repaid in ten semi-annual installments
commencing six months from the drawdown date, the first four installments in the
amount of $5,000,000 and the remaining six 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 this Facility bears
interest at LIBOR plus a margin of 1.75% and is secured by thirteen vessels.
Facility B is in the amount of $46,500,000 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 Consolidated Balance Sheets
at December 31, 1999. The outstanding balance of this Facility bears interest at
LIBOR plus a margin of 2% and is secured by six vessels and OMI's interest in
its 49 percent owned joint venture. A third facility provides for certain
lenders to repay a portion of Facility A in the event certain mortgage insurance
is not obtained.
An extraordinary loss of $1,253,000 was recorded for the year ended
December 31, 1999. This loss relates to the write-off of the balance of
unamortized finance fees on debt which was refinanced in February 2000.
Aggregate maturities during the next five years under the new credit
agreement and continued fixed rate debt from December 31, 1999 are $54,834,000,
$10,539,000, $28,577,000, $29,896,000 and $25,539,000.
During the years ended December 31, 1999, 1998 and 1997 interest paid
totaled approximately $19,202,000, $8,070,000 and $6,734,000, respectively.
Certain of the loan agreements, including the new credit agreement of the
Company contain restrictive covenants requiring minimum levels of cash or cash
equivalents, working capital and net worth, maintenance of specified financial
ratios and collateral values, and restrict the ability of the Company to pay
dividends. These loan
35
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
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.
Each of the following loan facilities terminated with the completion of the
refinancing described above.
On February 28, 1999, the Company obtained a $25,000,000 revolving line of
credit secured by five vessels, four of which were sold during the year, and
shares in a joint venture company. The revolving credit facility was used for
working capital and other general corporate purposes, and bore interest at LIBOR
plus a margin ranging from 1.375%-1.75%. The facility had a balance of
$6,450,000 at December 31, 1999.
The Company had a credit facility, which was assumed from Old OMI
(currently MTC), that provided for a line of credit amounting to $99,090,000 at
December 31, 1999. The credit facility was secured by eleven vessels. The Notes
under the Credit Facility bore interest at LIBOR plus a margin ranging from
0.60%-0.95%, which was computed based on OMI's funded debt to equity ratio and
interest coverage ratio.
On June 4, 1998, the Company entered into a secured revolving credit
agreement to refinance two Panamax tankers and to finance a new product carrier
upon delivery. On June 9, 1998, the Company drew down $16,000,000 to refinance
the two Panamax tankers. The $16,000,000 was to be repaid in quarterly
installments of $800,000 over the next five years and bore interest at LIBOR
plus a margin ranging from 0.65%-0.95%, which was computed based on the
Company's funded debt to capitalization ratio. On September 15, 1999,
$16,000,000 was drawn down to finance a new product carrier. The balance of the
loan at December 31, 1999 was $26,800,000.
On June 4, 1998, the Company entered into a $71,500,000 secured revolving
credit facility to finance two Suezmax tankers upon their delivery from the
yard. On June 9, 1998, $35,750,000 was drawn to finance the first vessel, and on
August 7, 1998, $35,750,000 was drawn to finance the second vessel. Each
drawdown was to be repaid by semi-annual payments of $1,294,000 beginning 18
months after the initial drawdown and a balloon of $13,750,000 ten years after
the initial drawdown date. The facility bore interest at LIBOR plus a margin
ranging from 0.85%-0.95%. At December 31, 1999, the outstanding loan balance was
$70,206,000.
On July 6, 1998, the Company entered into an agreement, as amended, for a
$37,800,000 secured reducing revolving credit facility to finance a Suezmax
tanker upon its delivery from the yard. The Company drew down $37,800,000 on
July 20, 1998 to finance the newbuilding. The availability under this facility
was to be reduced by 14 semi-annual reductions of 3.9% of the original facility,
and the remaining balance was due at maturity, which was to be ten years after
the initial drawdown. The facility bore interest at LIBOR plus a margin ranging
from 0.60%-1.05%. At December 31, 1999 the outstanding loan balance was
$36,900,000.
During December 1998, the Company entered into an agreement with a lender
for a $60,000,000 revolving credit facility. The revolving credit facility was
to be used to finance, on an interim basis, the acquisition of vessels and would
be secured by such vessels. Amounts drawn on the revolving credit facility were
to be repaid no later than six months after drawdown. The facility bore interest
at LIBOR plus a margin ranging from 1.00%-1.75% which was computed based on the
Company's funded debt to total capitalization ratio and interest coverage ratio.
On January 14, 1999, the Company drew down $37,498,000 under this facility to
finance the acquisition of a Suezmax newbuilding, which was repaid in June
1999.On July 15, 1999, $21,200,000 was drawn down to finance a new product
carrier, and this balance remained at December 31, 1999.
At December 31, 1999, vessels and shares in a joint venture with a net book
value of $385,426,000 have been pledged as collateral on long-term debt issues.
36
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
OMI has entered into interest rate swap agreements to manage interest costs
and the risk associated with changing interest rates. The Company had one
interest rate swap agreement with a commercial bank at December 31, 1999 and
three at December 31, 1998. These agreements effectively change the Company's
interest rate exposure on floating rate loans to fixed rates ranging from 6.98
percent to 8.475 percent. The differential to be paid or received is recognized
as an adjustment to interest expense over the lives of the agreements. The
remaining swap agreement matures in June 2000. The changes in the notional
principal amounts are as follows:
DECEMBER 31,
-------------------
1999 1998
-------- -------
Notional principal amount, beginning of the year ....... $32,700 $32,700
Reductions of notional amounts ......................... (22,700) --
------- -------
Notional principal amount, end of the year ............. $10,000 $32,700
======= =======
Interest expense pertaining to interest rate swaps for the years ended
December 31, 1999, 1998 and 1997 was $296,000, $718,000 and $765,000,
respectively.
The Company is exposed to credit loss in the event of non-performance by
other parties to the interest rate swap agreements. However, OMI does not
anticipate non-performance by the counter-parties.
NOTE 6--FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1999 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents ................ $ 7,381 $ 7,381 $ 22,698 $ 22,698
Notes receivable ......................... 14,362 14,362 6,604 6,604
Total debt ............................... 267,747 267,700 247,147 247,156
Unrecognized financial instruments:
Interest rate swaps in a net
payable position ...................... 88 399
</TABLE>
The fair value of long-term debt is estimated based on current rates
offered to the Company for similar debt of the same remaining maturities. The
fair value of interest rate swaps (used for purposes other than trading) is the
estimated amount the Company would pay to terminate swap agreements at the
reporting date, taking into account current interest rates and the current
credit-worthiness of the swap counter-parties.
NOTE 7--CHANGE IN ACCOUNTING FOR VOYAGE REVENUE
Prior to 1999, voyage freight for vessels operating on voyage charters was
accounted for on a load-to-load basis. Under this method, voyage revenue is
recognized evenly over the period from arrival of the vessel at the first load
port to arrival at the next load port. Under this method of revenue recognition
it is necessary to assume the next load port to complete the revenue recognition
cycle.
Effective January 1, 1999, OMI changed its accounting policy on recognition
of voyage freight for vessels operating on voyage charters from load-to-load to
discharge-to-discharge basis. Under this method, voyage revenue is recognized
evenly over the period from the departure of a vessel from its original
discharge port to departure from the next discharge port. The change in revenue
recognition policy is a more reliable method in recognizing voyage
37
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--CHANGE IN ACCOUNTING FOR VOYAGE REVENUE--(CONTINUED)
revenue as it eliminates the uncertainty associated with the location of the
next load port. The cumulative effect of this accounting change is shown
separately in the Consolidated Statements of Operations and resulted in income
of $2,729,000 or $0.07 per basic and diluted earnings per share. The cumulative
effect of this change in accounting principle as of January 1, 1999 on the
Company's Consolidated Balance Sheets was to increase total assets by
$1,490,000, decrease total liabilities by $1,239,000 and increase total
stockholders' equity by $2,729,000.
The years ended December 31, 1998 and 1997 were previously presented using
the load-to-load method of accounting for voyages. Pro forma amounts for these
years assuming discharge-to-discharge had been retroactively applied are
summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income ................................................... $42,612 $18,778
------- -------
Basic earnings per share:
Net income before cumulative effect of change
in accounting principle ................................... $ 1.00 $ 0.20
Cumulative effect of change in accounting
principle--net of tax ..................................... -- 0.23
------- -------
Net income ................................................. $ 1.00 $ 0.43
======= =======
Diluted earnings per share:
Net income before cumulative effect of
change in accounting principle ........................... $ 0.99 $ 0.20
Cumulative effect of change in accounting
principle--net of tax .................................... -- 0.23
------- -------
Net income ................................................. $ 0.99 $ 0.43
======= =======
</TABLE>
NOTE 8--ACCOUNTING CHANGE FOR SPECIAL SURVEY AND DRYDOCK EXPENSES
Effective January 1, 1997, the Company changed its method of accounting for
special survey and drydock expenses from the accrual method to the prepaid
method. Special survey and drydock expenses had been accrued and charged to
operating expenses over the vessel's survey cycle. Under the prepaid method,
survey and drydock expenses are capitalized and amortized over the two to five
year period until the next cycle. Management believes the prepaid method better
matches costs with revenues and minimizes any significant changes in estimates
associated with the accrual method. The cumulative effect of this accounting
change is shown separately in the Consolidated Statements of Operations and
resulted in income of $10,063,000 (net of income taxes of $5,419,000).
The cumulative effect of this change in accounting principle as of January
1, 1997 on the Company's balance sheet was to increase total assets by
$8,272,000, decrease total liabilities by $1,791,000 and increase total
stockholder's equity by $10,063,000.
NOTE 9--OPERATING LEASES
Total rental expense was $16,080,000, $25,820,000 and $8,877,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. Leases are for
vessels and office space.
38
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9--OPERATING LEASES (CONTINUED)
The future minimum rental payments required by year, under operating leases
subsequent to December 31, 1999, are as follows:
2000 .......................................... $25,700
2001 .......................................... 23,673
2002 .......................................... 7,723
2003 .......................................... 686
2004 .......................................... 688
Thereafter .................................... 1,353
-------
Total ....................................... $59,823
=======
On January 19, 1999, the COLUMBIA, a new double-hulled Suezmax tanker was
delivered. The vessel, which had a book value of $55,992,000, was sold on June
30, 1999 for $54,000,000 in a sale/leaseback transaction. The COLUMBIA was then
chartered back from the purchaser over a period of three years. The resulting
lease is being accounted for as an operating lease.
Under the agreement, the Company is responsible for operating expenses and
is required to maintain $2,000,000 in escrow over the lease term, and a standby
letter of credit, which commenced September 1999.The standby letter of credit is
increased by $750,000 per quarter in the first year and by $500,000 per quarter
in the second year to a maximum of $9,000,000. The letter of credit is
additional collateral for the Company's obligation under the charter. As of
December 31, 1999, the escrow and the standby letter of credit aggregated
$7,500,000 and was included in Other Assets and deferred charges on the
Consolidated Balance Sheet.
In May 1997, the Company sold the ALTA (a Suezmax crude oil carrier) for
approximately $39,900,000 and leased back the vessel for five years. The gain on
the sale of approximately $15,700,000 has been deferred and is being credited to
income as an adjustment to lease expense over the term of the lease. As of
December 31, 1999, the deferred gain on sale was $7,514,000. The lessor has the
option to cancel the lease after two years with the payment of a $1,000,000
termination fee.
Time charters to third parties of the Company's owned vessels are accounted
for as operating leases. Minimum future revenues to be received subsequent to
December 31, 1999 on these time charters are $16,133,000 in 2000 and $8,230,000
in 2001.
NOTE 10--PROVISION FOR LOSS ON LEASE OBLIGATIONS
During 1999, as part of OMI's periodic review, the Company evaluated the
forecasted future net cash flows for vessels with lease obligations. The Company
determined that its current lease obligations for vessels exceeded its
undiscounted forecasted future net cash flows. 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. It was
determined that an impairment loss for its leases should be recognized, and a
provision of $6,229,000 was recorded in June 1999.The loss is reported as a
separate item in the Consolidated Statements of Operations. The liability for
the impairment is being amortized to charter hire expense over the remaining
term of the leases.
NOTE 11--ACQUISITIONS AND DISPOSALS OF VESSELS
The SEINE and the ISERE, two new product tankers, were delivered in July and
September 1999, respectively. Both vessels immediately went on time charter for
two years.
39
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11--ACQUISITIONS AND DISPOSALS OF VESSELS (CONTINUED)
On October 29, 1999, OMI agreed to acquire from Mega Tankers Newbuilding
AS, a Suezmax newbuilding. The purchase price of the vessel is approximately
$46,180,000.The Company issued 5,700,000 shares on November 24, 1999 to the
seller and an additional 599,998 shares in February 2000 of OMI common stock
valued at $2.50 per share. On March 15, 2000, OMI entered into a $27,000,000
credit facility to finance this vessel upon delivery from the yard. The
remaining balance, which is approximately $3,430,000, was also paid upon
delivery.
In July, August and November 1999, four Suezmax vessels, three built in
1975 and one built in 1974, were sold for scrap. These vessels were written down
to their estimated net realizable values in the period ended June 30, 1999.
Adjustments to the loss on disposal of assets were recorded at the sale dates.
On August 20, 1998, the Company sold the TANANA for approximately $45,000,000 at
a gain of $6,485,000. On March 12, 1997, OMI sold its liquid petroleum gas
carrier for gain of approximately $1,000,000.
(Loss) gain on disposal/write down of assets-net consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- ------- ------
<S> <C> <C> <C>
(Loss) gain on sale of vessels ........................ $(17,398) $6,485 $885
Loss on write down of vessels (See Note 12) ........... (31,294) -- --
-------- ------ ----
Total ............................................... $(48,692) $6,485 $885
======== ====== ====
</TABLE>
NOTE 12--VESSELS TO BE DISPOSED OF
As of December 31, 1999, the Company planned to dispose of nine vessels,
eight vessels with a net realizable value of $84,034,000 and one aframax with a
net realizable value of $4,262,000. These vessels were written down in December
1999 (the aframax was written down in June 1999 and adjusted in December 1999)
to their estimated market values, and the loss was included in the loss on
disposal/write down of assets (see Note 11) at that time. The write down of
vessels includes the reversal of the cumulative translation adjustment for
$7,442,000. The adjustment relates to two vessels whose functional currency
until July 1990 was not U.S. dollars. In December 1999, the Company contracted
to sell its aframax vessel with a delivery date scheduled for the end of the
first quarter.
As a result of the current market condition and estimated losses on the
disposal of certain vessels, the Company re-evaluated the carrying value of its
remaining vessels under the provisions of SFAS No. 121 and concluded that no
further write downs were necessary.
NOTE 13--INCOME TAXES
A summary of the components of the provision (benefit) for income taxes
excluding the cumulative effect of change in accounting principle is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------ -------- ---------
<S> <C> <C> <C>
Current provision ....................................... $475 $ 1,729 $7,721
Deferred tax benefit .................................... -- (38,887) (2,314)
---- -------- ------
Provision(benefit) for income taxes ..................... $475 $(37,158) $5,407
==== ======== ======
</TABLE>
40
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
The provision (benefit) for income taxes on income (loss) varies from the
statutory rates due to the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- --------- ----------
<S> <C> <C> <C>
Provision at statutory rate(1) ............................ $ -- $ 1,204 $4,293
Reversal of deferred income taxes ......................... -- (38,887) --
Equity in earnings of joint ventures (other than
Amazon/White Sea) net of dividends declared ............. -- 525 1,114
Other(2) .................................................. 475 -- --
---- -------- ------
Provision (benefit)for income taxes ....................... $475 $(37,158) $5,407
==== ======== ======
</TABLE>
- ----------
(1) 1998 includes income before income taxes of $3,540,000 through June 17,
1998 after which OMI was no longer a taxable entity.
(2) 1999 provision reflects adjustment to actual for 1998 taxes.
The Company did not provide deferred income taxes on its equity in the
undistributed earnings of foreign corporate joint ventures accounted for under
the equity method other than those of Amazon and White Sea because these
earnings were considered by management to be invested in the business for an
indefinite period. If the earnings were not considered indefinitely invested,
approximately $6,502,000 of additional deferred tax liabilities would have been
required at December 31, 1997.
NOTE 14--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.
Product Carrier Fleet--includes vessels that normally carry refined
petroleum products such as gasoline, naphtha and kerosene. This fleet
includes two sizes of vessels, Panamax and handysize vessels.
41
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED)
The following is a summary of the operations by major operating segments
for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Crude Oil Tanker Fleet ....................................... $ 78,143 $ 98,517 $ 72,678
Product Carrier Fleet ........................................ 37,570 50,649 67,919
Other ........................................................ 279 62 1,388
--------- --------- ---------
$ 115,992 $ 149,228 $ 141,985
========= ========= =========
OPERATING (LOSS) INCOME:
Crude Oil Tanker Fleet(1) .................................... $ (515) $ 13,135 $ 12,409
Product Carrier Fleet ........................................ 3,235 3,704 16,447
--------- --------- ---------
2,720 16,839 28,856
General and administrative expense not allocated to vessels .. (8,331) (7,089) (7,931)
Other ........................................................ (1,023) (3,506) (747)
--------- --------- ---------
Total .................................................... $ (6,634) $ 6,244 $ 20,178
========= ========= =========
IDENTIFIABLE ASSETS:
Crude Oil Tanker Fleet ....................................... $ 234,140 $ 252,741 $ 164,344
Product Carrier Fleet ........................................ 192,625 203,537 201,126
--------- --------- ---------
426,765 456,278 365,470
Investments in, and advances to joint ventures ............... 14,218 25,507 27,810
Cash and cash equivalents .................................... 7,381 22,698 30,608
Goodwill ..................................................... 1,827 11,079 11,763
Other ........................................................ 22,224 14,565 5,057
--------- --------- ---------
Total .................................................... $ 472,415 $ 530,127 $ 440,708
========= ========= =========
CAPITAL EXPENDITURES:
Crude Oil Tanker Fleet(2) .................................... $ 58,756 $ 133,969 $ 45,620
Product Carrier Fleet(3) ..................................... 45,546 12,714 9,241
Other ........................................................ 947 724 424
--------- --------- ---------
Total .................................................... $ 105,249 $ 147,407 $ 55,285
========= ========= =========
DEPRECIATION AND AMORTIZATION:
Crude Oil Tanker Fleet ....................................... $ 11,977 $ 11,976 $ 8,406
Product Carrier Fleet ........................................ 10,950 11,481 13,371
Other ........................................................ 908 857 898
--------- --------- ---------
Total .................................................... $ 23,835 $ 24,314 $ 22,675
========= ========= =========
INTEREST EXPENSE:
Crude Oil Tanker Fleet ....................................... $ 9,610 $ 5,631 $ 2,008
Product Carrier Fleet ........................................ 5,884 3,239 7,742
--------- --------- ---------
15,494 8,870 9,750
Intercompany borrowings ...................................... -- 1,382 1,241
Other ........................................................ 2,451 866 765
--------- --------- ---------
Total .................................................... $ 17,945 $ 11,118 $ 11,756
========= ========= =========
</TABLE>
(1) Crude oil tanker fleet operating loss includes the provision for loss on
lease obligations of $6,229,000 in 1999.
(2) Includes progress payments and capitalized interest aggregating $58,539,000
in 1999, $133,645,000 in 1998 and $45,289,000 in 1997 for newbuildings.
(3) Includes progress payments and capitalized interest aggregating $45,209,000
in 1999 and $11,940,000 in 1998 for newbuildings.
42
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED)
Mortgage debt of Old OMI prior to the Distribution and its related interest
expense were allocated to OMI Corporation based upon the value of the vessels
collateralizing the debt.
General and administrative expense includes an allocation of costs of
corporate administrative services provided by Old OMI up to the Distribution
date. OMI Corporation, or its applicable subsidiary, was charged a fixed amount
per month per vessel for vessel management and accounting activities and was
charged 1.25 percent of revenues earned by each vessel for commercial
management. General corporate activities, such as salaries (other than those
included in the aforementioned fees), legal, accounting, communications and
other administrative expenses were allocated based on the services provided to
the segment. Rent expense was allocated based on the number of employees
included in the corporate allocation. Management believes the methods for
allocating such expenses were reasonable.
NOTE 15--SAVINGS PLAN
The Company has a 401(k) Plan (the "Plan") which continued from Old OMI,
and is available to full-time employees who meet the Plan's eligibility
requirements. This Plan is a defined contribution plan, which permits employees
to make contributions up to ten percent of their annual salaries with the
Company matching up to the first six percent in 1999. The Company may elect to
make additional contributions to the Plan at the discretion of the Company's
Board of Directors. The Company also has an Executive Savings Plan for certain
key employees. Company contributions were $261,000 and $106,000 for the 401(k)
and Executive Savings Plan, respectively, for the year ended December 31, 1999,
and were $74,000 and $54,000 for the 401(k) and Executive Savings Plan,
respectively, from June 18, 1998 (distribution date) to December 31, 1998.
NOTE 16--STOCK OPTION PLAN
The shareholders approved the 1998 Stock Option Plan ("1998 Plan") on May
19, 1998. The 1998 Plan provides for the granting of options to officers,
employees, consultants and Directors for purchase of the Company's common
shares. The total number of shares that may be awarded under the Plan are
2,500,000, not including the replacement options described in the next sentence.
Effective June 17, 1998, 855,243 options were granted to officers and employees
to replace options they held in Old OMI and have the same vesting provisions and
expiration dates as those Old OMI options forfeited. Option prices at the date
of grant represent the option prices at which options were originally granted by
Old OMI to officers and employees reduced by the estimated fair value per share
of Old OMI's domestic business. In addition, 120,000 options were issued to new
directors in 1998 and vest ratably over three years. In 1999, the Company issued
10,000 options at $3.25 per share.
The following is a summary of the change in the options (in whole numbers,
not thousands) from December 31, 1998 to December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
OPTIONS AT OPTIONS AT WEIGHTED
RANGE OF DECEMBER 31, DECEMBER 31, AVERAGE
EXERCISE PRICE 1998 GRANTS EXPIRED FORFEITURES 1999 EXERCISE PRICE EXPIRATION DATE
- -------------- ------------ ------ ------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3.25 -$3.39 31,006 10,000 4,666 5,000 31,340 $3.35 January 2003 to January 2009
$4.015-$4.58 270,000 10,000 260,000 $4.10 February 2000 to April 2005
$5.14 -$5.43 416,237 22,667 393,570 $5.22 February 2004 to May 2008
$6.42 -$6.67 160,000 160,000 $6.61 June 2001 to June 2008
$8.675-$8.95 98,000 68,000 30,000 $8.95 August 1999 to May 2008
------- ------ ------ ------ -------
975,243 10,000 82,666 27,667 874,910 $5.20
======= ====== ====== ====== =======
</TABLE>
Proceeds received from the exercise of the options are credited to the
capital accounts.
43
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16--STOCK OPTION PLAN (CONTINUED)
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the methods recommended by SFAS No. 123, the Company's net
income and net income per share for the years ended December 31, 1999 and 1998,
would have been stated at the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Net (loss) income:
As reported .................................... $(80,305) $42,917
Pro forma ...................................... (80,461) 41,409
<CAPTION>
1999 1999 1998 1998
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Basic (loss) earnings per share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting principle .. $(1.94) $(1.94) $1.01 $0.97
Extraordinary loss ..................................... (0.03) (0.03) -- --
Cumulative effect of change in accounting principle .... 0.07 0.07 -- --
------ ------ ----- -----
Net (loss) income ........................................ $(1.90) $(1.90) $1.01 $0.97
====== ====== ===== =====
Diluted (loss) earnings per share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting principle .. $(1.94) $(1.94) $1.00 $0.97
Extraordinary loss ..................................... (0.03) (0.03) -- --
Cumulative effect of change in accounting principle .... 0.07 0.07 -- --
------ ------ ----- -----
Net (loss) income ........................................ $(1.90) $(1.90) $1.00 $0.97
====== ====== ===== =====
</TABLE>
The fair value of options granted under the Company's stock option plans
during 1999 and 1998, was estimated on the dates of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: no dividend yield, expected volatility of 40 percent, risk
free average interest rates of 6.13 percent in 1999 and 5.01 percent in 1998,
and expected lives ranging from one to five years.
See Note 17 regarding "Change in Control".
NOTE 17--EMPLOYMENT AGREEMENTS
OMI has employment agreements with all of its executive officers which
provide for an annual base salary and a performance incentive bonus. The base
salary is the amount paid in the previous year plus any raise granted by the OMI
Board. Under the contracts, bonuses are paid at the discretion of the OMI Board.
Each of these agreements also provide that if the employee (i) is terminated
without cause, (ii) voluntarily terminates his employment within 90 days of a
relocation following a Change in Control or reduction in compensation or
responsibilities, or (iii) is disabled, such employee will continue to receive
base salary and other benefits for a period of two years. In addition, in the
event of a Change in Control (as defined in the relevant agreement) and if any
such employee's employment is terminated without cause (other than for reasons
of disability) within two years of such a Change in Control, then OMI will pay
such employee an amount equal to the incentive bonus paid during the previous
twelve months and an amount equal to three times the sum of his then current
base salary and that incentive bonus.
NOTE 18--STOCKHOLDERS' EQUITY
Preferred Stock--The Company has 5,000,000 shares of preferred stock
authorized, none issued.
Shareholders' Rights Plan--On November 19, 1998, the Board of Directors
approved the adoption of a shareholder rights plan in which it declared a
dividend distribution of one Right for each outstanding share of common stock,
$0.50 par value (the "Common Stock") of the Company, to stockholders of record
at the close of business on December 1, 1998. Each Right entitles the record
holder to purchase from the Company one hundred-thousandth of a share of the
Company's Series A Participating Preferred Stock, $1.00 par value at a price of
$25.00 (the "Purchase Price"), subject to adjustment in certain circumstances.
44
<PAGE>
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 18--STOCKHOLDERS' EQUITY (CONTINUED)
Initially, the Rights attach to the certificates representing outstanding
shares of Common Stock, and no Rights Certificates will be distributed. In
general the Rights will separate from the Common Stock and a "Distribution Date"
will occur only if a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock, or after the commencement of a tender offer or exchange offer if,
upon consummation thereof, the person or group making such offer would be the
beneficial owner of 15% or more of the outstanding shares of Common Stock.
Thereafter, under certain circumstances, each Right (other than any Rights that
are or were beneficially owned by an Acquiring Person, which Rights will be
void) could become exercisable to purchase at the Purchase Price a number of
shares of Common Stock (or, in certain circumstances, the common stock of a
company into which the Company is merged or consolidated or to which the Company
sells all or substantially all of its assets) having a market value equal to two
times the Purchase Price.
Treasury Stock--On August 4, 1998, the Board of Directors approved a plan
to repurchase up to 4.4 million shares of the Company's common stock. As of
December 31, 1998, the Company purchased 2,076,700 shares at a cost of
$9,040,000 or an average price of $4.35 per share. During March 1999, OMI issued
47,408 shares of the Company's treasury stock to Directors in lieu of cash for
fees.
Dividends--Any determination to pay dividends in the future by OMI will be
at the discretion of the Board of Directors and will be dependent upon its
results of operations, financial condition, capital restrictions, covenants and
other factors deemed relevant by the board of directors. Currently, the payment
of dividends by OMI is restricted by its credit agreements.
Private Placement--During February 2000, OMI agreed to sell in a private
placement to four unrelated investors 9,583,000 shares of OMI common stock for
$2.00 per share ($1.92 per share net of commissions).
NOTE 19--COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company had two doubled-hulled Suezmax tankers
under construction. One Suezmax with a cost of approximately $51,000,000 is to
be delivered in May 2000, and the other Suezmax with a cost of approximately
$46,180,000 was delivered in March 2000 (See Note 11).
OMI acts as a guarantor for a portion of the debt incurred by a joint
venture with affiliates of its joint venture partner. Such debt was
approximately $13,450,000 at December 31, 1999 with OMI's guaranty of such debt
being approximately $6,725,000. The guarantee ended in the first quarter of 2000
when OMI sold its interest in the joint venture (See Note 4).
OMI and certain subsidiaries are defendants in various actions arising from
shipping operations. Such actions are covered by insurance or, in the opinion of
management, are of such nature that the ultimate liability, if any, would not
have a material adverse effect on the consolidated financial statements.
The Company has guaranteed a minimum resale or residual value for a vessel
that is leased until June 2002. At December 31, 1999, the impact of the
guarantee is not expected to be material.
The Company was a defendant in an arbitration arising from alleged defects
in a vessel sold to a third party. The claims exceeded $7,000,000 which
encompassed damages for repairs to the vessel, lost revenues, interest and
costs. During 1998, this claim was settled for $900,000.
The Company and its joint venture partners have committed to fund any
working capital deficiencies which may be incurred by their joint venture
investments. At December 31, 1999, no such deficiencies have been funded.
NOTE 20--SUBSEQUENT EVENTS (UNAUDITED)
During March 2000, two product carriers were contracted for sale for a
total of $21,000,000 before commissions. The vessels' net book values
aggregating $25,313,000 were recorded on the Consolidated Balance Sheets at
December 31, 1999 as Assets to be disposed of (see Note 12). Adjustments for the
sale of these vessels were recorded to loss on disposal of assets in the first
quarter of 2000.
45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of OMI Corporation:
We have audited the accompanying consolidated balance sheets of OMI
Corporation and subsidiaries (successor to Universal Bulk Carriers, Inc. and its
subsidiaries) as of December 31, 1999 and 1998 and the related consolidated
statements of operations, and comprehensive income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of certain corporate
joint ventures, which were accounted for by use of the equity method. The
Company's equity of $7,637,000 and $9,597,000 in the net assets of those
corporate joint ventures as of December 31, 1999 and 1998, respectively, and of
($637,000), $2,995,000, and ($1,284,000) in those companies' net income (loss)
for each of the three years in the period ended December 31, 1999 is included in
the accompanying financial statements. The financial statements of those
corporate joint ventures were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for such companies, is based solely on the reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the companies at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1999, the Company changed its method of accounting for vessels
operating on voyage charters from load-to-load to discharge-to-discharge basis.
As discussed in Note 8 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of accounting for special and
drydock expense from the accrual method to the prepaid method.
DELOITTE & TOUCHE LLP
New York, New York
February 17, 2000
(March 15, 2000 as to Notes 4 and 11)
46
<PAGE>
ITEM 8. SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 QUARTER ENDED 1998 QUARTER ENDED
---------------------------------------- ---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------- -------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ............................ $34,978 $ 30,535 $25,771 $ 24,708 $40,032 $36,827 $38,124 $34,245
Operating income (loss) ............. 3,934 (5,764) (1,841) (2,963) 5,289 (1,790) 4,189 (1,444)
Extraordinary loss .................. -- -- -- (1,253) -- -- -- --
Cumulative effect of change in
accounting principle(1) ........... 2,729 -- -- -- -- -- -- --
Net income (loss) ................... $ 2,736 $(33,172) $(7,119) $(42,750) $ 3,089 $36,450 $ 8,043 $(4,665)
Basic Earnings (Loss)
Per Common Share:
Income before extraordinary
loss and cumulative effect
of change in accounting
principle. ...................... $ -- $ (0.80) $ (0.17) $ (0.94) $ 0.07 $ 0.84 $ 0.19 $ (0.11)
Extraordinary loss .................. -- -- -- (0.03) -- -- -- --
Cumulative effect of change in
accounting principle(1) ........... 0.07 -- -- -- -- -- -- --
------- -------- ------- -------- ------- ------- ------- -------
Net income (loss)(2) ................ $ 0.07 $ (0.80) $ (0.17) $ (0.97) $ 0.07 $ 0.84 $ 0.19 $ (0.11)
======= ======== ======= ======== ======= ======= ======= =======
Weighted average number of
shares of common stock
outstanding-basic ................. 41,611 41,647 41,647 44,020 43,072 43,271 42,837 41,609
======= ======== ======= ======== ======= ======= ======= =======
Diluted Earnings (Loss)
Per Common Share:
Income before extraordinary
loss and cumulative effect
of change in accounting
principle ....................... $ -- $ (0.80) $ (0.17) $ (0.94) $ 0.07 $ 0.83 $ 0.19 $ (0.11)
Extraordinary loss .................. -- -- -- (0.03) -- -- -- --
Cumulative effect of change in
accounting principle(1) ............. 0.07 -- -- -- -- -- -- --
------- -------- ------- -------- ------- ------- ------- -------
Net income (loss)(2) ................ $ 0.07 $ (0.80) $ (0.17) $ (0.97) $ 0.07 $ 0.83 $ 0.19 $ (0.11)
======= ======== ======= ======== ======= ======= ======= =======
Weighted average number of
shares of common stock
outstanding-diluted ............... 41,611 41,647 41,647 44,020 43,433 43,961 43,113 41,609
======= ======== ======= ======== ======= ======= ======= =======
</TABLE>
- -----------
(1) The March 31, 1999 quarter has been restated to reflect the cumulative
effect of the change in the accounting principle effective January 1, 1999.
(2) Earnings per share are based on stand-alone quarters.
47
<PAGE>
AMAZON TRANSPORT INC.
BALANCE SHEETS
DECEMBER 31,
---------------------------
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............. $ 3,263,011 $ 7,532,673
Accounts receivable .................... 715,810 2,340,063
Bunkers ................................ 617,705 659,933
----------- -----------
Total current assets ............. 4,596,526 10,532,669
----------- -----------
Long-term assets
Vessel ............................... 12,786,778 13,407,504
----------- -----------
Total long term assets ........... 12,786,778 13,407,504
----------- -----------
Total assets ........................... $17,383,304 $23,940,173
=========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable ....................... $ 1,796,786 $ 4,354,145
----------- -----------
Total current liabilities ............ 1,796,786 4,354,145
----------- -----------
Total liabilities .................... 1,796,786 4,354,145
----------- -----------
EQUITY:
Share capital .......................... 900 900
Accumulated result 1/1 ................. 19,585,128 17,473,325
Cash dividend .......................... (4,000,000) (4,000,000)
Capital contributions .................. 1,300,000 --
Net income (loss) ...................... (1,299,510) 6,111,803
----------- -----------
Total equity ........................... 15,586,518 19,586,028
----------- -----------
Total liabilities and equity ........... $17,383,304 $23,940,173
=========== ===========
See notes to financial statements.
48
<PAGE>
AMAZON TRANSPORT INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING INCOME AND COSTS
Gross freight ........................ $ 7,640,089 $ 15,647,357 $ 15,692,654
Voyage related costs ................. (3,830,509) (4,462,752) (6,584,317)
------------ ------------ ------------
Net voyage revenue ................... 3,809,580 11,184,605 9,108,337
------------ ------------ ------------
Crew wages and social security ....... (1,477,085) (1,284,936) (1,462,583)
Other operating costs ................ (3,193,913) (3,450,102) (3,794,536)
------------ ------------ ------------
Profit before depreciation ........... (861,418) 6,449,567 3,851,218
Depreciation ......................... (620,726) (620,726) (620,726)
------------ ------------ ------------
Operating result ..................... (1,482,144) 5,828,841 3,230,492
------------ ------------ ------------
FINANCIAL INCOME AND COSTS
Interest received .................... 202,156 323,555 200,267
Net gain (loss) on foreign exchange .. (18,652) (39,461) (311)
Other financial costs ................ (870) (1,132) (1,896)
------------ ------------ ------------
Net financial items .................. 182,634 282,962 198,060
------------ ------------ ------------
Net income (loss) .................... $ (1,299,510) $ 6,111,803 $ 3,428,552
============ ============ ============
</TABLE>
See notes to financial statements
49
<PAGE>
AMAZON TRANSPORT INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES
Net (loss) income ................................... $(1,299,510) $ 6,111,803 $ 3,428,552
Depreciation ........................................ 620,726 620,726 620,726
Change in short-term assets ......................... 1,666,481 (349,306) (1,150,402)
Change in short-term liabilities .................... (2,557,359) 1,362,885 1,505,321
----------- ----------- -----------
Net cash (used) provided by operating activities .... (1,569,662) 7,746,108 4,404,197
----------- ----------- -----------
CASH FLOW USED BY FINANCING ACTIVITIES
Repayment of loan to shareholders ................... -- -- (3,000,000)
Cash dividends ...................................... (4,000,000) (4,000,000) --
Capital contributions ............................... 1,300,000 -- --
----------- ----------- -----------
Net cash (used) by financing activities ............. (2,700,000) (4,000,000) (3,000,000)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents .................................. (4,269,662) 3,746,108 1,404,197
Cash and cash equivalents beginning of year ......... 7,532,673 3,786,565 2,382,368
----------- ----------- -----------
Cash and cash equivalents end of year ............... $ 3,263,011 $ 7,532,673 $ 3,786,565
=========== =========== ===========
</TABLE>
See notes to financial statements.
50
<PAGE>
AMAZON TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1. COMPANY
Amazon Transport, Inc. (the "Company" or "Amazon") is jointly owned by a
wholly-owned subsidiary of OMI Corporation ("OMI") and Bergesen d.y.
Shipping AS ("Bergesen d.y. Shipping"), a wholly-owned subsidiary of
Bergesen d.y. ASA ("Bergesen") with interests of 49 and 51 percent,
respectively. The Company began operating as a joint venture on December 3,
1988 for the purpose of owning and chartering commercial vessels. The
Company owns and operates one vessel, the Settebello, for all years
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Operating Revenues and Expenses--Voyage revenues and expenses are
recognized on the percentage of completion method of accounting based on
voyage costs incurred to date to estimated total voyage costs. Estimated
losses are provided in full at the time such losses become evident.
Special survey and drydock expenses are accrued and charged to
operating expenses over the survey cycle, which is generally a three year
period. The accruals of such expenses are based on management's best
estimates of future cost and the expected length of the survey cycle.
However, the ultimate liability may be more or less than such estimates.
Vessel--The vessel is recorded at cost. Depreciation is provided on the
straight-line method based on the estimated 25 year useful life of the
vessel up to the estimated salvage value. Salvage value is based upon the
vessel's light weight tonnage multiplied by a scrap rate.
Expenditures for maintenance, repairs and minor renewals are expensed.
Major replacements and renewals are capitalized.
In the event that facts and circumstances indicate that the carrying
amount of the vessel may be impaired, an evaluation of recoverability is
performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the vessel are compared to the vessel's carrying
value to determine if a writedown to fair value or discounted cash flow is
required.
Federal Income Taxes--No provision has been made for Federal income taxes.
The income of the Company is not generally subject to tax as a result of
various provisions of the Internal Revenue Code. Additionally, the country
in which the Company is incorporated exempts shipping and maritime
operations from taxation.
Cash Flows--Cash equivalents represent liquid investments which mature
within 90 days. The carrying amount approximates fair value. The Company
paid no interest in the three years ended December 31, 1999.
3. RELATED PARTY TRANSACTIONS
The Company has entered into management service agreements with Bergesen,
who act as technical and commercial managers of the Settebello. The Company
paid Bergesen management fees of $267,291 for the year ended December 31,
1999, $261,246 for the year ended December 31, 1998 and $256,204 for the
year ended December 31, 1997.
During the year 1999, the Company made a cash distribution to the
shareholders of $4,000,000.
During the year 1999, the Company also called in capital from the
shareholders of $1,300,000.
During the year 1998, the Company made a cash distribution to the
shareholders of $4,000,000.
During the year 1997, the Company paid back the loan to the
shareholders of $3,000,000.
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Stockholders of
Amazon Transport Inc.
We have audited the accompanying balance sheets of Amazon Transport Inc. as of
December 31, 1999 and 1998 and the related statements of income and changes in
financial position for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amazon Transport Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years ended December 31, 1999 in conformity with the
accounting principles disclosed in notes to the financial statements which in
all material respects are in agreement with International Accounting Principles.
ARTHUR ANDERSEN & CO.
Morten Drake
State Authorised Public Accountant (Norway)
Oslo, Norway
March 16, 2000
52
<PAGE>
WHITE SEA HOLDINGS LTD.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
SEPTEMBER 29, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ........................... $1,550 $2,405
Advances to masters ................................. -- 27
Receivables:
Traffic ........................................... 230 98
Other ............................................. 105 211
Prepaid expenses and other current assets ........... 230 391
------ ------
Total current assets .......................... 2,115 3,132
------ ------
Vessel:
Vessel at cost ...................................... 7,430 7,430
Less accumulated depreciation ....................... 2,581 2,220
------ ------
Vessel--net ......................................... 4,849 5,210
------ ------
Total assets .................................. $6,964 $8,342
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 68 $ 121
Accrued expenses .................................... 63 495
Accrued interest .................................... -- 10
Payable to affiliates (Note 3) ...................... 19 54
Current portion of long-term debt (Note 4) .......... -- 500
------ ------
Total current liabilities ..................... 150 1,180
------ ------
Advance time charter revenues and other liabilities ... -- 211
Stockholders' equity:
Common stock--no par value; 500 shares authorized
and outstanding ................................... 1 1
Capital surplus ..................................... 2,499 2,499
Retained earnings (Note 7) .......................... 4,314 4,451
------ ------
Total stockholders' equity .................... 6,814 6,951
------ ------
Total liabilities and stockholders' equity ............ $6,964 $8,342
====== ======
See notes to financial statements.
53
<PAGE>
WHITE SEA HOLDINGS LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, FOR THE YEARS ENDED
1999 TO DECEMBER 31,
SEPTEMBER 29, --------------------
1999 1998 1997
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Voyage Revenues ................................. $ 4,583 $ 9,022 $12,552
------- ------- -------
Operating Expenses:
Vessel and voyage ............................. 3,542 6,738 7,375
Depreciation .................................. 361 461 442
General and administrative .................... 116 97 94
------- ------- -------
Total operating expenses ................ 4,019 7,296 7,911
------- ------- -------
Operating Income ................................ 564 1,726 4,641
Net Interest Income (Expense):
Interest expense .............................. (6) (43) (158)
Interest income ............................... 60 167 99
------- ------- -------
Net interest income (expense) ........... 54 124 (59)
------- ------- -------
Income Before Cumulative Effect of Change in
Accounting Principles ......................... 618 1,850 4,582
Cumulative Effect of Change in Accounting
Principles (Notes 5, 6) ....................... 245 -- 1,196
------- ------- -------
Net Income ...................................... 863 1,850 5,778
Retained Earnings, Beginning of Year ............ 4,451 5,601 1,323
Dividends Paid (Note 7) ......................... (1,000) (3,000) (1,500)
------- ------- -------
Retained Earnings, End of Period ................ $ 4,314 $ 4,451 $ 5,601
======= ======= =======
</TABLE>
See notes to financial statements.
54
<PAGE>
WHITE SEA HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, FOR THE YEARS ENDED
1999 TO DECEMBER 31,
SEPTEMBER 29, --------------------
1999 1998 1997
-------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash Flows Provided by Operating Activities:
Net income ......................................... $ 863 $ 1,850 $ 5,778
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation ..................................... 361 461 442
Cumulative effect of change in
accounting principles .......................... (245) -- (1,196)
Change in assets and liabilities:
Decrease (increase) in receivables and advances
to masters ....................................... 43 509 (438)
Decrease in prepaid expenses and other
current assets ................................... 161 591 827
Decrease in accounts payable and accrued
liabilities ...................................... (495) (31) (229)
Decrease in payable to affiliates .................. (35) (310) (877)
(Decrease) increase in advanced time charter
revenues and other liabilities ................... (8) 19 (5)
------- ------- -------
Net cash provided by operating
activities ................................. 645 3,089 4,302
------- ------- -------
Cash Flows Used by Investing Activities:
Additions to vessel ................................ -- (40) (7)
------- ------- -------
Net cash used by investing activities ........ -- (40) (7)
------- ------- -------
Cash Flows Used by Financing Activities:
Dividends paid ..................................... (1,000) (3,000) (1,500)
Payments on long-term debt ......................... (500) (500) (500)
------- ------- -------
Net cash used by financing activities ........ (1,500) (3,500) (2,000)
------- ------- -------
Net (Decrease) Increase in Cash and
Cash Equivalents ................................... (855) (451) 2,295
Cash and Cash Equivalents, Beginning of Year ......... 2,405 2,856 561
------- ------- -------
Cash And Cash Equivalents, End of Period ............. $ 1,550 $ 2,405 $ 2,856
======= ======= =======
</TABLE>
See notes to financial statements.
55
<PAGE>
WHITE SEA HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1998
AND THE PERIOD ENDING SEPTEMBER 29, 1999
1. COMPANY
White Sea Holdings Ltd. (the "Company") was jointly owned by a
subsidiary of OMI Corporation ("OMI"), ( the successor to Universal Bulk
Carriers, Inc.) and an affiliate of Anders Wilhelmsen & Co. A/S
("Wilhelmsen"), Norway, with interests of 49 and 51 percent, respectively.
On September 29, 1999, OMI sold its 49 percent share to Wilhelmsen for
approximately $2,427,000. The Company owns and operates one crude oil
carrier, the White Sea.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Effective January 1, 1999, White Sea changed its accounting policy on
recognition of voyage freight for vessels operating on voyage charters from
load-to-load to the discharge-to-discharge basis. Under this method, voyage
revenue is recognized evenly over the period from the departure of a vessel
from its original discharge port to departure from the next discharge port.
Management believes that the discharge-to-discharge method is preferable
because (a) it is the predominant method for shipowners, and (b) it
eliminates the uncertainty associated with the location of the next load
port (See Note 6).
Operating Revenues and Expenses--Voyage revenues and expenses are
recognized on the percentage of completion method of accounting based on
voyage costs incurred to date to estimated total voyage costs. Estimated
losses are provided in full at the time such losses become evident.
Effective January 1, 1997, special survey and drydock expenses are
accounted for using the prepaid method. Under the prepaid method expenses
are capitalized and amortized over the survey cycle, which is generally a
two to five year period. Prior to 1997, special survey and drydock expenses
were accrued and charged to operating expenses over the survey cycle, which
was generally a two to three year period. The accruals of such expenses
were based on management's best estimates of future costs and the expected
length of the survey cycle. However, the ultimate liability may have been
more or less than such estimates (See Note 5).
Vessel--The vessel is recorded at cost. Depreciation is provided on the
straight-line method based on the estimated 25 year useful life of the
vessel up to the estimated salvage value. Salvage value is based upon the
vessel's lightweight tonnage multiplied by a scrap rate.
Expenditures for maintenance, repairs and minor renewals are expensed.
Major replacements and renewals are capitalized.
In the event that facts and circumstances indicate that the carrying
amount of the vessel may be impaired, an evaluation of recoverability is
performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the vessel are compared to the vessel's carrying
value to determine if a writedown to fair value or discounted cash flow is
required.
Federal Income Taxes--No provision has been made for Federal income taxes.
The income of the Company is not generally subject to tax as a result of
various provisions of the Internal Revenue Code. Additionally, the country
in which the Company is incorporated exempts shipping and maritime
operations from taxation.
Cash Flows--Cash equivalents represent liquid investments which mature
within 90 days. The carrying amount approximates fair value. The Company
paid $16,000, $50,000 and $182,000 in interest during 1999, 1998, and 1997,
respectively.
56
<PAGE>
WHITE SEA HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
3. RELATED PARTY TRANSACTIONS
The Company has a management service agreement with OMI to act as both
technical and commercial manager of the White Sea. The Company paid
management fees to OMI of $113,000 for the period January 1, 1999 to
September 29, 1999. The Company paid management fees to OMI or its
affiliates of $78,000 for each of the years ended December 31, 1998 and
1997.
White Sea Holdings Ltd. owed OMI and its affiliates $19,000 and
$54,000 as of September 29, 1999 and December 31, 1998, respectively.
4. LONG-TERM DEBT
At December 31, 1998 the Company had $500,000 outstanding on a mortgage
note secured by the vessel at a rate of 6.9062 percent. The note was paid
on March 5,1999. The fair value of long-term debt at December 31, 1998
approximates its carrying value.
5. ACCOUNTING CHANGE FOR SPECIAL SURVEY AND DRYDOCK EXPENSES
Effective January 1, 1997, the Company changed its method of accounting
for special survey and drydock expenses from the accrual method to the
prepaid method. Special survey and drydock expenses had been accrued and
charged to operating expenses over the vessel's survey cycle, which was
generally a two to three year period. Under the prepaid method, survey and
drydock expenses are capitalized and amortized over the period until the
next survey cycle. Management believes the prepaid method better matches
costs with revenues, and minimizes any significant changes in estimates
associated with the accrual method. The cumulative effect of this
accounting change is shown separately in the consolidated statement of
operations and resulted in income of $1,196,000.
The cumulative effect of this change in accounting principle as of
January 1, 1997 on the Company's balance sheet was to increase total assets
by $1,166,000, decrease total liabilities by $30,000 and increase total
stockholders' equity by $1,196,000.
6. CHANGE IN ACCOUNTING FOR VOYAGE REVENUE
Prior to 1999, voyage freight for vessels operating on voyage charters
was accounted for on a load-to-load basis. Under this method, voyage
revenue is recognized evenly over the period from arrival of the vessel at
the first load port to arrival at the next load port. Under this method of
revenue recognition it is necessary to assume the next load port to
complete the revenue recognition cycle.
Effective January 1, 1999, White Sea changed its accounting policy on
recognition of voyage freight for vessels operating on voyage charters from
load-to-load to discharge-to-discharge basis. Under this method, voyage
revenue is recognized evenly over the period from the departure of a vessel
from its original discharge port to departure from the next discharge port.
The change in revenue recognition policy is a more reliable method in
recognizing voyage revenue as it eliminates the uncertainty associated with
the location of the next load port. The cumulative effect of this
accounting change is shown separately in the Statements of Income and
resulted in income of $245,000. The cumulative effect of this change in
accounting principle as of January 1, 1999 on the Company's Balance Sheets
was to increase total assets by $42,000, decrease total liabilities by
$203,000 and increase total stockholders' equity by $245,000.
The years ended December 31, 1998 and 1997 were previously presented
using the load-to-load method of accounting for voyages. Pro forma amounts
for these years assuming discharge-to-discharge had been retroactively
applied are net income of $1,910,000 and $5,688,000 for the years ended
December 31, 1998 and 1997, respectively.
7. DIVIDENDS
During 1999, 1998 and 1997, the Company declared and paid dividends of
$1,000,000, $3,000,000 and $1,500,000, respectively.
57
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of White Sea Holdings Ltd.:
We have audited the accompanying balance sheet of White Sea Holdings Ltd. as of
December 31, 1998 and the related statements of income and retained earnings and
of cash flows for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1998,
and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
As disclosed in Note 5 to the financial statements, effective January 1, 1997,
the Company changed its method of accounting for special surveys and drydock
expenses from the accrual method to the prepaid method.
DELOITTE & TOUCHE LLP
New York, New York
February 23, 1999
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OMI CORPORATION
Pursuant to General Instruction G(3) the information regarding directors
called for by this item is hereby incorporated by reference from OMI's Proxy
Statement to be filed with the Securities and Exchange Commission. Certain
information relating to Executive Officers of the Company appears at the end of
Part I of this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) the information called for by this
item is hereby incorporated by reference from OMI's Proxy Statement to be filed
with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) the information called for by this
item is hereby incorporated by reference from OMI's Proxy Statement to be filed
with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) the information called for by this
item is hereby incorporated by reference from OMI's Proxy Statement to be filed
with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. Financial statements as indicated in the index is set forth on page 23.
2. Financial Statement Schedules
None.
3. The index to Exhibits is on page 60.
(b) Reports on Form 8-K:
OMI has not filed any current reports on Form 8-K with the Commission
during the last quarter of the fiscal period covered by this report.
59
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
NUMBER INCORPORATED BY REFERENCE TO DESCRIPTION OF EXHIBIT
------ ---------------------------- ----------------------
<S> <C> <C>
3(i) Registration Statement on Form S-1 Articles of Association of OMI
(No. 333-52771) Filed May 15, 1998
3(ii) Registration Statement on Form S-1 By-laws
(No. 333-52771) Filed May 15, 1998
4.1 Registration Statement on Form S-3 Registration of 6,299,998 shares of common
(No. 333-30230) Filed February 11, 2000 stock sold in a private placement
4.2 Registration Statement on Form S-3 Registration of 9,583,000 shares of common
(No. 333-33424) Filed March 28, 2000 stock sold in a private placement
4.3 Form 8A Filed December 14, 1998 Registration Statement of Preferred Stock
Purchase Rights
10.1 Registration Statement on Form S-1 Form of Common Stock Certificate
(No. 333-52771) Filed May 15, 1998
10.2 Registration Statement on Form S-1 Corporation Stock Option Plan (1)
(No. 333-52771) Filed May 15, 1998
10.3 Form S-8 Filed June 17, 1998 Employee Benefit Plan Registration Statement
10.4 Form 10-Q Filed November 13, 1998 Form of OMI Employment Agreements for Senior
Executives (1)
10.5 Form 10-K Filed March 31, 1999 OMI Corporation 1998 Performance Share Unit
Plan (1)
10.6 Loan Agreement dated as of February 4, 2000
providing for a US $218,000,000 Secured Term
Loan Facility
10.7 Loan Agreement dated as of February 4, 2000
providing for a US $46,500,000 Secured Term Loan
Facility
10.8 Facility Agreement dated as of February 4,
2000 providing for a US $36,000,000 Convertible
Letter of Credit Facility
18 Form 10-Q Filed November 12, 1999 Preferability Letter dated August 13, 1999
21 Subsidiaries of the Company
23 Independent Auditors' Consent*
27 Financial Data Schedule dated December 31, 1999
</TABLE>
- ----------
(1) Denotes compensation plan and/or agreement
* Filed in this Amendment
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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
Date: April 14, 2000 By /s/ FREDRIC S. LONDON
- -------------------------------- ----------------------------------------
Fredric S. London, Senior Vice President
61
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-33424 of OMI Corporation on Form S-3 of our report dated February 17, 2000
(March 15, 2000 as to Notes 4 and 11), appearing in this Annual Report on Form
10-K/A of OMI Corporation for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
New York, New York
April 14, 2000
