<PAGE>
BEING FILED PURSUANT TO RULE 901 (D) OF REGULATION S-T
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the period from to
COMMISSION FILE NUMBER
2-87930
OMI CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2625280
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
90 PARK AVENUE, NEW YORK, N.Y. 10016
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (212) 986-1960
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF NOVEMBER 13, 1996:
Common Stock, par value 0.50 per share 31,150,515 shares
<PAGE>
OMI CORP. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of
Operations for the three and nine months
ended September 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets-
September 30, 1996 and December 31,1995 4
Consolidated Statement of Changes in
Stockholders' Equity for the nine months
ended September 30, 1996 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial
Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II: OTHER INFORMATION 18
SIGNATURES 19
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<TABLE>
<CAPTION>
OMI CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Voyage revenues $ 55,952 $ 59,655 $ 175,446 $ 175,924
Other income 2,647 1,476 6,273 4,360
------ ------ ------- -------
Total revenues 58,599 61,131 181,719 180,284
------ ------ ------- -------
Operating Expenses:
Vessel and voyage 40,711 51,937 130,574 153,971
Depreciation and amortization 7,571 8,878 23,818 26,070
Operating lease -- 826 755 3,789
General and administrative 4,096 3,240 11,425 10,953
------ ------ ------- -------
Total operating expenses 52,378 64,881 166,572 194,783
------ ------ ------- -------
Operating income (loss) 6,221 (3,750) 15,147 (14,499)
------ ------ ------- -------
Other income (expense):
Gain (loss) on disposal of
assets-net 9,232 531 12,833 6,766
Interest expense-net (6,866) (5,756) (20,009) (18,460)
Minority interest in (income)
loss of subsidiary (1,194) 78 (1,287) 197
Other-net -- -- -- 883
------ ------ ------- ------
Net other income (expense) 1,172 (5,147) (8,463) (10,614)
------ ------ ------- --------
Income (loss) before income taxes,
equity in operations of joint
ventures and extraordinary loss 7,393 (8,897) 6,684 (25,113)
Provision (benefit) for income
taxes 2,395 (3,101) 1,833 (8,296)
------ ------ ------- --------
Income (loss) before equity in
operations of joint ventures
and extraordinary loss 4,998 (5,796) 4,851 (16,817)
Equity in income of operations of
joint ventures 70 894 1,136 5,493
------ ------ ------- --------
Income (loss) before extraordinary
loss 5,068 (4,902) 5,987 (11,324)
Extraordinary loss, net of tax (3,022) -- (2,661) --
------ ------ ------- --------
Net income (loss) $ 2,046 $ (4,902) $ 3,326 $ (11,324)
====== ====== ======= =========
Earnings (loss) per common share:
Income (loss) before extraordinary
loss $ 0.16 $ (0.16) $ 0.19 $ (0.37)
Extraordinary loss-net of tax (0.10) -- (0.08) --
------ ------ ------- --------
Net income (loss) $ 0.06 $ (0.16) $ 0.11 $ (0.37)
====== ====== ======= =========
Weighted average number of shares
of common stock outstanding 31,558 30,927 31,420 30,658
====== ====== ======= =========
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
OMI CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, including cash equivalents: 1996-
$25,756, 1995-$26,008 $ 44,682 $ 32,569
Advances to masters 2,338 2,033
Receivables:
Traffic 9,152 12,016
Other 15,529 9,333
Income tax refund receivable 5,651 5,651
Prepaid expenses and other current assets 2,342 5,937
Vessel held for sale 2,574 14,668
-------- --------
Total current assets 82,268 82,207
-------- --------
Capital Construction and other restricted
funds 10,074 9,765
Vessels and other property, at cost 515,044 646,135
Less accumulated depreciation (216,860) (277,694)
-------- --------
Vessels and other property-net 298,184 368,441
-------- --------
Investments in, and advances to joint ventures 88,708 84,915
Cash held in escrow 25,527 1,830
Other assets and deferred charges 14,385 18,328
-------- --------
Total $ 519,146 $ 565,486
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,786 $ 5,187
Accrued liabilities:
Voyage and vessel 19,518 24,548
Interest 4,276 4,375
Lease termination costs - 22,000
Other 4,042 4,169
Current portion of long-term debt 20,973 24,582
-------- --------
Total current liabilities 57,595 84,861
-------- --------
Long-term debt 238,307 259,284
Deferred income taxes payable 63,435 63,082
Advance time charter revenues and other
liabilities 6,860 10,470
Minority interest in subsidiary 3,662 2,594
Stockholders' equity 149,287 145,195
-------- --------
Total $ 519,146 $ 565,486
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
OMI CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
Unearned Gain (Loss)
Cumulative Compensation on Total
Common Stock Capital Retained Translation Restricted Securities Treasury Stockholders'
Shares Amount Surplus Deficit Adjustment Stock -Net Stock Equity
------ ------ ------- ------- ---------- ----- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1996 31,042 $ 15,521 $ 131,622 $ (5,265) $ 4,912 $ (1,404) $ 29 $ (220) $ 145,195
Net income 3,326 3,326
Common stock issued 108 54 508 562
Amortization of unearned
compensation 294 294
Net change in valuation
account (90) (90)
------ -------- --------- -------- --------- --------- -------- ------- -----------
Balance at
September 30, 1996 31,150 $ 15,575 $ 132,130 $ (1,939) $ 4,912 $ (1,110) $ (61) $ (220) $ 149,287
====== ======== ========= ======== ======== ========= ========= ======= ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
OMI CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS (USED)PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 3,326 $ (11,324)
Adjustments to reconcile net income
(loss) to net cash (used) provided by
operating activities:
Deferred income taxes 1,833 (8,296)
Depreciation and amortization 23,818 26,070
Amortization of unearned compensation 294 693
Gain on disposal of assets-net (12,833) (6,817)
Other - net -- (883)
Extraordinary loss - net of tax 2,661 --
Equity in operations of joint ventures
over dividends received (768) (3,754)
Changes in assets and liabilities:
Receivables and other current assets (41) 2,810
Accounts payable and accrued liabilities (23,110) 1,165
Advances (to) from joint ventures - net (3,025) 2,912
Other assets and deferred charges (12,196) 1,773
Advance time charter revenues and other
liabilities (694) (2,883)
Other assets and liabilities - net 375 688
-------- -------
Net cash (used) provided by operating activities (20,360) 2,154
-------- -------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Additions to vessels and other property (14,909) (19,804)
Proceeds/payments from sale of marketable securities 1,079 14,867
Proceeds from disposal of assets 57,839 8,763
Proceeds and interest received and reinvested in the
Capital Construction and other restricted funds (476) (424)
Withdrawals from Capital Construction and other
restricted funds -- 5,200
-------- -------
Net cash provided by investing activities 43,533 8,602
-------- -------
CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 541 1,260
Proceeds from issuance of long-term debt 173,923 9,000
Payments on long-term debt (185,524) (23,870)
-------- -------
Net cash used by financing activities (11,060) (13,610)
-------- -------
Net increase (decrease) in cash and cash equivalents 12,113 (2,854)
Cash and cash equivalents at beginning of period 32,569 31,797
-------- -------
Cash and cash equivalents at end of period $ 44,682 $ 28,943
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
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OMI CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of the
management of OMI Corp. and subsidiaries ("OMI" or the "Company"), all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of operating results have been included in the statements. Certain
accounts have been reclassified in the 1995 financial statements to conform to
their 1996 presentation.
NOTE 2 - INCOME TAXES
The provision (benefit) for income taxes for the three and nine months ended
September 30, 1996 and 1995 varies from statutory rates as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(IN THOUSANDS) 1996 1995 1996 1995
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Provision (benefit) calculated at
statutory rates $ 2,612 $(2,801) $ 2,737 $(6,867)
Adjustment for equity in operations
of certain joint ventures (217) (300) (904) (1,429)
---- ---- ---- ------
Provision (benefit) $ 2,395 $(3,101) $ 1,833 $(8,296)
======= ======= ======= =======
</TABLE>
The Company has not provided deferred income taxes on its equity in the
undistributed earnings of foreign corporate joint ventures accounted for under
the equity method other than Amazon Transport, Inc. ("Amazon") and White Sea
Holdings Ltd. ("White Sea"). These earnings are considered by management to be
invested in the business for an indefinite period.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments include interest of approximately $21,599,000 and $17,482,000 for
the nine months ended September 30, 1996 and 1995, respectively. There were no
income taxes paid during the nine months ended September 30, 1996 or September
30, 1995.
NOTE 4 - CREDIT LINES/LOAN AGREEMENTS
On July 12, 1996, OMI completed its cash tender offer for the purchase at par of
its outstanding Notes. Of the $136,950,000 outstanding aggregate amount of
Notes, $130,123,000 was tendered for payment pursuant to the offer and
$6,827,000 remain outstanding. An extraordinary loss (net of the tax benefit) of
$3,022,000 or $0.10 per share was recorded in the third quarter primarily for
the extinguishment of this debt.
To fund the purchase of its Notes in connection with the cash tender offer,
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finance the purchase of a vessel and refinance secured indebtedness on two
vessels and certain other indebtedness, the Company signed a $167,750,000 Credit
Agreement ("Credit Agreement") in July 1996 with two foreign banks as
co-arrangers. This agreement, which matures in 18 months, requires two equal
semi-annual installments of $7,500,000 at a rate of LIBOR plus 1.75 percent
until December 31, 1996 when the rate increases to LIBOR plus 2.50 percent
unless OMI has made aggregate principal repayments of at least $67,500,000 on or
before such date. The Company has repaid an aggregate of $25,000,000 of such
outstanding principal amount as of November 15, 1996. The Credit Agreement
matures in January 1998 when the remaining balance is due.
The Credit Agreement is secured by first priority mortgages and assignment of
earnings on 12 vessels, second priority mortgages on six other vessels and a
first priority pledge of the Company's equity ownership interests in OMI
Petrolink Corporation ("Petrolink"), Amazon, Wilomi, Inc. and White Sea.
Further, OMI's equity ownership interests in Mosaic Alliance Corp. and Geraldton
Navigation Co. Inc. may not be pledged to secure other borrowings.
The Credit Agreement imposes operating and financial restrictions on the Company
which affect, and in many respects significantly limit or prohibit, the ability
of the Company to, among other things, incur additional indebtedness, create
liens, sell capital stock of subsidiaries or certain other assets, make certain
investments, engage in mergers and acquisitions, make certain capital
expenditures or pay dividends.
NOTE 5 - GUARANTEED DEBT
OMI acts as a guarantor for a portion of the debt incurred by joint ventures
with affiliates of two of its joint venture partners. Such debt was
approximately $82,959,000 at September 30, 1996, with OMI's share of such
guarantees being approximately $40,812,000.
The Company and its joint venture partners have committed to fund any working
capital deficiencies which may be incurred by their joint venture investments.
At September 30, 1996, no such deficiencies have been funded.
NOTE 6 - NEWLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Awards of
Stock-Based Compensation to Employees," which was adopted by the Company
effective January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25 "Accounting for Stock Issued to Employees" which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share.
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<PAGE>
NOTE 7 - DISPOSAL AND ACQUISITION OF ASSETS
On September 30, 1996 the Company's 83% owned subsidiary, Petrolink, sold three
supply boats for $11,600,000 in cash resulting in a gain of $9,708,000.
In August 1996, OMI received $30,000,000 in cash for the sale of three chemical
carrier vessels and the buyer assumed $34,650,000 of debt from OMI which had
been secured by mortgages on two of the vessels sold. Of the cash proceeds, 12.8
million was placed in an escrow account for use in acquiring another vessel
which is expected to be delivered in the last quarter of 1996.
The Company has entered into a letter of intent with a shipyard for the
construction of two Suezmax tankers with options for two more. The obligations
of the Company and the shipbuilder to proceed with construction are dependent
upon the successful completion of the Company's proposed public Offerings of
12,000,000 shares of common stock.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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OMI Corp. ("OMI" or the "Company") is the second largest, measured by dwt,
publicly traded shipping company headquartered in the United States and provides
seaborne transportation services for crude oil, petroleum products and dry bulk
products (primarily iron ore, coal and grain) in the tanker and dry bulk
markets. The charter rates that the Company is able to obtain for its vessels
are determined in a highly competitive market. Historically, the industry has
been cyclical, experiencing significant swings in profitability and asset values
resulting from changes in the supply of and demand for vessels.
OVERVIEW
Beginning in the late 1980's, new tonnage was delivered into an improving tanker
market. At the same time, a strong tanker market discouraged scrapping of older
vessels. In 1992, as a result of the increased supply of new tonnage in the
tanker market combined with a global recession, tanker rates declined. Beginning
in mid-1995, rates in the tanker market have been improving as a result of
increased demand due to higher economic growth and low oil inventories.
Over the past several years, the Company has developed a strategy designed to
capitalize on the strengths of OMI, the compelling industry dynamics in the
international tanker market and a competitive advantage of operating large and
concentrated fleets. The Company has been implementing several key strategic
initiatives, including (i) refocusing its operations from the U.S. flag domestic
market to the international tanker market; (ii) developing large and
concentrated fleets of Suezmax tankers and product carriers; (iii) reducing
vessel operating and corporate overhead costs by streamlining the U.S. fleet;
(iv) continuing its commitment to the highest quality fleet and management; and
(v) managing the spot versus time charter mix of its vessels.
Results in past years have suffered primarily as a result of the decline in net
voyage revenues earned by the U.S. flag fleet, impairment charges for vessels
and weak international rate environments for tankers. The main factor keeping
the Company from profitable operations was a decline in net voyage revenues,
which equals voyage revenues minus vessel and voyage expenses. The reduction in
net voyage revenues in past years is primarily attributable to U.S. flag
operations. Since 1994, U.S. flag operations have generated insufficient voyage
revenue to cover its operating costs and contribute to debt service. In 1994,
losses were compounded by provisions for losses for the impairment of vessel
values and the impairment reserve of a lease obligation. In 1995 and 1996, the
Company sold U.S. flag assets which were not profitable and applied the proceeds
to the repayment of debt. Consequently, the Company will not continue to incur
losses from the operation of these vessels. Interest expense has also been a
significant factor in the Company losses. Management intends to reduce interest
expense in the future through the application of a portion of the proceeds of a
public offering of 12,000,000 shares of common stock to lessen debt and through
the sale of assets which are not strategic to the Company's operations.
Specifically, U.S. results were adversely affected by the lay up status of the
OMI COLUMBIA and unprofitable operations of the OMI HUDSON and the OMI DYNACHEM.
After being in lay up for a significant amount of time from 1993-1995, the OMI
COLUMBIA, OMI's largest domestic vessel, began operating in October, 1995 under
a long-term charter which expires in December 2002. In August 1996, the OMI
HUDSON and OMI DYNACHEM were disposed of in a transaction with Hvide Marine Inc.
("Hvide"). The Company has also evaluated whether it would be benefited by
reflagging its operating U.S. flag vessels and has concluded that it would not
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be. Existing time charters which require U.S. flag registry, difficulties of
obtaining the requisite U.S. Maritime Administration approvals and the advanced
age of the vessels make them more valuable in U.S. flag than in foreign flag.
Operating results improved in 1996 for OMI's 83 percent owned subsidiary, OMI
Petrolink Corporation ("Petrolink"), a major provider of lightering services to
tankers importing crude oil into the Gulf of Mexico. In 1995, increased
competition in the lightering business caused a decrease in both volume and
rates which resulted in operating losses. The Company reduced the number of
vessels it charters from six to three, renegotiated the rates paid for the ships
it charters-in and increased utilization of its supply boats, resulting in a
profit before taxes of $11.7 million for the nine months ended September 30,
1996. Included in that profit is a gain of $9.7 million from the sale of three
supply boats which no longer fit Petrolink's operating strategy.
As part of its effort to return itself to profitability, management has
developed a program to be implemented over time to reduce its overhead and
vessel operating costs. In 1994, management instituted a voluntary separation
program which reduced staff personnel and associated benefit programs and has
required employee contributions to pension and health programs. The Company
anticipates there will be ongoing efforts to reduce administrative costs through
staff reductions and less dependency on vendors. The Company has recently
negotiated a multi-year insurance program for general insurance, which will
lessen future increases.
Vessel operating costs are primarily composed of wages, insurance and vessel
stores. Insurance premiums for vessels were recently fixed for three years which
will lessen increases in future payments. The Company has negotiated a contract
with its union personnel which reduces the rate of wage escalation from 1996
through 1999. The Company is currently evaluating programs to reduce vessel
stores and inventory expense. Operating costs are affected by the vessels'
trading patterns. The Company believes its actions have reduced the rate of
escalation in its operating costs.
The Company operates its tankers in markets that have historically exhibited
seasonal variation in demand. Typically, rates in the tanker market increase in
the third and fourth quarters due to increases in demand for oil.
The Company has filed a registration statement with the Securities and Exchange
Commission relating to a proposed concurrent U.S. and international offerings
("Offerings") of 12,000,000 shares of its common stock.
RESULTS OF OPERATIONS
Results of operations of OMI include operating activities of the Company's
domestic and foreign vessels. The discussion that follows explains the Company's
operating results in terms of net voyage revenue because fluctuations in voyage
revenues and expenses occur based on the nature of a charter. The Company's
vessels currently operate, or have operated in prior years, on time, bareboat or
voyage ("spot") charters. Each type of charter denotes a method by which
revenues are recorded and expenses are allocated. Under a time charter, revenue
is measured based on a daily or monthly rate and the charterer assumes certain
operating expenses, such as fuel and port charges. Under a bareboat charter, the
charterer assumes all operating expenses. Under a voyage charter, revenue is
calculated based on the amount of cargo carried, most expenses are for the ship
owner's account and the length of the charter is one voyage. Revenue may be
higher in the spot market as the owner is responsible for most of the costs of
the voyage. Other factors affecting net voyage revenue for voyage charters are
waiting time between cargoes, port costs, fuel price and consumption.
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Vessel expenses included in net voyage revenue discussed above include operating
expenses such as crew payroll/benefits/travel, stores expense, maintenance and
repair expense, drydock expense, insurance expense and miscellaneous vessel
expenses. These expenses are a function of the fleet size, utilization levels
for certain expenses and requirements under laws, by charterers and Company
standards. Insurance expense varies with the overall insurance market conditions
as well as the insured's loss record, level of insurance and desired coverage.
RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996
VERSUS SEPTEMBER 30, 1995
VOYAGE REVENUE LESS VESSEL AND VOYAGE EXPENSES
Net voyage revenues of $44.9 million for the nine months ended September 30,
1996 increased $22.9 million, or 104 percent, as compared to net voyage revenues
of $22.0 million for the nine months ended September 30, 1995. The net increase
was primarily attributable to the U.S. flag fleet, which accounted for $18.6
million of the increases. Net increases in 1996 domestic operations primarily
resulted from the following: (i)the OMI COLUMBIA is operating on a time charter
in 1996 at higher rates with no offhire days compared to 71 idle days in the
nine months of 1995; (ii) two vessels, the PATRIOT and the COURIER, are
currently operating on time charters with the U.S. Military Sealift Command; in
1995 these vessels were offhire an aggregate of 107 days while in drydock in
preparation for these long-term charters; (iii) results of operations of
Petrolink improved in 1996; (iv) the OMI STAR was purchased in June 1995, thus
eliminating expenses of chartering-in this ship; and (v) the PLATTE earned more
revenue in 1996 due to more operating days in 1996 compared to 1995 (however,
the vessel has still incurred losses in 1996).
Net increases of $4.3 million or 19 percent in 1996 foreign net voyage revenues
resulted from improved international market conditions in the crude oil market.
Increases in revenue were offset, however, by increases in fuel expenses as
compared to the same period in 1995, and the expense of drydocking a crude
carrier.
Net voyage revenues of $15.2 million for the three months ended September 30,
1996 increased $7.5 million or 97 percent as compared to net voyage revenues of
$7.7 million for the three months ended September 30, 1995. The net increase in
the domestic fleet of $6.0 million was primarily attributable to the improved
operating results of Petrolink and the improved performance of the OMI COLUMBIA.
The net increase in the foreign fleet of $1.5 million was due primarily to
higher revenues earned by the Suezmax tankers than revenues in the comparable
period in 1995.
OTHER INCOME
Other income consists primarily of management fees and dividend income earned on
investments. For the nine months ended September 30, 1996, other income was $6.3
million, an increase of $1.9 million or 43 percent from $4.4 million in the nine
months ended September 30, 1995. For the three months ended September 30, 1996,
other income was $2.6 million as compared to $1.5 million. The increase in both
periods was primarily from additional fees received from the U.S. Government for
the management of ten vessels in 1996 versus six vessels in 1995. These
increases were offset in part by the decrease of management fees received from
two joint ventures, one of which is currently being managed by OMI's joint
venture partner and the other of which is now being managed by a third party
technical manager.
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OTHER OPERATING EXPENSES
The Company's operating expenses, other than vessel and voyage expenses, consist
of depreciation and amortization, operating lease expense and general and
administrative expenses. For the nine months ended September 30, 1996, these
expenses decreased an aggregate of $4.8 million or 12 percent from the nine
months ended September 30, 1995. The primary reason for the decrease was the
reduction of the operating lease expense of $3 million after the purchase of the
OMI HUDSON from its lessor in February 1996. Depreciation expense decreased by
$2.3 million or 9 percent as a result of the write-down of the carrying value of
two vessels in December 1995 to recognize impairment losses. General and
administrative expense increased by $472,000 or 4 percent to $11.4 million for
the nine months ended September 30, 1996. This increase was primarily
attributable to a one time charge by Petrolink of $684,000 to incentive
compensation as a result of the supply boat sale.
For the three months ended September 30 1996, other operating expenses decreased
$1.3 million or 10 percent. The primary reasons for the decrease were due to a
reduction of $826,000 in operating lease expense and net decreases in
depreciation expense of $1.3 million, offset by an increase in general and
administrative expense of $856,000, primarily from the charge for incentive
compensation mentioned above.
OTHER INCOME (EXPENSE)
Other income (expense) consists of gain (loss) on disposal of assets-net,
interest expense-net, minority interest in (income) loss of subsidiary and
other-net. For the nine months ended September 30, 1996, these expenses
decreased $2.2 million, or 20 percent, from the nine months ended September 30,
1995. This decrease was primarily due to the increase of $6.1 million, or 90
percent in gain on disposal of assets-net. In the third quarter of 1996, the
Company recognized a gain of $9.7 million from the sale of three supply boats.
Additionally, an aggregate of $2.7 million net gains were recognized as a result
of the sale of 5 vessels in 1996. In 1995, 2,503,389 shares of Noble Drilling
Corporation stock were sold for a gain of $7.8 million which was offset by the
loss of $1.4 million on the sale of a foreign vessel. Interest expense-net
increased by $1.5 million, or 8 percent due to the write-off of unamortized loan
fees pertaining to debt secured by the HUDSON and the DYNACHEM and financing
fees on lines of credit. Minority interest in income (loss) of subsidiary
increased by $1.5 million primarily due to Petrolink's gain on the sale of its
supply boats.
For the three months ended September 30, 1996, net other income (expense)
increased by $6.3 million to $1.2 million income as compared to a $5.1 million
loss for the same period in 1995. This was primarily due to the $9.7 million
gain from the sale of the supply boats, offset by the decrease in minority
interest of $1.3 million and an increase in interest expense of $1.1 million.
PROVISION (BENEFIT) FOR INCOME TAXES
The income tax provision of $1.8 million and benefit of $8.3 million for the
nine months ended September 30, 1996 and 1995, respectively, varied from
statutory rates primarily because deferred taxes are not recorded for equity in
operations of joint ventures, net of dividends declared, other than Amazon
Transport, Inc. ("Amazon") and White Sea Holdings, Ltd. ("White Sea") as
management considers such earnings to be invested for an indefinite period.
-13-
<PAGE>
EQUITY IN OPERATIONS OF JOINT VENTURES
Equity in operations of joint ventures was $1.1 million for the nine months
ended September 30, 1996 as compared to $5.5 million for the nine months ended
September 30, 1995. The decrease was primarily from the operations of three
joint ventures. One 49.9 percent owned joint venture, Geraldton Navigation
Company Inc. ("Geraldton") sold a vessel in 1995, OMI's portion of the gain was
$990,000. Amazon, a 49 percent owned joint venture, operates one vessel which
was offhire due to drydocking an aggregate of 87 days during the nine months
ended September 30, 1996. Also, in June of 1996, OMI recorded a loss of $867,000
related to the sale of a vessel by Mosaic Alliance Corporation ("Mosaic"), a
49.9 percent owned joint venture.
For the third quarter of 1996, equity in operations of joint ventures of $70,000
decreased $824,000 from $894,000 in the third quarter 1995. The decrease was
primarily attributable to the operating results of Amazon.
EXTRAORDINARY LOSS
In the third quarter of 1996 the Company recorded an extraordinary loss, net of
tax of $3.0 million, or $.10 per share, in connection with the repurchase of
$130.1 million aggregate principal amount of its Senior Notes. See "Liquidity
and Capital Resources - Financing Facilities."
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash and cash equivalents of $44.7 million at September 30, 1996 increased $12.1
million from the balance of $32.6 million at December 31, 1995. The Company's
working capital of $24.7 million at September 30, 1996, increased $27.4 million
from $(2.7) million at December 31, 1995. The primary reason for the increase in
working capital is due to proceeds from the disposition of assets, net of debt
repaid.
For the nine months ended September 30, 1996, net cash used by operating
activities was $20.4 million compared to $2.2 million cash provided by
operations in the nine months ended September 30, 1995. The primary cause of the
increase in cash used was the payment of $22 million as part of the $25 million
lease termination fee for the OMI HUDSON in the first quarter of 1996.
A component of cash used by operating activities is cash used for advances to
joint ventures. Such advances, which can be large, support operating activities
that occur in the normal course of business. These advances are repaid
periodically. The Company has received dividends from certain joint ventures
aggregating $368,000 in the nine months ended September 30, 1996 and $539,000
for the same period in 1995. Most joint venture earnings are considered to be
invested for an indefinite period and are not available for distribution, and
there is no certainty that the joint ventures, the earnings of which are not
considered to be indefinitely invested, will have sufficient earnings to pay
dividends in the future. Therefore, the Company cannot rely on dividends or
loans from joint ventures to improve its liquidity.
The Company operates in a capital-intensive industry and augments cash generated
by operating activities with debt and sales of vessels that no longer fit the
Company's strategy. For the nine months ended September 30, 1996, sources of
liquidity, other than from operating activities, were primarily net proceeds of
$160.9 million from a new credit facility, proceeds of $29.6 million from the
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<PAGE>
sale of two vessels, and $11.6 million from the sale of supply boats. In
addition, in August 1996, OMI received approximately $30 million in cash for the
sale of the three chemical carrier vessels and its interest in Ocean Specialty
Tankers Corporation ("OSTC") to Hvide. Hvide also assumed $34.7 million of debt,
which had been secured by mortgages on two of the vessels. Of the cash proceeds,
$12.8 million was placed in an escrow account for use in acquiring another
vessel which is expected to be delivered in the last quarter of 1996.
The primary uses of cash, other than for operating activities, were for payments
of $185.5 million on long-term debt (including $143.2 million for repurchases of
Senior Notes and $24.3 million in debt prepayments for vessels disposed of), the
purchase of the OMI HUDSON for cash of $9.3 million (for which OMI also assumed
$19.6 million in related debt) and other capital expenditures for vessels
aggregating $5.6 million.
FINANCING FACILITIES
In July 1996, OMI repurchased $130.1 million aggregate principal amount of its
Senior Notes in a cash tender offer as part of a plan to refinance portions of
the Company's long term indebtedness in order to reduce its interest expense and
to eliminate the restrictive covenants in the Senior Notes. As a result of the
tender offer, only $6.8 million principal amount of the Senior Notes remain
outstanding. An extraordinary charge (net of the tax benefit) of $3.0 million or
$.10 per share was recorded in the third quarter for the extinguishment of debt.
To fund the purchase of its Senior Notes, finance the purchase of a vessel and
refinance secured indebtedness on two vessels and certain other indebtedness,
the Company signed a $167.8 million Credit Agreement with two foreign banks as
co-arrangers. The Credit Agreement requires two repayments of $7.5 million of
principal in January 1997 and July 1997, with the balance of the principal due
in January 1998. The Credit Agreement bears interest at a rate of LIBOR plus 1
3/4 percent until December 31, 1996 when the rate increases to LIBOR plus 2 1/2
percent unless OMI has made aggregate principal repayments of at least $67.5
million on or before such date. As of November 14, 1996 the Company has made
principal payments of $25 million and has an outstanding balance of $142.8
million.
The Credit Agreement has been secured by first priority mortgages and assignment
of earnings on 12 vessels, second priority mortgages on six other vessels and a
first priority pledge of the Company's equity ownership interests in Petrolink,
Amazon, Wilomi, Inc. and White Sea. Further, OMI's equity ownership interests in
Mosaic and Geraldton may not be pledged to secure other borrowings. The Credit
Agreement imposes operating and financial restrictions on the Company which
affect, and in many respects significantly limit or prohibit, the ability of the
Company to, among other things, incur additional indebtedness, create liens,
sell capital stock of subsidiaries or certain other assets, make certain
investments, engage in mergers and acquisitions, make certain capital
expenditures or pay dividends.
In addition to the Credit Agreement, the Company also has a revolving
credit/term loan agreement providing for up to $35 million in borrowings, all of
which was drawndown as of September 30, 1996.
The Company is required to repay its Credit Agreement in full within 120 days
after the closing of its proposed Offerings of common stock. After giving effect
to the proposed reduction in borrowings under the Credit Agreement using the
-15-
<PAGE>
proceeds of the public Offerings, the Company will still be unable to satisfy
its repayment obligations under the Credit Agreement using its available cash,
and will be required to refinance the borrowings that remain outstanding or to
sell assets to meet its obligations. In addition, the Company also expects its
vessel acquisition program to require significant amounts of additional capital.
The Company has undertaken discussions with its lead lenders to refinance the
Credit Agreement on more favorable terms and to fund the Company's proposed
vessel acquisition program. While no binding commitments exist, discussions with
two leading finance banks have indicated that they will support the Company in
the refinancing of its existing credit facilities and the financing of a new
construction program. The banks have also indicated that the Company's debt
reduction program through the sale of assets and reduction of operating costs
will result in more favorable credit terms. While the Company believes the
strengthening of its balance sheet through the proposed Offerings will make it
possible for the Company to borrow sufficient capital to refinance the Credit
Agreement and fund its proposed vessel acquisition program, there can be no
assurance that the Company will have the ability to borrow the amounts it
requires on attractive terms or at all.
The Company believes that the actions it has taken in the last 12 months to
improve its liquidity and financial position will, along with the consummation
of the proposed Offerings, give the Company greater financial flexibility and
permit it to borrow sufficient additional capital to refinance the Credit
Agreement, fund its vessel acquisition program and finance its other cash needs.
If additional financing were not to be available, the Company could be forced to
renegotiate the terms of the Credit Agreement and to curtail its vessel
acquisition program.
COMMITMENTS
OMI is co-guarantor for a portion of the debt incurred by joint ventures with
affiliates of two its joint venture partners. The portion of debt guaranteed by
the partners was approximately $83.0 million, at September 30, 1996, with OMI's
share of such guarantees being approximately $40.8 million.
The Company and its joint venture partners have committed to fund any working
capital deficiencies that may be incurred by their joint venture investments. At
September 30, 1996, no such deficiencies have occurred which have required
funding.
The Company has entered into a contract to sell a laid-up U.S. flag product
carrier to foreign interests. The sale is contingent upon approval being granted
by the U.S. Maritime Administration.
The Company and a joint venture partner have committed to take delivery of a
Suezmax tanker in the fourth quarter of 1996 from a shipyard in the People's
Republic of China for a cost of approximately $56 million. OMI holds a 49
percent interest in the joint venture entity.
The Company has contracted to acquire one 30,000 dwt product carrier built in
1991. Delivery is expected in the fourth quarter of 1996.
The Company has entered into a letter of intent with a shipyard for the
construction of two Suezmaz tankers with options for two more. Each Suezmax
tanker will cost between $50 and $55 million. The obligations of the Company and
the shipbuilder to proceed with construction are dependent upon the successful
completion of OMI's proposed Offerings of 12,000,000 shares of common stock.
-16-
<PAGE>
EFFECTS OF INFLATION
The Company does not consider inflation to be a significant risk to the cost of
doing business in the current or foreseeable future. Inflation has a moderate
impact on operating expenses, drydocking expenses and corporate overhead.
-17-
<PAGE>
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
A. EXHIBITS
27 OMI Corp. - Financial Data Schedule, dated September 30, 1996.
B. REPORTS ON FORM 8-K
None
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMI CORP.
- --------------------------------------------------------------------------------
(REGISTRANT)
DATE: NOVEMBER 14, 1996 BY: /s/ Fredric S. London
--------------------- -----------------
FREDRIC S. LONDON
SENIOR VICE PRESIDENT AND
CORPORATE COUNSEL
DATE: NOVEMBER 14, 1996 BY: /s/ Kathleen Haines
----------------- -------------------
KATHLEEN HAINES
VICE PRESIDENT AND
CONTROLLER
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMI CORP.
- --------------------------------------------------------------------------------
(REGISTRANT)
DATE: NOVEMBER 14, 1996 BY: ----------------------------
FREDRIC S. LONDON
SENIOR VICE PRESIDENT AND
CORPORATE COUNSEL
DATE: NOVEMBER 14, 1996 BY: -----------------------------
KATHLEEN HAINES
VICE PRESIDENT AND
CONTROLLER
-20-
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