<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 JUNE 30, 1997
---------------------------
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
1-10164
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
------------------------------- --------------------------
(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 AUGUST 11, 1997 :
-----------------------
Common Stock, par value 0.50 per share 42,939,141 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 six months
ended June 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets-
June 30, 1997 and December 31, 1996 4
Consolidated Statement of Changes in
Stockholders' Equity for the six months
ended June 30, 1997 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial
Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION 10
PART II: OTHER INFORMATION 17
SIGNATURES 18
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<PAGE>
OMI CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Voyage revenues $ 53,913 $ 59,207 $ 111,387 $ 119,494
Other income 1,697 2,075 3,379 3,626
------------ ------------ ----------- ----------
Total revenues 55,610 61,282 114,766 123,120
------------ ------------ ----------- ----------
Operating Expenses:
Vessel and voyage 43,605 46,015 86,470 90,618
Depreciation and amortization 7,150 8,181 14,435 16,247
General and administrative 3,915 3,585 7,567 7,329
------------ ------------ ----------- ----------
Total operating expenses 54,670 57,781 108,472 114,194
------------ ------------ ----------- ----------
Operating income 940 3,501 6,294 8,926
------------ ------------ ----------- ----------
Other Income (Expense):
Gain on disposal of
assets-net 13 3,745 906 3,601
Interest expense-net (2,323) (6,658) (5,606) (13,143)
Minority interest in income of
subsidiary (82) (43) (92) (93)
------------ ------------ ----------- ----------
Net other expense (2,392) (2,956) (4,792) (9,635)
------------ ------------ ----------- ----------
Income (loss) before income taxes,
equity in operations of joint
ventures and extraordinary gain (1,452) 545 1,502 (709)
(Benefit)provision for income
taxes (104) 45 1,185 (562)
------------ ------------ ----------- ----------
(Loss)income before equity in
operations of joint ventures
and extraordinary gain (1,348) 500 317 (147)
Equity in operations of joint ventures 2,626 175 3,781 1,066
------------ ------------ ----------- ----------
Income before extraordinary gain 1,278 675 4,098 919
Extraordinary gain, net of tax
provision of $195 -- -- -- 361
------------ ------------ ----------- ----------
Net income $ 1,278 $ 675 $ 4,098 $ 1,280
============ ============ =========== ==========
Earnings Per Common Share:
Income before extraordinary gain $ 0.03 $ 0.02 $ 0.10 $ 0.03
Extraordinary gain, net of tax -- -- -- 0.01
------------ ------------ ----------- ----------
Net income $ 0.03 $ 0.02 $ 0.10 $ 0.04
============ ============ =========== ==========
Weighted average number of shares
of common stock outstanding 42,856 31,499 42,820 31,351
============ ============ =========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
OMI CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, including cash equivalents: 1997-
$32,102, 1996-$36,132 $ 34,074 $ 47,877
Advances to masters 1,298 1,422
Receivables:
Traffic 13,221 11,715
Other 12,368 12,234
Prepaid expenses and other current assets 7,682 4,830
Vessels held for sale -- 34,399
------------- -------------
Total current assets 68,643 112,477
------------- -------------
Capital Construction Fund 10,595 10,283
Vessels and other property, at cost 515,920 527,461
Construction in progress 27,422 10,754
Less accumulated depreciation 191,508 186,152
------------- -------------
Vessels and other property-net 351,834 352,063
------------- -------------
Investments in, and advances to joint ventures 63,007 59,322
Note receivable 9,000 --
Other assets and deferred charges 21,820 17,049
------------- -------------
Total $ 524,899 $ 551,194
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,312 $ 6,278
Accrued liabilities:
Voyage and vessel 17,789 17,555
Interest 1,726 4,150
Other 3,232 5,586
Deferred gain on sale of vessels 5,809 --
Current portion of long-term debt 16,352 34,892
------------- -------------
Total current liabilities 49,220 68,461
------------- -------------
Advance time charter revenues and other
liabilities 7,535 8,685
Deferred gain on sale of vessels 33,204 --
Deferred income taxes payable 61,760 60,577
Long-term debt 159,237 202,256
Minority interest in subsidiary 1,856 3,637
Stockholders' equity 212,087 207,578
------------- -------------
Total $ 524,899 $ 551,194
============= =============
</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 SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Unearned Gain (Loss)
Retained Cumulative Compensation on Total
Common Stock Capital (Deficit) Translation Restricted Securities Stockholders'
Shares Amount Surplus Earnings Adjustment Stock -Net Equity
-------- --------- ---------- --------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 42,691 $ 21,346 $ 184,251 $ (1,848) $ 4,912 $ (1,039) $ (44) $ 207,578
Net income 4,098 4,098
Exercise of
stock options 138 69 722 791
Issuance of
restricted stock awards 50 25 413 (438) -
Retirement of
minority stockholders'
equity interest
in subsidiary (582) (582)
Amortization of unearned
compensation 204 204
Net change in valuation
account (2) (2)
-------- --------- ---------- --------- ----------- ----------- ------------ -------------
Balance at June 30, 1997 42,879 $ 21,440 $ 184,804 $ 2,250 $ 4,912 $ (1,273) $ (46) $ 212,087
======== ========= ========= ========= =========== =========== ============ =============
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
OMI CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS (USED)PROVIDED BY OPERATING ACTIVITIES:
Net income $ 4,098 $ 1,280
Adjustments to reconcile net income to net
cash (used) by operating activities:
Increase (decrease) in deferred income taxes 1,185 (317)
Depreciation and amortization 14,435 16,247
Amortization of unearned compensation 204 222
Gain on disposal of assets-net (906) (3,510)
Amortization of deferred gain on sale of vessel (1,472) --
Extraordinary gain, net of tax -- (361)
Equity in operations of joint ventures
over dividends received (3,781) (291)
Changes in assets and liabilities:
(Increase) decrease in receivables
and other current assets (4,366) 586
Decrease in accounts payable and
accrued liabilities (6,277) (26,802)
Advances from joint ventures and affiliates - net 96 315
Increase in other assets and deferred charges (4,512) (77)
(Decrease) increase in advance charter hire
and other liabilities (1,151) 293
Other assets and liabilities - net 200 6
---------- ----------
Net cash used by operating activities (2,247) (13,190)
---------- ----------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from disposition of vessels and other property 78,968 29,622
Additions to vessels and other property (26,398) (10,520)
Purchase of Marketable securities -- (104)
Proceeds and interest received and reinvested in the
Capital Construction Fund (323) (352)
Payments for the retirement of minority stockholders'
interest (2,456) --
---------- ----------
Net cash provided by investing activities 49,791 18,646
---------- ----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock 791 541
Proceeds from issuance of long-term debt 109,090 23,000
Payments on long-term debt (170,649) (33,339)
Payments for debt issue costs (579) --
---------- ----------
Net cash used by financing activities (61,347) (20,760)
---------- ----------
Net decrease in cash and cash equivalents (13,803) (15,304)
Cash and cash equivalents at beginning of period 47,877 32,569
---------- ----------
Cash and cash equivalents at end of period $ 34,074 $ 17,265
============ =============
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
OMI CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of the
management of OMI 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 1996 financial statements to conform to
their 1997 presentation.
NOTE 2 - INCOME TAXES
The provision (benefit) for income taxes on income excluding the extraordinary
gain varies from statutory rates as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(in thousands) 1997 1996 1997 1996
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
(Benefit) provision calculated at
statutory rates $ 411 $ 252 $ 1,849 $ 125
Adjustment for equity in operations
of certain joint ventures (515) (207) (664) (687)
-------- --------- ---------- ---------
(Benefit) provision $ (104) $ 45 $ 1,185 $ (562)
======= ======== ======== ========
</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 $9,776,000 and $14,764,000 for
the six months ended June 30, 1997 and 1996, respectively. Income taxes of
$4,708,000 were paid during the six months of 1997. There were no income taxes
paid during the six months ended June 30, 1996.
In March 1997, the Company delivered a vessel with net book value of $9,800,000
to new owners as part of an exchange transaction. Cash in the amount of
$11,000,000 was received and was held in an escrow account until the delivery of
the vessel in April 1997 to the Company which completed the exchange
transaction.
-7-
<PAGE>
NOTE 4 - JOINT VENTURE INFORMATION
Mosaic Alliance Corporation ("Mosaic") is 49.9 percent owned by OMI and is
accounted for using the equity method. Summarized income statement information
for the three and six months ended June 30, 1997 and 1996 for Mosaic is as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
(unaudited, in thousands)
<S> <C> <C> <C> <C>
Revenues $ 1,691 $ 3,325 $ 3,731 $ 7,471
Expenses 1,125 2,566 2,452 5,143
-------- -------- -------- --------
Operating income $ 566 $ 759 $ 1,279 $ 2,328
======== ======== ======== ========
Net income (loss) $ 3,045 $ (319) $ 3,761 $ 982
======== ======== ======== ========
</TABLE>
NOTE 5 - CREDIT LINES/LOAN AGREEMENTS
OMI has a revolving credit/term loan agreement providing for a credit facility
at $133,000,000 through March 2002. The Company has an outstanding balance of
$109,090,000 at June 30, 1997 secured by ten vessels. The Notes under the credit
facility bear interest at LIBOR plus a margin ranging from 60-95 basis points
which is computed based on the Company's funded debt to equity ratio and
interest coverage ratio. The rate at June 30, 1997 was 6.7625 percent. The
Credit Facility contains financial covenants with respect to cash, interest rate
coverage, net worth and funded debt to equity. Dividends paid in any year are
limited to 50 percent of net income in that year.
NOTE 6 - 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 $18,518,000 at June 30, 1997, with OMI's share of such guarantees
being approximately $9,229,000.
The Company and its joint venture partners have committed to fund any working
capital deficiencies which may be incurred by their joint venture investments.
No such deficiencies have been funded in the six months ended June 30, 1997.
NOTE 7 - DISPOSAL AND ACQUISITION OF ASSETS
On May 20, 1997, the Company sold the Alta for approximately $39,900,000 and
simultaneously leased the vessel for a five year term. The gain on the sale of
approximately $15,700,000 has been deferred and will be credited to income as an
adjustment to lease expense over the term of the lease. The lessor has the
option to cancel the lease at any time after two years upon the payment of a
$1,000,000 termination fee. At June 30, 1997, the balance of the deferred gain
was $15,392,000.
The Company has exercised its remaining option for the construction of a 156,000
dwt. crude oil tanker from Daewoo Corporation and Daewoo Heavy Industries. The
Company has committed to build four vessels with Daewoo for an aggregate
purchase price of approximately $216,000,0000. Deliveries of the vessels are
scheduled for June, August and October of 1998 and March 1999.
-8-
<PAGE>
NOTE 8 - NEWLY ISSUED ACCOUNTING STANDARDS
Comprehensive Income - In June 1997, the FASB issued Statement No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income. Management of the Company believes that
adoption of Statement No. 130, which is required for the year ended December 31,
1998, will not have a significant impact on the Company's present disclosure.
Segment Information - In June 1997, the FASB issued Statement No 131,
"Disclosure about Segments of an Enterprise and Related Information," which
requires that public companies report certain information about operating
segments in their annual financial statements and in condensed financial
statements of interim periods issued to shareholders. It also requires that
public companies report certain information about their products and services,
the geographic areas in which they operate, and their major customers. The
adoption of Statement No. 131 is required for fiscal years beginning after
December 15, 1997. Management of the Company is currently reviewing the impact
on their current level of disclosure.
NOTE 9 - COMMITMENTS
OMI has agreed in principle to acquire Marine Transport Lines, Inc. ("MTL"), a
privately owned company specializing in U.S. marine and transportation services,
principally to the energy and chemical industries, for approximately $5,000,000
payable in common stock.
In connection with the acquisition of MTL, OMI plans to spin off as a tax free
distribution to shareholders a subsidiary owning and operating its foreign
assets ("Foreign OMI"). Foreign OMI will retain the OMI name and will be managed
by OMI's current management. The combined OMI-MTL entity ("Domestic") will use
the MTL name and will be managed by MTL's current management. Upon completion of
the acquisition and spinoff (the "transaction"), holders of OMI shares prior to
the transaction will own approximately two-thirds of the outstanding shares of
Domestic, as well as substantially all outstanding shares of Foreign OMI. Former
MTL shareholders will hold approximately one-third of the outstanding shares of
Domestic.
The transaction is subject to a number of conditions, including completion of a
definitive acquisition agreement and receipt by OMI of a favorable private
letter ruling from the Internal Revenue Service, and OMI shareholder approval.
The definitive acquisition agreement and filing for the private letter ruling
are expected to be completed in August 1997, and, assuming the ruling is
received in a timely manner, closing of the transaction will occur early in
1998.
In July 1997, the Company entered into an agreement to charter a Suezmax tanker
for four years. The charterer (owner) has the option to cancel the charter at
any time after two years upon payment of a $1,000,000 termination fee.
-9-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
OMI Corp. ("OMI" or the "Company") is one of the largest, measured by deadweight
tons ("dwt"), publicly traded bulk shipping companies head quartered in the
United States, OMI provides sea borne transportation services for crude oil,
petroleum products and, to a much lesser extent, dry bulk cargoes (primarily
iron ore, coal and grain) through joint ventures. The charter rates that the
Company is able to obtain for its vessels are determined in highly competitive
markets. The industry is cyclical, experiencing significant swings in
profitability and asset values resulting from changes in the supply and demand
for vessels.
The Company currently has a wholly-owned foreign flag fleet of thirteen product
carriers and six crude oil tankers (five Suezmaxes and one Aframax)
Additionally, the foreign fleet consists of four vessels owned approximately 50
percent with joint venture partners and three chartered-in tankers (only one
vessel was chartered in at June 30, 1997). The Company has entered into
contracts for the construction of four Suezmax tankers at a cost approximately
$54 million per vessel; three will be delivered in 1998 and one will be
delivered in the first quarter of 1999. The current Domestic fleet consists of
three product carriers, one chartered in crude carrier and four tankers
chartered-in by OMI Petrolink, a subsidiary in the offshore lightering business.
The Company has implemented several strategies since early 1996 in order to
return the Company to profitability: (i) refocused its operations from the U.S.
flag domestic market to the international tanker market; (ii) developed large
and concentrated fleets of small product carriers and Suezmax tankers; (iii)
managed the spot versus time charter mix of its vessels; (iv) reduced vessel
operating and corporate overhead costs by reducing the U.S. fleet; (v) continued
its commitment to the highest quality fleet and management; and (vi) reduced its
reliance on joint ventures.
OMI actively implemented its plan to dispose of U.S. flag vessels in 1996 by
reducing its ownership in seven domestic vessels as follows: in the first
quarter two U.S. flag dry bulk carriers were delivered to new owners; in August
1996 three chemical carriers were sold and in the last half of the year another
dry bulk carrier and a product carrier were sold. In January 1997, the Company
completed the sale and leaseback of the OMI Columbia, its largest U.S. flag
vessel. Under the terms of the lease, OMI continues as the operator of the
vessel.
As a final step to becoming a purely international fleet, on June 24, 1997, OMI
and Marine Transport Lines, Inc.("MTL"), a privately owned company specializing
in U.S. marine and transportation services, announced that they had reached an
agreement in principle for OMI to acquire MTL for approximately $5 million
payable in common stock. In connection with its acquisition of MTL, OMI plans to
spin off as a tax free distribution to shareholders a subsidiary owning and
operating its foreign assets ("Foreign OMI"). Foreign OMI will retain the OMI
name and will be managed by OMI's current management. The combined OMI-MTL
entity ("Domestic") will use the MTL name and will be managed by MTL's current
management. Upon completion of the acquisition and spin off (the "transaction"),
holders of OMI shares prior to the transaction will own approximately two-thirds
of the outstanding shares of Domestic, as well as substantially all outstanding
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<PAGE>
shares of Foreign OMI. Former MTL shareholders will hold approximately one-third
of the outstanding shares of Domestic. The transaction is subject to a number of
conditions, including completion of a definitive acquisition agreement, receipt
by OMI of a favorable private letter ruling from the Internal Revenue Service
and OMI shareholder approval. The definitive acquisition agreement and filing
for the private letter ruling are expected to be completed by the end of August
1997, and, assuming the ruling is received in a timely manner, closing of the
transaction is expected to occur in early 1998.
During 1996 and early 1997, the Company improved its balance sheet by reducing
debt, consequently reducing its interest expense which historically has been a
significant factor in the Company's financial performance. In July 1996, the
Company purchased $130 million of its Senior Notes in a tender offer and the
debt was refinanced with commercial banks at more favorable rates. Such debt was
reduced further by approximately $60 million of the net proceeds of a $75.7
million public offering of 11,500,000 shares of the Company's common stock in
the fourth quarter of 1996, and the first half of 1997 by proceeds from sales of
assets which were not strategic to the Company's operations. In April 1997, the
Company again refinanced its remaining debt under more favorable terms.
(See Balance Sheets and Liquidity and Capital Resources-Financing Facilities).
MARKET OVERVIEW
The product carrier market is the market segment which transports refined
petroleum products such as gasoline, jet fuel, kerosene, naphtha and gas oil.
Rates in this market, as well as the crude oil market, have increased over the
same periods last year as a result of increasing world fuel consumption
resulting from an improved economy. Additionally, refinery capacity is expanding
in oil exporting regions such as the Middle East and Latin America but not in
historically large consuming nations. Historically, earnings from the product
carrier fleet have been less volatile than earnings from the Suezmax fleet.
Approximately half of this fleet operates on time charter and the other half
operates in the spot market. This mix of time charter and voyage charters
further stabilizes earnings from OMI's product carrier fleet.
Freight rates in the tanker markets continued to improve in the first half of
1997 as a result of increased demand for oil due to continuing world economic
growth. Tanker rates are expected to continue to rise because of a combination
of the increasing age of the world fleet, limited additional yard capacity for
large vessels until the year 2000, and a continued increase in the demand for
oil. During July 1997, however, rates softened in the crude oil market as a
result of the closing of the Dortyol pipeline. The instability in tanker rates
is due to competition from vessels which transport oil from the pipeline. The
pipeline is expected to open by the end of August 1997. However, at the same
time the Very Large Crude Carrier (VLCC) market has improved. The strengthening
of the VLCC market in the Far East will benefit the Suezmax market as every VLCC
removed from the competition in the Atlantic region results in cargoes for two
Suezmax vessels.
The Company's Suezmax tanker fleet is one of the largest independent fleets in
the world. OMI has targeted this market segment due to the flexibility of the
Suezmax tankers to engage in long-haul and short-haul trades, as well as the
growth potential in the crude oil market. OMI currently operates all but two of
its Suezmax tankers, including chartered-in vessels, in the spot market in order
to take advantage of the expected increase in the market. Charters for the other
two expire in late 1997 and the Spring of 1998, respectively.
-11-
<PAGE>
RESULTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1997 VERSUS JUNE 30, 1996
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, which equals voyage revenues
minus vessel and voyage expenses, 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; as a result, the revenue rate is likely to be lower than a
time charter. Under a voyage charter, revenue is calculated based on the amount
of cargo carried, nearly all expenses are for the ship owner's account and the
length of the charter is one voyage. Revenues are therefore higher in the spot
market. Other factors affecting net voyage revenue for voyage charters are
waiting time between cargoes, port costs and bunker prices.
Vessel expenses included in net voyage revenue discussed above include operating
expenses for items such as crew payroll/benefits/travel, stores, maintenance and
repair, drydock, insurance and other 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.
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES
Net voyage revenues of $24.9 million for the six months ended June 30, 1997
decreased by $4 million from $28.9 million for the same period in 1996. Net
voyage revenue earned by the foreign fleet was $25.3 million for the six months
ended June 30, 1997, as compared to $19.4 million for the same period in 1996.
Domestic net voyage revenue decreased $9.9 million to $(0.4) for the six months
ended June 30, 1997, as compared to $9.5 million for the same period in 1996.
Net voyage revenues of $10.3 million for the three months ended June 30, 1997
decreased by $2.9 million from $13.2 million for the same period in 1996. Net
voyage revenues from the foreign fleet was $11.8 million for the three months
ended June 30, 1997, as compared to $8.7 million for the same period in 1996.
Domestic net voyage revenue decreased by $6 million to $(1.5) million for the
three months ended June 30, 1997, as compared to $4.5 million for the same
period in 1996.
Changes in net voyage revenues for the six and three months ended 1997 compared
to 1996 are discussed as follows by the market segments in which OMI primarily
operates in.
DOMESTIC
Net voyage revenues for domestic operations for the first half of 1997 decreased
$9.9 million as compared to the same period in 1996. Decreases of approximately
$5.5 million were attributable to the seven vessels disposed of during 1996.
Additionally, approximately $3.3 million of the decrease in net voyage revenues
-12-
<PAGE>
was a result of three product carriers which were on time charters in 1996 but
were laid up for an aggregate 209 days in the first half of 1997. Decreases were
offset in part by increases in net voyage revenues generated by the OMI
Columbia.
In January 1997, the OMI Columbia, a crude oil tanker which transports Alaskan
North Slope oil for a major oil company, was sold and leased back under a
charter agreement terminating December 31, 2002. The vessel began operating on a
long term time charter in the spring of 1996 and the length of this charter
corresponds to the length of the lease (see Balance Sheet and Liquidity and
Capital Resources Cash Flows).
The three remaining vessels in the domestic fleet were on time charters in the
first half of 1996. Two of these vessels were redelivered in January and April
1997 having been on long-term time charters with the Military Sealift Command .
The third vessel was on a time charter in 1996 which ended in February 1997. Two
of these vessels are currently laid up; however, the Company continues to
actively seek and evaluate all employment opportunities for these vessels.
Net voyage revenues for domestic operations for the three months ended June 30,
1997 decreased $6.0 million as compared to the three months ended June 30, 1996.
Decreases were primarily attributable to the seven vessels disposed of during
1996. Additionally, decreases in net voyage revenue were due to an aggregate of
170 idle days for the three product carriers which were laid up for a portion of
the three months ended June 30, 1997. Decreases were offset in part by increases
in net voyage revenues generated by the OMI Columbia.
FOREIGN
PRODUCT CARRIER FLEET
Net voyage revenues for the product carrier fleet were $14.5 million for the
first six months of 1997, an increase of $2.5 million or 21 percent from net
voyage revenues of $12 million for the same period in 1996. The product carrier
fleet consists of thirteen vessels in 1997 as compared to ten vessels in 1996.
The three additional vessels purchased in 1996 and 1997 accounted for $2.7
million of increase. Increases in net voyage revenue were offset in part by
mechanical problems on one of the vessels, resulting in an unscheduled drydock
which had to take place at a U.S. shipyard. This drydock, which was originally
scheduled for 1998, accounted for approximately $1 million of unanticipated
expense in the second quarter of 1997.
Net voyage revenues for the product carrier fleet were $6.3 million for the
three months ended June 30, 1997, an increase of $0.7 million or 12 percent from
net voyage revenues of $5.6 million for the same period in 1996. The increases
were primarily attributable to the two vessels purchased in 1996 and a vessel
purchased in April 1997 offset by the additional expenses incurred for the
unexpected drydock in the second quarter of 1997.
CRUDE TANKER FLEET
Net voyage revenues generated by the crude tanker fleet were $10.1 million for
the six months ending June 30,1997 as compared to $5.7 million for the same
period in 1996 or an increase of $4.4 million. In the quarter ending June
30,1997 the crude fleet consisted of six wholly-owned vessels and one
chartered-in vessel, four of which operated in the spot market. In 1996, OMI
owned six vessels and chartered-in one vessel, with five of these vessels
operating in the
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<PAGE>
spot market. Net voyage revenues increased $5.4 million due to the acquisition
of the Alta and the Tanana, (two Suezmax tankers in which the Company acquired
its partner's interest on December 30, 1996). Other increases were due to
improved rates in the spot market in 1997 and net voyage revenue earned by a
tanker which had been drydocked for 71 days in 1996. Increases were offset by
decreases of $1.7 million due to the sale of a vessel in the second quarter of
1996.
Net voyage revenues from the crude tanker fleet were $5.5 million for the three
months ended June 30,1997 as compared to $1.8 million for the same period in
1996 or an increase of $3.7 million. Net voyage revenues increased $3.2 million
in the second quarter 1997 due to the acquisition of the Alta and the Tanana.
OTHER OPERATING EXPENSES
The Company's operating expenses, other than vessel and voyage expenses consists
of depreciation and amortization and general and administrative expenses. For
the six months ended June 30, 1997, these expenses decreased $1.6 million to
$22.0 million, from $23.6 million for the same period in 1996. For the three
months ended June 30, 1997, these expenses decreased $0.7 million to $11.1
million, from $11.8 million for the same period in 1996. The primary reason for
the reduction was a decrease in depreciation expense of $1.8 million and $1.0
million for the six and three months ended June 30, 1997, respectively, due to
the sale of vessels.
OTHER INCOME (EXPENSE)
Other income (expense) consists of gain on disposal of assets-net, interest
expense-net, and minority interest in income of subsidiary. Net other expense
decreased by $4.8 million for the six months ended June 30, 1997 compared to the
same period in 1996. Interest expense decreased by a net of $6.8 million due to
the decrease in debt of $109.1 million at June 30, 1997 compared to June 30,
1996. Interest expense decreased $6.6 million primarily due to the repurchase of
an aggregate of $143 million of Senior Notes during 1996. The Senior Notes
outstanding in the first six months of 1996 accrued interest at 10.25 percent
compared to $109 million of mortgage debt, refinanced April 1997 which accrued
interest at an average rate of 7.3845 percent for the six months ended June 30,
1997. Decreases in Net other expense were offset in part by decreases in the
gain on disposal of assets-net of $2.7 million in the six months ended June 30,
1997. This decrease resulted primarily from the gain on sale of the Promise in
the second quarter of 1996 of $3.7 million compared to the gain on sale of the
General of $995,000 in the first quarter of 1997.
Net other expense decreased by $564,000 for the three months ended June 30, 1997
compared to the same period in 1996. Decreases in interest expense of $4.2
million resulting from the refinancing of the Senior Notes in 1996 were offset
by decreases related to the sale of a vessel in the second quarter of 1996 of
$3.7 million.
PROVISION (BENEFIT) FOR INCOME TAXES
The income tax provision of $1.2 million and benefit of $104,000 for the six and
three months ended June 30, 1997, 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.
-14-
<PAGE>
EQUITY IN OPERATIONS OF JOINT VENTURES
Equity in operations of joint ventures increased by $2.7 million to $3.8 million
in the first six months of 1997 compared to $1.1 million for the same period of
1996. The increase in equity was primarily attributable to Amazon , a 49 percent
owned joint venture which operates one crude oil tanker, the Settebello. The
equity in earnings for Amazon increased by $2.2 million in the first half 1997
as compared to a loss of $1.3 million for the same period in 1996. The
Settebello was in drydock for 92 days in 1996 which resulted in both a lack of
earnings and additional drydock expense. Increase in equity of Mosaic Alliance
Corporation ("Mosaic") of $1.4 million was primarily attributable to the gain on
the sale of a vessel of $1.9 million (OMI's portion of the gain was
approximately $900,000) in the second quarter of 1997. In addition Mosaic had no
interest expense in 1997 on debt which was repaid in 1996. These increases were
offset by decreases in Wilomi, Inc. ("Wilomi") explained below.
In accordance with the Company's plan to decrease its participation in joint
ventures, on December 30, 1996, the interest in Wilomi owned by a partner was
acquired by the venture, and Wilomi became a 100 percent owned subsidiary of OMI
with its earnings consolidated in OMI's results. The decrease in equity in
operations of joint ventures attributable to Wilomi was $1.1 million for the six
months ended June 30, 1997.
Equity in operations of joint ventures increased $2.4 million to $2.6 million in
the second quarter 1997 compared to $0.2 million for the same period of 1996.
The increase in equity was primarily attributable to Amazon of $1.1 million,
Mosaic of $1.5 million offset by decreases in Wilomi of $580,000.
BALANCE SHEET
In 1997 the Company sold and leased back the OMI Columbia and the Alta for
approximately $49 and $40 million, respectively. The gain on sale of these
vessels, aggregating approximately $40.4 million has been deferred and will be
credited to income as an adjustment to lease expense over the term of the
leases. At June 30, 1997, the balance of the deferred gain was $39 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash and cash equivalents of $34.1 million at June 30, 1997 decreased $13.8
million from cash and cash equivalents of $47.9 million at December 31, 1996.
The Company's working capital of $19.4 million decreased $24.6 million from
working capital of $44 million at December 31, 1996. Current assets decreased
$43.8 million primarily due to the decrease in cash and cash equivalents
(explained below) and a decrease of $34.4 million in vessels held for sale. Two
vessels were held for sale at December 31, 1996. Current liabilities decreased
$19.2 million primarily due to the decrease of $18.5 million of current
maturities of long-term debt which was refinanced (See Financing Facilities).
Total debt to capitalization was 45.3 percent at June 30, 1997,a decrease of
20.6 percent as compared to the ratio at December 31, 1996.
Net cash used by operating activities decreased $10.9 million to $2.2 million
for the six months ended June 30, 1997 compared to the six months ended June 30,
1996. The decrease was primarily attributable to the payment of OMI Hudson lease
termination cost of $25 million ($22 million cash paid) in February 1996.
-15-
<PAGE>
Cash used by financing activities was $61.3 million in 1997 compared to $20.8
million in the first six months of 1996. Payments on long-term debt of $170.6
million were made in the first half of 1997. Of this amount, $148 million was
used to prepay debt, ($56.9 million related to prepayments from the sale of
vessels and $91.1 was refinanced) and $22.6 million was used for scheduled debt
repayments. Proceeds received from refinanced debt and new debt, including debt
for the purchase of a vessel in April 1997, was $109.1 million.
The Company operates in a capital-intensive industry and augments cash generated
by operating activities with debt and sales of vessels that no longer fit the
Company's strategy. Cash provided by investing activities was $49.8 million in
1997 compared to $18.6 million in the six months ended June 30, 1996. Net
proceeds of $79 million were received in the first half of 1997 from the sale of
two vessels. Of these proceeds, $40 million in cash and a $9 million interest
bearing note receivable was received from the sale of the OMI Columbia and $39.1
million was received for the Alta. Proceeds of $11 million were received from
the sale of the General in March 1997 were used to pay a portion of the purchase
price of the Severn for $18.7 million in April. OMI also paid $16 million in
scheduled construction in progress payments on three of its newbuilding vessels
and approximately $2 million in capital expenditures for improvements on various
vessels.
FINANCING FACILITIES
During the first quarter of 1997, the Company negotiated a new bank credit
facility (the "Credit Facility") with its existing lenders. The Credit Facility
provides for a line of credit in the amount of $133 million. The agreement,
which expires in March 2002, provides for nine semiannual reductions in the
amount which can be outstanding; the first five are $5.5 million, the next four
are $8.9 million and the balance is due at maturity. The Credit Facility
contains financial covenants with respect to cash, interest rate coverage, net
worth and funded debt to equity. Dividends paid in any year are limited to 50
percent of net income in that year.
The Company believes that the actions it has taken in the last year to improve
its liquidity and financial position will give the Company greater flexibility
to fund its vessel acquisition program and finance its other cash needs.
COMMITMENTS
OMI acts as a co-guarantor for a portion of the debt incurred by joint ventures
with affiliates of its joint venture partners. The portion of debt guaranteed by
the partners was approximately $18.5 million at June 30, 1997, with OMI's share
of such guarantees being approximately $9.2 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. No
such deficiencies have been funded in the six months ended June 30, 1997.
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 moderate
impact on operating expenses, drydocking expenses and corporate overhead.
-16-
<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 June 30, 1997.
b. REPORTS ON FORM 8-K
None
-17-
<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: AUGUST 13,1997 BY: CRAIG H. STEVENSON, JR.
-------------- ------------------------------------
CRAIG H. STEVENSON, JR.
PRESIDENT, CHIEF EXECUTIVE OFFICE
AND DIRECTOR
DATE: AUGUST 13, 1997 BY: KATHLEEN C. HAINES
--------------------- --------------------
KATHLEEN C. HAINES
VICE PRESIDENT AND CONTROLLER
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 CONTAINS SUMMARY INFORMATION EXTRACTED FROM OMI CORP. AND
SUBSIDIARIES CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 34,074
<SECURITIES> 0
<RECEIVABLES> 13,221
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,643
<PP&E> 515,920
<DEPRECIATION> 191,508
<TOTAL-ASSETS> 524,899
<CURRENT-LIABILITIES> 49,220
<BONDS> 159,237
0
0
<COMMON> 21,440
<OTHER-SE> 190,647
<TOTAL-LIABILITY-AND-EQUITY> 524,899
<SALES> 0
<TOTAL-REVENUES> 114,766
<CGS> 0
<TOTAL-COSTS> 86,470
<OTHER-EXPENSES> 22,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,209
<INCOME-PRETAX> 5,283
<INCOME-TAX> 1,185
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,098
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
