-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RnmNoOysvwuk5dTKbZbPvUQ4qEDGq8K5NVEQIqC/ENUf1l4Tmv9GR9uYzy+SR44d xi4vXQGOH/WsuU6AWh6vwg== 0000950110-00-000348.txt : 20000417 0000950110-00-000348.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950110-00-000348 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMI CORP/M I CENTRAL INDEX KEY: 0001061571 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 522098714 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-14135 FILM NUMBER: 601239 BUSINESS ADDRESS: STREET 1: ONE STATION PLACE STREET 2: 90 PARK AVE CITY: STAMFORD STATE: CT ZIP: 60902-6800 BUSINESS PHONE: 2036026700 MAIL ADDRESS: STREET 1: C/O OMI CORP STREET 2: ONE STATION PLACE CITY: STAMFORD STATE: CT ZIP: 60902-6800 10-K/A 1 FORM 10-K/A 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. ================================================================================ INDEX ------------------ PART I
ITEMS PAGE(S) ------------- 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
i ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 --------- --------- --------- 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 ========= ========= =========
See notes to consolidated financial statements. 24 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
DECEMBER 31, -------------------- 1999 1998 -------- -------- 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 ======== ========
See notes to consolidated financial statements. 25 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES) LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, -------- -------- 1999 1998 -------- -------- 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 ======== ========
See notes to consolidated financial statements. 26 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 --------- --------- --------- 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 ========= ========= =========
See notes to consolidated financial statements. 27 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (IN THOUSANDS)
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 ------ -------- -------- -------- -------- ------ ------ -------- -------- 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 ====== ======= ======== ======== ======= ======= ====== ========
See notes to consolidated financial statements. 28 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 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 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 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:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ------- ------- ------- 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 ======= ======= =======
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 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 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:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- ------- -------- 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 DECEMBER 31, --------------------- 1999 1998 --------- -------- 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: FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- -------- 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.
34 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:
DECEMBER 31, --------------------- 1999 1998 --------- --------- 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 ======== ========
- ----------- (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 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 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:
DECEMBER 31, ---------------------------------------------- 1999 1998 --------------------- --------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE --------- ------- --------- -------- 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
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 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:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1998 1997 ----------- ----------- 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 ======= =======
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 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 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:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- ------- ------ (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 ======== ====== ====
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:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ------ -------- --------- Current provision ....................................... $475 $ 1,729 $7,721 Deferred tax benefit .................................... -- (38,887) (2,314) ---- -------- ------ Provision(benefit) for income taxes ..................... $475 $(37,158) $5,407 ==== ======== ======
40 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:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ------- --------- ---------- 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 ==== ======== ======
- ---------- (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 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:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 --------- --------- --------- 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 ========= ========= =========
(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 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:
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 - -------------- ------------ ------ ------- ----------- ------------ -------------- --------------- $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 ======= ====== ====== ====== =======
Proceeds received from the exercise of the options are credited to the capital accounts. 43 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:
1999 1998 -------- ------- Net (loss) income: As reported .................................... $(80,305) $42,917 Pro forma ...................................... (80,461) 41,409 1999 1999 1998 1998 AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- 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 ====== ====== ===== =====
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 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 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 ITEM 8. SUPPLEMENTARY DATA QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 QUARTER ENDED 1998 QUARTER ENDED ---------------------------------------- --------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ------- -------- ------- -------- ------- ------- ------- ------- 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 ======= ======== ======= ======== ======= ======= ======= =======
- ----------- (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 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 AMAZON TRANSPORT INC. STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 ------------ ------------ ------------ 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 ============ ============ ============
See notes to financial statements 49 AMAZON TRANSPORT INC. STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- 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 =========== =========== ===========
See notes to financial statements. 50 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 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 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 WHITE SEA HOLDINGS LTD. STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS)
FOR THE PERIOD JANUARY 1, FOR THE YEARS ENDED 1999 TO DECEMBER 31, SEPTEMBER 29, -------------------- 1999 1998 1997 ------------ ------- ------- (UNAUDITED) 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 ======= ======= =======
See notes to financial statements. 54 WHITE SEA HOLDINGS LTD. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE PERIOD JANUARY 1, FOR THE YEARS ENDED 1999 TO DECEMBER 31, SEPTEMBER 29, -------------------- 1999 1998 1997 -------------- ------- ------- (UNAUDITED) 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 ======= ======= =======
See notes to financial statements. 55 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 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 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 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 EXHIBITS
NUMBER INCORPORATED BY REFERENCE TO DESCRIPTION OF EXHIBIT ------ ---------------------------- ---------------------- 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
- ---------- (1) Denotes compensation plan and/or agreement * Filed in this Amendment 60 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 EX-23 2 CONSENT 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 -----END PRIVACY-ENHANCED MESSAGE-----