-----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, W2R4Ab/pJxmHkwZ6MXlL+HQFEcq67oeABnjUMPuL+SErMxZBAMPSB7EQ14Ia1tur Qig8z1EcKS4cVvmqss+i+A== 0000950110-99-000438.txt : 19990402 0000950110-99-000438.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950110-99-000438 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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 SEC ACT: SEC FILE NUMBER: 001-14135 FILM NUMBER: 99580964 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 1 FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1999 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 ------------------------------ 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 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 this Form 10-K or any amendment to this Form 10-K. 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, 1999: $96,264,780 Number of shares of the Registrant's Common Stock outstanding as of March 24, 1999: 41,628,013 The Following document is hereby incorporated by reference into Part III of this Form 10-K: (1) Portions of the OMI Corporation 1999 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 ................................................ 7 4. Submission of Matters to a Vote of Security Holders .............. 7 PART II 5. Market for OMI Corporation's Common Stock and Related Stockholder Matters ...................................... 9 6. Selected Financial Data .......................................... 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................ 11 7A. Quantitative and Qualitative Disclosures about Market Risk ....... 23 8. Financial Statements and Supplementary Data ...................... 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................. 72 PART III 10. Directors and Executive Officers of OMI Corporation .............. 72 11. Executive Compensation ........................................... 72 12. Security Ownership of Certain Beneficial Owners and Management ... 72 13. Certain Relationships and Related Transactions ................... 72 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 72 SIGNATURES ....................................................... 74 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES GENERAL OMI Corporation ("OMI" or the "Company"), organized under the laws of the Republic of the Marshall Islands on January 9, 1998, is located at One Station Place, Stamford, Connecticut. The telephone number is (203) 602-6700. Prior to June 17, 1998, the Company was a subsidiary of OMI Corp., a Delaware corporation ("Old OMI") and held the international assets of Old OMI. Old OMI acquired Marine Transport Lines, Inc. ("MTL"), a privately owned company specializing in marine and transportation services, principally to the energy and chemical industries. In connection with the acquisition of MTL, Old OMI spun off to its shareholders the Company. Subject to certain exceptions, the spin off was tax free to Old OMI, its shareholders and the Company. The Company retained the OMI name and Old OMI changed its name to Marine Transport Corporation ("MTC"). The previous management of Old OMI now manages the Company and the previous management of MTL now manages MTC. For a more complete description of the transaction, the conditions and certain other items shareholders are referred to the Registration Statement on Form S-1 filed by the Company with the Securities and Exchange Commission on May 15, 1998 (registration statement number 333-52771) which is hereby incorporated by reference. The Company provides seaborne transportation services for crude oil and petroleum products in the international shipping markets. Its customers include major independent and state-owned oil companies, major oil traders, government entities and various other entities. OMI owns directly or indirectly eight crude oil tankers of approximately 140,000-160,000 dwt ("Suezmaxes"), ten tankers of approximately 30,000 dwt ("handysize product carriers") one crude oil tanker of 85,000 dwt ("aframax") and three tankers of approximately 65,000 dwt ("Panamaxes"). OMI has on order from a shipyard one Suezmax expected to be delivered in May 2000 and two handysize product carriers expected to be delivered in the summer of 1999. Through ownership of joint venture companies, OMI owns approximately 50% interests in one 320,000 dwt crude oil carrier, one Suezmax and one 73,000 dwt dry bulk carrier. OMI also has on time charter two Suezmaxes. Development of OMI's Business Over the Last Five Years In recent years, OMI has focused its fleet into Suezmaxes and handysize product carriers, disposing of vessels not fitting into that profile. Since 1993, OMI has disposed of three crude oil tankers, one product carrier, one combination carrier and one liquified petroleum gas carrier which did not fit into its strategy. In addition five dry bulk carriers and one product carrier owned with joint venture partners have been disposed of. During the same period OMI acquired joint venture partners' interests in two Suezmaxes and one Panamax, ordered five new Suezmaxes (four of which are now in service) and two handysize product carriers and increased its number of 1 handysize product carriers from five to ten. OMI also sold one of its Suezmaxes and time chartered the vessel back from the purchaser for a period of up to five years and currently has on time charter-in one additional Suezmax. The Company's existing fleet is shown on the following table:
YEAR DEAD WEIGHT CHARTER NAME OF VESSEL TYPE OF VESSEL BUILT(1) METRIC TONNAGE EXPIRATION - -------------- -------------- ----- -------------- ---------- FOREIGN FLAG VESSELS: SETTEBELLO (2) Crude Oil Tanker 1986 322,466 Spot SACRAMENTO Crude Oil Tanker 1998 157,411 Spot SABINE Crude Oil Tanker 1998 157,331 Spot PECOS Crude Oil Tanker 1998 157,406 Spot COLUMBIA Crude Oil Tanker 1999 155,600 Spot WHITE SEA (3) Crude Oil Tanker 1975 155,702 Spot CAIRO SEA Crude Oil Tanker 1975 155,869 Spot TRINIDAD SEA Crude Oil Tanker 1974 155,755 Spot CZANTORIA Crude Oil Tanker 1975 146,110 Spot SOKOLICA Crude Oil Tanker 1975 145,649 Spot COLORADO Crude Oil Tanker 1980 86,648 Spot ELBE(4) Product Carrier 1984 66,800 Spot NILE(4) Product Carrier 1981 65,755 Spot VOLGA(4) Product Carrier 1981 65,689 Spot LIMAR Product Carrier 1988 29,999 Spot SHANNON Product Carrier 1991 29,999 Spot DANUBE Product Carrier 1990 29,998 Spot TRENT Product Carrier 1991 29,998 Spot TIBER Product Carrier 1989 29,996 Spot SEVERN Product Carrier 1988 29,998 Spot PAGODA Product Carrier 1988 29,996 Spot ALMA Product Carrier 1988 29,996 Spot PAULINA Product Carrier 1984 29,992 Spot PATRICIA Product Carrier 1984 29,974 Spot MARITIME OMI(5) Dry Bulk Carrier 1994 72,800 Spot --------- Total Owned Fleet: 25 Vessels 2,366,937 2 Chartered-in Crude Tankers (6) 292,435 --------- Total Foreign Flag Operating Fleet: 27 Vessels 2,659,372 =========
(1) Weighted average age (based on carrying capacity) of the Company's owned fleet (including jointly-owned) at year-end 1998 is 13.3 years. (2) Joint ownership with Bergesen d.y. A/S Norway. (3) Joint ownership with affiliates of Anders Wilhelmsen & Co., Oslo, Norway. (4) Time chartered into a pool operated by Heidenreich Marine Inc. (5) Joint ownership with an affiliate of International Maritime Carriers Limited ("IMC"), Hong Kong and chartered into a pool operated by IMC. (6) Time chartered-in under charters expiring in 2001 and 2002. A brief description of the functions of the various types and sizes of vessels owned or operated by the Company and others is set forth below: 2 Product carrier - normally carries refined petroleum products such as gasoline, heating oil, aviation fuel, naphtha and kerosene. Crude oil tanker - normally carries crude oil and dirty products. Dry bulk carrier - carries dry bulk products such as coal, ore, grain and fertilizers. Handysize - a ship of approximately 30,000 dwt. Panamax - a ship of approximately 50,000 to 70,000 dwt. Aframax - a tanker (which may be a crude oil tanker or product carrier) of approximately 70,000 to 120,000 dwt. Suezmax - a crude oil tanker of approximately 120,000 to 160,000 dwt. VLCC - a very large crude oil tanker, of approximately 200,000 - 300,000 dwt. ULCC - an ultra large crude oil tanker, of more than 300,000 dwt. The change in the fleet from Old OMI's previous year's list reflects (a) (i) the disposition of one Suezmax tanker and the termination of time charters on two Suezmaxes and (ii) the effective disposition of three U.S. Flag product carriers, one time chartered U.S. flag Suezmax and time charters of four vessels used in lightering by virtue of the spin-off, and (b) the acquisition of four new Suezmaxes. Over the last five years, OMI has sought to increase the size of, and modernize its fleet. It consistently inspects Suezmaxes which are available for purchase and investigates other opportunities to improve its fleet directly and through ship brokers. OMI's Suezmax tankers principally trade from West Africa to the U.S. Atlantic coast and from the North Sea to the U.S. Atlantic coast. It has been redeploying its older Suezmaxes to the Far East and Mediterranean. The product carrier fleet operates worldwide, with the majority now trading in the Caribbean to the U.S. Atlantic coast and the U.S. Gulf of Mexico. The handysize product carriers are well suited to trade in the U.S. eastern seaboard due to vessel cargo size and dimensions. OMI's movement toward concentrations in specific vessel categories reflects management's belief that large concentrated fleets create strategic advantages: First, the fleet will be more attractive to large customers by providing better scheduling opportunities through substitution. A large fleet also provides opportunities to obtain contracts for large volume movements. These both create the potential to increase vessel utilization. Second, large and concentrated fleets create economies of scale to spread efficiently the overhead costs associated with environmental regulations and inspections. Third, operating expertise and 3 efficiency are enhanced by concentration in certain vessel classes. Fourth, OMI believes that large customers will prefer to deal with a limited number of large shipping companies with fleets that they have pre-vetted for quality, rather than smaller shipping companies characteristic of the fragmented international tanker market. Management believes that OMI maintains an ability to participate in improvements in the international tanker markets with its Suezmax tankers. OMI also believes that Suezmax tankers provide nearly the upside potential of larger vessels such as VLCCs with less of the downside risk, primarily because Suezmaxes have greater geographic flexibility than VLCCs. Product carriers historically provided OMI with relatively more stable cash flows, even in weak markets. However, weakness in the product carrier markets during the last portion of 1997 and in 1998, due to a mild winter and reduced Asian demand, has resulted in unusually low rates which have persisted. On May 5, 1998, OMI announced the formation of Alliance Chartering LLC, a limited liability company which is jointly owned with Frontline Ltd., a major international shipping company. Alliance Chartering LLC handles the chartering of OMI's and Frontline Ltd.'s Suezmaxes. Alliance's fleet currently stands at 27 vessels. In March of 1999 the Company also agreed with Osprey Maritime Limited, a major international shipping company based in Singapore, to consolidate their product tanker operations, establishing International Product Carriers Limited. ("IPC") in Bermuda to commercially operate the 26 product carriers of its parents. IPC intends to try to attract other product carrier owners into its pools in order to enhance its marketing abilities. Nature of Business OMI is primarily engaged in the business of owning and operating tankers in international markets. There are two aspects to vessel operation: (i) technical operation, which involves maintaining, crewing and insuring the vessel, and (ii) commercial operation, which involves arranging the business of the vessel. OMI is the commercial operator of all its wholly-owned vessels and a subsidiary, OMI Marine Services, LLC, is the technical operator. Technical and commercial operation of each jointly-owned vessel is allocated to OMI or its joint venture partner based primarily on the experience of the partner with the particular type and size of vessel. OMI's vessels are available for charter on a voyage, time or bareboat basis. Under a voyage charter, the operator of a vessel agrees to provide the vessel for the transport of specific goods between specific ports in return for the payment of an agreed upon freight per ton of cargo or, alternatively, for a specified total amount. All operating costs are for the operator's account. A single voyage (generally two to ten weeks) charter is often referred to as a "spot market" charter. Vessels in the spot market may also spend time idle or laid up as they await business. A voyage charter involving more than one voyage with the same charterer is commonly known as a "consecutive voyage" charter. A time charter involves the placing of a vessel at the charterer's disposal for a set period of time during which the charterer may use the vessel in return for the payment by the charterer of a 4 specified daily or monthly hire rate. In time charters, operating costs such as for crews, maintenance and insurance are typically paid by the owner of the vessel and voyage costs such as fuel and port charges are paid by the charterer. Under a bareboat charter, the charterer takes possession of the vessel in return for a specified amount payable to the owner of the vessel. The bareboat charterer must provide its own crew, pay all operating and voyage expenses and is responsible for the operation and management of the vessel. Voyage, time and bareboat charters are available for varying periods, ranging from a single trip to a long-term arrangement approximating the useful life of the ship, to commercial firms (such as oil companies) and governmental agencies (both foreign and domestic) on a worldwide basis. In general, a long-term charter affords the vessel owner greater assurance that it will be able to cover its costs, including depreciation, interest, and operating costs. Operating the vessel in the spot market affords the owner greater speculative opportunity, which may result in high rates when ships are in high demand or low rates (possibly insufficient to cover costs) when ship availability exceeds demand. Ship charter rates are affected by world economics, international events, weather conditions, strikes, governmental policies, supply and demand, and many other factors beyond the control of OMI. Currently all of OMI's wholly-owned vessels operate in the spot market. Customers No customer accounted for 10% or more of OMI's consolidated revenues in 1998. Regulations The Company is required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to its vessels. The kinds of permits, licenses and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew, the age of the vessel and the status of the Company as owner or charterer. The Company believes that is has or can readily obtain all permits, licenses and certificates necessary to permit its vessels to operate. OMI's operations are also affected by U.S. federal, state and foreign environmental protection laws and regulations, particularly the U.S. Port and Tanker Safety Act, the Act to Prevent Pollution from Ships, various volatile organic compound emission requirements, the BCH Code for chemical carriers, the IMO/USCG pollution regulations and various SOLAS amendments. Compliance with such laws' regulations entails additional expense, including vessel modifications and changes in operating procedures. OPA 90 affects all vessel owners shipping oil or hazardous material to, from, or within the U.S. The law phases out the use of tankers having single hulls, effectively imposes on vessel 5 owners and operators unlimited liability in the event of a castastrophic oil spill and establishes the Oil Spill Liability Trust fund. OPA 90 requires that tankers over 5,000 gross tons calling at U.S. ports have double hulls if contracted after June 30, 1990, or delivered after January 1, 1994. Furthermore, it calls for the elimination of all single hull vessels by the year 2010 on a phase-out schedule that is based on size and age, unless the tankers are retrofitted with double hulls. The law permits existing single hull tankers to operate until the year 2015 if they discharge at deep water ports, such as the Louisiana Offshore Oil Port ("LOOP"), or lighter more than 60 miles offshore. The International Maritime Organization ("IMO") has adopted a regulation that requires tankers 5,000 dwt and over, contracted after July 6, 1993, to have double hull, mid-deck or equivalent design. Existing single hull tankers will be phased out unless they are retrofitted with double hull, mid-deck or equivalent design no later than 30 years after delivery. Another IMO regulation mandates that existing single hull crude oil tankers larger than 20,000 dwt and product tankers over 30,000 dwt without segregated ballast tanks ("SBT") must convert to SBT operations using a least 30% of their wing tanks, or cargo tank bottom area, for this purpose by the age of 25 or be hydrostatically-balance loaded in the wing tanks to provide equivalent oil outflow abatement in the event of casualty. The U.S. has not accepted these IMO regulations, as the IMO regulations recognize, in addition to double hull, other designs as well as contain different phase out dates for existing single hull tankers which are in conflict with provisions of OPA 90. As a result, some vessels which are eligible to trade internationally will be unable to carry cargo to or from the United States, except to LOOP or if lightered, and some vessels which may trade in the U.S. will be unable to trade elsewhere. Five of OMI's Suezmaxes (including one jointly owned) were built in 1974 and 1975 and will be ineligible to trade into U.S. ports beginning in 1999. In the U.S., liability for an oil spill is governed not only by OPA 90, but also by the laws, rules and regulations established by every coastal and inland waterway state. Federal law does not preempt such state laws and provides that claims made by state governments and other affected parties are not subject to limitation of liability if the oil spill results from gross negligence, willful misconduct or violation of any federal operating or safety standard. One result of OPA 90 has been a greater prominence for independent owners with a reputation for high quality of technical management and well maintained physical assets. Another effect of the new law has been to increase costs for liability insurance for vessel owners trading to the U.S. While OMI maintains insurance at levels it believes prudent, claims from a castastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on OMI. OMI believes that compliance with applicable environmental and pollution laws and regulations has not had and is not expected to have a material adverse effect upon its competitive position; however the financial position, value and useful life of its vessels and results of operations may be affected as a result of OPA 90 and other environmental laws and regulations. Competition The Company competes with a large number of international fleets. The international fleets include vessels owned by independent operators and major oil companies; in addition, many international fleets are government owned. Some of the Company's competitors have greater 6 financial resources than the Company. Competition in the ocean shipping industry varies primarily according to the nature of the contractual relationship as well as with respect to the kind of commodity being shipped. Competition in virtually all bulk trades, including crude oil, petroleum products and dry bulk (mainly coal, grain and ore) is intense. Employees and Labor Relations On December 31, 1998, the Company and its subsidiaries had approximately 700 employees, of whom approximately 625 were seagoing employees. The Company primarily uses hiring agents to crew its foreign flag vessels, one of which recruits exclusively for the Company. Although agents sign labor contracts with labor organizations in various foreign countries that represent seagoing personnel from these countries, the Company is not a party to these contracts. Some senior shipboard positions on foreign flag vessels are filled directly by the Company. The Company considers its relationship with its employees, including its seagoing crews, to be satisfactory. Value of Assets and Cash Requirements Although the replacement costs of comparable new vessels are significantly above the book value of OMI's fleet, the market value of OMI's fleet may be below book value when market conditions are weak. In common with other shipowners, OMI continually considers asset redeployment which could at times include the sale of vessels at less than their book value. OMI's results of operations and cash flow may be significantly affected by future charter markets since currently only one vessel is on charter extending beyond year-end 1999. ITEM 3. LEGAL PROCEEDINGS OMI and its subsidiaries are not parties to any material pending legal proceedings or related group of such proceedings, other than ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of 1998. EXECUTIVE OFFICERS OF THE COMPANY Set forth below is certain information with respect to the Company's executive officers as of March 31, 1999. 7
YEAR APPOINTED TO NAME AGE POSITION OFFICE ---- --- -------- ------ Craig H. Stevenson, Jr. 45 Chief Executive Officer and President 1998 Vincent J. de Sostoa 54 Senior Vice President, Chief Financial Officer and Treasurer 1998 Fredric S. London 51 Senior Vice President, General Counsel and Secretary 1998 Robert Bugbee 38 Senior Vice President 1998 Henry Blaustein 56 Senior Vice President, OMI Marine Services LLC 1998 Kathleen C. Haines 44 Vice President/Controller 1998 Thomas M. Scott 42 Vice President, OMI Marine Services LLC 1998 Stavros Skopelitis 52 Vice President 1998
There is no family relationship by blood, marriage or adoption (not more remote than first cousin) between any of the above individuals and any other executive officer or any OMI director. The term of office of each officer is until the first meeting of directors after the annual stockholders' meeting next succeeding his election and until his respective successor is chosen and qualified. There are no arrangements or understandings between any of the above officers and any other person pursuant to which any of the above was elected as an officer. The following descriptions of occupations or positions that the executive officers of the Company have held during the last five years: CRAIG H. STEVENSON, JR. was appointed President and Chief Executive Officer of the Company in 1998. Mr. Stevenson had been Chief Executive Officer of Old OMI since January 1997 and President of Old OMI since November 1995. He was elected Chief Operating Officer of Old OMI in November 1994 and Senior Vice President/Chartering in August 1993. ROBERT BUGBEE was elected Senior Vice President of the Company in 1998. He had been Senior Vice President of Old OMI since August 1995. Mr. Bugbee joined Old OMI in February 1995. Prior thereto, he was Head of Business Development at Gotaas-Larsen Shipping Corporation for more than three years. HENRY BLAUSTEIN was elected Senior Vice President of OMI Marine Services LLC in 1998. He had been Senior Vice President/Technical of Old OMI since July 1997. Prior thereto he was a consultant to the Company and others. VINCENT J. DE SOSTOA was elected Senior Vice President, Treasurer and Chief Financial Officer of the Company in 1998. He had been Chief Financial Officer of Old OMI since 1994. For five years prior thereto, he was Senior Vice President/Finance of Old OMI. FREDRIC S. LONDON was elected Senior Vice President, Secretary and General Counsel of the Company in 1998. He had been Senior Vice President Secretary and General Counsel of Old OMI since December 1991. KATHLEEN C. HAINES was elected Vice President and Controller of the Company in 1998. She had been Vice President of Old OMI since January 1994. Ms. Haines was elected Assistant Vice President and Controller of Old OMI in December 1992. THOMAS M. SCOTT was elected Vice President of OMI Marine Services LLC in 1998. He had been Vice President of Old OMI since February 1995. He was elected Assistant Vice President/Operations in 1993. STAVROS SKOPELITIS was elected Vice President and Economist of the Company in 1998. He had been Vice President and Economist of Old OMI since May 1996. He was elected Assistant Vice President and Economist 8 of Old OMI in January 1994. Prior thereto he was Economist of Old OMI since 1987. PART II ITEM 5. MARKET FOR OMI CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS COMMON STOCK Old OMI listed for trading on the New York Stock Exchange all of its common stock on March 13, 1992 (NYSE-OMM) and the Company acceded to that listing on June 18, 1998. As of March 24, 1999 the number of holders of OMI common stock was approximately 3,612. The high and low sale prices of the common stock, as reported by the New York Stock Exchange, were as follows: 1998 Quarter 1st 2nd 3rd 4th ------------ --- --- --- --- High N/A $8-11/16 $8-5/16 $4 Low N/A $6-7/8 $3-1/8 $2-5/8 PAYMENT OF DIVIDENDS TO STOCKHOLDERS The Board has not declared dividends to this date. OMI's current policy is not to pay dividends, but to retain cash for use in its business. Any determination to pay dividends by OMI in the future will be at the discretion of the Board of Directors and will depend upon OMI's results of operations, financial condition, capital restrictions, covenants and other factors deemed relevant by the Board of Directors. Payment of dividends is limited by the terms of certain agreements to which OMI and its subsidiaries are party. (See Note 16 to Consolidated Financial Statements.) 9 ITEM 6. SELECTED FINANCIAL DATA OMI CORPORATION AND SUBSIDIARIES For the Years Ended December 31,
-------------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- (dollar and shares outstanding in thousands, except per share data) Income Statement Data: Net voyage revenues (1)........................ $ 41,331 $ 55,393 $ 39,355 $ 26,537 $ 33,863 --------- --------- --------- --------- --------- Revenues ...................................... $ 149,228 $ 141,985 $ 111,292 $ 91,819 $ 94,580 --------- --------- --------- --------- --------- Operating expenses: Vessel and voyage ............................. 82,368 77,686 67,008 64,518 52,949 Operating leases .............................. 25,529 8,906 4,592 -- 7,250 Depreciation and amortization ................. 24,314 22,675 18,142 17,621 17,816 General and administrative .................... 10,773 12,540 6,851 6,451 7,197 --------- --------- --------- --------- --------- Total operating expenses ........................ 142,984 121,807 96,593 88,590 85,212 --------- --------- --------- --------- --------- Operating income ................................ 6,244 20,178 14,699 3,229 9,368 Gain (loss) on disposal of assets-net ........... 6,485 885 4,078 (829) 166 Provision for writedown of investments ................................... -- -- -- -- (1,251) Interest expense ................................ 11,118 11,756 16,912 18,024 21,019 (Benefit) provision for income taxes ............ (37,158) 5,407 876 (4,698) (4,105) Equity in operations of joint ventures .......... 3,684 737 2,481 5,464 5,402 Income before extraordinary loss and cum- ulative effect of change in accounting principle ..................................... 42,917 6,859 5,356 (4,493) (2,069) Extraordinary loss-net of tax benefit ........... -- -- (1,663) -- -- Cumulative effect of change in accounting principle-net of tax provision ................ -- 10,063 -- -- -- Net income (loss) ............................... $ 42,917 $ 16,922 $ 3,693 $ (4,493) $ (2,069) ========= ========= ========= ========= ========= - --------------------------------------------------------------------------------------------------------------------------- Basic Earnings (Loss) Per Common Share: Income before extraordinary loss and cumulative effect of change in accounting principle .... $ 1.01 $ 0.16 $ 0.16 $ (0.15) $ (0.07) Net income (loss) ............................. $ 1.01 $ 0.39 $ 0.11 $ (0.15) $ (0.07) Diluted Earnings (Loss) Per Common Share: Income before extraordinary loss and cumulative effect of change in accounting principle .... $ 1.00 $ 0.16 $ 0.16 $ (0.15) $ (0.07) Net Income (loss) ............................. $ 1.00 $ 0.39 $ 0.11 $ (0.15) $ (0.07) Weighted average shares outstanding ........... 42,671 42,914 33,440 30,745 30,417 - --------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data: Cash and cash equivalents ..................... $ 22,698 $ 30,608 $ 16,056 $ 25,963 $ 12,466 Vessels and other property-net ................ 393,862 286,996 394,423 241,821 249,856 Construction in progress (newbuildings) ....... 34,733 56,032 10,754 -- -- Total assets .................................. 530,127 440,708 439,463 377,049 377,512 Total debt .................................... 247,147 53,999 125,171 92,842 55,090 Total stockholders'equity ..................... 245,183 283,558 250,402 221,677 197,847 (1) Voyage revenues less vessel and voyage expenses. See notes to consolidated financial statements - ---------------------------------------------------------------------------------------------------------------------------
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following presentation of management's discussion and analysis of the OMI Corporation ("OMI" or the "Company") financial condition and results of operations should be read in conjunction with the consolidated financial statements, accompanying notes thereto and other financial information appearing elsewhere in this Form 10-K. The information below and elsewhere in this document contains certain forward-looking statements which reflect the current view of the Company with respect to future events and financial performance. Wherever used, the words "believes," "estimates," "expects," "plan" "anticipates" and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties that could cause the actual results of the Company's results of operations to differ materially from historical results or current expectations. The Company does not publicly update its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. The information contained in the discussion of the "Year 2000 Issue" ("Y2K") constitutes forward-looking information. The identification and remediation of Y2K issues is a technological effort that has never been undertaken before and estimates of the outcome, time and expense of this project are, for that reason, particularly hard to make with any certainty. Factors that may cause these differences include, but are not limited to, those outlined in the "Risk Assessment" category of the Year 2000 Issue. GENERAL Overview OMI provides seaborne transportation services for crude oil, refined petroleum products, and dry bulk cargoes (primarily iron ore, coal and grain). The Company is the successor to Universal Bulk Carriers, Inc. ("UBC"), a Liberian corporation, which was a wholly-owned subsidiary of OMI Corp. ("Old OMI") until June 17, 1998 at which date the Company was separated from Old OMI (renamed Marine Transport Corporation, "MTC") through a tax-free distribution ("Distribution") of one share of the Company s common stock for each share of Old OMI common stock. The distribution separated Old OMI into two publicly-owned companies. OMI Corporation operates what was Old OMI's foreign shipping businesses under the management of certain of the 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. Currently, OMI's fleet comprises 27 vessels (including two chartered-in, one newbuilding delivered in January 1999 and three jointly owned vessels). In June, July and August of 1998, OMI took delivery of three Suezmax newbuildings and will take delivery of a fifth Suezmax in May 2000. The Company operates primarily Suezmax and product tankers. Its fleet comprises eight wholly and one jointly owned Suezmaxes, two chartered-in Suezmaxes, one jointly owned Ultra Large Crude Carrier ("ULCC"), one aframax, three Panamax product tankers (currently carrying crude oil), ten handysize product carriers transporting clean products and one jointly owned drybulk carrier. Two 35,000 deadweight ton ("dwt") product carrier newbuildings are to be delivered in mid-1999. Net income for the year ended December 31, 1998 was $42.9 million compared to $16.9 million for the year ended December 31, 1997. Included in 1998 income of $42.9 million is a benefit of $38.9 million for federal income taxes. In connection with the Distribution described above, OMI became a decontrolled corporation and the deferred income taxes which had been previously recorded were reversed. Included in the 1997 income of $16.9 million is income of $10.1 million, net of tax, from the cumulative effect of a change in accounting principle for drydock. 11 MARKET OVERVIEW The charter rates that the Company is able to obtain for its vessels are determined in a highly competitive market. The industry is cyclical, experiencing significant swings in profitability and asset values resulting from changes in the supply of and demand for vessels. The following chart illustrates the fluctuation of the TCE rates for product carriers and Suezmax tankers and volatility of both markets from 1994 through 1998 (TCE's or time charter equivalent rates equate spot market rates with time charter rates by deducting voyage expenses from voyage revenues): - -------------------------------------------------------------------------------- [GRAPHICAL REPRESENTATION OF LINE CHART] Chart ----- AVERAGE TCE RATES FOR TANKERS PRODUCT CARRIERS -- Daily Average TCE Rates YEAR 1994 $12,000 1995 13,500 1996 13,000 1997 14,100 1998 9,775 Caribbean/U.S. Atlantic Coast Voyages for mid-1980s built vessels. CRUDE OIL TANKERS -- Daily Average TCE Rates YEAR 1994 $13,300 1995 16,100 1996 19,400 1997 23,700 1998 22,400 West Africa/U.S. Atlantic Coast Voyages for mid-1970s built vessels. Source: Fearnleys, Oslo - -------------------------------------------------------------------------------- Product Carriers The product carrier market is the segment of the tanker market which transports refined petroleum products such as gasoline, jet fuel, kerosene, naphtha and gas oil. Freight rates in this market were relatively strong from 1995 through the first quarter of 1997 showing seasonal improvement in the winter months. After the product tanker market reached a very high level in early 1997 it began receding gradually as a result of reduced oil product imports in the Pacific region due to refinery capacity additions in the area and lower oil consumption because of the financial crisis in Southeast Asia and Korea, higher throughput in industrialized countries, and higher product tanker fleet growth relative to product tanker ton-mile demand. For 1998, average freight rates for product tankers were substantially lower than rates prevailing in 1997. However, freight rates improved towards the end of 1998, but softened again early in 1999. The Company's handysize product tankers are currently employed in the spot market. However, effective May 1, 1999 the majority will be time chartered to a newly formed joint venture, International Product Carriers Limited ("IPC") described below. Currently, three vessels are chartered to another joint venture also described below. The two product carriers to be delivered in 1999 have been time chartered to a major oil company for two years. OMI's strategy for its handysize fleet is to increase market share by consolidating commercial operations of vessels through marketing joint ventures and through concentrating trading in selected areas. 12 OMI and Heidenreich Marine Inc. ("Heidmar"), an owner and operator of a modern fleet of 50,000 to 90,000 dwt. tankers, have formed a jointly owned company named "OMI-Heidmar Shipping LLC" to market tankers in the Far East. Currently, this company operates seven handysize and handymax product tankers, including three OMI handysize vessels. In addition, OMI has put its three Panamax product tankers into Star Tankers, Inc. a pool of Panamax and aframax crude/product tankers which comprises 28 vessels and operates worldwide. In March 1999, the Company agreed with Osprey Maritime Limited, a major international shipping company based in Singapore, to consolidate their product tanker operations, establishing IPC Bermuda to commercially operate approximately 30 product carriers of its parents. IPC intends to expand the pool to other product carrier owners to enhance its marketing. Suezmax Tankers The improvement in Suezmax tanker rates, which began in 1995, continued through the early part of 1998. The rate gains in the past few years have been the result of growth in the world oil demand which, together with a modest increase in the supply of tankers, created a better supply/demand balance. Freight rates weakened in the second half of 1998 and the tanker market is expected to continue to be weak in the foreseeable future as a result of OPEC oil production cuts to support oil prices, relatively high world oil inventories, weakness in oil demand due to the continued Southeast Asian economic crisis as well as the onset of a recession in Latin America and the relatively large tanker newbuilding delivery schedule. The total world tanker fleet stands at approximately 272.7 million dwt. Approximately 36.5 percent of the worldwide fleet, 38.5 percent of the world Suezmax fleet and 42.7 percent of the world VLCC fleet is 20 or more years old. The tanker orderbook totals approximately 46.7 million dwt or 17.1 percent of the existing fleet. The combination of the tanker market weakness, the relatively high orderbook, an expensive fifth special survey and stricter environmental regulations should accelerate scrappings of the old tonnage. The Suezmax market was relatively weak in the fourth quarter. Agreements entered early in the year to cut back oil production by OPEC and other oil producing nations as well as stock reductions have reduced oil liftings. In addition, there were a number of temporary regional supply disruptions in the Atlantic basin including pipeline closures in Nigeria, shutdowns in the North Sea and interruptions in the flow of Iraqi oil to Cehan, Turkey, due to disputes between Iraq and the United Nations concerning the embargo imposed on Iraq after the end of the Iraqi/Kuwaiti conflict in the early 1990s. World oil demand increased marginally in 1998 and is expected to increase by about 1.3 million barrels per day in 1999. World commercial oil inventories increased substantially in 1998, especially in the first half of the year. World oil inventories are expected to fall in 1999 in line with OPEC oil production cuts and the increase of oil demand. The Company's Suezmax tanker fleet is one of the largest independent fleets in the world. OMI has targeted this market segment due to the flexibility of the Suezmax tankers to engage in long-haul and short-haul trades, growth potential in the crude oil market and the fleet age distribution (more than 38.5% of the fleet is 20 or more years old). The Company has identified the advantages of owning a large Suezmax fleet and has been implementing strategies to maximize the advantages. In order to renew and improve the efficiency of its Suezmax fleet, the Company ordered five vessels from a South Korean shipyard. The Company took delivery of the first three Suezmaxes in June, July and August of 1998 and one in January 1999. The remaining Suezmax newbuilding is scheduled for delivery in May 2000. 13 In 1998, in order to increase the Company's market share in the Suezmax trades in the Atlantic Basin, OMI and Frontline Ltd., a Norwegian owner of one of the world's largest and modern Suezmax fleets, combined Suezmax tanker fleets for commercial purposes and created Alliance Chartering LLC ("Alliance"). Alliance currently markets 27 Suezmax tankers, of which 24 tankers are employed in the Atlantic market, comprising approximately 20 percent of the total Suezmaxes trading in the Atlantic basin. Alliance's control of the largest modern fleet of Suezmaxes has enabled it to strengthen relationships and obtain contracts with a number of customers. These contracts may allow Alliance the opportunity to increase its Suezmax fleet utilization through backhauls when cargo is available (that is, transporting cargo on the return trip when a ship would normally be empty) which will improve vessel earnings. Any improvement in freight rates in the crude oil market, as well as the product carrier market, will be largely dependent upon improvement in the Far East and Latin American economic conditions as well as an increase in the rate of tanker scrappings in view of the relatively high tanker orderbook for delivery in the foreseeable future. RESULTS OF OPERATIONS Results of operations of OMI Corporation include operating activities of the Company's vessels. The discussion that follows explains the Company's operating results in terms of net voyage revenues, which equals voyage revenues minus vessel and voyage expenses (including charter hire expense), because fluctuations in voyage revenues and expenses occur based on the nature of a charter. The Company's vessels currently operate, or have operated in prior years, on time, bareboat or voyage ("spot") charters. Each type of charter denotes a method by which revenues are recorded and expenses are allocated. Under a time charter, revenue is measured based on a daily or monthly rate and the charterer assumes certain voyage expenses, such as fuel and port charges. Under a bareboat charter, the charterer assumes all voyage and operating expenses; therefore, the revenue rate is likely to be lower than a time charter. Under a voyage charter, revenue is calculated based on the amount of cargo carried, most expenses are for the shipowner's account and the length of the charter is one voyage. Revenue may be higher in the spot market, as the owner is responsible for most of the costs of the voyage. Other factors affecting net voyage revenues for voyage charters are waiting time between cargoes, port costs, and bunker prices. Vessel expenses included in net voyage revenue discussed above include operating expenses such as crew payroll/benefits/travel, stores, maintenance and repairs, drydock, insurance and miscellaneous. These expenses are a function of the fleet size, utilization levels for certain expenses, requirements under laws, by charterers and Company standards. Insurance expense varies with the overall insurance market conditions as well as the insured's loss record, level of insurance and desired coverage. VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES. Net voyage revenues of $41.3 million for the year ended December 31, 1998 decreased by a net of $14.1 million from $55.4 million for the year ended December 31, 1997. Net voyage revenues for the years ended 1998, 1997 and 1996 are as follows by the market segments in which OMI primarily operates. 14 FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- 1998 1997 1996 -------- -------- -------- (IN THOUSANDS) VOYAGE REVENUES: Crude Oil Fleet ......... $ 98.5 $ 74.4 $ 49.9 Product Carrier Fleet ... 50.6 66.2 54.9 All Other ............... 0.1 1.4 6.2 -------- -------- -------- Total ............. $ 149.2 $ 142.0 $ 111.0 ======== ======== ======== VESSEL AND VOYAGE EXPENSES: Crude Oil Fleet ......... $ 71.7 $ 51.5 $ 37.6 Product Carrier Fleet ... 33.5 34.2 31.7 All Other ............... 2.7 0.9 2.3 -------- -------- -------- Total ............. $ 107.9 $ 86.6 $ 71.6 ======== ======== ======== NET VOYAGE REVENUES: Crude Oil Fleet ......... $ 26.8 $ 22.9 $ 12.3 Product Carrier Fleet ... 17.1 32.0 23.2 All Other ............... (2.6) 0.5 3.9 -------- -------- -------- Total ............. $ 41.3 $ 55.4 $ 39.4 ======== ======== ======== Net voyage revenues for the Company decreased $14.1 million for the year ended December 31, 1998. Net changes are discussed as follows according to the two market segments (product carrier and crude oil) in which OMI primarily operates. Decreases in net voyage revenue of $3.1 million for the year ended 1998 compared to 1997, not included in the two market segments, relate primarily to the sale of a Liquid Petroleum Gas Carrier ("LPG") in 1997 and increases in management fee expense in 1998 not specifically allocated to vessel expenses. Product Carrier Fleet The product carrier fleet consisted of thirteen vessels (ten handysize and three Panamaxes) at December 31, 1998 and 1997. Rates in the product market began to decline in the second half of 1997. To minimize decreases due to rate declines in the short-term, OMI placed three Panamaxes which previously carried clean products, into a marketing pool in November 1997, May 1998 and July 1998. Decreases in the product carrier fleet in 1998 pertaining to the Panamaxes relate to a part of the year (367 days in aggregate) in which two of the vessels were carrying clean products and the remainder of the decrease relates to decreased rates earned for these vessels in 1998 in comparison to 1997. Net voyage revenues decreased by $14.9 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. The decreases are due primarily to the market decline in rates mentioned in the overview. Other decreases in this fleet relate to the three Panamaxes with decreases in net voyage revenue of approximately $4.4 million which were included in the crude oil fleet's earnings for the entire 1998 year for one vessel and approximately twelve months in aggregate for the other two vessels. Additionally, aggregate net voyage revenue decreased an additional approximately $2.7 million in the first half of 1998 compared to 1997 for the two Panamax vessels when they were operating as "clean" product carriers. Additional decreases in 1998 net voyage revenue were related to six product carriers drydocked for an aggregate of 138 days in 1998 versus four vessels for an aggregate of 89 days in 1997. 15 Crude Oil Tanker Fleet At December 31, 1998, the crude fleet consisted of eight wholly-owned vessels (seven Suezmaxes, not including the vessel delivered January 1999, and one aframax) and two chartered-in Suezmaxes; all but one of the vessels are currently operating in the spot market. In 1997, OMI owned six Suezmaxes, one aframax and chartered- in four vessels (one beginning in May 1997 as part of a sale-leaseback transaction and the other three beginning in the fourth quarter of 1997). During 1998, three new Suezmax vessels were delivered and operated an aggregate of 511 days, a vessel was sold in August 1998 and two chartered-in vessels were redelivered to their owners in July and December 1998. Net voyage revenues of $26.8 million generated by the crude tanker fleet increased a net of $3.9 million for the year ended December 31, 1998 from $22.9 million for the year ended December 31, 1997. The net increase in net voyage revenues can be attributed to three reasons: three Panamaxes with net voyage revenue of $4.4 million which had been carrying clean products in 1997, net voyage revenues of approximately $6.8 million from three Suezmax vessels delivered in the summer of 1998 and an increase in the net voyage revenues due to higher freight rates in 1998 earned by the aframax vessel (which also incurred 22 days offhire in 1997). Net voyage revenues were reduced by decreases in revenues for the remainder of the fleet as a result of: lower rates in the spot market in 1998 due to the lower demand for oil explained in the market overview, decreases of $3.8 million in net voyage revenues earned from three of the four vessels chartered-in during 1998, decreases of $2.0 million from the sale of the Suezmax vessel in August 1998 and decreased revenue due to an aggregate of 77 more offhire days in 1998 compared to 1997 primarily relating to drydocking. The net voyage revenues earned by the vessels chartered-in were substantially less due to lower current market rates than those prevailing when the leases were fixed. OTHER OPERATING EXPENSES The Company's operating expenses, other than vessel, voyage and operating lease expenses consist of depreciation and amortization and general and administrative ("G & A") expenses. For the year ended December 31, 1998, these expenses decreased $0.1 million to $35.1 million, from $35.2 million for the year ended December 31, 1997. The net decrease was due to a decline in G & A expenses of $1.7 million primarily because of relocation accruals and additional professional fees for the anticipated spin off of the Company included in the 1997 expenses. The decrease in G & A expenses was offset by a net increase of $1.6 million in depreciation expense from the delivery of three Suezmax tankers in 1998, offset by the sale of a Suezmax tanker in August 1998 and an LPG vessel in May 1997. OTHER INCOME (EXPENSE) Other income (expense) consists of gain on disposal of assets-net, interest expense, interest income and other-net. Net other expense decreased by $4.4 million from $8.6 million to $4.2 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. Gain on sale of assets-net increased $5.6 million due to the gain on sale the of a Suezmax tanker in August 1998 compared to the gain on sale in March 1997 of an LPG vessel. Interest expense decreased by $0.6 million for the year ended December 31, 1998 compared to 1997. The decrease in interest expense was primarily due to increases in the capitalization of interest on construction in progress and less interest expense due to repayment of debt for the vessel sold in August 1998 offset by interest expense on additional borrowings upon delivery of three newbuildings. Other-net of $0.9 million expense for the year 1998 represents a litigation settlement for a vessel which was sold in 1996. 16 (BENEFITS) PROVISION FOR INCOME TAXES The income tax benefit of $ 37.2 million includes a provision for federal income taxes of $1.7 million for the period from January 1, 1998 through June 17, 1998 (the date of the Distribution), net of the benefit of $38.9 million representing the reversal of deferred income taxes at the distribution date, as the Company became a decontrolled corporation. EQUITY IN OPERATIONS OF JOINT VENTURES OMI currently has five joint ventures with its ownership in each approximating 50 percent. Three joint ventures each own one vessel. Equity in operations of joint ventures increased by $2.9 million to $3.7 million for the year ended December 31, 1998 compared to $0.8 million for the year ended 1997. The net increase is primarily attributed to better operating results for a vessel operating in a 49.0 percent owned venture, in addition to increase earnings in 1998 due to a loss on sale of a vessel in 1997 owned by a 49.9 percent joint venture of approximately $10.5 million (OMI's portion of the loss was approximately $5.1 million) offset in part by the gain on the sale of a vessel in the same venture of $1.9 million (OMI's portion of the gain was approximately $0.9 million). During 1998, the Company received an aggregate of $3.4 million in dividends from joint ventures, $2.0 million from Amazon Transport, Inc. ("Amazon") and $1.4 million from White Sea Holdings, Ltd. ("White Sea"). Additionally, during November 1998, OMI received cash of $3.0 million upon dissolution of a 49 percent owned joint venture and recorded a loss of $678,000 from the dissolution of a 25 percent equity interest in a joint venture. FOR THE YEAR ENDED DECEMBER 31, 1997 VERSUS DECEMBER 31, 1996 Net voyage revenues of $55.4 million for the year ended December 31, 1997 increased by a net of $16.0 million from $39.4 million for the year ended December 31, 1996. The increase in net voyage revenues of $16.0 million for the year ended December 31, 1997 includes a decrease of $3.4 million (which is not included in the two market segments net voyage revenue) which relates primarily to additional earnings in 1996 from the LPG carrier disposed of in March 1997. Other changes in net voyage revenue are discussed as follows according to the two market segments in which OMI primarily operates. Product Carrier Fleet The product carrier fleet consisted of thirteen vessels (ten handysize and three Panamaxes) at December 31, 1997 as compared to ten vessels (nine handysize and three Panamaxes) at December 31, 1996. The Company maintained a mix of approximately half its product carriers on time charters in both years. Net voyage revenues increased $8.8 million for the year ended December 31, 1997 compared to the same period in 1996. This increase included the results of two product carriers acquired in 1996 and one vessel purchased in 1997, one vessel contributed to increased earnings in 1997 due to 37 offhire/drydock days in 1996 and two vessels contributed additional revenue generated from a new marketing pool, Star Tankers, Inc. (previously named Heidmar/Pleiades pool). With respect to the remaining vessels in this fleet, net voyage revenues in aggregate, remained relatively unchanged during 1997 compared to 1996. 17 Crude Oil Tanker Fleet At December 31, 1997, the crude fleet consisted of seven wholly owned vessels (six Suezmaxes, one aframax) and chartered-in four Suezmax vessels, nine of which were operating in the spot market and two vessels were on time charters at December 31, 1997. In 1996, OMI also owned seven crude carriers and chartered- in one vessel, four of these vessels operated in the spot market. Net voyage revenues generated by the crude oil fleet increased $10.6 million in 1997 compared to 1996 primarily for two reasons; first by $9.9 million due to the acquisition of the ALTA and the TANANA (two Suezmax tankers in which the Company acquired its partners' interests on December 30, 1996) and second, due to improved rates resulting from better market conditions in 1997. OTHER OPERATING EXPENSES For the year ended December 31, 1997, other operating expenses increased $10.2 million to $35.2 million from $25.0 million for the same period in 1996. G & A expenses increased $5.7 million primarily due to increases in allocations of salary expense which include accruals for bonuses aggregating approximately $2.0 million, relocation expenses of approximately $2.6 million of the Company's corporate headquarters to Stamford, Connecticut in 1998 and expenses allocated to the spin-off. Other G & A expenses allocated increased approximately $0.3 million. The increase in depreciation expense of $4.5 million relates to the two crude oil carriers ALTA and TANANA acquired in 1996 and three product carriers acquired in 1996 and 1997. OTHER INCOME (EXPENSE) Net other expense decreased by $2.3 million for the year ended December 31, 1997 compared to the same period in 1996. Interest expense decreased $5.2 million due to the following; reduction in the average mortgage debt in 1997 compared to 1996, payment of debt from proceeds of vessel sales and proceeds from the public offering of stock in the fourth quarter of 1996, interest capitalized on four vessels under construction for the entire twelve months of 1997 compared to two vessels for one month in 1996 and lower average interest rates on corporate debt refinanced in July 1996 and April 1997. Decreases in Net other expenses were offset in part by decreases in the gain on disposal of assets-net of $3.2 million for the year ended December 31, 1997. This decrease resulted primarily from the gain on sale of a crude oil carrier of $3.6 million in 1996 offset in part by the gain on sale of the LPG carrier of approximately $0.9 million in the first quarter of 1997. (BENEFITS) PROVISION FOR INCOME TAXES The income tax provision of $5.4 million (excluding the income tax provision for the cumulative effect of the change in accounting principle) for the year ended December 31, 1997 varied from statutory rates primarily because deferred taxes were not recorded for equity in operations of joint ventures, net of dividends declared, other than Amazon and White Sea as management considered such earnings to be invested for an indefinite period. EQUITY IN OPERATIONS OF JOINT VENTURES Equity in operations of joint ventures decreased by $1.8 million to $0.7 million in the year ended 1997 compared to $2.5 million for the same period in 1996. The decrease in equity was primarily attributed to the loss on the sale of a vessel owned by Mosaic Alliance Corporation ( "Mosaic") a 49.9 percent joint venture, of $5.1 million, offset in part by a gain from the sale of another vessel of $0.9 million in the same joint venture. In accordance with the Company's plan to decrease participation in vessel owning joint 18 ventures, on December 10, 1997, Mosaic acquired the majority shareholders' interest in the venture for cash of $32.3 million and 50.1 percent of stock in its subsidiary Kanejoy Corporation, with a book value of $3.5 million, and Mosaic became a 100 percent owned subsidiary of OMI. Additional decreases in equity of $1.3 million were attributed to Wilomi, Inc. a 49 percent owned joint venture until December 30, 1996, when Wilomi Inc. acquired its 51 percent interest from one of its partners and became a 100 percent owned subsidiary of OMI. Increases in equity in operations of joint ventures of $3.1 million offsetting the aforementioned decreases relate to Amazon, which operates one crude oil carrier that was drydocked for 92 days in 1996 which resulted in both lack of earnings and additional drydock expense. Equity also increased $1.7 million from White Sea as a result of 66 offhire days related to drydock in 1996. BALANCE SHEET In 1998, the Company took delivery of three newly constructed double hulled Suezmax tankers increasing Vessels by approximately $167.0 million, decreasing Construction in Progress by $27.4 million and increasing debt by $109.3 million. On August 12, 1998, vessels (net) decreased by $38.3 million, which was the net book value of the TANANA which was sold for a $6.5 million gain. During 1998, the Company purchased 2,076,700 shares of OMI stock at an average cost of $4.35 per share for a total cost of $9.0 million. On September 4, 1998, the Company repurchased $2.5 million of its 10.25 percent Senior Notes. The distribution of OMI affected the balance sheet as follows: deferred taxes of $38.9 million were reversed into income, the receivable from parent- net aggregating $76.1 million was charged to Capital surplus, the balance of Net intercompany transactions of $40.8 million was credited to Capital surplus, and debt increased $108.9 million for debt assumed from the parent company (see Financing Activities). LIQUIDITY AND CAPITAL RESOURCES Cash Flows Cash and cash equivalents of $22.7 million at December 31, 1998 decreased $7.9 million from cash and cash equivalents of $30.6 million at December 31, 1997. The Company's working capital of $1.9 million decreased $29.6 million from working capital of $31.5 million at December 31, 1997. Current assets decreased $5.5 million primarily due to decrease in cash and cash equivalents. Current liabilities increased $24.1 million primarily due to the increase in current portion of long-term debt, which was assumed from the parent company at the time of the Distribution (See Financing Activities) in addition to $12.0 million drawn on a line of credit which was repaid in January 1999. Net cash provided by operating activities decreased $ 2.0 million to $17.7 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. The Company operates in a capital-intensive industry and augments cash generated by operating activities with debt and sales of vessels that no longer fit the Company's strategy. Cash used by investing activities was $99.8 million, an increase of $115.4 million from cash provided by investing activities of $15.6 million for the year ending December 31, 1997. Cash used by investing activities increased in 1998 primarily by $145.6 million due to the acquisition of three new vessels and additions to vessels under construction. The Company received $44.9 million (which includes expenses of the sale) in proceeds from the sale of its vessel in August 1998. Additionally, in 1997, the Company received proceeds from the sale of the ALTA of $39.0 million. During 1998, OMI received approximately $3.0 million from the dissolution of a joint venture. In 1997, cash increased $32.3 million when the Company consolidated Mosaic. 19 FINANCING ACTIVITIES Cash provided by financing activities was $74.2 million in 1998 compared to cash used of $20.8 million for the year ended 1997. Payments on long-term debt of $87.1 million were made in 1998. Included in the payments of $87.1 million were unscheduled payments of $83.5 million; $29.0 million was for payments on short-term borrowings from a line of credit, payments from the refinancing of $20.6 million for two vessels, the payment of debt of $31.4 million for the vessel sold in August 1998 and the repurchase of $2.5 million of the Company's Senior Notes. Proceeds from the issuance of long-term debt of $171.3 million include proceeds of $109.3 million for the financing of the three newly constructed vessels, $16.0 million from refinancing of two vessels and $46.0 million drawn on a line of credit. During 1998 $9.0 million of the Company's stock was repurchased. In the year ended December 31, 1997, $4.1 million was received from the Company's parent, Old OMI, as a capital contribution and $ 24.7 million of debt was repaid (including $16.9 million from the sale of a vessel). 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, were allocated to OMI and its subsidiaries based upon the value of the vessel collateralizing the debt. The changes in allocated corporate debt and the after-tax allocated interest expense and the after tax allocated general and administrative expenses had been included in Net intercompany transactions in Stockholders' equity. Debt assumed by the Company from Old OMI of $108.9 million comprises $99.1 million available under a line of credit described below, $6.8 million 10.25 percent Senior Notes and a $3.0 million seven percent Convertible Note. Although management believes that the historical allocation of corporate debt and interest expense was 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 presented. At December 31, 1998, OMI had five credit facilities aggregating $378.0 million, $239.8 million was outstanding and $138.2 million was unused at that date. One facility for $116.5 million was assumed from Old OMI, see below, and the remaining four facilities aggregating $261.5 million were entered into from June through December 1998. In February 1999, OMI entered into a $25.0 million revolving line of credit to be used for working capital and other general corporate purposes. The line of credit bears interest at LIBOR plus a margin that varies with facility use which will not be greater than 1.75%. The Company has a credit facility, which was assumed from Old OMI, which provides for a line of credit in the amount of $116.5 million (not to exceed 70 percent of the fair market value of the vessels securing the loan). The credit facility is secured by eleven vessels with a book value aggregating $ 170.1 million at December 31, 1998. At December 31, 1998, the outstanding loan balance was $116.1 million and was reduced by $12.0 million January 7, 1999. The Notes under the credit facility bear interest at LIBOR plus a margin ranging from 0.60%-0.95% which is computed based on OMI's funded debt to equity ratio and interest coverage ratio. The agreement, which expires in April 2002, provides for nine semi-annual reductions (six currently remaining at December 31, 1998). As long as the available balance of the credit facility exceeds the outstanding loan balance and the collateral tests are met, current amortization is not required. During June and July 1998, the Company entered into three new secured revolving credit agreements with banks, in the amounts of $53.0 million, $71.5 million and $77.0 million to refinance two Panamax tankers and to finance two product carriers and four Suezmax carriers when delivered. On June 9, 1998, the Company drewdown $16.0 million to refinance the two Panamax tankers. Also on June 9, 1998, $35.7 million was drawn to finance the first Suezmax vessel, $37.8 million on July 20, 1998 and $35.7 million on August 7, 1998, was drawn to finance the second and third Suezmax vessels delivered. The facilities bear interest at LIBOR plus, for the $53.0 million facility, a margin ranging from 0.65%-0.95% 20 based on the Company's funded debt to capitalization ratio, for the $71.5 million facility, a margin ranging from 0.85%-0.95% and for the $77.0 million facility, a margin ranging from 0.60%-1.00%. During December 1998, the Company entered into an agreement for a $60.0 million revolving credit facility to finance, on an interim basis, the acquisition of vessels and will be secured by such vessels. The facility bears interest at LIBOR plus a margin ranging from 0.55%-0.80% based on the Company's funded debt to capitalization ratio and interest coverage ratio. On January 14, 1999, the Company drew down $37.5 million to finance the Suezmax vessel delivered. The Company intends to repay this debt with the proceeds from permanent financing to be completed in 1999. Certain of the loan agreements 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's subsidiaries to pay dividends to the Company. These loan agreements also contain various provisions restricting the right of OMI and/or its subsidiaries to make certain investments, to place additional liens on the property of certain of OMI's subsidiaries, to incur additional long-term debt, to make certain payments, to merge or to undergo a similar corporate reorganization, and to enter into transactions with affiliated companies. At December 31, 1998, the Company was in compliance with all its financial covenants. The Company believes that the actions it has taken in the last year and continues to do currently to improve its liquidity and financial position will give the Company greater financial flexibility to fund its vessel acquisition program and finance its other cash needs. OTHER COMMITMENTS The Company has three remaining construction contracts with the same yard for two product carriers with expected capitalized costs at delivery in 1999 of $30.0 million each and one Suezmax carrier with an expected capitalized cost of $51.0 million scheduled to be delivered in 2000. 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 $15.0 million at December 31, 1998 with OMI's guaranty of such debt being approximately $7.5 million. The Company and its joint venture partners have committed to fund any working capital deficiencies that may be incurred by their joint venture investments. In 1998 and 1997, OMI advanced $0.2 million and $0.4 million, respectively, in the form of non-interest bearing loans to cover operating expenses of a new joint venture. At December 31, 1998, no other such deficiencies have been funded. AGREEMENTS As part of the Distribution, OMI is 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 is equivalent in value to the principal amount of the Senior Notes then outstanding. 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. As part of the Distribution Agreement, OMI has, subject to certain exceptions, provided indemnity to MTC for all taxes attributable to the Distribution and to certain corporate restructuring transactions preceding the Distribution. 21 Tax Cooperation Agreement-Prior to the Distribution, OMI and MTC entered into a Tax Cooperation Agreement which sets forth each party's rights and obligations with respect to federal, state, local and foreign taxes for periods prior and after the Distribution and related matters such as the filing of tax returns and the conduct of audits and other proceedings. In general, the Tax Cooperation Agreement provides that OMI will be liable for taxes and be entitled to refunds for each period covered by any such return which are attributable to OMI and its subsidiaries and that MTC will be liable for and be entitled to refunds for each period covered by such return which are not attributable to OMI or OMI subsidiaries. Though valid as between the parties thereto, the Tax Cooperation Agreement is not binding on the IRS and does not alter either party's tax liability to the IRS. 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. EFFECTS OF INFLATION The Company does not consider inflation to be a significant risk to the cost of doing business in the current or foreseeable future. Inflation has a moderate impact on operating expenses, drydocking expenses and corporate overhead. YEAR 2000 ISSUE GENERAL The "Year 2000 issue" arises from the fact that many computer hardware and software systems use only two digits rather than four digits to define the applicable year. As a result, these systems may not calculate dates beyond 1999, which may result in system failure or miscalculations by computer programs which could cause disruption of the Company's operations. STATE OF READINESS The Company has taken steps to ensure that its systems will be year 2000 compliant including systems on board vessels. The Company has been in the process over the last year of upgrading its internal hardware and software systems for business reasons other than Year 2000 compliance. Therefore, the Company believes, after conversion to the new systems, the Year 2000 issue will not pose significant operational problems for its computer systems. However, the Year 2000 readiness of the Company's customers, suppliers and business partners may vary. The Company developed a plan that outlines the Company's procedures to become Y2K compliant which was approved in November 1998 by senior management of OMI, as well as the Board of Directors. An oversight committee was formed which includes members of senior and technical management who meet on a monthly basis with the Company's Information Services team. The procedures in the plan or the "Project", address the following: identification of inventory and assessment as to its Y2K readiness, remediation strategies and remediation costs. The Company has initiated formal communications with vendors and other customers which the Company does business with, to determine the extent to which the Company is vulnerable to those third parties failure to remedy their own Y2K issue. The Company cannot predict the outcome of other companies' remediation efforts. The Project includes procedures for fixing critical systems using a combination of replacements and upgrades. The Company has identified and scheduled a sufficient number of qualified personnel to accomplish the Project objectives and has established a process for monitoring its progress against the Y2K plan in accordance with a timetable of expected completion dates for the various phases of the Project. 22 The Company expects all critical systems and products to be Y2K compliant as of July 1999. Currently, 50 percent of the accounting systems and 70 percent of the ship hardware is year 2000 compliant. COSTS The Y2K Project includes estimated costs of $0.2 million related to financial systems. The cost that relates to fixture of ships' software and hardware is expected to be minimal. Additionally, the Company has already paid $0.3 million, not included in the estimated budget for financial systems, towards new financial applications implementation which included the hardware, software and support fees. Based on responses received from vendors, to date, the Company is not aware of any significant investments in assets that are not Y2K compliant. There can be no guarantee that these estimates will be achieved and actual results could differ from what has been anticipated. Based on its current estimates and information currently available, the Company does not anticipate that costs associated with this Project will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows in future periods. RISK ASSESSMENT At this time, until the process is tested, the Company cannot fully estimate the risks of its Y2K issue. To date, OMI has not identified any material risks of not being year 2000 ready. However, if a risk should subsequently arise, OMI would identify its effects and remedy by the contingency plan, see below. Additionally, there is exposure to third parties because guarantees which the Company relies on as to Y2K compliance are not specifically verified, which can also cause disruption if not remedied in a timely manner. CONTINGENCY PLAN The Company relies on vendor guarantees that critical systems are Y2K compliant. Therefore, the Company anticipates that those critical systems will function properly. OMI has "full" maintenance contracts with all its vendors in the case of any system problem, they are required to resolve such problems within a reasonable amount of time. The Company does not anticipate that any of their critical and non-critical systems will not be Y2K compliant by the required completion dates. There are no critical and unique high volume systems for which a contingency plan may not be possible. Further, if the computer system would go down, the Company plans to revert to manual procedures, which will be reviewed and tested during 1999. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk The Company is exposed to various market risks, including interest rates. The exposure to interest rate risk relates primarily to its debt and related interest rate swaps. The majority of this exposure is the floating rate debt, which totaled $239.8 million at December 31, 1998. A one percent increase in the floating rate would increase the interest expense by $2.4 million per year. The fixed rate debt on the balance sheet and the fair market value were $7.4 million as of December 31, 1998. If the interest rate was to increase (decrease) by one percent with all other variables remaining constant, the market value of the fixed rate debt would decrease (increase) by approximately $0.3 million. The Company has entered into interest rate swap agreements to manage its exposure with interest rates by locking in fixed interest rates from floating rates. At December 31, 1998, there were three swaps with a total notional principal of $32.7 million. The swap agreements have various maturity dates from February 1999 to June 1999, and the Company would have had to pay $0.4 million to terminate the agreements as of December 31, 1998. Since the agreements mature in 1999 and terms of the contracts are known, the maximum exposure to the interest rate swaps is $0.4 million. 23 INDEX TO FINANCIAL STATEMENTS
Page ---- OMI Corporation And Subsidiaries: Consolidated Statements of Operations and Comprehensive Income for the three years ended December 31, 1998 ............................................................................ 25 Consolidated Balance Sheets at December 31, 1998 and 1997 ...................................... 26 Consolidated Statements of Cash Flows for the three years ended December 31, 1998 .............. 28 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1998 .... 29 Notes to Consolidated Financial Statements ..................................................... 31 Independent Auditors' Report ................................................................... 48 Quarterly Results of Operations (Unaudited)..................................................... 49 Financial Statements of Significant Investees of OMI Corporation and Subsidiaries: Amazon Transport, Inc. Balance Sheets at December 31, 1998 and 1997 ................................................... 50 Statements of Operations for the three years ended December 31, 1998 ........................... 51 Statements of Cash Flows for the three years ended December 31, 1998 .... ...................... 52 Notes to Financial Statement ................................................................... 53 Independent Auditors' Report ................................................................... 55 White Sea Holdings Ltd. Balance Sheets at December 31, 1998, and 1997 .................................................. 56 Statements of Income and Retained Earnings for the three years ended December 31, 1998 ......... 57 Statements of Cash Flows for the three years ended December 31, 1998 ........................... 58 Notes to Financial Statements .................................................................. 59 Independent Auditors' Report ................................................................... 61 Mosaic Alliance Corporation Consolidated Statements of Operations and Retained Earnings for the period ended December 10, 1997 and the year ended December 31, 1996........................................ 62 Consolidated Balance Sheet at December 10, 1997 and December 31, 1996 .......................... 63 Consolidated Statements of Cash Flows for the period ended December 10, 1997 and the year ended December 31, 1996.................................................................. 64 Notes to Consolidated Financial Statements...................................................... 65 Report of the Auditors ......................................................................... 71
24 Item 8: FINANCIAL STATEMENT 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, --------------------------------------- 1998 1997 1996 --------- --------- --------- REVENUES (Note 4) ........................................... $ 149,228 $ 141,985 $ 111,292 --------- --------- --------- OPERATING EXPENSES: Vessel and voyage (Note 1) ................................ 82,368 77,686 67,008 Operating leases .......................................... 25,529 8,906 4,592 Depreciation and amortization (Note 1) .................... 24,314 22,675 18,142 General and administrative (Note 4) ....................... 10,773 12,540 6,851 --------- --------- --------- Total operating expenses .................................... 142,984 121,807 96,593 --------- --------- --------- OPERATING INCOME ............................................ 6,244 20,178 14,699 --------- --------- --------- OTHER INCOME (EXPENSE): Gain on disposal of assets-net (Note 11) .................. 6,485 885 4,078 Interest expense .......................................... (11,118) (11,756) (16,912) Interest income ........................................... 1,346 2,222 1,886 Other-net ................................................. (882) -- -- --------- --------- --------- Net other expense ........................................... (4,169) (8,649) (10,948) --------- --------- --------- Income before income taxes, equity in operations of joint ventures, extraordinary loss and cumulative effect of change in accounting principle ............................ 2,075 11,529 3,751 (Benefit) provision for income taxes (Note 9) ............... (37,158) 5,407 876 --------- --------- --------- Income before equity in operations of joint ventures, extraordinary loss and cumulative effect of change in accounting principle ...................................... 39,233 6,122 2,875 Equity in operations of joint ventures (Note 6) ............. 3,684 737 2,481 --------- --------- --------- Income before extraordinary loss and cumulative effect of change in accounting principle ......................... 42,917 6,859 5,356 Extraordinary loss, net of tax benefit ...................... -- -- (1,663) Cumulative effect of change in accounting principle, net of income tax provision (Note 18) ............................ -- 10,063 -- --------- --------- --------- NET INCOME (Notes 1, 14, 18) ................................ 42,917 16,922 3,693 Other Comprehensive Income: Reversal of deferred income taxes on cumulative translation adjustment .............................................. 2,530 -- -- --------- --------- --------- Comprehensive Income ........................................ $ 45,447 $ 16,922 $ 3,693 ========= ========= ========= Basic Earnings Per Common Share: Income before extraordinary loss and cumulative effect of change in accounting principle .......................... $ 1.01 $ 0.16 $ 0.16 Net income ................................................ $ 1.01 $ 0.39 $ 0.11 Diluted Earnings Per Common Share: Income before extraordinary loss and cumulative effect of change in accounting principle .......................... $ 1.00 $ 0.16 $ 0.16 Net income ................................................ $ 1.00 $ 0.39 $ 0.11
See notes to consolidated financial statements. 25 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS December 31, -------------------- 1998 1997 -------- -------- CURRENT ASSETS: Cash, including cash equivalents of: 1998-$10,166; 1997-$25,900 (Notes 1, 8) ................ $ 22,698 $ 30,608 Receivables: Traffic ................................................ 12,842 8,151 Other .................................................. 2,733 2,957 Prepaid drydock expense (Note 18) ........................ 3,550 4,705 Other prepaid expenses and other current assets (Note 13) 5,272 6,189 -------- -------- Total current assets ................................... 47,095 52,610 -------- -------- VESSELS, CONSTRUCTION IN PROGRESS AND OTHER PROPERTY Vessels (Notes 1, 7) ................................... 543,040 425,209 Construction in progress (Notes 1, 17) ................. 34,733 56,032 Other property ......................................... 1,407 435 -------- -------- Total vessels, construction in progress and other property 579,180 481,676 Less accumulated depreciation (Note 1) ................... 150,585 138,648 -------- -------- Vessels, construction in progress and other property ..... 428,595 343,028 -------- -------- INVESTMENTS IN, AND ADVANCES TO JOINT VENTURES (Note 6) .. 25,507 27,810 OTHER ASSETS AND DEFERRED CHARGES ........................ 28,930 17,260 -------- -------- TOTAL .................................................... $530,127 $440,708 ======== ======== See notes to consolidated financial statements. 26 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except shares) LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, ------------------------ 1998 1997 --------- --------- CURRENT LIABILITIES: Accounts payable ........................................... $ 2,520 $ 1,512 Accrued liabilities: Voyage and vessel (Note 18) .............................. 11,438 7,230 Interest ................................................. 4,007 287 Other .................................................... 2,571 3,307 Deferred gain on sale of vessel (Note 10) .................. 3,151 3,151 Current portion of long-term debt (Notes 6, 7) ............. 21,494 5,575 --------- --------- Total current liabilities ................................ 45,181 21,062 --------- --------- ADVANCE TIME CHARTER REVENUES AND OTHER LIABILITIES (Note 18) ...................................... 3,496 2,828 LONG-TERM DEBT (Notes 4, 6, 7) ............................... 225,653 48,424 DEFERRED GAIN ON SALE OF VESSEL (Note 10) .................... 7,514 10,665 DEFERRED INCOME TAXES (Notes 1, 9) ........................... 3,100 45,480 PAYABLE TO PARENT -NET (Note 4) .............................. -- 28,691 COMMITMENTS AND CONTINGENCIES (Note 17) STOCKHOLDERS' EQUITY: Common stock, $0.50 par value; 80,000,000 shares authorized; shares issued and outstanding: 1998-43,676,000 1997-43,066,000 (Notes 1, 5, 16) ......................... 21,838 21,533 Capital surplus (Notes 1, 3, 4) ............................ 207,478 243,062 Retained earnings (deficit) (Notes 1, 3, 4) ................ 17,465 (25,452) Net intercompany transactions (Notes 1, 4) ................. -- 39,503 Cumulative translation adjustment .......................... 7,442 4,912 Treasury stock (Note 16) ................................... (9,040) -- --------- --------- Total stockholders' equity ............................... 245,183 283,558 --------- --------- TOTAL ........................................................ $ 530,127 $ 440,708 ========= =========
See notes to consolidated financial statements. 27 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Years Ended December 31, --------------------------------------- 1998 1997 1996 --------- --------- --------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income .................................................... $ 42,917 $ 16,922 $ 3,693 Adjustments to reconcile net income to net cash (used) provided by operating activities: Cumulative effect of change in accounting principle, net of tax -- (10,063) -- Extraordinary loss, net of tax ................................ -- -- 1,663 Decrease in deferred income taxes ............................. (39,850) (2,314) (1,011) Depreciation and amortization ................................. 24,314 22,675 18,142 Gain on disposal of assets-net ................................ (6,485) (885) (4,078) Net intercompany transactions ................................. 1,337 11,357 9,396 Amortization of deferred gain on sale of vessel ............... (3,151) (1,940) -- Equity in operations of joint ventures over dividends received .......................................... (254) (2) (2,114) Changes in assets and liabilities: Increase in receivables and other current assets .............. (2,460) (4,532) (2,295) Increase (decrease) in accounts payable and accrued liabilities ......................................... 8,292 2,508 (5,438) Payable to parent-net ......................................... (3,217) (16,687) 8,549 Advances from joint ventures-net .............................. (185) (254) (6,170) (Increase) decrease in other assets and deferred charges ...... (3,347) 4,092 (2,265) (Decrease) increase in advance time charter revenues and other liabilities ....................................... (240) (1,220) 1,166 Other assets and liabilities-net .............................. -- -- (93) --------- --------- --------- Net cash provided by operating activities ................... 17,671 19,657 19,145 --------- --------- --------- CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from disposition of vessels and other property ....... 44,877 38,977 15,045 Proceeds from sale of securities .............................. -- -- 1,080 Additions to vessels and other property ....................... (147,407) (55,285) (12,602) Proceeds from dispositions of joint ventures .................. 2,989 32,301 4,813 Investment in joint venture ................................... (247) (343) -- --------- --------- --------- Net cash (used) provided by investing activities ............ (99,788) 15,650 8,336 --------- --------- --------- CASH FLOWS (USED) PROVIDED By FINANCING ACTIVITIES: Proceeds from issuance of long-term debt ...................... 171,300 -- 3,000 Payments on long-term debt .................................... (87,070) (24,732) (22,571) Purchase of treasury stock .................................... (9,040) -- -- Payment to parent relating to notes ........................... -- -- (11,000) Capital contribution from OMI ................................. -- 4,100 10,683 Dividends paid ................................................ -- -- (17,500) Payments for debt issue costs ................................. (983) (123) -- --------- --------- --------- Net cash provided (used) by financing activities ............ 74,207 (20,755) (37,388) --------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............ (7,910) 14,552 (9,907) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 30,608 16,056 25,963 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 22,698 $ 30,608 $ 16,056 ========= ========= =========
See notes to consolidated financial statements. 28
OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For The Three Years Ended December 31, 1998 (in thousands) ACCUMULATED COMMON STOCK RETAINED NET OTHER ----------------- CAPITAL EARNINGS INTERCOMPANY TREASURY COMPREHENSIVE SHARES AMOUNT SURPLUS (DEFICIT) TRANSACTIONS STOCK INCOME ------ -------- ------- -------- ------------ --------- -------------- Balance at January 1, 1996 .............. 31,041 $ 15,521 $155,633 $ 28,524 $ 17,087 $4,912 Comprehensive income: Net income ............................ 3,693 Net change in valuation account comprehensive income ................ Comprehensive Income .................... Transfer of subsidiaries from Parent (Note 3) .............................. 95,953 (74,591) Shares issued in common stock offering .............................. 11,500 5,750 (5,750) Exercise of stock options and stock appreciation rights ................... 150 75 (75) Capital contribution from Parent ........ 10,683 Retirement of partner's equity interest in joint venture (Note 6) .... (18,072) Net intercompany transactions ........... 11,059 ------ ------- -------- -------- -------- -------- ------ Balance at December 31, 1996 ............ 42,691 21,346 238,372 (42,374) 28,146 4,912 Comprehensive income: Net income ............................ 16,922 Net change in valuation account comprehensive income ................ Comprehensive Income .................... Capital contribution of ................. intercompany account balance with parent (Note 4) ....................... 4,100 Retirement of partner's equity interest in joint venture (Note 6) .... 777 Net intercompany transactions ........... 11,357 Issuance of common stock ................ 375 187 (187) ------ ------- -------- -------- -------- -------- ------ Balance at December 31, 1997 ............ 43,066 21,533 243,062 (25,452) 39,503 4,912 Comprehensive Income: Net Income ............................ 42,917 Reversal of deferred income taxes on cumulative translation adjustment .......................... 2,530 Comprehensive income .................... Capital distribution of net intercompany account balance with parent (Note 4) .................. (76,119) Net intercompany transactions ........... 1,337 Capital distribution of net intercompany transactions with parent (Note 4) ....................... 40,840 (40,840) Exercise of stock options ............... 50 25 (25) Issuance of common stock ................ 560 280 (280) Purchase of treasury stock (Note 16) .... $ (9,040) ------ ------- -------- -------- -------- -------- ------ Balance at December 31, 1998 ............ 43,676 $21,838 $207,478 $ 17,465 $ -- $ (9,040) $7,442 ====== ======= ======== ======== ======== ======== ====== 29 TOTAL COMPREHENSIVE STOCKHOLDERS' INCOME EQUITY ------------- ------------- Balance at January 1, 1996 .............. $221,677 Comprehensive income: Net income ............................ $ 3,693 3,693 Net change in valuation account comprehensive income .................. -- ------- Comprehensive Income .................... $ 3,693 ======= Transfer of subsidiaries from Parent (Note 3) .............................. 21,362 Shares issued in common stock offering .............................. -- Exercise of stock options and stock appreciation rights ................... -- Capital contribution from Parent ........ 10,683 Retirement of partner's equity interest in joint venture (Note 6) .... (18,072) Net intercompany transactions ........... 11,059 -------- Balance at December 31, 1996 ............ 250,402 Comprehensive income: Net income ............................ $16,922 16,922 Net change in valuation account comprehensive income ................ -- ------- Comprehensive Income .................... $16,922 ======= Capital contribution of intercompany account balance with parent (Note 4) ....................... 4,100 Retirement of partner's equity interest in joint venture (Note 6) .... 777 Net intercompany transactions ........... 11,357 Issuance of common stock ................ -- -------- Balance at December 31, 1997 ............ 283,558 Comprehensive Income: Net Income ............................ $42,917 42,917 Reversal of deferred income taxes on cumulative translation adjustment .......................... 2,530 2,530 ------- Comprehensive income .................... $45,447 ======= Capital distribution of net intercompany account balance with parent (Note 4) .................. (76,119) Net intercompany transactions ........... 1,337 Capital distribution of net intercompany transactions with parent (Note 4) ....................... -- Exercise of stock options ............... -- Issuance of common stock ................ -- Purchase of treasury stock (Note 16) ... (9,040) -------- Balance at December 31, 1998 ............ $245,183 ========
See notes to consolidated financial statements. 30 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three Years Ended December 31, 1998 (ALL TABULAR AMOUNTS ARE IN THOUSANDS) 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 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 80,000,0000 shares authorized (par value 50 cents), with 43,066,000 shares outstanding. This recapitalization has been reflected for all periods 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. RECLASSIFICATIONS-Certain reclassifications have been made to the 1997 and 1996 financial statements to conform to the 1998 presentation. The financial statements and computations of basic and diluted earnings per share (see Note 5) have been presented giving effect to the Distribution as though it occurred at the beginning of the earliest year presented. Except as indicated, amounts reflected in the financial statements or disclosed in the notes to financial statements relate to the Company's continuing operations and prior year amounts have been reclassified to conform with the current 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. 31 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) 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 18). 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. Interest capitalized was $3,762,000 in 1998, $2,207,000 in 1997 and $71,000 in 1996. 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 writedown to fair value is required. GOODWILL--Goodwill, included in Other Assets and Deferred Charges, recognized in business combinations accounted for as purchases, of $16,966,000 before accumulated amortization of $5,887,000 and $5,203,000 at December 31, 1998 and 1997, respectively, is being amortized over 25 years. 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 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 estimates that the distribution of shares to the shareholders of OMI Corp. will result in Federal income taxes becoming currently 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, $38,887,000 of the balance of deferred income taxes was credited to income, leaving a balance of $3,100,000 (See Note 9). 32 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 14). CASH FLOWS-Cash equivalents represent liquid investments which mature within 90 days. The carrying amount approximates fair value. NEWLY ISSUED ACCOUNTING STANDARDS-In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities" was issued. This SFAS establishes accounting and reporting standards for derivative instruments and for hedging activities. Generally, it requires that an entity recognize 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 certain FASB Statements previously issued and is effective for the first quarter in 2000. The Company does not expect that this new standard will have any material effects on the financial statements. NOTE 2-DISTRIBUTION As part of the Distribution, OMI is 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 is equivalent in value to the principal amount of the Senior Notes then outstanding. 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. As part of the Distribution Agreement, OMI has, subject to certain exceptions, provided indemnity to MTC for all taxes attributable to the Distribution and to certain corporate restructuring transactions preceding the Distribution. 33 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 2-DISTRIBUTION (Continued) Tax Cooperation Agreement-Prior to the Distribution, OMI and MTC entered into a Tax Cooperation Agreement which sets forth each party's rights and obligations with respect to federal, state, local and foreign taxes for periods prior to and after the Distribution and related matters such as filing of tax returns and conducting audits and other proceedings. In general, the Tax Cooperation Agreement provides that OMI will be liable for taxes and be entitled to refunds for each period covered by any such return which are attributable to OMI and its subsidiaries and that MTC will be liable for and be entitled to refunds for each period covered by such return which are not attributable to OMI or OMI subsidiaries. Though valid as between the parties thereto, the Tax Cooperation Agreement is not binding on the IRS and does not alter either party's tax liability to the IRS. NOTE 3--TRANSFER OF SUBSIDIARIES On December 31, 1997, OMI Corp. transferred 100 percent of the outstanding shares of two subsidiaries with a net book value of $36,586,000 to UBC, now OMI Corporation. These subsidiaries own two foreign flag vessels which were acquired in 1996, the SHANNON and the ELBE, with an aggregate book value of $39,279,000. Prior to the acquisitions of these vessels, these subsidiaries owned, operated and later disposed of U.S. flag vessels. The aggregate accumulated deficit applicable to activities other than the operation of the SHANNON and ELBE was $74,591,000 and was recorded as a charge to retained earnings in 1996. OMI Corporation has accounted for the transfers of these subsidiaries as a combination of interests under common control and has included in income the results of operations of these subsidiaries since the dates they acquired the SHANNON and the ELBE. NOTE 4--RELATED PARTY TRANSACTIONS Payable to parent-net represents interest bearing and non-interest bearing notes and non-interest bearing advances. Net intercompany transactions represent allocations for income taxes, interest expense on unsecured corporate debt and allocation of general corporate expenses. 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 presented. 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 7). 34 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 4--RELATED PARTY TRANSACTIONS (Continued) For the year ended December 31, 1998, aggregate revenues of $17,385,000 related to vessels chartered to companies partially owned by a Director of OMI were included in the Consolidated Statements of Operations and Comprehensive Income. NOTE 5--EARNINGS PER COMMON SHARE The computation of basic 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 using the treasury stock method and the conversion of the 7% convertible note due 2004, to the extent dilutive (See Note 7). 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, -------------------------------- 1998 1997 1996 ------- ------- ------- Basic earnings per share: Weighted average common shares outstanding ... 42,671 42,914 33,440 ======= ======= ======= Diluted earnings per share: Weighted average common shares outstanding ... 42,671 42,914 33,440 7% Convertible Note .......................... -- 407 407 Options ...................................... 189 336 367 ------- ------- ------- Weighted average common shares-diluted ......... 42,860 43,657 34,214 ======= ======= ======= Basic earnings per common share: Net income before extraordinary loss and cumulative effect of change in accounting principle .................................. $ 1.01 $ 0.16 $ 0.16 Extraordinary loss, net of income tax benefit -- -- (0.05) Cumulative effect of change in accounting principle, net of income tax provision ..... -- 0.23 -- ------- ------- ------- Net income per common share .................... $ 1.01 $ 0.39 $ 0.11 ======= ======= ======= Diluted earnings per common share: Net income before extraordinary loss and cumulative effect of change in accounting principle .................................. $ 1.00 $ 0.16 $ 0.16 Extraordinary loss, net of income tax benefit -- -- (0.05) Cumulative effect of change in accounting principle, net of income tax provision ..... -- 0.23 -- ------- ------- ------- Net income per common share .................... $ 1.00 $ 0.39 $ 0.11 ======= ======= ======= 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 1998 because the average price of OMI's stock was less than the stock conversion price of $7.285. 35 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 6--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 Grandteam Ship Management Ltd.................................... 50.0(3) Kanejoy Corporation ("Kanejoy").................................. 49.9(2) Mosaic Alliance Corporation ("Mosaic")........................... 49.9(4) OMI-Heidmar Shipping Ltd. ("OMI-Heidmar")........................ 50.0 Vanomi Management, Inc........................................... 50.0(3) White Sea Holdings Ltd. ("White Sea")............................ 49.0 Wilomi, Inc. ("Wilomi").......................................... 49.0(5) (1) The venture was begun on May 8, 1998. (2) Liquidated January 27, 1999. (3) The Company transferred its joint venture interest to its partner on January 9, 1997. (4) Partner's interest acquired on December 10, 1997. (5) Partner's interest retired on December 30, 1996. 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 and in December 1998, OMI received $2,989,000 cash from return of capital in its Kanejoy venture, and recorded a loss from Gainwell of $678,000. In 1998, the Company chartered three vessels for an aggregate of $6,720,000 to OMI-Heidmar. This amount is included in the revenue of the Company since the operations of OMI-Heidmar are not consolidated. 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. On December 30, 1996, the interest in Wilomi owned by an affiliate of Anders Wilhelmsen & Co. of Oslo, Norway ("Wilhelmsen") was reacquired by the venture for net assets with a book value of $46,449,000, consisting of one vessel under construction, cash and other assets, net of long-term debt of $27,340,000 and certain other liabilities, and Wilomi became a 100 percent owned subsidiary of OMI. The excess of the carrying value of net assets transferred to Wilhelmsen over the book value of its equity interest in the venture in the amount of $17,295,000 was charged to capital surplus. 36 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 6--INVESTMENTS IN JOINT VENTURES (Continued) Summarized combined financial information pertaining to all affiliated companies accounted for by the equity method is as follows:
For the Years Ended December 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Results of operations: Revenues .......................................... $ 55,698 $ 41,804 $ 61,386 Operating income .................................. 9,637 10,762 11,045 Loss on disposal of assets-net .................... (423) (8,765) (254) Cumulative effect of change in accounting principle -- 1,196 -- Net income ........................................ 7,626 2,502 3,839
December 31, --------------------------- 1998 1997 -------- -------- Net Assets: Current assets .................. $ 19,888 $ 21,757 Vessels and other property-net .. 51,824 75,382 Other assets .................... 2,402 3,091 -------- -------- Total assets ..................... 74,114 100,230 -------- -------- Less: Current liabilities ............. 10,880 9,184 Long-term debt .................. 13,450 37,159 Other liabilities ............... 1,243 191 -------- -------- Total liabilities ............... 25,573 46,534 -------- -------- Shareholders' and partners' equity $ 48,541 $ 53,696 ======== ========
Dividends received from joint ventures were as follows: For the Years Ended December 31, ---------------------------------- 1998 1997 1996 ------ ------ ------ White Sea ........................................... $1,470 $ 735 $ 368 Amazon .............................................. 1,960 -- -- ------ ------ ------ Total ........................................... $3,430 $ 735 $ 368 ====== ====== ======
37 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 7--LONG-TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt payable to banks consists of the following:
DECEMBER 31, --------------------- 1998 1997 -------- -------- Loans under bank credit agreements at a margin plus variable rates of the London Interbank Offering Rate ("LIBOR") (1) $239,790 $ -- Mortgage notes at variable rates above LIBOR in varying installments to 2005(2) ......................... -- 53,999 10.25% Unsecured Senior Notes due 2003 ..................... 4,357 -- 7.00% Convertible Note due 2004 ............................ 3,000 -- -------- -------- Total ...................................................... 247,147 53,999 Less current portion of long-term debt ..................... 21,494 5,575 -------- -------- Long-term debt ............................................. $225,653 $ 48,424 ======== ========
(1) Rates at December 31, 1998 were 5.6384 percent to 6.60 percent (including margins). (2) Rates at December 31, 1997 were 6.6437 percent to 7.2123 percent (including margins). Aggregate maturities during the next five years from December 31, 1998 are $21,494,000, $22,665,000, $29,075,000, $81,325,000 and $9,275,000 . During the years ended December 31, 1998, 1997 and 1996 interest paid totaled approximately $8,070,000, $6,734,000 and $7,100,000, respectively. Certain of the loan agreements 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 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. The Company was in compliance with all covenants at December 31, 1998. The Company has a credit facility, which was assumed from Old OMI, that provides for a line of credit currently amounting to $116,500,000 (not to exceed 70 percent of the fair market value of the vessels securing the loan and after the reductions described below). The credit facility is secured by eleven vessels with a book value aggregating $170,099,000 at December 31, 1998. The Notes under the Credit Facility bear interest at LIBOR plus a margin ranging from 0.60%-0.95%, which is computed based on OMI's funded debt to equity ratio and interest coverage ratio. The agreement, which expires in April 2002, provides for nine semi-annual reductions in the amount which can be outstanding; the first five reductions are $5,500,000, the next four are $8,875,000 and the balance is due at maturity. At December 31, 1998, six semi-annual reductions remain. As long as the available balance of the credit facility exceeds the outstanding loan balance and the collateral tests are met, current amortization is not required. In the event any vessels collateralizing the agreement are sold, the credit facility shall be reduced by up to 100 percent of the sales proceeds; however, the Company is permitted to substitute other vessels as collateral. At December 31, 1998 the outstanding loan balance was $116,090,000. On January 7, 1999, OMI repaid $12,000,000 of the outstanding balance. 38 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 7--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (Continued) On June 4, 1998, the Company entered into a secured revolving credit agreement in the amount of $53,000,000 to refinance two Panamax tankers and finance two product carriers (see Note 17) when delivered. The loan consists of three tranches; on June 9, 1998, the Company drew down the first tranche of $16,000,000 to refinance the two Panamax tankers. The $16,000,000 is to be repaid in quarterly installments of $800,000 over the next five years and bears interest at LIBOR plus a margin ranging from 0.65%-0.95%, which is computed based on the Company's funded debt to capitalization ratio. At December 31, 1998, the outstanding loan balance was $14,400,000 and $37,000,000 was available. 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 is 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 dradown date. The facility bears interest at LIBOR plus a margin ranging from 0.85%-0.95%. At December 31, 1998, the outstanding loan balance was $71,500,000. On July 6, 1998, the Company entered into an agreement for a $77,000,000 secured reducing revolving credit facility to finance two Suezmax tankers upon their delivery from the yard. The Company drew down $37,800,000 on July 20, 1998 to finance the first newbuilding. The availability under this facility is reduced by 14 semi-annual reductions of 3.9% of the original loan balance, and the remaining balance is due at maturity, which is ten years after the initial drawdown. The facility bears interest at LIBOR plus a margin ranging from 0.60%-1.00%. At December 31, 1998 the outstanding loan balance was $37,800,000 and $39,200,000 was available. During December 1998, the Company entered into an agreement with a lender for a $60,000,000 revolving credit facility. The revolving credit facility is to be used to finance, on an interim basis, the acquisition of vessels and will be secured by such vessels. Amounts drawn on the revolving credit facility is to be repaid no later than six months after drawdown. The facility will bear interest at LIBOR plus a margin ranging from 0.55% to 0.80% which is computed based on the Company's funded debt to total capitalization ratio and interest coverage ratio. The new revolving credit facility contains the same financial covenants as the facility described above. On January 14, 1999, the Company drew down $37,498,000 under this facility to finance the acquisition of a Suezmax new building. At December 31, 1998, vessels with a net book value of $360,604,000 have been pledged as collateral on long-term debt issues. On February 28, 1999, the Company obtained a $25,000,000 revolving line of credit secured by five vessels with a book value of $32,024,000 as of December 31, 1998, and shares in a joint venture company which have a book value of approximately $9,600,000 as of December 31, 1998. The revolving credit facility is to be used for working capital and other general corporate purposes. The facility will be reduced by OMI's share of sale proceeds in the event of a vessel sale. The facility matures in one year from the closing date and may be renewed annually subject to bank approval. The line of credit bears interest at LIBOR plus a margin that varies with facility usage but not greater than 1.75%. OMI has entered into interest rate swap agreements to manage interest costs and the risk associated with changing interest rates. The Company had three interest rate swap agreements with commercial banks at December 31,1998 and 1997. 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 swap agreements have various maturity dates from February 1999 to June 1999. The changes in the notional principal amounts are as follows: 39 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 7--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (Continued) DECEMBER 31, -------------------- 1998 1997 -------- -------- Notional principal amount, beginning of the year ....... $ 32,700 $ 52,700 Reductions of notional amounts ......................... -- (20,000) -------- -------- Notional principal amount, end of the year ............. $ 32,700 $ 32,700 ======== ======== Interest expense pertaining to interest rate swaps for the three years ended December 31, 1998, 1997 and 1996 was $718,000, $765,000 and $799,000 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. The Company has granted the counter-party to two swap agreements a second priority mortgage on one of its vessels as security. NOTE 8--FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, ----------------------------------------------- 1998 1997 --------------------- --------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- -------- -------- -------- Cash and cash equivalents ......... $ 22,698 $ 22,698 $ 30,608 $ 30,608 Notes receivable-long-term ........ 6,605 6,605 -- -- Total debt ........................ 247,147 247,156 53,999 53,999 Unrecognized financial instruments: Interest rate swaps in a net payable position ................ 399 1,058
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. 40 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 9--INCOME TAXES A summary of the components of the provision (benefit) for income taxes excluding the cumulative effect of change in accounting principle and the extraordinary loss is as follows:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Current provision .............................. $ 1,729 $ 7,721 $ 1,887 Deferred tax benefit ........................... (38,887) (2,314) (1,011) -------- -------- -------- (Benefit) provision for income taxes ........... $(37,158) $ 5,407 $ 876 ======== ======== ======== The provision (benefit) for income taxes on income (loss) varies from the statutory rates due to the following: FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Provision at statutory rate (1) ................ $ 1,204 $ 4,293 $ 2,180 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 (1,148) Other .......................................... -- -- (156) -------- -------- -------- (Benefit) provision for income taxes .......... $(37,158) $ 5,407 $ 876 ======== ======== ========
(1) Includes income before income taxes of $3,540,000 through June 17, 1998 after which OMI was no longer a taxable entity. The components of deferred income taxes at December 31, 1997 relate to the tax effects allocated for temporary differences as follows: Deferred tax liabilities: Difference between book and tax basis in assets $ 36,418 Previously excluded foreign income ............ 8,105 Prepaid drydock costs ......................... 2,344 -------- Total deferred tax liabilities ................. 46,867 -------- Deferred tax assets: Unrealized losses on investments .............. (1,019) Reserve for drydocking ........................ -- Deferred foreign deficits ..................... (117) Difference between book and tax basis of investments in Amazon/White Sea ........... 488 Other ......................................... (739) -------- Total deferred tax assets ................... (1,387) -------- Deferred income taxes .......................... $ 45,480 ======== 41 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 9--INCOME TAXES (Continued) 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 10--OPERATING LEASES Total rental expense was $25,820,000, $8,877,000 and $4,592,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Leases are for vessels and office space. The future minimum rental payments required by year, under operating leases subsequent to December 31, 1998, are as follows: 1999........................................................ $ 17,291 2000........................................................ 18,205 2001........................................................ 16,589 2002........................................................ 3,806 2003........................................................ 688 Thereafter.................................................. 2,060 -------- Total $ 58,639 ======== 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, 1998, the deferred gain on sale was $10,665,000. 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, 1998 on these time charters are $8,132,000 in 1999 and $2,876,000 in 2000. NOTE 11--DISPOSAL OF ASSETS On August 20, 1998 the Company sold the TANANA for approximately $45,000,000 at a gain of $6,485,000. In December 1996, OMI sold its Liquid Petroleum Gas Carrier, which it delivered on March 12, 1997, for a gain of approximately $1,000,000. Gain on disposal of assets-net consists of the following: FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 ------- ------- ------- Gain on sale of vessels ................ $ 6,485 $ 885 $ 3,620 Gain on sale of securities ............. -- -- 489 Other .................................. -- -- (31) ------- ------- ------- Total .................................. $ 6,485 $ 885 $ 4,078 ======= ======= ======= 42 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 12--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. The following is a summary of the operations by major operating segments for the three years ended December 31, 1998:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 --------- --------- --------- REVENUES: Crude Oil Tanker Fleet ......................................... $ 98,517 $ 72,678 $ 49,985 Product Carrier Fleet .......................................... 50,649 67,919 54,950 Other .......................................................... 62 1,388 6,357 --------- --------- --------- $ 149,228 $ 141,985 $ 111,292 ========= ========= ========= OPERATING INCOME: Crude Oil Tanker Fleet ......................................... $ 13,135 $ 12,409 $ 4,842 Product Carrier Fleet .......................................... 3,704 16,447 10,358 --------- --------- --------- 16,839 28,856 15,200 General and administrative expense not allocated to vessels .... (7,089) (7,931) (2,671) Other .......................................................... (3,506) (747) 2,170 --------- --------- --------- Total ....................................................... $ 6,244 $ 20,178 $ 14,699 ========= ========= ========= IDENTIFIABLE ASSETS: Crude Oil Tanker Fleet ......................................... $ 252,741 $ 164,344 $ 129,460 Product Carrier Fleet .......................................... 203,537 201,126 211,285 --------- --------- --------- 456,278 365,470 340,745 Investments in, and advances to joint ventures ................. 25,507 27,810 59,407 Cash and cash equivalents ...................................... 22,698 30,608 16,056 Goodwill ....................................................... 11,079 11,763 12,447 Other .......................................................... 14,565 5,057 10,808 --------- --------- --------- Total ....................................................... $ 530,127 $ 440,708 $ 439,463 ========= ========= ========= CAPITAL EXPENDITURES: Crude Oil Tanker Fleet (1) ..................................... $ 133,969 $ 45,620 $ 11,634 Product Carrier Fleet (2) ...................................... 12,714 9,241 26,274 Other .......................................................... 724 424 70 --------- --------- --------- Total ....................................................... $ 147,407 $ 55,285 $ 37,978 ========= ========= ========= DEPRECIATION AND AMORTIZATION: Crude Oil Tanker Fleet ......................................... $ 11,976 $ 8,406 $ 6,155 Product Carrier Fleet .......................................... 11,481 13,371 10,509 Other .......................................................... 857 898 1,478 --------- --------- --------- Total ....................................................... $ 24,314 $ 22,675 $ 18,142 ========= ========= ========= INTEREST EXPENSE: Crude Oil Tanker Fleet ......................................... $ 5,631 $ 2,008 $ 1,422 Product Carrier Fleet .......................................... 3,239 7,742 8,177 --------- --------- --------- 8,870 9,750 9,599 Intercompany borrowings ........................................ 1,382 1,241 915 Allocation from OMI Corp. (Old OMI) ............................ -- -- 5,344 Other .......................................................... 866 765 1,054 --------- --------- --------- Total ...................................................... $ 11,118 $ 11,756 $ 16,912 ========= ========= =========
43 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 12--FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED) (1) Includes progress payments and capitalized interest aggregating $133,645,000 in 1998, $45,289,000 in 1997 and $10,755,000 in 1996 for newbuildings. (2) Includes progress payments and capitalized interest aggregating $11,940,000 in 1998 for newbuildings. Mortgage debt of OMI Corp. (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 OMI Corp. (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 13--SAVINGS PLAN AND DEFERRED COMPENSATION 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 1998. 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 $74,000 and $54,000 for the 401(k) and Executive Savings Plan, respectively, from June 18, 1998 (distribution date) to December 31, 1998. At June 17, 1998, deferred compensation of $960,000 was transferred from Old OMI to OMI Corporation. Deferred compensation at December 31, 1998 was $908,000. NOTE 14--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. Effective June 17, 1998, 859,243 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. No options were exercised or forfeited in 1998. The weighted average exercise price of the options granted was $5.432, the following is a summary of options granted: Range of Exercise Number of Expiration Price Shares Date - -------------------------------------------------------------------------------- $3.39 31,006 February 1999 to January 2003 $4.015-$4.58 270,000 February 1999 to April 2005 $5.14-$5.43 420,237 June 2001 to May 2008 $6.42-$6.67 160,000 June 2001 to June 2008 $8.675-$8.95 98,000 August 1999 to May 2008 ------- 979,243 ======= 44 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 14--STOCK OPTION PLAN (Continued) Proceeds received from the exercise of the options are credited to the capital accounts. 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 123, the Company's net income and net income per share for the year ended December 31, 1998, would have been stated at the pro forma amounts indicated below: Net income: As reported .. $ 42,917 Pro forma .... 41,409 Earnings per common share: Basic Diluted ---------- ---------- As reported .. $ 1.01 $ 1.00 Pro forma .... $ 0.97 $ 0.96 The fair value of options granted under the Company's stock option plans during 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 5.01 percent and expected lives ranging from one to five years. See Note 15 regarding "Change in Control". NOTE 15--EMPLOYMENT AGREEMENTS AND SEPARATION ALLOWANCE PROGRAM 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 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 following 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. Old OMI had a Separation Allowance Program providing for severance benefits to all non-union employees other than non-resident aliens, leased employees, directors who were not employees of the Old OMI or employees with individual severance plans in the event there were a Change of Control in Old OMI and such employees were thereafter terminated without cause or transferred or their position was significantly changed. Severance benefits include a lump-sum payment equal to the employee's average monthly wages immediately prior to the date of termination times the lesser of 24 or one for each year of full-time employment by the Company (but not less than six). While the Program was not adopted by the Company when the distribution occurred, certain of its employees are entitled to the benefits thereunder due to the Change in Control described below. In February 1998, Old OMI learned that a U.S. institutional investor had acquired in excess of 20 percent of Old OMI outstanding common stock. The schedules filed by the investor with the Securities and Exchange Commission ("SEC") indicated that such shares were acquired solely for investment purposes and not to achieve control of Old OMI. Various employee compensation plans and agreements of Old OMI had provisions stating that a change in control of Old OMI would be deemed to occur when any person or entity becomes the beneficial owner of 20 percent or more of Old OMI's outstanding voting securities. Upon a Change in Control, these 45 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 15--EMPLOYMENT AGREEMENTS AND SEPARATION ALLOWANCE (CONTINUED) plans and agreements provide that (a) restrictions on restricted stock would lapse, (b) outstanding unexercised stock options would be canceled and, in one plan, Old OMI would be obligated to pay the holders of such options cash equal to the difference between the fair market value of the shares under the canceled options at the time of the Change in Control and the exercise price, and (c) cash payments equal to prior year bonuses would be made to officers with employment agreements. The Board of Directors of Old OMI did not believe that acquisition of a 20 percent or greater interest by an institutional investor acquiring such interest for investment purposes should be considered a change in control for purposes of Old OMI's compensation plans and agreements. The Board caused Old OMI to amend all the affected plans and agreements retroactive to October 1, 1997 to provide that a Change in Control would not be deemed to have occurred for the purposes specified under each such plan and agreement if the person or entity becoming the beneficial owner represents that it has acquired the ownership interest for investment purposes (maintains a Schedule 13G pursuant to Rule 13d-1 under the Securities Exchange Act of 1934) rather than for purposes of attaining control (as would be demonstrated upon the filing by such investor of a Schedule 13D with the SEC). Old OMI received acceptance and agreement of this retroactive change from substantially all affected individuals and concluded that a Change in Control did not occur except under its Separation Allowance Program. However, no payments under that program are made unless an employee is terminated within two years following the change in control. NOTE 16--STOCKHOLDERS' EQUITY 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 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. 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. 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. 46 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS) NOTE 17--COMMITMENTS AND CONTINGENCIES 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 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. At December 31, 1998, the Company had two 156,000 deadweight ton ("dwt") doubled-hulled Suezmax tankers and two 35,000 dwt product carriers under construction. One Suezmax was delivered in January 1999 for a cost of approximately $55,000,000, and the other Suezmax is scheduled to be delivered in 2000 for a cost of approximately $51,000,000. The product carriers, which are time chartered out for two years, are to be delivered in the second half of 1999 at a cost of approximately $30,000,000 per vessel. 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 $15,034,000 at December 31, 1998 with OMI's guaranty of such debt being approximately $7,517,000. The Company and its joint venture partners have committed to fund any working capital deficiencies which may be incurred by their joint venture investments. In 1998 and 1997, OMI advanced $226,000 and $393,000, respectively, in the form of non-interest bearing loans to cover operating expenses of a new joint venture. At December 31, 1998, no other deficiencies have been funded. NOTE 18--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 statement 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. The financial statements for the year ended December 31, 1996 is presented using the accrual method of accounting. Pro forma amounts for these periods assuming the prepaid method had been retroactively applied for the year ended December 31, 1996 is summarized as follows: Income before extraordinary loss............................. $ 5,718 ======= Net income................................................... $ 4,055 ======= 47 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, 1998 and 1997 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, 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 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 $9,597,000 and $8,562,000 in the net assets of those corporate joint ventures as of December 31, 1998 and 1997, respectively, and of $2,995,000, ($1,284,000) and $428,000 in those companies' net income (loss) for each of the three years in the period ended December 31, 1998 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. As discussed in Note 18 to the consolidated financial statements, effective January 1, 1997, the Company changed its method of accounting for special survey and drydock expense from the accrual method to the prepaid method. DELOITTE & TOUCHE LLP New York, New York February 23, 1999 February 28, 1999 (as to Note 7) 48 Item 8 SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 Quarter Ended 1997 Quarter Ended -------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ------- ------- ------- ------- ------- ------- ------- ------- Revenues ................................ $40,032 $36,827 $38,124 $34,245 $33,830 $32,261 $33,642 $42,252 ------- ------- ------- ------- ------- ------- ------- ------- Operating income (loss) ................. 5,289 (1,790) 4,189 (1,444) 4,270 5,265 5,531 5,112 Cumulative effect of change in accounting principle, net of income tax provision .............. -- -- -- -- 10,063 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) (1) ................... $ 3,089 $36,450 $ 8,043 $(4,665) $12,425 $ 3,945 $(2,078) $ 2,630 ======= ======= ======= ======= ======= ======= ======= ======= Basic Earnings (Loss) Per Common Share: Income before cumulative effect of change in accounting principle ....... $ 0.07 $ 0.84 $ 0.19 $ (0.11) $ 0.06 $ 0.09 $ (0.05) $ 0.06 Cumulative effect of change in accounting principle, net of income tax provision ................ -- -- -- -- 0.24 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) (1) (2) ............... $ 0.07 $ 0.84 $ 0.19 $ (0.11) $ 0.30 $ 0.09 $ (0.05) $ 0.06 ======= ======= ======= ======= ======= ======= ======= ======= Weighted average number of shares of common stock outstanding-basic ..................... 43,072 43,271 42,837 41,609 42,783 42,856 42,956 43,056 ======= ======= ======= ======= ======= ======= ======= ======= Diluted Earnings (Loss) Per Common Share: Income before cumulative effect of change in accounting principle ............................. $ 0.07 $ 0.83 $ 0.19 $ (0.11) $ 0.05 $ 0.09 $ (0.05) $ 0.06 Cumulative effect of change in accounting principle, net of income tax provision ................. -- -- -- -- 0.23 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) (1) (2) ............... $ 0.07 $ 0.83 $ 0.19 $ (0.11) $ 0.28 $ 0.09 $ (0.05) $ 0.06 ======= ======= ======= ======= ======= ======= ======= ======= Weighted average number of shares of common stock outstanding-diluted ................... 43,433 43,961 43,113 41,609 43,466 43,738 42,956 43,799 ======= ======= ======= ======= ======= ======= ======= =======
(1) Results for the quarter ended June 30, 1998 includes a reversal of deferred taxes of $38,887,000 or $0.90 basic earnings per share and $0.88 diluted earnings per share for the second quarter. (2) Earnings per share are based on stand-alone quarters. 49 AMAZON TRANSPORT, INC. BALANCE SHEETS DECEMBER 31, ------------ ASSETS 1998 1997 CURRENT ASSETS: Cash and cash equivalents $7,532,673 $3,786,565 Accounts receivable 2,340,063 2,158,842 Bunkers 659,933 491,848 ------------ ------------ Total current assets 10,532,669 6,437,255 ------------ ------------ Long term assets Vessel 13,407,504 14,028,230 ------------ ------------ Total long term assets 13,407,504 14,028,230 ------------ ------------ Total assets $23,940,173 $20,465,485 ============ ============ LIABILITIES AND EQUITY CURRENT LIABILITIES: Payable to shareholders $ -- $ -- Accounts payable 4,354,145 2,991,260 ------------ ------------ Total current liabilities 4,354,145 2,991,260 ------------ ------------ Total liabilities 4,354,145 2,991,260 ------------ ------------ EQUITY: Share capital 900 900 Accumulated result 1/1 17,473,325 14,044,773 Cash dividend (4,000,000) 0 Net income (loss) 6,111,803 3,428,552 ------------ ------------ Total equity 19,586,028 17,474,225 ------------ ------------ Total liabilities and equity $23,940,173 $20,465,485 ============ ============ 50 AMAZON TRANSPORT, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- OPERATING INCOME AND COSTS Gross freight $15,647,357 $15,692,654 $10,841,157 Voyage related costs (4,462,752) (6,584,317) (5,121,885) ------------------------------------------- Net voyage revenue 11,184,605 9,108,337 5,719,272 ------------------------------------------- Crew wages and social security (1,284,936) (1,462,583) (1,832,746) Other operating costs (3,450,102) (3,794,536) (6,342,667) ------------------------------------------- Profit before depreciation 6,449,567 3,851,218 (2,456,141) ------------------------------------------- Depreciation (620,726) (620,726) (620,726) ------------------------------------------- Operating result 5,828,841 3,230,492 (3,076,867) ------------------------------------------- FINANCIAL INCOME AND COSTS Interest received 323,555 200,267 174,453 Net gain (loss) on foreign exchange (39,461) (311) (1,648) Other financial costs (1,132) (1,896) (1,266) ------------------------------------------- Net financial items 282,962 198,060 171,539 ------------------------------------------- Net income (loss) $ 6,111,803 $ 3,428,552 ($2,905,328) =========================================== 51 AMAZON TRANSPORT, INC. STATEMENTS OF CASH FLOWS
For the years Ended December 31, --------------------------------------------- 1998 1997 1996 --------------------------------------------- CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES Net income (loss) $ 6,111,803 $ 3,428,552 ($2,905,328) Depreciation 620,726 620,726 620,726 Change in short term assets (349,306) (1,150,402) (479,882) Change in short term liabilities 1,362,885 1,505,321 944,225 --------------------------------------------- Net cash provided (used) by operating activities 7,746,108 4,404,197 (1,820,259) --------------------------------------------- CASH FLOW USED BY FINANCING ACTIVITIES Repayment of loan to shareholders -- (3,000,000) -- Cash Dividends (4,000,000) -- -- --------------------------------------------- Net cash used by financing activities (4,000,000) (3,000,000) -- --------------------------------------------- Net increase (decrease) in cash and cash equivalents 3,746,108 1,404,197 (1,820,259) Cash and cash equivalents beginning of year 3,786,565 2,382,368 4,202,627 --------------------------------------------- Cash and cash equivalents end of year $ 7,532,673 $ 3,786,565 $ 2,382,368 =============================================
52 AMAZON TRANSPORT, INC. NOTES TO FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998 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 owned and operated 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. 53 AMAZON TRANSPORT, INC. NOTES TO FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998 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, 1998. 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 $261,246 for the year ended December 31, 1998, $256,204 for the year ended December 31, 1997 and $250,000 for the year Ended December 31, 1996. 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. 54 Arthur Andersen & Co. Arthur Andersen & Co. Statsautoriserte Revisorer ------------------------------------ Drammensveien 165 Postboks 228 Sk0yen 0212 Oslo 22 92 80 00 Telefon 22 92 89 00 Telefax ------------------------------------ Medlemmer av Norges Statsautoriserte Revisorers Forening 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, 1998 and 1997 and the related statements of income and changes in financial position 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 audit 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 financial statements referred to above present fairly, in all material respects, the financial position of Amazon Transport Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the two years ended December 31, 1998 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. ----------------------- Morten Drake State Authorised Public Accountant (Norway) Oslo, Norway February 19, 1999 55 WHITE SEA HOLDINGS LTD. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES) December 31, ----------------- 1998 1997 ---- ---- ASSETS: Current assets: Cash and cash equivalents (Note 2)...................... $2,405 $ 2,856 Advances to masters..................................... 27 38 Receivables: Traffic............................................... 98 583 Other................................................. 211 225 Prepaid expenses and other current assets............... 391 336 ------ ------- Total current assets.............................. 3,132 4,038 ====== ======= Vessel at cost: Vessel (Note 2)......................................... 7,430 7,389 Less accumulated depreciation........................... 2,220 1,759 ------ ------- Vessel - net............................................ 5,210 5,630 ------ ------- Prepaid drydock expense (Note 5).......................... -- 645 ------ ------- Total assets.............................................. $8,342 $10,313 ====== ======= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable ....................................... $ 121 $ 146 Accrued expenses........................................ 495 508 Accrued interest........................................ 10 3 Payable to affiliates (Note 3).......................... 54 364 Current portion of long-term debt (Note 4).............. 500 500 ------ ------- Total current liabilities........................... 1,180 1,521 ====== ======= Advance time charter revenues and other liabilities 211 191 Long-term debt (Note 4)................................... -- 500 Stockholders' equity: Common stock--no par value; 500 shares authorized and outstanding....................................... 1 1 Capital surplus......................................... 2,499 2,499 Retained earnings (Note 6).............................. 4,451 5,601 ------ ------- Total stockholders' equity ......................... 6,951 8,101 ------ ------- Total liabilities and stockholders' equity $8,342 $10,313 ====== ======= See notes to financial statements. 56 WHITE SEA HOLDINGS LTD. STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS)
For The Years Ended December 31, -------------------------------- 1998 1997 1996 ---- ---- ---- Voyage Revenues (Note 2).................................. $ 9,022 $12,552 $8,503 ------- ------- ------ Operating Expenses: Vessel and voyage (Note 2).............................. 6,738 7,375 6,887 Depreciation (Note 2)................................... 461 442 331 General and administrative.............................. 97 94 99 ------- ------- ------ Total operating expenses.......................... 7,296 7,911 7,317 ------- ------- ------ Operating Income.......................................... 1,726 4,641 1,186 Net Interest Income (Expense): Interest expense........................................ (43) (158) (214) Interest income......................................... 167 99 66 ------- ------- ------ Net interest income (expense)..................... 124 (59) (148) ------- ------- ------ Income Before Cumulative Effect of Change in Accounting Principle................................................ 1,850 4,582 1,038 Cumulative Effect of Change in Accounting Principle (Notes 2, 5)............................................. -- 1,196 -- ------- ------- ------ Net Income................................................ 1,850 5,778 1,038 Retained Earnings, Beginning of Year...................... 5,601 1,323 1,035 Dividends Paid (Note 6)................................... (3,000) (1,500) (750) ------- ------- ------ Retained Earnings, End of Year............................ $ 4,451 $ 5,601 $1,323 ======= ======= ======
See notes to financial statements. 57 WHITE SEA HOLDINGS LTD. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For The Years Ended December 31, -------------------------------- 1998 1997 1996 ---- ---- ---- Cash Flows Provided by Operating Activities: Net income .................................................................... $ 1,850 $ 5,778 $ 1,038 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation ................................................................ 461 442 331 Cumulative effect of change in accounting principle ......................... -- (1,196) -- Change in assets and liabilities: Decrease (increase) in receivables and advances to masters .................. 509 (438) 48 Decrease (increase) in prepaid expenses and other current assets ............ 591 827 (210) Decrease in accounts payable and accrued liabilities ........................ (31) (229) (1,141) (Decrease) increase in payable to affiliates ................................. (310) (877) 419 Increase (decrease) in advanced time charter revenues and other liabilities .......................................................... 19 (5) 238 ------ ------ ------- Net cash provided by operating activities ............................... 3,089 4,302 723 ------ ------ ------- Cash Flows Used by Investing Activities: Additions to vessel ........................................................... (40) (7) (421) ------ ------ ------- Net cash used by investing activities ................................... (40) (7) (421) ------ ------ ------- Cash Flows Used by Financing Activities: Dividends paid ................................................................ (3,000) (1,500) (750) Payments on long-term debt .................................................... (500) (500) (500) ------ ------ ------- Net cash used by financing activities ................................... (3,500) (2,000) (1,250) ------ ------ ------- Net (Decrease) Increase in Cash and Cash Equivalents ............................ (451) 2,295 (948) Cash and Cash Equivalents, Beginning of Year .................................... 2,856 561 1,509 ------ ------ ------- Cash And Cash Equivalents, End of Year .......................................... $ 2,405 $ 2,856 $ 561 ======= ======= =======
See notes to financial statements. 58 WHITE SEA HOLDINGS LTD. NOTES TO FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998 1. COMPANY White Sea Holdings Ltd. (the "Company") is 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. The Company began operating as a joint venture on February 5, 1993 for the purpose of owning and chartering commercial vessels. 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. 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. 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. 59 WHITE SEA HOLDINGS LTD. NOTES TO FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS ARE IN THOUSANDS) (CONCLUDED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Flows - Cash equivalents represent liquid investments which mature within 90 days. The carrying amount approximates fair value. The Company paid $50,000, $182,000,and $144,000 in interest during 1998, 1997, and 1996, respectively. 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 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 $54,000 as of December 31, 1998 and $364,000 as of December 31, 1997. 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 matures on March 5,1999. The fair value of long-term debt at December 31, 1998 approximates its carrying value. NOTE 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. The year ended December 31, 1996 was previously presented using the accrual method of accounting. The pro forma amount for net income for the year ended December 31, 1996 was $1,101,000, assuming the prepaid method has been retroactively applied. 6. DIVIDENDS During 1998, 1997, and 1996 the Company declared and paid dividends of $3,000,000, $1,500,000, and $750,000, respectively. On March 29, 1999, the Company paid dividends of $1,000,000. 60 INDEPENDENT AUDITORS' REPORT To the Stockholders of White Sea Holdings Ltd.: We have audited the accompanying balance sheets of White Sea Holdings Ltd. as of December 31, 1998 and 1997 and the related statements of income and retained earnings and cash flows for each of the three 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 1997, and the results of its operations and its cash flows for each of the three 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 61 MOSAIC ALLIANCE CORPORATION REPORT AND ACCOUNTS PERIOD FROM 1 JANUARY 1997 TO 10 DECEMBER 1997 ================================================================================
PERIOD FROM 1 JANUARY 1997 Year ended TO 10 DECEMBER 31 December 1997 1996 Note US$ US$ -------------- ----------- INCOME Charter and voyage revenue 4,239,084 11,813,274 Interest income 2,023,122 1,565,357 (Loss)/gain on disposal of investments (56,607) 203,469 Dividend income 122,139 34,743 Other Income 124,696 974,805 -------------- ----------- 6,452,434 14,591,648 EXPENSES Vessel and voyage expenses 1,000,997 3,170,262 Loss on disposal of vessels 8,646,937 490,351 Amortisation of deferred drydocking and survey repair expenses 537,979 1,246,341 Depreciation 1,447,869 3,117,009 General and administration 679,791 1,483,776 Interest expenses 79,750 1,374,128 12,393,323 10,881,867 -------------- ----------- (LOSS)/PROFIT BEFORE TAXATION (5,940,889) 3,709,781 TAXATION 4(a) 1,811 2,391 -------------- ----------- (LOSS)/PROFIT AFTER TAXATION (5,942,700) 3,707,390 RETAINED PROFITS BROUGHT FORWARD 32,429,586 28,722,196 -------------- ----------- RETAINED PROFITS CARRIED FORWARD 26,486,886 32,429,586 ============== ===========
See the accompanying notes to financial statements. 62 MOSAIC ALLIANCE CORPORATION CONSOLIDATED BALANCE SHEET - 10 DECEMBER 1997 ================================================================================
10 December 31 December Note 1997 1996 US$ US$ ----------- ----------- EMPLOYMENT OF CAPITAL FIXED ASSETS 5 2,515 50,992,640 DEFERRED CHARGES 6 -- 537,979 CURRENT ASSETS Due from affiliated companies 7 37,468 105,177 Loans to affiliated companies 8 5,579,383 5,664,489 Accounts receivable and prepayments 569,309 1,542,055 Investments -- 3,195,006 Cash and bank balances 66,214,173 16,610,114 72,400,333 27,116,841 CURRENT LIABILITIES Due to affiliated companies 7 19,733 28,459 Accounts payable and accrued charges 364,386 657,504 Taxation 4(b) 2,003 1,796 386,122 687,759 ----------- ----------- NET CURRENT ASSETS 72,014,211 26,429,082 ----------- ----------- 72,016,726 77,959,701 =========== =========== CAPITAL EMPLOYED SHARE CAPITAL 9 500 500 PAID IN SURPLUS 45,519,020 45,519,020 RESERVE ON CONSOLIDATION 10,000 10,000 RETAINED PROFITS 26,486,886 32,429,586 ----------- ----------- TOTAL CAPITAL AND RESERVES 72,016,406 77,959,106 DEFERRED TAXATION 4(c) 320 595 ----------- ----------- 72,016,726 77,959,701 =========== ===========
See the accompanying notes to financial statements. 63 MOSAIC ALLIANCE CORPORATION CONSOLIDATED CASH FLOW STATEMENT PERIOD FROM 1 JANUARY 1997 TO 10 DECEMBER 1997 ================================================================================
PERIOD FROM 1 JANUARY 1997 TO Year ended 10 DECEMBER 1 December Note 1997 1996 US$ US$ ------------ ---------- NET CASH INFLOW FROM OPERATING ACTIVITIES 11 6,645,108 5,364,815 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Dividend income 122,139 34,743 Interest received 2,023,122 1,536,357 Interest paid (79,750) (1,374,128) NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 2,065,511 196,972 OVERSEAS TAX PAID (1,879) -- INVESTING ACTIVITIES Purchase of fixed assets -- (1,873,497) Sale of vessels 40,895,319 29,103,016 Sale of unquoted investments -- 353,218 Payments for drydocking and survey repairs expenses -- (713,867) NET CASH INFLOW FROM INVESTING ACTIVITIES 40,895,319 26,868,870 ------------ ---------- NET CASH INFLOW BEFORE FINANCING 49,604,059 32,430,657 FINANCING Repayment of bank loans -- (30,905,500) ------------ ---------- INCREASE IN CASH AND BANK BALANCES 49,604,059 1,525,157 CASH AND BANK BALANCES AT THE BEGINNING OF THE PERIOD/YEAR 16,610,114 15,084,957 ------------ ---------- CASH AND BANK BALANCES AT THE END OF THE PERIOD/YEAR 66,214,173 16,610,114 ============ ==========
See the accompanying notes to financial statements. 64 MOSAIC ALLIANCE CORPORATION NOTES TO THE FINANCIAL STATEMENTS - 10 DECEMBER 1997 ================================================================================ 1 PRINCIPAL ACCOUNTING POLICIES (A) BASIS OF CONSOLIDATION The consolidated accounts include the accounts of the company and all its subsidiaries. All significant transactions between and among the company and its subsidiaries are eliminated on consolidation. At the balance sheet date, the company wholly owned the following subsidiaries: Country of Company incorporation Description of shares held - --------------------------------------- ------------------------- --------------------------------- Sheffield Navigation Co. Inc. Republic of Panama Common stock of US$1 each Bunbury Navigation Co. Inc. Republic of Panama Common stock of US$1 each Romeo Navigation Co. Inc. Republic of Panama Common stock of US$1 each Mackenzie Navigation Co. Pte. Limited Singapore Common stock of S$1 each Kanemore Corporation British Virgin Islands Common stock of US$1 each Kanesin (Singapore) Pte. Limited Singapore Common stock of S$1 each Kanejoy Corporation British Virgin Islands Common stock of US$1 each
(B) DRYDOCKING AND SURVEY REPAIRS Drydocking and survey repairs expenses are capitalised in the period in which they are incurred and amortised over the future drydocking and survey cycle. (C) VESSELS Vessels are depreciated on the straight-line method over their estimated useful lives of twenty to twenty-five years to their estimated residual values. Major expenditures for renewals, which are expected to extend useful lives or reduce future operating expenses are capitalised. Gains or losses on disposal of vessels represent the difference between the net sales proceeds and the carrying amount of the vessels, and are recognised in the profit and loss account. (D) OFFICE EQUIPMENT Office equipment is stated at cost less accumulated depreciation. Depreciation on office equipment is calculated to write off its cost on the straight line basis over its expected useful live to the group. The annual rate used for this purpose is 33-1/3%. (E) TAXATION The charge for taxation is based on the result for the period as adjusted for items which are non-assessable or disallowable. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the accounts. The tax effect of timing differences, computed under the liability method, is recognised in the accounts to the extent it is probable a liability or an asset will crystallise in the foreseeable future. 65 MOSAIC ALLIANCE CORPORATION NOTES TO THE FINANCIAL STATEMENTS - 10 DECEMBER 1997 ================================================================================ 1 PRINCIPAL ACCOUNTING POLICIES (CONT'D) (F) FOREIGN CURRENCY TRANSLATION The books and records of the company are maintained in United States dollars and the consolidated accounts have been expressed in that currency. Foreign currency transactions during the period are translated into United States dollars at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are incorporated into the accounts by translating foreign currencies into United States dollars at the rates of exchange ruling at the balance sheet date. Exchange differences arising are included in operating results. (G) DEFERRED FINANCING CHARGES These are upfront facility and arrangement fees paid to bankers in relation to bank loans raised. Deferred financing charges are capitalised and amortised over the period of the loans on a straight-line basis. (H) INVESTMENTS (i) Quoted investments held for trading purposes are stated at the lower of cost and market value on an individual basis. (ii) Realised gains or losses on the sale of investments are recognised in net income on the specific identification basis. (I) REVENUE RECOGNITION (i) Charter and voyage revenue is recognised as revenue on an accrual basis. (ii) Sale of investments is recognised as revenue on a trade date basis. (iii) Interest income is recognised as revenue on a time proportion basis. 2 PRINCIPAL ACTIVITIES The principal activity of the company is investment holding. The principal activities of its subsidiaries are shipowning and ship operating, securities investment and trading. 66 MOSAIC ALLIANCE CORPORATION NOTES TO THE FINANCIAL STATEMENTS - 10 DECEMBER 1997 ================================================================================ 3 REVENUE The amounts of each significant category of revenue recognised during the period are as follows: PERIOD FROM 1 JANUARY 1997 Year ended TO 10 DECEMBER 31 December 1997 1996 US$ US$ ------------- ------------ Charter and voyage revenue 4,239,084 11,813,274 Revenue from the sale of investments 6,622,024 2,888,862 Interest income 2,023,122 1,565,357 4 TAXATION (a) The amount of taxation in the consolidated income statement represents:- PERIOD FROM 1 JANUARY 1997 Year ended TO 10 DECEMBER 31 December 1997 1996 US$ US$ - current 2,086 1,796 - deferred (275) 595 -------------- ----------- 1,811 2,391 ============== =========== Current tax represents taxation on the assessable profits of a subsidiary which is calculated at the rate applicable in the jurisdiction where it operates. (b) Taxation in the balance sheet represents provision made less provisional tax paid during the period. (c) Deferred taxation represents the tax effect of timing differences arising from accelerated depreciation allowances. 67 MOSAIC ALLIANCE CORPORATION NOTES TO THE FINANCIAL STATEMENTS - 10 DECEMBER 1997 ================================================================================ 5 FIXED ASSETS
Office Vessels equipment Total US$ US$ US$ ----------- --------- ----------- COST Brought forward 62,131,931 5,654 62,137,585 Additions -- -- -- Disposals (62,131,931) (358) (62,132,289) ----------- --------- ----------- Carried forward -- 5,296 5,296 ----------- --------- ----------- ACCUMULATED DEPRECIATION Brought forward 11,143,889 1,056 11,144,945 Charge for the period 1,446,104 1,765 1,447,869 Disposals (12,589,993) (40) (12,590,033) ----------- --------- ----------- Carried forward -- 2,781 2,781 ----------- --------- ----------- NET BOOK VALUE AT 10 DECEMBER 1997 -- 2,515 2,515 =========== ========= =========== Net book value at 31 December 1996 50,988,042 4,598 50,992,640 =========== ========= ===========
6 DEFERRED CHARGES
PERIOD FROM 1 JANUARY 1997 Year ended TO 10 DECEMBER 31 December 1997 1996 US$ US$ -------------- ----------- Deferred financing charges Balance brought forward -- 205,108 Transfer to profit and loss account -- (205,108) Balance carried forward -- -- Deferred drydocking and survey repairs expenses Balance brought forward 537,979 1,070,453 Incurred during the year - 713,867 Amortisation during the period/year (537,979) (1,246,341) Balance carried forward -- 537,979 -------------- ----------- -- 537,979 ============== ===========
68 MOSAIC ALLIANCE CORPORATION NOTES TO THE FINANCIAL STATEMENTS - 10 DECEMBER 1997 ================================================================================ 7 DUE FROM AND TO AFFILIATED COMPANIES The amounts due from and to affiliated companies are interest free, unsecured and have no fixed terms of repayment. 8 LOANS TO AFFILIATED COMPANIES 10 DECEMBER 31 December 1997 1996 US$ US$ ----------- ----------- Interest bearing at 5.5% 419,563 419,563 Interest bearing at 7% 5,159,820 5,244,926 ----------- ----------- 5,579,383 5,664,489 =========== =========== The loans to affiliated companies are unsecured and repayable on demand. 9 SHARE CAPITAL 10 DECEMBER 31 December 1997 1996 US$ US$ ----------- ----------- Authorised, issued and fully paid 500 common shares of no par value 500 500 =========== ============ 10 RELATED PARTY TRANSACTIONS During the period:- (a) The group paid management fees totalling US$401,943 (1996: US$599,202) to affiliated companies for management services rendered. (b) The group received interest income of US$376,530 (1996: US$197,478) from affiliated companies. (c) The group disposed of a vessel with a net cash book value of UD$32,794,475 to an affiliated company for a consideration of US $22,591,000. 69 MOSAIC ALLIANCE CORPORATION NOTES TO THE FINANCIAL STATEMENTS - 10 DECEMBER 1997 11 RECONCILIATION OF (LOSS)/PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES
PERIOD FROM 1 JANUARY 1997 Year ended TO 10 DECEMBER 31 December 1997 1996 US$ US$ -------------- ----------- (Loss)/profit before taxation (5,940,889) 3,709,781 Dividend income (122,139) (34,743) Interest received (2,023,122) (1,536,357) Interest paid 79,750 1,374,128 Depreciation 1,447,869 3,117,009 Loss on disposal of vessels 8,646,937 490,351 Amortisation of deferred drydocking and survey repairs expenses - 1,246,341 Loss on disposal of unquoted investments - (203,469) Decrease/(increase) in short term investments 3,195,006 (1,458,667) Decrease in deferred financing charges 537,979 205,108 Decrease in amounts due from affiliated companies 67,709 270,997 Decrease in accounts receivable and prepayments 972,746 457,748 Decrease/(increase) in loans to affiliated companies 85,106 (1,404,089) Decrease in amounts due to affiliated companies (8,726) (12,111) Decrease in accounts payable and accrued charges (293,118) (857,212) -------------- ----------- Net cash inflow from operating activities 6,645,108 5,364,815 ============== ===========
12 POST BALANCE SHEET DATE EVENTS On 11 December 1997, the company disposed of its entire interest in the issued shares of Kanejoy Corporation to the shareholders of the company at that time. Subsequently but on the same date, the company redeemed 250.5 shares, which represents 50.1% of the issued shares of the company, from three shareholders of the company at a consideration of approximately US$36.1 million which equals 50.1% of the group's net assets as at 10 December 1997 (excluding the interest in Kanejoy Corporation and its subsidiary). 13 COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with current period's presentation. 70 COOPERS & LYBRAND REPORT OF THE AUDITORS TO THE MEMBERS OF MOSAIC ALLIANCE CORPORATION (Incorporated in the Republic of Liberia with limited liability) We have audited the accounts on the accompanying pages in accordance with International Auditing Guidelines issued by the International Federation of Accountants. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The company's directors are responsible for the preparation of accounts which give a true and fair view. In preparing accounts give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with International Auditing Guidelines issued by the International Federation of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion, the accounts, which have been prepared in accordance with International Accounting Standards, give a true and fair view of the state of affairs of Mosaic Alliance Corporation and its subsidiaries at 10 December 1997 and of the profit and cash flows of the group for the year then ended. COOPERS & LYBRAND Certified Public Accountants Hong Kong, September 16, 1998 71 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 24. 2. Financial Statement Schedules None. 3. The index to Exhibits is on page 73. (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. 72 EXHIBITS
NUMBER INCORPORATED BY REFERENCE TO DESCRIPTION OF EXHIBIT ------ ---------------------------- ---------------------- 4.1 REGISTRATION STATEMENT ON FORM S-1 (NO. FORM OF COMMON STOCK CERTIFICATE 333-52771) FILED MAY 15, 1998 4.2 REGISTRATION STATEMENT ON FORM S-1 (NO. ARTICLES OF ASSOCIATION OF OMI 333-52771) FILED MAY 15, 1998 4.3 REGISTRATION STATEMENT ON FORM S-1 (NO. BY-LAWS 333-52771) FILED MAY 15, 1998 4.4 REGISTRATION STATEMENT ON FORM S-1 (NO. OMI CORPORATION STOCK OPTION PLAN (1) 333-52771) FILED MAY 15, 1998 10.1 FORM 10-Q FILED NOVEMBER 13, 1998 FORM OF OMI EMPLOYMENT AGREEMENTS FOR SENIOR EXECUTIVES (1) 10.2 FORM 8A FILED DECEMBER 14, 1998 REGISTRATION STATEMENT OF PREFERRED STOCK PURCHASE RIGHTS. 10.3 OMI CORPORATION 1998 PERFORMANCE SHARE UNIT PLAN (1) 21 SUBSIDIARIES OF THE COMPANY 27 FINANCIAL DATA SCHEDULE DATED DECEMBER 31, 1998
(1) Denotes compensation plan and /or agreement 73 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 By /S/ CRAIG H. STEVENSON, JR. ----------------------------------- CRAIG H. STEVENSON, JR., PRESIDENT, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE OFFICER AND DIRECTOR MARCH 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Craig H. Stevenson, Jr. President, Chief Executive Officer and Director March 30, 1999 - ------------------------------- /s/ Jack Goldstein Vice Chairman March 30, 1999 ---------------------------- /s/ Michael Klebanoff Director March 30, 1999 ---------------------------- /s/ Robert Bugbee Director March 30, 1999 ---------------------------- /s/ Per Heidenreich Director March 30, 1999 ---------------------------- /s/ James N. Hood Director March 30, 1999 ---------------------------- /s/ Edward Spiegel Director March 30, 1999 ---------------------------- /s/ James D. Woods Director March 30, 1999 ---------------------------- /s/ Vincent J. de Sostoa Senior Vice President, Treasurer, Chief Financial March 30, 1999 ---------------------------- Officer and Chief Accounting Officer
74 EX-10.3 2 PERFORMANCE SHARE UNIT PLAN Amended and Restated OMI CORPORATION 1998 PERFORMANCE SHARE UNIT PLAN SECTION 1. PURPOSE The purpose of the OMI Corporation 1998 Performance Share Unit Plan, as amended and restated effective January 21, 1999, as set forth herein, is to promote the short and long-term financial interests of the Company and its Subsidiaries by: (i) attracting and retaining key executive personnel; (ii) providing motivation to achieve long-term performance objectives of the Company and its Subsidiaries; and (iii) aligning the interests of participating executives with those of the Company's shareholders by linking incentive compensation to the price of the Company's common stock. SECTION 2. DEFINITIONS Agreement: the meaning set forth in Section 5(b). Average Daily Stock Price: the mean, computed for the applicable period, of closing reported sale prices for a share of Stock on the principal exchange on which the Stock is then listed or admitted to trading for each trading date during such period, or, if the Stock is not, on any such date, listed or admitted to trading on a stock exchange, the mean of the closing representative bid and asked prices for a share of the Stock on each such date as reported by Nasdaq National Market (or any successor or similar quotation system regularly reporting the market value of the Stock in the over-the-counter market), or, if none of the foregoing methods are practicable, the fair market value of a share of Stock on each such date determined by such other reasonable valuation method as the Committee shall, in its discretion, select and apply in good faith for the applicable period. Board: the Board of Directors of the Company. Cause: one of the following, as applicable: (a) any misconduct, dishonesty, insubordination or other act which is, or is intended to be, materially detrimental to the Company and/or any Subsidiary, or materially damaging to the Company's, any Subsidiary's and/or their affiliates' relationships with their customers, employees, shareholders and/or owners, as determined by the Committee in its discretion; or (b) if a Participant has entered into an employment agreement with the Company or a Subsidiary, "cause" as defined therein, or a material breach of such employment agreement by such Participant. Change in Control: a "change in control" with respect to the Company that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, pursuant to Section 13 or 15(d) of the Exchange Act, or equivalent for foreign filers, other than in connection with the Distribution; provided that, without limitation, a "Change in Control" shall be deemed to have occurred at such time as any person or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company (other than, in any such event, a sale or other disposition to or for the benefit of any employee benefit plan (or related trust) of the Company or a Subsidiary, or acquisition or offer to acquire, by or on behalf of, the Company or a Subsidiary or any group comprised solely of such entities, of shares of Stock); provided, however, that a "Change in Control" shall not be deemed to have occurred if such a person or group files and maintains a Schedule 13G pursuant to Rule 13d-1 under the Exchange Act in connection with its purchase of such securities; provided further, however, that upon the filing of a Schedule 13D pursuant to such rule by such person or group in connection with such securities, there shall be deemed to be an immediate "Change in Control." The foregoing to the contrary notwithstanding, a "Change in Control" shall be deemed to have occurred if individuals who constitute the "Incumbent Board" cease for any reason to constitute at least a majority of the Board. "Incumbent Board" shall mean those individuals who constitute the Board immediately following the date of the Distribution, or any successor or additional individual who becomes a member of the Board and whose election, or nomination for election, by the shareholders of the Company was approved by a vote of at least three-fourths of the members of the Board comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such individual was named as a nominee for member of the Board without objection to such nomination). Committee: the Compensation Committee of the Board, or such other Board committee as may be designated by the Board to administer the Plan. Company: OMI Corporation, a Marshall Islands corporation, or any successor entity. Distribution: the distribution of all of the issued and outstanding shares of Stock to the stockholders of Parent as declared by the Board of Directors of Parent. Eligible Employee: an employee of the Company or a Subsidiary whose responsibilities and decisions, in the judgment of the Committee, directly affect the management, growth, performance or profitability of the Company and its Subsidiaries. Exchange Act: the Securities Exchange Act of 1934, as it may be amended from time to time. Good Reason: one of (a) or (b), as applicable: (a) any of the following: (i) relocation of the Company's offices (or the location of the performance of work by the Participant) beyond a fifty (50)-mile radius of New York City, (ii) material diminution of the Participant's duties, responsibilities, authorities, titles, offices and/or reporting relationships with the Company or a Subsidiary employing the Participant, or (iii) reduction of the Participant's base salary or potential incentive compensation; or -2- (b) if a Participant has entered into an employment agreement with the Company or a Subsidiary, "good reason" as defined therein, or a material breach of such employment agreement by the Company or such Subsidiary. Parent: OMI Corp., a Delaware corporation, and, prior to the Distribution, owner of all of the issued and outstanding shares of Stock. Participant: an Eligible Employee who receives an award of Performance Share Units pursuant to the Plan. Performance Cycle: a period of three (3) consecutive calendar years ending on December 31 of the last calendar year of such three-year period, for which an award of Performance Share Units is made by the Committee under the Plan; provided, however, that the 1998 and 1999 Performance Cycles shall be for periods of one and two years, ending on December 31, 1998, and December 31, 1999, respectively. Performance Share Unit: a notional unit with a value determined in accordance with Section 6 based upon the Average Daily Stock Price. Plan: this OMI Corporation 1998 Performance Share Unit Plan, as amended and restated as set forth herein. Retirement: a Participant's employment with the Company or a Subsidiary terminates by reason of his or her retirement on or after either: (a) attaining both fifty-five (55) years of age and fifteen (15) years of continuous service with the Company, the Subsidiaries and/or the Parent and/or its subsidiaries or affiliates; or (b) attaining both sixty-five (65) years of age and five (5) years of continuous service with the Company, the Subsidiaries and/or the Parent and/or its subsidiaries or affiliates. Stock: the common stock, par value $0.50 per share, of the Company. Subsidiary: any direct or indirect subsidiary of the Company or other entity in which the Company owns, directly or indirectly, an equity interest, and which is designated by the Committee, in its discretion, as a "Subsidiary" for purposes of the Plan. Total Disability: mental or physical impairment or incapacity rendering a Participant substantially unable to perform his or her duties to the Company or a Subsidiary for a period of longer than 180 days out of any 365-day period during the period employed by the Company or a Subsidiary, as determined by the Committee in its discretion. SECTION 3. ADMINISTRATION AND INTERPRETATION (a) The Committee shall have exclusive authority to operate, manage and administer the Plan in accordance with its terms and conditions. Notwithstanding any other provision of the Plan to the contrary, in its absolute discretion, the Board may at any time and from time to time exercise any and all rights, duties and responsibilities of the Committee under the Plan, including, but not limited to, establishing procedures to be following by the -3- Committee. The Committee shall be appointed from time to time by the Board, and shall consist of not less than two (2) members of the Board. Appointment of Committee members shall be effective upon their acceptance of such appointment. Committee members may be removed by the Board at any time either with or without cause, and such members may resign at any time by delivering notice thereof to the Board. Any vacancy on the Committee, whether due to action of the Board or any other reason, shall be filled by the Board. (b) Subject to the terms and conditions of the Plan, the Committee shall, in addition to its other duties and powers set forth elsewhere in the Plan, have the exclusive right and discretionary authority to: (i) determine eligibility for participation in the Plan and select the Participants; (ii) specify the number of Performance Share Units to be awarded to Participants; (iii) approve performance goals applicable to any Performance Cycle and otherwise establish and administer the terms, conditions, restrictions, limitations and other provisions of all awards of Performance Share Units; (iv) establish, amend, waive and/or rescind rules and regulations and administrative guidelines for carrying out the Plan or operation of the Committee; (v) at any time and from time to time after the granting of an award of Performance Share Units, specify such additional terms, conditions and restrictions with respect to any such award as the Committee may determine, in its discretion, are necessary or appropriate to ensure compliance with any and all applicable laws, rules and/or regulations, including, but not limited to, terms, conditions and restrictions for compliance with applicable securities laws and methods of withholding or providing for the payment of required taxes; (vi) to the extent otherwise permitted under the Plan, grant waivers of terms, conditions, restrictions and limitations under the Plan or applicable to any award of Performance Share Units; (vii) interpret and administer the Plan and the Agreements and correct any errors, supply any omissions or reconcile any inconsistencies in the Plan and/or any Agreement or any other instrument relating to any award of Performance Share Units; and (viii) take any and all such other actions it deems necessary or advisable for the proper operation and/or administration of the Plan. The Committee shall have full discretionary authority in all matters related to the discharge of its responsibilities and the exercise of its authority under the Plan. Decisions and actions by the Committee with respect to the Plan, any award of Performance Share Units and any Agreement shall be final, binding and conclusive on the Company, the Subsidiaries, Participants and employees of the Company and the Subsidiaries, and upon their respective beneficiaries, successors and assigns and upon all other persons having or claiming to have any right or interest in or under the Plan and/or any Agreement. (c) In serving on the Committee, the members thereof shall be entitled to indemnification as directors of the Company, and to any limitation of liability and reimbursement as directors with respect to their services as members of the Committee. (d) Except to the extent prohibited by applicable law, regulation or rule, the Committee may, in its discretion, allocate all or any portion of its responsibilities and powers under the Plan to any one or more of its members and/or delegate all or any part of its responsibilities and powers under the Plan to any person or persons selected by it; provided, however, the -4- Committee may not delegate its authority to correct errors, omissions or inconsistencies in the Plan. Any such authority delegated or allocated by the Committee under this paragraph (d) of Section 3 shall be exercised in accordance with the terms and conditions of the Plan and any rules, regulations or administrative guidelines that may from time to time be established by the Committee, and any such allocation or delegation may be revoked by the Committee at any time. SECTION 4. PARTICIPATION (a) Prior to the beginning of a Performance Cycle, the Committee shall select those Eligible Employees who will participate in the Plan with respect to such Performance Cycle; provided, however, that the Committee may select those Eligible Employees who will participate in the Plan for the 1998 and 1999 Performance Cycles at any time prior to February 1, 1999. In designating Participants, the Committee will consider the recommendations of the Company's Chief Executive Officer. (b) The adoption of the Plan shall not be deemed to give any employee of the Company or any Subsidiary or any other person any right to be selected to participate in the Plan or to be awarded Performance Share Units. Participation in the Plan for any given Performance Cycle shall not give a Participant the right to participate in the Plan for any other Performance Cycle. SECTION 5. AWARDS OF PERFORMANCE SHARE UNITS (a) Subject to the provisions of the Plan, the Committee may award Performance Share Units to selected Eligible Employees at the beginning of a Performance Cycle, or, in the case of the 1998 and 1999 Performance Cycles, at any time prior to February 1, 1999. (b) The Committee shall specify the terms and conditions of each award of Performance Share Units, consistent with the provisions of the Plan. Each such award shall be evidenced by a certificate or written agreement in a form and containing such terms and conditions as are approved by the Committee (the "Agreement"). SECTION 6. PAYMENT OF PERFORMANCE SHARE UNITS (a) The Company shall pay the value of the Performance Share Units granted to a Participant for a Performance Cycle within sixty (60) days after the completion of such Performance Cycle, which for the 1998 and 1999 Performance Cycles shall be December 31, 1998, and December 31, 1999, with respect to one-half (1/2) of the Performance Share Units awarded for each such Performance Cycle, and December 31, 2000, with respect to the remaining one-half (1/2) of the Performance Share Units awarded for each such Performance Cycle. (b) The value of a Performance Share Unit payable by the Company shall equal the Average Daily Stock Price for the last six (6) calendar months of the Performance Cycle for which such Performance Share Unit is paid, except as otherwise provided in Section 8 in the event of a Change in Control. In the case of a Performance Share Unit payable by the -5- Company with respect to the portion of the Performance Cycle ending on December 31, 1998, the value of such Performance Share Unit shall equal the Average Daily Stock Price for the six (6) calendar months immediately preceding January 1, 1999. In the case of a Performance Share Unit payable by the Company with respect to the portion of the Performance Cycle ending on December 31, 1999, the value of such Performance Share Unit shall equal the Average Daily Stock Price for the six (6) calendar months immediately preceding January 1, 2000. In the case of a Performance Share Unit payable by the Company with respect to the portions of either of the 1998 and 1999 Performance Cycles ending on December 31, 2000, the value of such Performance Share Unit shall equal the Average Daily Stock Price for the six (6) calendar months immediately preceding January 1, 2001. (c) Payment for Performance Share Units shall be made by the Company by check, money order, bank draft, shares of Stock or any combination of such consideration, as determined by the Committee or the applicable Participant, in accordance with a written election filed with the Committee and subject to such conditions and limitations as the Committee, in its discretion, may prescribe. (d) Notwithstanding the other provisions of this Section 6 to the contrary, payment of all or a portion of a Participant's Performance Share Units may be deferred in accordance with such terms and conditions as may be prescribed by the Committee and may be set forth in the Participant's Agreement. Any such deferral may be mandatory, subject to such conditions as the Committee may, from time to time, prescribe, or pursuant to a written election filed by a Participant with the Committee, in the form and at the time or times prescribed by the Committee, and shall (i) constitute an unfunded, unsecured obligation of the Company to pay an amount equal to the value of the Performance Share Units deferred, determined in accordance with the immediately following sentence hereof and the Participant's Agreement, and (ii) be payable at such time as the Committee shall prescribe or the Participant elects, as applicable. The value of a deferred Performance Share Unit payable by the Company under this Section 6(d) shall equal the Average Daily Stock Price for the six (6) calendar months immediately preceding actual payment of such Performance Share Unit, except as otherwise provided in Section 8 in the event of a Change in Control. SECTION 7. TERMINATION OF EMPLOYMENT (a) In the event a Participant's employment by the Company or a Subsidiary is terminated during a Performance Cycle due to death, Total Disability or Retirement, the Participant, or his or her beneficiary, the legal representative of the Participant or his or her estate or the proper legatees or distributees of the Participant, shall be entitled to receive payment in respect of a pro-rata portion of the Participant's then-outstanding Performance Share Units otherwise payable at the completion of the applicable Performance Cycle or Performance Cycles, based upon the portion of such Performance Cycle or Performance Cycles such Participant was actively employed by the Company and/or a Subsidiary; provided, however, that, notwithstanding any other provisions of the Plan to the contrary, -6- (i) all then-outstanding Performance Share Units of a deceased Participant shall be so paid, in accordance with Section 6(a) and (c), following completion of the first Performance Cycle otherwise scheduled to end after the date of his or her death (irrespective of the regularly-scheduled close of any other then-outstanding Performance Cycle or Performance Cycles), and (ii) the value of the Performance Share Units so payable shall equal the Average Daily Stock Price for the six (6) calendar months immediately preceding the completion of such first Performance Cycle. (b) In the event a Participant's employment by the Company or a Subsidiary is terminated during a Performance Cycle for any reason other than those specified in paragraph (a) of this Section 7 or following a Change in Control as described in Section 8, all of the Participant's outstanding Performance Share Units will be forfeited, unless otherwise determined by the Committee, in its discretion; provided, however, that any Performance Share Units the payment of which was theretofore deferred pursuant to Section 6(d) (including, without limitation, any portion of the Performance Share Units awarded for the 1998 and 1999 Performance Cycles and normally payable on or after December 31, 2000, under Section 6(a)) shall not be forfeited and shall be paid to the Participant, following such termination of employment, in accordance with Section 6(d). (c) For purposes of the Plan, a transfer of an Eligible Employee from the Company to a Subsidiary or an affiliate of the Company, whether or not incorporated, or vice versa, or from one Subsidiary or affiliate of the Company to another, and a leave of absence, duly authorized in writing by the Company or a Subsidiary or affiliate of the Company, shall not be deemed a termination of employment of such Eligible Employee. For purposes of the Plan, termination of employment of a Participant, other than by reason of death, shall be deemed to occur on the date that notice of termination is given by the Company or a Subsidiary, or notice of resignation is given by the Participant. SECTION 8. CHANGE IN CONTROL (a) In the event a Change in Control occurs during a Performance Cycle or Performance Cycles, all of a Participant's then outstanding Performance Share Units shall be conditionally forfeited; provided, however, that if such a Participant's employment by the Company or a Subsidiary (or any successor or acquirer thereof) is terminated involuntarily without Cause or is terminated by such Participant for Good Reason within two (2) years following a Change in Control, or the Company or its successor or acquiror does not provide the Participant with an incentive program of equivalent value to such conditionally forfeited Performance Share Units, such Participant shall be entitled to receive immediate payment, by check, money order or bank draft, of all of his or her Performance Share Units conditionally forfeited in connection with such Change in Control, notwithstanding the otherwise-scheduled completion of any such outstanding Performance Cycle or any other provisions of the Plan. The Company shall pay, by check, money order or bank draft, such earned portion of each such Participant's Performance Share Units promptly, but in any event no later than thirty (30) days, following the effective date of such Change in Control. -7- (b) In the event of a Change in Control, the amount paid with respect to Performance Share Units shall be based upon the highest of: (i) the Average Daily Stock Price for the six (6) full months immediately preceding the effective date of the Change in Control, (ii) the Average Daily Stock Price for the twenty (20) trading days immediately preceding the effective date of the Change in Control, and (iii) the highest price received by holders of Stock in connection with such Change in Control, and, notwithstanding Section 6, the value of each Performance Share Unit paid in the event of a Change in Control shall equal the highest of such amounts described in the immediately preceding clauses (i), (ii) and (iii). SECTION 9. AMENDMENT AND TERMINATION; DURATION (a) The Plan may be amended, suspended, terminated or extended, and any outstanding Performance Share Units may be amended or modified, by the Committee at any time and in any respect; provided, however, that no amendment, suspension, termination, extension or modification shall impair the rights of any Participant, without his or her written consent, in any Performance Share Unit award outstanding under the Plan. (b) The Plan shall become effective upon the effective date of its adoption by the Board, provided, however, that such approval is conditioned upon both (i) the Distribution occurring on or prior to December 31, 1998, and (ii) approval of the Plan by the holders of a majority of the outstanding Stock which is present and voted at a meeting, or by written consent in lieu of a meeting, on or before December 31, 1998. Notwithstanding any other provision of the Plan or any Agreement to the contrary, although Performance Share Units may be awarded in accordance with the Plan following the effective date of adoption of the Plan by the Board and prior to the occurrence of the events described in clauses (i) and (ii) of this Section 9(b), should either, or both, of such events fail to occur on or prior to December 31, 1998, the Plan and any Performance Share Units previously awarded shall thereupon be automatically canceled and deemed to have been null and void ab initio. No Performance Share Units may be awarded under the Plan after the termination of the Plan; however, Performance Share Units theretofore awarded may extend beyond such date, and no such termination of the Plan shall affect the previously accrued rights of any Participant hereunder and all Performance Share Units previously awarded hereunder shall continue in force and in operation after the termination of the Plan, except as they may be otherwise canceled or terminated in accordance with the terms of the Plan or the Agreement. SECTION 10. CHANGES IN CAPITAL In the event of any change in the outstanding shares of Stock by reason of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, subdivision, combination of shares, merger, consolidation, or any other change in the corporate structure or shares of Stock, or in the event of an extraordinary dividend, "spin-off," liquidation or other substantial distribution of assets of the Company, or the issuance by the Company of shares of its capital stock without receipt of full consideration therefor, or rights or securities exercisable, convertible -8- or exchangeable for shares of its capital stock, the Committee shall make such adjustments, if any, as it deems appropriate, to outstanding Performance Share Units and the terms and conditions thereof. SECTION 11. SECURITIES LAW COMPLIANCE (a) With respect to Eligible Employees subject to Section 16 of the Exchange Act, Performance Share Unit awards are intended to comply with all applicable conditions of Rule 16b-3 or any successor provisions, rule or regulation thereto. To the extent any provision of the Plan or action pursuant to the Plan involving such Eligible Employees is deemed not to comply with an applicable condition of such Rule 16b-3, such provision or action shall be deemed to be null and void as to such Eligible Employees to the extent permitted by law and deemed advisable by the Committee. (b) If at any time the Committee shall determine, in its discretion, that the listing, registration and/or qualification of shares of Stock upon any securities exchange or under any state or Federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the delivery of shares of Stock under the Plan, no such shares may be delivered unless and until such listing, registration, qualification, consent and/or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Committee. The Committee may require each person receiving Stock under the Plan to represent and agree with the Company in writing that such person is acquiring the shares of Stock for investment without a view to the distribution thereof. The Committee, in its absolute discretion, may impose such restrictions on the ownership and transferability of shares of Stock receivable by any person under the Plan as it deems appropriate. Any such restrictions shall be set forth in the applicable Agreement, and the certificates evidencing such shares may include any legend that the Committee deems appropriate to reflect any such restrictions. SECTION 12. GENERAL PROVISIONS (a) Nothing in the Plan, any Agreement or in any instrument executed in connection with either shall confer upon any person any right to continue in the employment or other service of the Company or a Subsidiary, or shall affect the right of the Company or a Subsidiary to terminate the employment or other service of any person at any time with or without cause. No person shall have any rights or claims under the Plan except in accordance with the provisions of the Plan and the applicable Agreement. (b) The award of Performance Share Units shall not confer upon a Participant any of the rights of a stockholder of the Company. The Plan shall be unfunded, and the Company shall not be required to segregate any assets in respect of rights under the Plan. The expenses of the Plan shall be borne by the Company and/or its applicable Subsidiaries, as determined by the Committee. (c) Except as otherwise provided in this Section 12(c) the right to receive payment for any -9- award of Performance Share Units under the Plan is not subject in any manner to transfer, pledge, sale, alienation, encumbrance or assignment. After the death of a Participant, payment for his or her outstanding Performance Share Units shall be made by the Company to the beneficiary most recently named by such Participant in a written designation thereof filed with the Company, or, in lieu of any such surviving beneficiary, as designated by the Participant by will or by the laws of descent and distribution. In the event of the death of a Participant, the Company shall be under no obligation to make payment of his or her outstanding Performance Share Units unless and until the Committee is satisfied that the person to whom such payment is to be made is the duly appointed legal representative of the deceased Participant's estate or the proper legatee or distributee thereof or the named beneficiary of the Participant. (d) Participants shall be solely responsible for the payment of any taxes of any kind due or required to be withheld in connection with the Plan or with respect to Performance Share Units awarded under the Plan, and in no event shall the Company or any Subsidiary be required to make any payment to a Participant under the Plan until such Participant has paid to the Company in cash, or made arrangements satisfactory to the Company, as determined in the Committee's discretion, regarding payment of, any such taxes. The Company and/or any Subsidiary may take whatever actions are necessary and appropriate to satisfy all obligations of Participants for the payment of all taxes in connection with any Performance Share Units, including, without limitation, the deduction of any such taxes from any payment of any kind otherwise due to the Participant, including, without limitation, under the Plan. (e) Notwithstanding any provisions of the Plan to the contrary, to the extent permitted by applicable law, the Company may offset any amounts to be paid to a Participant (or to his or her beneficiary or legal representative) hereunder against any amounts which such Participant may owe to the Company or any Subsidiary. (f) The Plan shall be binding upon and inure to the benefit of the Company, the Subsidiaries and their successors and assigns, and all Participants and their beneficiaries, successors or assigns, and all other persons claiming under or through any of them. By accepting any benefit under the Plan, each Participant, and any person claiming under or through such Participant, shall be conclusively deemed to have indicated their acceptance and ratification of, and consent to, all of the terms and conditions of the Plan and any action taken under the Plan by the Committee, the Company or the Board. (g) Neither the adoption of the Plan nor anything contained herein shall affect any other compensation or incentive plans or arrangements of the Company or any Subsidiary, or prevent or limit the right of the Company or any Subsidiary to establish any other forms of incentives or compensation for their employees or consultants or directors otherwise than under the Plan. (h) Any liability of the Company or a Subsidiary to any Participant with respect to any award of Performance Share Units shall be based solely upon contractual obligations created by the Plan and the Agreement. Neither the Company nor a Subsidiary nor any member of -10- the Committee or the Board, nor any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have any liability, in the absence of bad faith, to any party for any action taken or not taken in connection with the Plan, except as may expressly be provided by statute. (i) The Plan shall be governed by the laws of the State of New York, except as superseded by applicable Federal law. (j) The words "Section" and "paragraph" shall refer to provisions of the Plan, unless expressly indicated otherwise. * * * * -11- EX-21 3 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 OMI CORPORATION SUBSIDIARIES (ALL SUBSIDIARIES ARE 100% OWNED DIRECTLY OR INDIRECTLY EXCEPT AS INDICATED) COMPANY Alliance Chartering LLC (50%) Alma Shipping LLC Amazon Transport, Inc. (49.0%) Cairo Sea Shipping LLC Colorado Shipping LLC Columbia Shipping LLC Czantoria Shipping LLC Danube Shipping LLC Elbe Shipping LLC Elbe Shipping LLC Geraldton Navigation Company Incorporated (49.9%) Geraldton Navigation Company Pte. Ltd. (49.9%) Hayes Navigation Company Pte. Ltd. (49.9%) Isere Shipping LLC Limar Shipping LLC Loire Shipping LLC` Mendala II Transport, Inc. Nile Shipping LLC OMI-Heidmar Shipping Ltd. (50.0%) OMI Marine Services LLC OMI Promise Transport, Inc. OMI State, Inc. Pagoda Shipping LLC Patricia Shipping LLC Paulina Shipping LLC Pecos Shipping LLC Sabine Shipping LLC Sacramento Shipping LLC Seine Shipping LLC Severn Shipping LLC Shannon Shipping LLC Shannon Shipping LLC. Sokolica Shipping LLC Soyang Shipping LLC Tiber Shipping LLC Trent Shipping LLC Trinidad Sea Shipping LLC UBC Chartering Ltd. Volga Shipping LLC White Sea Holdings Ltd. (49%) White Sea Corporation (49%) EX-27 4 FINANCIAL DATA SCHEDULE
5 Exhibit 27 contains summary information extracted from OMI Corporation and subsidiaries Consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1,000 U.S DOLLARS 12-MOS DEC-31-1998 DEC-31-1998 1 22,689 0 15,575 0 0 47,095 579,180 150,585 530,127 45,181 225,653 0 0 21,838 223,345 530,127 0 149,228 0 107,897 35,087 0 11,118 5,759 (37,158) 0 0 0 0 42,917 1.01 1.00
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