ITEM 3. LEGAL PROCEEDINGS
OMI and its subsidiaries are not parties to any material pending legal proceedings for damages, or a related group of such proceedings, other than ordinary routine litigation incidental to the business.
OMI is a party, as plaintiff or defendant, in a variety of lawsuits for damages arising principally from personal injuries or other casualties in the ordinary course of the maritime business. All such personal injury and casualty claims against OMI are fully covered by insurance (subject to deductibles which are not material).
ITEM 4.
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 1993.
EXECUTIVE OFFICERS OF OMI
Set forth below are the names, ages, position and office, term and year appointed of all of the Company's executive officers (including OMI Bulk Management Co., a division of the Company) as of March 22, 1994.
There is no family relationship by blood, marriage or adoption (not more remote than first cousins) 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 selected as an officer.
Mr. Klebanoff has served as Chairman of the Board of the Company since 1983.
The following are descriptions of other occupations or positions that the other executive officers of the Company have held during the last five years:
Jack Goldstein was appointed President and Chief Executive Officer of the Company in April 1986.
Chaim Barash was elected Senior Vice President/Operations of the Company in November 1986 and President of OMI Bulk Management Co. in October 1992.
Vincent de Sostoa was elected Senior Vice President/Finance of the Company in January 1989.
Fredric S. London was elected Senior Vice President of the Company in December 1991. He was elected Vice President of the Company in December 1988.
Craig H. Stevenson was elected Senior Vice President/Chartering of the Company in August 1993. For five years prior thereto he was President of Ocean Specialty Tankers Corp., a marketing manager for several of the Company's chemical tankers.
Enrico Fenzi was elected Vice President of the Company in September 1990. He was elected Assistant Vice President of the Company in January 1988.
Kathleen C. Haines was elected Vice President of the Company in January 1994. She was elected Assistant Vice President and Controller in December 1992. Prior thereto, Ms. Haines was Assistant Controller.
Richard Halluska was elected Vice President of the Company in July 1993. He was elected Assistant Vice President of the Company in December 1989.
William A.G. Hogg was elected Vice President of the Company in January 1994. He was elected Assistant Vice President of the Company in June 1987.
William Osmer was elected Vice President of the Company in January 1994. He was elected Assistant Vice President of the Company in December 1986.
Anthony Naccarato was elected Vice President/Labor Relations of the Company in June 1987.
Kenneth Rogers was elected Vice President of the Company in January 1994. He was elected Assistant Vice President of the Company in December 1990. Prior thereto, Mr. Rogers was Ship Manager.
PART II
ITEM 5.
ITEM 5. MARKET FOR OMI CORP.'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
COMMON STOCK
The Company listed for trading on the New York Stock Exchange all of its common stock on March 13, 1992 (NYSE-OMM). Previously, the Company's common stock initially traded on the over-the-counter market on January 4, 1984, began trading on the NASDAQ National Market System on February 18, 1986, and on January 27, 1989 was listed for trading on the American Stock Exchange. As of March 22, 1994, the number of holders of OMI common stock was approximately 5,533.
PAYMENT OF DIVIDENDS TO SHAREHOLDERS
On May 2, 1990, the Board of Directors of OMI voted to initiate a semi-annual dividend of $.05 per share of common stock. At the Company's annual meeting of shareholders on June 19, 1991, the Board approved an increase in its semi-annual dividend from $.05 to $.07 per share of common stock. The dividends were paid in 1990 at $.05 and 1991 and 1992 at $.07. On July 23, 1992, dividends were paid to shareholders of record on June 26, 1992, and subsequently, on January 21, 1993, to shareholders of record on December 28, 1992. On June 15, 1993, the Board voted to declare special dividends rather than adhere to a regular dividend policy. For the year ended December 31, 1993, there were no dividends declared.
1993 QUARTER 1st 2nd 3rd 4th
High 5 5/8 6 1/4 7 7 Low 3 7/8 4 3/4 5 5/8 6 1/8
1992 QUARTER 1st 2nd 3rd 4th
High 8 5/8 6 1/4 5 7/8 5 1/4 Low 5 3/4 4 1/4 3 5/8 3 3/8 Semi-annual dividends declared $0.07 $0.07
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA OMI CORP. AND SUBSIDIARIES
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OMI Corp. ("OMI" or the "Company"), is a highly diversified bulk shipping company active in both the U.S. flag and international markets. OMI also has interests in lightering services in the Gulf of Mexico through OMI Petrolink Corp. ("Petrolink"), in offshore drilling through an 8.8 percent interest in Chiles Offshore Corporation ("COC"), and in the workboat market, via a two percent interest in Seacor Holdings, Inc.
Results of operations of OMI include operating activities of the Company's domestic and foreign flag wholly-owned vessels, leased vessels and vessels chartered-in. Revenues are derived from five principal markets: crude oil, refined petroleum, dry bulk, LPG and combination carrier.
FISCAL YEARS 1993, 1992 AND 1991
NET VOYAGE REVENUES
The Company's vessels are operating under a variety of charters and contracts. The nature of these arrangements is such that, without a material variation in net voyage revenues (voyage revenues less vessel and voyage expenses), the revenues and expenses attributable to a vessel deployed under one type of charter or contract can differ substantially from those attributable to the same vessel if deployed under a different type of charter or contract. Accordingly, depending on the mix of charters or contracts in place during a particular accounting period, the Company's voyage revenues and vessel and voyage expenses can fluctuate substantially from one period to another even if the number of vessels deployed, the number of voyages completed, the amount of cargo carried and the net voyage revenues derived from the vessels were to remain relatively constant. As a result, fluctuations in voyage revenues and expenses are not necessarily indicative of trends in profitability. The discussion below addresses variations in net voyage revenues.
In the period between mid-1988 and the beginning of 1991, the majority of OMI's vessels operated under time charter agreements. Since 1991, however, rates for time charters have declined, and vessels completing long-term time charters in 1992 were shifted to the spot market rather than being committed to long-term charters at unfavorable rates. Under a time charter, the charterer assumes certain operating expenses, such as bunkers and port charges. The length of time charters usually ranges for a period of one to five years, which, if rates are satisfactory, gives the company a predictable revenue stream and reduces its exposure to the volatility of the rates in the spot market. Under a voyage ("spot") charter, most expenses are for the owner's account and the charters are generally short-term. Revenues may be higher in the spot market as the owner has to cover more costs. If rates in the spot market are not adequate, the Company may elect to lay the vessel up until rates improve.
As a result of weak worldwide economic conditions and a lower demand for petroleum products beginning after the Persian Gulf war of 1991, spot rates have fluctuated. While market pressures have reduced revenues, operating costs have increased, partially due to regulatory changes and new environmental laws. A direct impact on OMI, as a result of the Oil Pollution Act of 1990, was a substantial increase in insurance costs in 1992, which have leveled off in 1993.
The Company currently participates with seven of its American flag tanker and dry bulk vessels in a number of federal programs for the distribution of agricultural products. These programs were enacted and are controlled by Congress as an extension of U.S. foreign policy. If these programs were discontinued or modified, six American flag vessels, eligible for Operating-Differential Subsidy from the U.S. Government, would operate in international trades.
The Company's voyage revenues include charter hire from the Military Sealift Command ("MSC") in the amounts of $192,000, $23,942,000 and $42,061,000 for the years ended December 31, 1993, 1992 and 1991, respectively. The Company currently has only one vessel on a voyage charter to MSC due to cutbacks in military spending. Vessels, previously chartered by MSC, are operating in the commercial market with subsidy or in federal programs.
Net voyage revenues decreased $10,299,000 or 16 percent for the year ended December 31, 1993 from the prior year. The net decrease resulted primarily from increased idle time between voyages for five domestic vessels (aggregating approximately 541 more offhire days in 1993 than in 1992) while continuing to incur port expenses and other daily expenses. The net decrease is also attributable to three domestic vessels operating in a profit sharing pool, four vessels operating on time charters were offhire a total of 144 days for drydocking, loss of revenue for two vessels disposed of, and reduced revenue from Petrolink resulting from reduced volume of its lightering operations in 1993 and the sale of seven workboats.
Although the federal programs that the American flag tankers and dry bulk vessels participated in were successful during 1993, in 1994 these programs have been cut back by the U.S. Government. These vessels will operate in the spot market and will likely experience sporadic offhire days during 1994. The OMI Columbia began the first quarter with spot charters in the Alaskan North Slope trade and the Company anticipates further employment in late 1994. Two other vessels operating in the spot market in 1993 will continue operating in the spot market in 1994 at approximately the same rates.
The majority of the foreign flag vessels are currently operating on time charters, five of which expire in 1994. Management expects that three of these vessels will be able to operate in the spot market at competitive rates for the balance of 1994. Two vessels were added to the foreign fleet in December 1993, which are operating under bareboat charters.
During March 1994, OMI contracted to purchase a vessel for approx- imately $12,050,000, which will operate in the spot market.
Net voyage revenues decreased $41,569,000 or 39 percent for the year ended December 31, 1992 from the prior year. The following factors were the primary cause of this decrease: thirteen vessels, for which time charters expired during the year, were placed in the spot market because replacement time charters were not available at acceptable rates; two vessels, which operated in the spot market in both 1992 and 1991, earned lower rates in 1992 than in the previous year; two domestic vessels were laid up during a portion of the year; market conditions affecting the workboat operations of Petrolink weakened; and insurance costs increased, in part, from regulatory and environmental law changes.
Net voyage revenues increased $23,827,000 or 28 percent for the year ended December 31, 1991 over 1990. Net increases during 1991 resulted primarily because of the acquisition of the remaining 50.1 percent interest in a joint venture, on March 13, 1990, whose operations were consolidated with those of OMI for a full year during 1991 compared with nine months in 1990. Additionally, increased rates on time charters continuing from 1990 and revenues from a domestic vessel acquired in 1991 contributed to 1991 revenue increases.
YEAR ENDED DECEMBER 31, 1993 VERSUS DECEMBER 31, 1992
VOYAGE REVENUES AND VESSEL AND VOYAGE EXPENSES
Voyage revenues increased $5,936,000 or two percent, with net increases in domestic revenues of $2,223,000 and foreign revenues of $3,713,000 for the year ended December 31, 1993 compared to the year ended December 31, 1992. Domestic revenues increased primarily from improvement in spot rates earned for two vessels in 1993 over 1992, three vessels which incurred less offhire days in 1993 than in 1992 and the purchase of a new vessel in June 1993 which operates in the spot market, primarily in grain trades. Domestic revenue increases were offset by decreased volume and reduced rates in Petrolink's lightering operations due to increased competition in 1993, an accident which caused the loss of a vessel which had been operating on a time charter since December 1992, the scrapping of a vessel in October 1993, and decreases in revenues of two vessels, including the Company's largest domestic vessel, the OMI Columbia, which were idle during 1993 for an aggregate of approximately 330 days. The OMI Columbia's operating results had
a significantly adverse effect on the Company's earnings for 1993. However, while there can be no assurance, the Company believes that conditions have stabilized and, early in 1994, several spot charters were obtained for this vessel at satisfactory charter rates. During 1991, the last year in which the vessel was fully employed, it generated approximately $14.7 million of revenue and $3.1 million of pre-tax income. In the two years prior thereto, revenues were approximately $15.2 million and $14.5 million, respectively, and pre-tax income was approximately $4.8 million in each period. In 1992 and 1993, the vessel generated approximately $9.3 million and $4.0 million of revenue and a pre-tax loss of $1.1 million and $1.3 million, respectively. The pre-tax income effect of the vessel's sporadic trading as against full employment has historically been about $5.0-$7.0 million per year.
Foreign revenues increased primarily because three vessels, which operated on time charters for a portion of 1992 began operating in the spot market and received higher revenues in 1993. Revenues also increased because two vessels were chartered-in during the last quarter of 1993. Foreign increases were partially offset by decreases from three vessels which incurred 110 idle days due to drydocking. The three vessels were on time charters in 1993 and 1992.
Vessel and voyage expenses increased by $16,235,000 or eight percent consisting of net increases in domestic expenses of $13,832,000 and foreign expenses of $2,403,000 for the year ended December 31, 1993 over the comparable year in 1992. Vessel and voyage expenses increased largely due to the change in charter status for four domestic vessels and four foreign vessels from time charters in 1992 to spot charters in 1993. Other increases in expenses relate to expenses for the domestic vessel acquired May 1993, 78 more operating days in 1993 for a vessel which was operating in the spot market in both 1993 and 1992, and lease payments on a vessel which was sold and leased back in November 1992. Increases in expenses were partially offset by decreases in expenses for three vessels which were operating in the spot market in 1992 and began time charters in 1993, decreased expenses from workboat operations of Petrolink due to the workboat sales, and decline in volume of approximately 11 percent in Petrolink's lightering operations.
OTHER INCOME
Other income consists primarily of management fees received from affiliates and/or other parties. During the year ended December 31, 1993, other income decreased $986,000, or 17 percent, for the year as compared to 1992. The decrease in 1993 resulted primarily from a payment of $1,000,000 from Wilomi, Inc. ("Wilomi") during the first quarter of 1992, which was paid in accordance with a contractual agreement relating to the construction contract of a vessel delivered, offset by increases from the U.S. Government for the management of vessels in the Ready Reserve Fleet under a contract renewed for 10 vessels in 1993.
OTHER OPERATING EXPENSES
The Company's operating expenses, other than vessel and voyage expenses, consist of depreciation and amortization, operating lease expense and general and administrative expenses. For the year ended December 31, 1993 these expenses had a net decrease of $992,000 or two percent, as compared to the year ended December 31, 1992. The primary causes of the decrease in 1993 in general and administrative expenses were a change in health insurance coverage for employees, a decrease in other employee benefits and a reduction in legal fees for transactions during 1993 in comparison to 1992.
OTHER INCOME (EXPENSE)
Other income (expense) consists of gain/loss on disposal of assets - - net, provision for writedown of investments, interest expense, interest income, and minority interest. For the year ended December 31, 1993, net other expense decreased $21,633,000, or 55 percent, over 1992. The net decrease resulted primarily from the writedown of $13,094,000 on COC stock during 1992. In addition, decreases during 1993 also resulted from the $2,190,000 gain from the sale of seven workboats of Petrolink, gain on sale of COC stock of $4,086,000 previously written down in 1992 and the decrease in interest expense resulting from both lower interest rates and a decrease in the outstanding principal balance of debt during the year prior to issuing $170,000,000 in Senior Notes in November 1993, offset in part by losses on the sale of a 50 percent owned joint venture and 25 percent equity investment aggregating approximately $1,554,000.
(BENEFIT) PROVISION FOR INCOME TAXES
The benefit for income taxes of $1,730,000 for the year ended December 31, 1993 varied from statutory rates in 1993 by excluding the tax effect on the equity in operations of joint ventures other than Amazon Transport, Inc. ("Amazon"), as management considers it to be permanently invested, and included the effect of the change in the Federal tax rate.
On August 2, 1993, Congress passed the Omnibus Budget Reconciliation Act of 1993 (the "Act"). The major component of the Act affecting OMI is the retroactive increase in the marginal corporate tax rate from 34 percent to 35 percent, increasing the provision for deferred taxes payable by $3,044,000 to comply with the provisions of the Act.
EQUITY IN OPERATIONS OF JOINT VENTURES
Equity in operations of joint ventures of $5,544,000 was $3,515,000 or 39 percent lower in 1993 than in 1992. Joint venture equity was less in 1993 primarily due to a gain on sale of a vessel owned by
Wilomi in April 1992, which increased OMI's equity by approximately $4,826,000. This decline, along with a decline in profits for the vessel owned by Amazon, resulting from the termination of its time charter in 1993 and lower profits being earned in the spot market, were offset by decreases in operating losses in 1993 compared to 1992 incurred by a partnership, Ecomarine USA, which was wrapping up during 1993, and increased equity in the operating results of White Sea Holdings Ltd., a joint venture formed during December 1992.
YEAR ENDED DECEMBER 31, 1992 VERSUS DECEMBER 31, 1991
VOYAGE REVENUES AND VESSEL AND VOYAGE EXPENSE
Voyage revenues decreased $20,958,000 or seven percent, with net decreases of $7,924,000 and $13,034,000 in the domestic and foreign fleets, respectively, for the year ended December 31, 1992 compared to the year ended December 31, 1991. The net decrease in domestic revenues consisted of an aggregate decrease of $16,404,000 offset by increases of $8,480,000. The decreases resulted from reduced revenues from Petrolink's workboat operations, the lay-up of two vessels and the sale of a vessel in May 1992. Increases in revenues resulted primarily from two vessels which were on time charters in both 1992 and 1991, one of which continued the charter through 1992 at an increased rate and one of which operated for 52 more days in 1992 as a result of offhire incurred for repairs in 1991. Increases in domestic revenues also resulted from three vessels that began operating in the spot market in 1992 which were on time charters in 1991. Also, three vessels managed by a joint venture received additional revenues in 1992 as a result of increased profit sharing.
In the foreign fleet, the net decrease in voyage revenues resulted primarily from the expiration of three time charters which were replaced with both voyage and short-term time charters with less favorable rates throughout the year, reduction in rates for a vessel which was operating in the spot market since 1991, and two vessels chartered-in during 1991 which were not part of OMI's fleet during 1992.
Vessel and voyage expenses increased $20,611,000 or 12 percent consisting of a $16,473,000 increase in expenses of domestic operations and a $4,138,000 net increase in foreign operations for the year ended December 31, 1992 over the comparable 1991 period. The increase in domestic vessel and voyage expenses resulted primarily from increased voyage expenses of four vessels, two of which were operating in the spot market in both 1992 and 1991, and two vessels which began operating in the spot market in 1992 that were previously on time charters. Other increases in expenses were incurred on four vessels continuing time charters from 1991 with overall increases in stores, crew and insurance costs.
The net increase in foreign vessel and voyage expenses consisted of an aggregate increase of $9,825,000 offset by decreases of $5,687,000. The increases resulted primarily from five vessels previously on time charters in 1991, which began operating in the spot market in 1992, and similar to the domestic operations, increased vessel expenses on two vessels continuing time charters from 1991. Decreases in vessel and voyage expenses were attributable to the return of the chartered-in vessels.
OTHER INCOME
During the year ended December 31, 1992, other income increased $1,729,000, or 44 percent, over 1991. The increase in 1992 resulted primarily from a contractual payment of $1,000,000 from Wilomi relating to a vessel delivered in the first quarter of 1992. The remaining increase in 1992 relates to increases in management fees from the U.S. Government for management of the Ready Reserve Fleet.
OTHER OPERATING EXPENSES
Other operating expenses increased $2,678,000, or five percent, over 1991. The primary increases in 1992 resulted in increased general and administrative expense of $1,859,000 from the change in the ESOP calculation in the third quarter of 1991 and the addition of a London marketing office in January 1992. Additionally, depreciation and amortization increased $795,000 during 1992 resulting primarily from the acquisition during the fourth quarter of a previously leased vessel and capital improvements on existing vessels.
OTHER INCOME (EXPENSE)
For the year ended December 31, 1992, net other expense increased $12,067,000, or 44 percent, over 1991.
During 1992 OMI deemed its investment in COC shares to have an other than temporary decline in its market value and provided for a writedown of $13,094,000, in addition to a $1,982,000 writedown of a partnership investment to the realizable value of the company's assets. Net loss of $1,146,000 resulted primarily from the loss on the sale of a domestic vessel and disposal of other property of $1,394,000 offset by net gains from the sale of investments and amortization of gain on sale from the sale/leaseback of a vessel. Additionally, during 1992, interest expense decreased $5,544,000 resulting from the decline in interest rates and refinancing of debt.
EQUITY IN OPERATIONS OF JOINT VENTURES
Equity in operations of joint ventures was $3,200,000, or 26 percent, lower during 1992 than in 1991. The net decrease for the
year, excluding the gain on sale of vessels of $4,826,000 in 1992 and $5,940,000 in 1991, primarily resulted from lower rates and higher expenses on vessels which operated under voyage charters in 1992. Additionally, two vessels, which were under construction in 1991, were delivered to a 49 percent joint venture during March and August of 1992. These vessels operated on voyage charters while incurring some offhire days between charters. Additionally, income for the second half of 1992 declined by approximately $2,500,000 due to the drop in the spot market rates for five vessels operating in the spot market or on backhaul voyages to reposition the vessels. The average decline in rates for each of the vessels was approximately $2,800 per day, reflecting a cyclical decline in spot market rates. Moreover, OMI owned a 25 percent interest in an offshore drilling rig whose charter expired in 1991 and for which no revenues were derived in 1992. This accounted for 38 percent of the total decrease in equity for 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1993 was $32,957,000 versus a working capital deficit of $21,133,000 at December 31, 1992. Cash and cash equivalents of $45,321,000 at December 31, 1993 increased $28,471,000 or 169 percent over the balance of $16,850,000 at December 31, 1992. In 1993, the source of the Company's liquidity was issuance of debt, including use of lines of credit, and cash generated by operations. For the year ended December 31, 1993, net cash provided by operating activities was $18,300,000, which was an increase of $6,314,000 or 53 percent from $11,986,000 provided in 1992.
Net cash used by investing activities was $8,778,000 in 1993 versus $13,624,000 in 1992. The Company received dividends aggregating $11,823,000 in 1993 from certain joint ventures. Most joint venture earnings are considered to be permanently invested and are not available for distribution, and there is no certainty that the joint venture, the earnings of which are not considered to be permanently invested, will have sufficient earnings to pay dividends in the future. Therefore, the Company cannot rely on dividends or loans from its joint ventures to improve its liquidity.
The Company operates in a capital intensive industry and augments cash generated by operating activities with debt in order to purchase ships. On November 3, 1993, the Company completed a public sale of $170,000,000, 10.25 percent Senior Notes due November 1, 2003 ("the Notes"). The Notes are unsecured obligations of the Company. The net proceeds of approximately $163,781,000, after deducting fees and expenses, were used to prepay outstanding indebtedness of approximately $98,000,000 and the balance is being used for general corporate purposes, including the acquisition of vessels. The consummation of the offering of the Notes gives the Company greater financial flexibility. The
Company has improved its liquidity and financial position by (1) extending the average life of its indebtedness so that the average life more closely approximates the useful life of its vessels, (2) prepaying a portion of its long-term debt scheduled to come due between 1994 and 1998, (3) enhancing the Company's ability to benefit from improvements in industry conditions, and (4) positioning the Company to finance the acquisition of replacement and additional vessels. The Company believes that, based upon current levels of operations and anticipated improvements in charter market conditions, cash flow from operations together with other available sources of funds, including lines of credit aggregating $45,500,000, should be adequate to make required payments of principal and interest on the Company's debt, including the Notes, to permit anticipated capital expenditures and to fund working capital requirements.
In addition to cash provided by operating activities and issuance of the Notes, OMI received cash from the following significant activities:
*During 1993, Petrolink sold seven workboats and other property and received $3,750,000 in cash proceeds from the sale; the remaining proceeds were received in the form of stock and a note payable through March 1996. *OMI received cash proceeds of $68,153,000 from drawdowns on its lines of credit and $7,000,000 in mortgage notes during the year ended December 31, 1993. *OMI was reimbursed $5,734,000 by a joint venture, White Sea Holdings Ltd., formed during December 1992 for a vessel OMI had purchased on behalf of the venture. *The Company received $5,552,000 from the sale of 1,173,000 shares of COC stock, and $1,363,000 on the sale of its investment in Mundogas Orinoco Ltd. *The Company received insurance proceeds of approximately $7,000,000 for the loss of the OMI Charger. *OMI received $1,480,000 in proceeds from the scrapping of a vessel.
During the year ended December 31, 1993, OMI made the following disbursements other than from operating activities:
*Cash payments of $81,653,000 on short-term lines of credit, $6,910,000 on notes with joint ventures and approximately $135,718,000 payments on mortgage notes on vessels as of December 31, 1993. *Capital expenditures of $36,548,000 for the purchase of one domestic vessel in May 1993, the purchase of two foreign flag vessels in December 1993, improvements to vessels and other property, and the purchase of a workboat. *Cash dividends of $2,140,000 paid on OMI common stock. *Cash payments of $3,724,000 in the form of contributions to existing joint venture/partnership investments.
COMMITMENTS
On January 28, 1994, a vessel built in Japan for a joint venture was delivered for an aggregate purchase price of $38,479,000. OMI has committed, with a joint venture partner, to construct another vessel to be built in the Peoples Republic of China for a cost of approximately $54,400,000. The vessel is scheduled to be delivered in the second quarter of 1996.
OMI acts as a guarantor for a portion of the debt incurred by joint ventures with affiliates of two of its joint venture partners. Such debt was approximately $102,869,000 at December 31, 1993 with OMI's share of such guarantees being approximately $49,594,000. OMI also is a guarantor for one of its joint venture's revolving line of credit of $4,000,000, with a guarantee to OMI from its joint venture partner of $2,000,000.
The Company and its joint venture partners have committed to fund any working capital deficiencies which may be incurred by their joint venture investments. At December 31, 1993, no such deficiencies have been funded.
EFFECTS OF INFLATION
The Company does not consider inflation to be a significant risk to the cost of doing business in the current and foreseeable future. The Company has experienced some additions to the costs of operating the vessels due to price level increases, however, in some cases, the effect has been offset by charter escalation clauses.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OMI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three Years Ended December 31, 1993 (All tabular amounts are in thousands of dollars)
Note 1 - Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include all domestic and foreign subsidiaries which are more than 50 percent owned by OMI Corp. ("OMI" or the "Company"). 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. Accordingly, net income includes OMI's share of the earnings of these companies.
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 on voyages are provided for 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 two to three year period.
FOREIGN CURRENCY TRANSLATION - Foreign currency translation adjustments were related to assets and liabilities of two wholly-owned subsidiaries, whose functional currency was Yen. In August 1990, the functional currency of these subsidiaries was changed to U.S. dollars. The cumulative translation adjustment at that time was $(4,912,000), net of deferred income taxes of $(2,530,000) and will remain at this amount until such assets are sold or disposed of.
ACCOUNTING FOR INVESTMENTS IN EQUITY SECURITIES - The Company has elected early adoption of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") as of December 31, 1993. As a result of the adoption of SFAS 115, the Company recorded an unrealized gain of $9,709,000, net of deferred taxes of $5,228,000, which is presented as a separate component of stockholders' equity. Adjustments are made to net income for any impairment in value that is deemed to be other than temporary.
Prior to adoption of SFAS 115, equity securities were carried at the lower of cost or market.
MARKETABLE SECURITIES - Marketable securities comprise the current portion of available-for-sale securities. Available-for-sale securities, both current and long-term, are carried at market value. Net unrealized gains or losses are reported as a separate component of stockholders' equity until realized. Realized gains and losses on the sales of securities are recognized in net income on the specific identification basis.
CAPITAL CONSTRUCTION AND OTHER RESTRICTED FUNDS - The Capital construction fund is restricted to provide for replacement vessels, additional vessels or reconstruction of vessels built in the United States. The other restricted funds are to be used to pay certain of the Company's debt. These funds can be used at the discretion of the Company upon receipt of written approval from the Maritime Administration.
VESSELS 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. Salvage value is based upon a vessel's light weight tonnage multiplied by a scrap rate.
Leasehold improvements are amortized on the straight-line method over the terms of the leases or the estimated useful lives of the improvements as appropriate.
The Company periodically reviews the book value of its vessels and its ability to recover the remaining book value of the vessels using undiscounted cash flows over the remaining life of each vessel.
GOODWILL - Goodwill, recognized in business combinations accounted for as purchases, of $17,868,000 before accumulated amortization of $2,559,000 and $1,858,000 at December 31, 1993 and 1992, respectively, is being amortized over 25 years.
NET (LOSS) INCOME PER COMMON SHARE - Net (loss) income per common share is determined by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Shares issuable upon the exercise of stock options (see Note 8) have not been included in the computation because they would not have a material effect on net (loss) income per common share.
INCOME TAXES - OMI files a consolidated Federal income tax return which includes all its domestic subsidiary companies. Deferred income taxes are consistent with the provisions of
the Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for Income Taxes", which was adopted by the Company in 1992 (see Note 5).
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS - In December 1990, the FASB issued Statement No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", effective for fiscal years beginning after December 15, 1992. Adoption of this statement has not affected the Company's financial position or results of operations as the Company provides no postretirement benefits.
During November 1992, the FASB issued Statement No. 112, "Employers' Accounting for Postemployment Benefits", effective for fiscal years beginning after December 15, 1993. Adoption of this statement is not expected to have any material effect on the Company's financial position or results of operations.
CASH FLOWS - During the years ended December 31, 1993, 1992 and 1991, interest paid totalled approximately $20,647,000, $25,429,000 and $28,679,000, respectively. For the years ended December 31, 1993, 1992 and 1991, income taxes paid were approximately $6,413,000, $7,628,000 and $10,964,000, respectively.
Cash equivalents represent liquid investments which mature within 90 days. The carrying amount approximates fair market value.
For the years ended December 31, 1993, 1992 and 1991, noncash transactions, which have been excluded from the Consolidated Statements of Cash Flows, include the amortization of the receivable from ESOP of $361,000, $1,141,000 and $2,105,000, respectively (see Note 7), and accruals for capital expenditures of $115,000, $2,525,000 and $2,676,000, respectively.
RECLASSIFICATION - Certain reclassifications have been made to the 1992 and 1991 financial statements to conform to the 1993 presentations.
NOTE 2--INVESTMENTS IN JOINT VENTURES
OMI's investments in joint ventures are accounted for using the equity method, under which the Company's share of earnings of these affiliates is reflected in income as earned and dividends are credited against the investment in joint ventures when received.
The operating results of the joint ventures have been included in the accompanying consolidated financial statements on the following basis:
OMI has entered into management service agreements with certain of its joint ventures, wherein the Company acts as technical and/or commercial manager for certain of the ventures' vessels. Management fees relating to services rendered to joint ventures aggregated $699,000, $567,000 and $589,000 for the years ended December 31, 1993, 1992 and 1991, respectively. During 1992, OMI received a $1,000,000 payment from Wilomi, which is included in other income.
At December 31, 1993, Mosaic owned 893,800 shares of OMI common stock at an aggregate cost of $4,595,000, acquired on the open market between 1990 and 1992 at prices ranging from $3.56 to $7.34. During February 1994, Mosaic sold 300,000 shares of OMI stock at $7.19 per share.
During 1993, 1992 and 1991, OMI chartered three vessels for $24,269,000, three vessels for $27,260,000 and four vessels for $29,964,000, respectively, to OSTC. These amounts are included in the revenue of OMI as the operations of OSTC are not consolidated with OMI.
Summarized combined financial information pertaining to all affiliated companies accounted for by the equity method is as follows:
During the fourth quarter of 1993, OMI recognized a $1,625,000 writedown of its investment in Ecomarine USA, which represents OMI's remaining interest in the partnership. In 1992, OMI wrote this investment down by $1,982,000.
At December 31, 1992, OMI had receivables from affiliates of $13,775,000 consisting of $4,655,000 in dividends receivable from Amazon, $2,500,000 in dividends receivable from Wilomi, and $6,620,000 receivable for the purchase of a vessel on behalf of White Sea. These receivables were collected in 1993, with the exception of $886,000 from White Sea, which was contributed to the venture.
The Company received dividends from Amazon of $4,410,000 and $258,000 from Aurora in 1993.
Certain of the loan agreements to which the Company's joint ventures are party 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 joint ventures to pay dividends to the Company.
The loan agreements described above also contain various provisions restricting the right of the joint ventures to make certain investments, to place additional liens on their property, to incur additional long-term debt, to make certain payments (including in certain instances, dividends), to merge or to undergo a similar corporate reorganization, and to enter into transactions with affiliated companies.
NOTE 3--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consisted of the following:
In November 1993, the Company issued $170,000,000 in unsecured Senior Notes due November 1, 2003. The notes are not redeemable prior to November 1, 1998; thereafter, the notes are redeemable at the option of the Company at a premium until November 1, 2000 when the notes will be redeemable at face value, plus accrued interest.
Bonds of domestic subsidiaries of OMI aggregating $36,390,000 and $48,176,000 at December 31, 1993 and 1992, including the amounts due within one year, are collateralized by mortgages on specific vessels and are guaranteed as to the principal and
interest by the U.S. Government under the Title XI program. These security arrangements restrict these subsidiaries from, among other things, the withdrawal of capital, the payment of common stock dividends and the extending of loans to affiliated parties.
At December 31, 1993, vessels with a net book value of $269,349,000, investments of $13,786,000 (included in Capital construction and other restricted funds in the accompanying balance sheets) and shares of a subsidiary and a joint venture with an aggregate carrying value of $22,420,000 have been pledged as collateral on available lines of credit with banks and long-term debt issues.
Certain of the loan agreements of the Company's subsidiaries 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.
The loan agreements described above 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. As dividend payments are limited to 50 percent of net income earned subsequent to issuance of the Notes, none of the retained earnings at December 31, 1993 were available for payment of dividends.
The maturities of the long-term debt for the five years following December 31, 1993 are as follows:
1994 $ 15,302 1995 19,131 1996 16,838 1997 14,608 1998 16,901 Thereafter 214,847
Total $297,627
At December 31, 1993, OMI had available and unused a total of $45,500,000 in five short-term lines of credit with banks at variable rates, based on LIBOR.
OMI has entered into interest rate SWAP agreements to manage interest costs and the risk associated with changing interest
rates. At December 31, 1993 and 1992, the Company had outstanding four and seven, respectively, interest rate SWAP agreements with commercial banks. These agreements effectively change the Company's interest rate exposure on floating rate loans to fixed rates ranging from 5.29 percent to 9.02 percent. The interest rate SWAP agreements have various maturity dates from December 1994 to February 1999. The changes in the notional principal amounts are as follows:
Interest expense on interest rate SWAPS for the three years ended December 31, 1993, 1992 and 1991 was $2,914,000, $4,332,000 and $2,412,000, respectively. Gains on termination of SWAP agreements totalled $217,000 for the year ended December 31, 1993. There were no gains on terminations in 1992 or 1991.
The Company is exposed to credit loss in the event of non-performance by other parties to the interest rate SWAP agreements. However, OMI does not anticipate non-performance by the counter-parties.
NOTE 4--FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December 31, are as follows:
The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of interest rate SWAPS (used for hedging purposes) is the estimated amount the Company would receive or 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.
Securities available-for-sale included in Marketable securities, Capital construction and other restricted funds, and Long-term investments consisted of the following components:
Excluded from the above schedule are 125,000 shares of Seacor Holdings, Inc., with a carrying value of $1,875,000, which are restricted from sale until February 1995, and in accordance with SFAS 115, are not included in securities available-for- sale.
In 1992, OMI recognized a $13,094,000 loss provision as a charge against operations pertaining to the COC investment. The unrealized loss of $5,948,000, net of deferred taxes of $3,295,000, reflected in stockholders' equity in 1991, pertained to this investment.
NOTE 5--INCOME TAXES
A summary of the components of the (benefit) provision for income taxes is as follows:
The (benefit) provision for income taxes varied from the statutory rates due to the following:
The components of deferred income taxes payable - net relate to the tax effects of temporary differences as follows:
In 1992, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes". There was no cumulative effect on the Company's financial position or results of operations from this change. Prior year's financial statements had not been restated for deferred income taxes and benefits which had been provided in accordance with the provisions of FASB Statement No. 96.
The Company has not provided deferred taxes on its equity in the undistributed earnings of foreign corporate joint ventures accounted for under the equity method other than Amazon. These earnings are considered by management to be permanently invested in the business. If the earnings were not considered permanently invested, approximately $10,347,000 of additional deferred tax liabilities would have been provided at December 31, 1993.
On August 2, 1993, Congress passed the Omnibus Budget Reconciliation Act of 1993, (the "Act"). The major component of the Act affecting OMI was the retroactive increase in the marginal corporate tax rate from 34 percent to 35 percent, increasing deferred taxes payable by $3,044,000 to comply with the provisions of the Act.
NOTE 6--TREASURY STOCK
During 1992, OMI purchased 639,000 shares of the Company's common stock at an aggregate price of $2,658,000. In addition, 666,000 shares were added to treasury from the ESOP (see Note 7) and 1,291,000 shares were retired.
NOTE 7--EMPLOYEE STOCK OWNERSHIP PLAN
In November 1987, OMI established an Employee Stock Ownership Plan ("ESOP"), effective January 1, 1987, for all eligible employees and approved a contribution of $400,000 toward the funding of the ESOP trust.
In November 1987, the ESOP trust borrowed $9,600,000 from a bank, pursuant to a loan agreement guaranteed by OMI, which provided for 28 quarterly payments. OMI agreed to make annual contributions to the ESOP as necessary to repay the principal and interest on the ESOP's debt. The ESOP purchased 2,666,666 shares of common stock, at the same date, from OMI for $10,000,000.
In February 1990, OMI expanded its 1987 ESOP Plan by purchasing 737,366 shares of OMI common stock for an aggregate purchase price of $7,558,000. OMI funded this purchase by amending the November 1987 loan agreement, providing for 24 quarterly installments at a rate of Prime plus .53 percent, with a final payment due November 1995.
OMI's contribution to the ESOP had been used to make loan principal and interest payments. With each loan payment, a portion of the common stock had been released from the pledge to the bank and allocated annually to participating employees to the extent allowable by the Internal Revenue Code.
On December 23, 1992, OMI repurchased 666,000 shares of OMI common stock from the ESOP trust at an aggregate cost of $6,825,000 and, correspondingly, reduced the receivable from ESOP by the same amount. During 1992, OMI reduced ESOP debt by scheduled payments of $1,141,000, and in July 1992 paid the remaining ESOP loan balance of $9,345,000.
NOTE 8--STOCK OPTION AND RESTRICTED STOCK PLANS
The Incentive Stock Option Plan ("ISO") of 1984 provides for the granting of options to acquire up to 600,000 shares of the Company's common stock. Options under this Plan are exercisable at the rate of 33 1/3 percent a year, commencing one year from the date of grant and expiring ten years after the date of grant.
The Non-Qualified Stock Option Plan of 1986 provides for the granting of up to 500,000 shares at a price not less than fair market value at the date of grant. Options are exercisable at the rate of 20 percent per year, commencing one year from the date of grant, and expiring ten years after the date of grant. Stock Appreciation Rights ("SARs") have been granted in tandem with all options under this plan. Such rights offer recipients the alternative of electing to cancel the related stock option, and to receive instead an amount in cash, stock or a combination of cash and stock equal to the difference between the option price and the market price of the Company's stock on the date at which the SAR is exercised.
Proceeds received from the exercise of the options are credited to the capital accounts. Compensation expense is recorded for options based on the difference between market price on the day exercised and option prices. Compensation expense relating to SARs is recorded with respect to the rights based upon the quoted market value of the shares and exercise provisions. Charges (benefits) to net income relating to SARs and/or options in 1993, 1992 and 1991 were $96,000, $(126,000) and $426,000, respectively.
On June 12, 1990, the Board of Directors of OMI adopted, with shareholders' approval, the 1990 Equity Incentive Plan (the "1990 Plan"). The total number of shares of OMI common stock that may be optioned or issued as stock under this plan is 1,000,000 shares. The maximum number of issuable common stock is 300,000 shares, of which OMI awarded 15,000 shares and
254,000 shares in 1991 and 1990, respectively, to eligible key employees under this Plan. On January 27, 1993 and December 18, 1990, OMI granted 131,000 and 606,000 options, respectively, that are not intended to qualify as incentive stock options which are exercisable at a rate of 33 1/3 percent per year commencing one year from the date of grant, and expiring ten years after the date of grant. Upon issuance of restricted common stock under the 1990 Plan, unearned compensation, equivalent to the market value at the date of grant, is charged to stockholders' equity and subsequently amortized over the life of the award.
A summary of the changes in shares under option for all plans is as follows:
Number of Options Option Price Outstanding at January 1, 1991 1,162,833 $2.8125 to 9.875 Exercised (137,154) 2.8125 to 4.6875 Cancelled (108,000) 4.6875 to 5.125 Outstanding at December 31, 1991 917,679 2.8125 to 9.875 Exercised (6,000) 5.125 Forfeited (4,267) 4.6875 Outstanding at December 31, 1992 907,412 2.8125 to 9.875 Granted 131,000 4.50 Exercised (47,623) 2.8125 to 5.125 Forfeited (14,300) 5.125 to 9.875 Outstanding at December 31, 1993 976,489 $4.25 to 9.875
NOTE 9--RETIREMENT BENEFITS AND DEFERRED COMPENSATION
In June 1993, the Company terminated its non-contributory defined benefit Pension Plan (the "Plan"). This termination resulted in a loss of $1,017,000, which the Company recognized in 1993. All participants of the Plan were fully vested as of the termination date. The settlement of the accumulated benefit obligation, through the purchase of annuity contracts for or lump-sum payments to participants by the Company, will be completed in 1994.
In determining the actuarial present value of the projected benefit obligation as of December 31, 1993 and 1992, the weighted average discount used was 4.2 percent in 1993 (which approximates the rate expected to be used in settlement of these obligations in 1994) and 8.5 percent in 1992, and the rate of increase in future compensation expense was 5 percent in 1992.
The expected long-term rate of return on Pension Plan assets was 8 percent in 1993 and 1992. Assets of the Plan primarily consist of Chase Domestic Liquidity Funds.
The following table sets forth the Plan's funded status and amounts recognized by OMI at December 31:
NOTE 11--ASSETS HELD FOR SALE
In December 1992, OMI Petrolink Corp. ("Petrolink"), a subsidiary of the Company, entered into a contract to sell seven workboats for $7,500,000 for delivery in 1993.
Petrolink received $3,750,000 in cash, notes receivable of $1,875,000 payable through March 31, 1996 and $1,875,000 in restricted stock of the purchaser. Gain on the sale was approximately $2,190,000.
NOTE 12--DISPOSAL OF ASSETS
In 1992, the Company entered into a sale/leaseback transaction on a vessel. The Company received $11,500,000 in cash, of which $3,500,000 was used to pay the mortgage on the vessel, a $2,000,000 secured note receivable due December 31, 1995, and a six-year lease at the current market rate. The gain of approximately $2,001,000 is being amortized over the term of the lease.
The net gain (loss) for the year ended December 31, on disposal of assets consists of the following:
During 1991, OMI sold marketable securities and other assets with a cost of $7,319,000, resulting in a net gain of $105,000.
In October 1993, the Company's vessel, OMI Charger, which was at anchor without cargo outside Galveston, Texas, suffered explosions which caused the deaths of three persons and resulted in the total loss of the vessel. No environmental damage occurred. The Company's insurance covered the loss of the vessel and its protection and indemnity coverage is expected to cover property and personal injury claims.
NOTE 13--FINANCIAL INFORMATION RELATING TO DOMESTIC AND FOREIGN OPERATIONS
Presented below is certain information relating to OMI's operations:
Investments in and net receivables from foreign subsidiaries amounting to $395,988,000, $274,109,000 and $287,343,000 at December 31, 1993, 1992 and 1991, respectively, have been excluded from domestic assets as they have been eliminated in consolidation.
Voyage revenues included income from major customers as follows:
NOTE 14--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, after review with counsel, are of such nature that the ultimate liability, if any, would not have a material adverse effect on the consolidated financial statements.
In September 1988, the Board of Directors adopted a Separation Allowance Program providing for severance benefits to all non-union employees other than non-resident aliens, leased employees, directors who are not employees of the Company or employees with individual severance plans in the event there is a change of control in OMI and such employees are thereafter terminated without cause or transferred or their position is 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).
The Company has employment agreements with five key officers. Each of the employment agreements provide that if the employee is terminated without cause, voluntarily terminates his employment within 90 days of a relocation or reduction in compensation or responsibilities, dies or is disabled, such employee will continue to receive base salary (plus a portion of his incentive bonus for the year in which termination occurs) and other benefits until December 31, 1994 or twelve months from the date of termination, whichever is later. In addition, if any such employee is terminated without cause (other than for reasons of disability) within three years of a Change of Control (as defined in the Company's Separation Allowance Program), the Company will pay such employee an amount equal to three times the sum of his then current base salary and his maximum incentive bonus. The aggregate commitment for future salaries, excluding bonuses, under these employment agreements is approximately $1,328,000 at December 31, 1993. The maximum contingent liability for salary and incentive compensation in the event of a change in control is approximately $3,574,000 at December 31, 1993. The Company is in the process of revising its employment agreements and contracts with additional key employees.
OMI has committed, with a joint venture partner, to construct a vessel to be built in the Peoples Republic of China for a cost of approximately $54,400,000. The vessel is scheduled to be delivered in the second quarter of 1996.
OMI acts as a guarantor for a portion of the debt incurred by joint ventures with affiliates of two of its joint venture
partners. Such debt was approximately $102,869,000 at December 31, 1993 with OMI's share of such guarantees being approximately $49,594,000. OMI also is a guarantor for one of its joint venture's revolving line of credit of $4,000,000, with a guarantee to OMI from its joint venture partner of $2,000,000.
The Company and its joint venture partners have committed to fund any working capital deficiencies which may be incurred by their joint venture investments. At December 31, 1993, no such deficiencies have been funded.
NOTE 15--SUBSEQUENT EVENT
On January 28, 1994, a vessel built in Japan for a joint venture was delivered for an aggregate purchase price of $38,479,000.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of OMI Corp.:
We have audited the accompanying consolidated balance sheets of OMI Corp. and its subsidiaries as of December 31, 1993 and 1992 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
Deloitte & Touche New York, New York
February 18, 1994
ITEM 8. SUPPLEMENTARY DATA QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
ITEM 8. FINANCIAL SCHEDULES
OMI CORP. AND SUBSIDIARIES SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES (OTHER THAN RELATED PARTIES) DECEMBER 31, 1993 (IN THOUSANDS)
Balance at Balance at Beginning End Affiliate of Year Additions Deletions of Year
Amazon Transport, Inc. $ 4,655 $ -0- $ 4,655 $ -0-
Wilomi, Inc. 2,500 -0- 2,500 -0-
White Sea Holdings Ltd. 6,620 -0- 6,620 -0-
Total $ 13,775 $ -0- $ 13,775 $ -0-
[FN] The Company received $5,734 from White Sea Holdings, Inc. during 1993 and the remaining balance was recorded as a capital contribution.
SCHEDULE III
SCHEDULE III
SCHEDULE III OMI CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements, hereto reflect OMI Corp. ("OMI") parent only, balance sheets, statements of operations and statements of cash flows. All domestic and foreign subsidiaries which are more than 20% owned and investments in joint ventures are accounted for by the equity method.
See Notes to Consolidated Financial Statements on pages 35 through 53 of OMI's 1993 Form 10K.
Certain reclassifications have been made to the 1992 financial statements to conform to the 1993 presentations.
2. Long-Term Debt
Long-term debt as of December 31, 1993 and 1992 consisted of the following:
In November 1993, the Company issued $170,000,000 in unsecured Senior Notes due November 1, 2003. The notes are not redeemable prior to November 1, 1998; thereafter, the notes are redeemable at the option of the Company at a premium until November 1, 2000 when the notes will be redeemable at face value, plus accrued interest.
3. Lines of Credit
At December 31, 1992, the Company had $7,000,000 in short-term notes payable to banks representing borrowings against lines of credit established with a bank.
At December 31, 1993, the Company had available and unused $35,500,000 in four lines of credit at variable rates, based on LIBOR.
SCHEDULE X
OMI CORP. AND SUBSIDIARIES SUPPLEMENTAL INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
CHARGED TO EXPENSE:
Item 1993 1992 1991
Maintenance & Repair $21,410 $14,010 $16,962
WILOMI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1992
NOTES 1993 1992
ASSETS
CURRENT ASSETS: Cash (including cash equivalents of $2,400,000 in 1993 and $1,500,000 in 1992) 2 $ 7,013,960 $ 3,342,896 Advances to masters 89,026 63,823 Accounts receivable 925,328 1,032,323 Other receivables 352,930 704,988 Notes due from affiliate 4 2,755,102 2,500,000 Prepaid expenses 922,827 972,533
Total current assets 12,059,173 8,616,563
RECEIVABLES FROM AFFILIATES 4 225,192
VESSELS (net of accumulated depreciation of $10,069,152 in 1993 and $5,259,704 in 1992) 2,3 120,682,447 125,438,232
NOTES DUE FROM AFFILIATES 4 16,409,898 19,165,000
OTHER ASSETS 1,098,586 763,753
TOTAL ASSETS $150,475,296 $153,983,548
See notes to consolidated financial statements.
NOTES 1993 1992
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: Accounts payable $ 408,002 $ 339,083 Accrued expenses 2,261,056 1,225,868 Accrued interest payable 1,562,057 1,339,786 Due to affiliate 4 2,500,000 Current portion of long-term debt 6,064,000 5,887,000
Total current liabilities 10,295,115 11,291,737
PAYABLES TO AFFILIATES 4 2,168,126
ADVANCE TIME CHARTER REVENUES AND OTHER LIABILITIES 500,656 458,029
LONG-TERM DEBT 5 90,283,000 96,347,000
STOCKHOLDERS' EQUITY: Common stock - $1.00 par value; 10,000 shares authorized and outstanding 10,000 10,000 Capital surplus 1,080,577 1,080,577 Retained earnings 48,305,948 42,628,079
Total stockholders' equity 49,396,525 43,718,656
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $150,475,296 $153,983,548
WILOMI, INC. AND SUBSIDIARIES
WILOMI, INC. AND SUBSIDIARIES
WILOMI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. COMPANY
Wilomi, Inc. and subsidiaries (the "Company" or "Wilomi") are jointly-owned by Universal Bulk Carriers, Inc. ("UBC"), a wholly- owned subsidiary of OMI Corp. ("OMI"), and K/S Wilhelmsen Transport and Trading A/S ("Wilhelmsen") with interests of 49 and 51 percent respectively. On August 9, 1992, OMI transferred its 49 percent investment in Wilomi to its wholly-owned subsidiary, UBC. The joint venture, incorporated on May 15, 1987, owns and operates commercial vessels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include all subsidiaries of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.
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 on voyages 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.
VESSELS AND VESSELS UNDER CONSTRUCTION - Vessels are recorded at cost; including interest on funds borrowed to finance the construction of new vessels. Interest of $594,893 and $2,088,081 was capitalized during the years ended December 31, 1992 and 1991, respectively.
Depreciation is provided on the straight-line method based on the estimated useful lives of the vessels, up to the vessel's estimated salvage value. Salvage value is based upon the vessel's light weight tonnage, multiplied by a scrap rate.
The Company periodically reviews the book value of its vessels and its ability to recover the remaining book value of the vessels using undiscounted cash flow over the remaining life of each vessel.
FEDERAL INCOME TAXES - No provision has been made for Federal income taxes. The income of the Company is not generally subject to tax as a result of various provisions of the Internal Revenue Code. Additionally, the country in which the Company is incorporated exempts shipping and maritime operations from taxation.
CASH FLOWS - Cash equivalents represent liquid investments that equal fair market value and mature within 90 days. During the years ended December 31, 1993, 1992 and 1991, the Company paid interest of $4,605,435, $4,097,261 and $5,178,645, respectively. The Company paid no taxes in 1993, 1992 or 1991.
3. VESSELS AND VESSELS UNDER CONSTRUCTION
In November 1993, the Company entered into an agreement to construct a new vessel at an approximate cost of $54,000,000. The vessel is expected to be delivered in 1996.
During 1992, the Company took delivery of three vessels which had been under construction in 1991. One vessel, with total costs of $37,681,683, was sold in April, 1992 at a gain of $9,848,317.
In July 1991, a vessel with total construction costs of $36,858,043 was delivered to the Company. This vessel was sold in September 1991 for a gain of $12,050,416.
4. RELATED PARTY TRANSACTIONS
OMI acted as technical and commercial manager for two vessels owned during 1993 and three vessels owned during 1992 and 1991.
Management fees to OMI relating to years ended December 31, 1993, 1992 and 1991 were $288,000, $255,827 and $277,034, respectively.
Wilhelmsen acted as manager for one vessel owned during 1993. Management fees to Wilhelmsen for the year ended December 31, 1993 were $144,000.
The Company declared dividends of $5,102,041 and $1,000,000 in 1992.
Notes due from affiliates in 1993 of $19,165,000 bear interest at 6.5 percent. During 1992, notes due from affiliates of $19,165,000 and $2,500,000 accrued interest at 6.5 percent and 6.3 percent, respectively. In 1992, the Company forgave $2,602,041 of the note due from Wilhelmsen in lieu of payment of the dividend. Notes due from affiliates of $5,500,000 in 1991 bear interest at 6.3 percent. Interest income on these notes amounted to $1,263,000, $836,000 and $25,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
In accordance with an agreement between UBC and Wilhelmsen, UBC is entitled to receive $1,000,000 upon delivery of each vessel that was contracted for or under construction at the time the joint venture was formed. In 1992, Wilomi took delivery on a new building subject to this agreement. Accordingly, Wilomi paid a dividend of $1,000,000 to UBC in 1992.
5. LONG-TERM DEBT
Long term debt at December 31, 1993 and 1992 consisted of the following:
The maturities of the mortgage notes payable, for each of the five years following December 31, 1993, are as follows:
1994 $ 6,064,000 1995 6,446,000 1996 6,654,000 1997 6,879,000 1998 7,122,000 Thereafter 63,182,000
Total $ 96,347,000
At December 31, 1993, the Company had available $10,000,000 in a short-term line of credit with a bank at a variable rate based on LIBOR.
The fair market value of long-term debt at December 31, 1993 is equal to its carrying value.
During 1992, credit line draw-downs on two vessels which were under construction during 1991 were refinanced with bank loans totaling $83,960,000. Additionally, a mortgage note on a vessel was refinanced in the amount of $19,300,000.
6. COMMITMENTS AND CONTINGENCIES
The Company acts as a guarantor on debt incurred by an affiliated company. Such debt was $4,000,000 at December 31, 1993.
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Wilomi, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Wilomi, Inc. and subsidiaries as of December 31, 1993 and 1992 and the related statements of consolidated income and retained earnings and of cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Companies' 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, such financial statements present fairly, in all material respects, the financial position of the Companies at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
Deloitte & Touche New York, New York
February 18, 1994
AMAZON TRANSPORT, INC.
BALANCE SHEETS DECEMBER 31, 1993 and 1992
NOTES 1993 1992 ASSETS
CURRENT ASSETS: 2 Cash and cash equivalents $ 7,873,324 $11,155,370 Advances to masters 31,971 137,417 Receivables: Traffic 530,721 Other 107,258 331,606 Prepaid expenses and other current assets 497,579 279,184
Total current assets 9,040,853 11,903,577
VESSEL AT COST: 2 Vessel 21,394,270 21,272,767 Less accumulated depreciation 4,906,994 4,293,358 Vessel - net 16,487,276 16,979,409
RECEIVABLE FROM AFFILIATE 3 4,410,000
OTHER ASSETS 5,866 73,712
TOTAL ASSETS $25,533,995 $33,366,698
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - Accounts payable and accrued liabilities $ 2,113,435 $ 833,033
PAYABLE TO AFFILIATES 3 14,707 4,695,025
ADVANCED TIME CHARTER REVENUE 511,897
STOCKHOLDERS' EQUITY: Common stock - $5.00 par value; authorized 5,000 shares, outstanding 180 shares 900 900 Capital surplus 21,194,085 21,194,085 Retained earnings 2,210,868 6,131,758
Total stockholders' equity 23,405,853 27,326,743
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,533,995 $33,366,698
See notes to financial statements.
AMAZON TRANSPORT, INC.
AMAZON TRANSPORT, INC.
AMAZON TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. ORGANIZATION
Amazon Transport, Inc. (the "Company" or "Amazon") is jointly owned by Universal Bulk Carriers, Inc. ("UBC"), a wholly-owned subsidiary of OMI Corp. ("OMI"), and Bergesen d.y. A/S ("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 periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operating Revenues and Expenses - Voyage revenues and expenses are recognized on the percentage-of-completion method of accounting. Estimated losses are provided in full at the time such losses become evident.
Vessel - The vessel is recorded at cost. Depreciation is provided on the straight-line method based on the estimated useful life of the vessel up to the estimated salvage value. Salvage value is based upon the scrap value of the vessel's light weight tonnage.
The Company periodically reviews the book value of its vessel and its ability to recover the remaining book value of the vessel using undiscounted cash flows over the remaining life of the vessel.
Federal Income Taxes - No provision has been made for Federal income taxes. The income of the Company is not generally subject to tax as a result of various provisions of the Internal Revenue Code. Additionally, the country in which the Company is incorporated exempts shipping and maritime operations from taxation.
Cash Flows - Cash equivalents represent liquid investments which mature within 90 days. The Company paid no interest or taxes in 1993, 1992 and 1991.
3. RELATED PARTY TRANSACTIONS
The Company has entered into management service agreements with OMI and Bergesen, who act as technical and commercial managers of the Settebello. The Company paid OMI and Bergesen management fees of $200,000 for each of the years ended December 31, 1993, 1992, and 1991.
The following table summarizes balances receivable from or due to affiliated companies at December 31:
1993 1992 Receivable from affiliate: OMI $4,410,000
Payable to affiliates: OMI $ 14,646 $ 29,281 UBC 61 4,657,572 Bergesen 8,172
$ 14,707 $4,695,025
During 1992, the Company issued 6.5 percent notes in the amounts of $4,410,000 and $4,590,000 to OMI and Bergesen, respectively. Interest earned on these notes aggregated $391,068. On December 31, 1992, the Company forgave the $4,590,000 note due from Bergesen and $199,443 of related interest in lieu of payment of a portion of the dividend. (See Note 4).
4. DIVIDENDS
During 1993, the Company declared and paid a $9,000,000 dividend. The Company also paid $4,655,000 of 1992 dividends during the year.
During 1992, the Company declared dividends of $9,500,000 of which $55,557 was paid.
During 1991, the Company paid dividends of $12,000,000 to UBC and Bergesen.
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Amazon Transport, Inc.:
We have audited the accompanying balance sheets of Amazon Transport, Inc. as of December 31, 1993 and 1992 and the related statements of operations and retained earnings and of cash flows for each of the three years in the period ended December 31, 1993. 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, 1993 and 1992 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
Deloitte & Touche New York, New York
February 18, 1994
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OMI
Pursuant to General Instruction G(3) the information regarding directors called for by this item is hereby incorporated by reference from OMI's 1994 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.
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 1994 Proxy Statement to be filed with the Securities and Exchange Commission.
ITEM 12.
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 1994 Proxy Statement to be filed with the Securities and Exchange Commission.
ITEM 13.
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 1994 Proxy Statement to be filed with the Securities and Exchange Commission.
PART IV
ITEM 14.
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENTS OF AFFILIATES
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements:
OMI Corp. and Subsidiaries Consolidated Statements of Operations for the three years ended December 31, 1993.
OMI Corp and Subsidiaries Consolidated Balance Sheets at December 31, 1993 and 1992.
OMI Corp. and Subsidiaries Consolidated Statements of Cash Flows for the three years ended December 31, 1993.
OMI Corp. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1993.
OMI Corp. and Subsidiaries Notes to Consolidated Financial Statements for the three years ended December 31, 1993.
OMI Corp. and Subsidiaries Quarterly Results of Operations for 1993 and 1992.
2. Financial Statement Schedules:
II -- OMI Corp. and Subsidiaries Amounts Receivable from Related Parties and Underwriters, Promotors and Employees (Other than Related Parties) at December 31, 1993.
III -- OMI Corp. (Parent only) Condensed financial information as to financial position as of December 31, 1993 and 1992, and statements of cash flows and results of operations for the years ended December 31, 1993, 1992 and 1991.
V -- OMI Corp. and Subsidiaries Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991.
VI -- OMI Corp. and Subsidiaries Accumulated Depreciation and Amortization of Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991.
X -- OMI Corp. and Subsidiaries Supplementary Income Statement Information for the years ended December 31, 1993, 1992 and 1991.
3. Exhibits
(b) Reports on Form 8-K.
None.
(d) Financial Statements of Affiliates:
Wilomi Inc. and Subsidiaries
Consolidated Balance Sheets at December 31, 1993 and 1992, and Related Statements of Consolidated Income and Retained Earnings, and Cash Flows for each of the three years in the period ended December 31, 1993 and Independent Auditors' Report.
Amazon Transport, Inc.
Balance Sheets at December 31, 1993 and 1992 and Related Statements of Operations and Retained Earnings, and Cash Flows for each of the three years in the period ended December 31, 1993 and Independent Auditors' Report.
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 CORP.
By /s/ Jack Goldstein JACK GOLDSTEIN President, Chief Executive Officer and Director
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
/s/ Michael Klebanoff Chairman of the Board March 22, 1994 MICHAEL KLEBANOFF and Director
President, Chief March 22, 1994 /s/ Jack Goldstein Executive Officer, JACK GOLDSTEIN and Director
/s/ Chaim Barash Senior Vice President March 22, 1994 CHAIM BARASH and Director
/s/ Livio Borghese Director March 22, 1994 LIVIO BORGHESE
/s/ C.G. Caras Director March 22, 1994 C.G. CARAS
/s/ Steven D. Jellinek Director March 22, 1994 STEVEN D. JELLINEK
/s/ Emanuel L. Rouvelas Director March 22, 1994 EMANUEL L. ROUVELAS
/s/ Franklin W.L. Tsao Director March 22, 1994 FRANKLIN W.L. TSAO
/s/ George W. Vlandis Director March 22, 1994 GEORGE W. VLANDIS
Senior Vice President, March 22, 1994 /s/ Vincent J. de Sostoa Treasurer and Chief VINCENT J. DE SOSTOA Financial Officer