UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of October , 2004
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Frontline Ltd.
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(Translation of registrant's name into English)
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F [X] Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
Item 1. INFORMATION CONTAINED IN THIS FORM 6-K REPORT
This report contains an update to the earnings release of Frontline Ltd for the
quarter ended June 30, 2004 along with a Management's Discussion and Analysis of
Financial Condition and Results of Operations for the quarter and six months
ended June 30, 2004.
The June 30, 2004 balance sheet presented in this report has been restated from
the June 30, 2004 balance sheet presented in our earnings release for the six
months ended June 30, 2004 as submitted to the U.S. SEC on Form 6-K on August
23, 2004, to decrease minority interest by $20.9 million and to increase total
stockholders' equity by $20.9 million.
Frontline Ltd
Index to Interim Financial Information
Report of Independent Registered Public Accounting Firm 4
Unaudited Condensed Statements of Operations for the three and 5
six month periods ended June 30, 2004 and 2003
Unaudited Condensed Balance Sheet as of June 30, 2004 and 6
Audited Condensed Balance Sheet as of December 31, 2003
Unaudited Condensed Statements of Cash Flows for the three and 7
six month periods ended June 30, 2004 and 2003
Unaudited Statements of Changes in Stockholder's Equity for the 8
six months ended June 30, 2004 and 2003
Notes to Interim Financial Statements 9
Selected Financial Data 14
Management's Discussion and Analysis of Financial Condition and 16
Results of Operations for the six months ended June 30, 2004
Signatures 20
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Frontline Ltd:
We have reviewed the accompanying condensed balance sheet of Frontline Ltd (the
Company) as of June 30, 2004, and the related statements of operations for the
three and six months ended June 30, 2004, of stockholders' equity for the six
months ended June 30, 2004 and the statement of cash flows for the three and six
months ended June 30, 2004. This interim financial information is the
responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial information for it to be in
conformity with accounting principles generally accepted in the United States of
America.
We previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2003, and the related consolidated statement of operations, of cash
flows and of changes in stockholders' equity for the year then ended (not
presented herein), and in our report dated June 24, 2004 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of June 30, 2004, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers AS
Oslo, Norway
October 6, 2004
FRONTLINE LTD.
Unaudited Condensed Statements of Operations
(in thousands of $, except per share data)
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
Total operating revenues 357,004 330,201 806,581 677,410
Gain (loss) from sale of assets (469) (4,271) (225) (3,778)
Operating expenses
Voyage expenses and commission 82,865 97,505 164,625 177,175
Ship operating expenses 29,904 28,918 60,617 55,758
Charterhire expenses 9,371 19,303 21,255 42,850
Administrative expenses 5,236 2,458 11,352 5,721
Depreciation 45,628 35,582 90,811 70,941
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Total operating expenses 173,004 183,766 348,660 352,445
Net operating income 183,531 142,164 457,696 321,187
Other income/(expenses)
Interest income 8,297 3,273 16,258 5,981
Interest expense (51,055) (17,082) (104,869) (35,553)
Share of results from associated companies 1,483 13,287 4,346 30,452
Foreign currency exchange gain (loss) 6,159 (878) 2,055 127
Other financial items, net 25,267 14,302 12,628 12,549
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Net other income/(expenses) (9,849) 12,902 (69,582) 13,556
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Net income before income taxes and minority
interests 173,682 155,066 388,114 334,743
Minority interests 4,381 - 4,381 -
Income taxes 113 (1) 113 (3)
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Net income 169,188 155,067 383,620 334,746
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Basic earnings per share $2.29 $2.04 $5.20 $4.39
Diluted earnings per share $2.29 $2.04 $5.20 $4.38
See accompanying Notes that are an integral part of the Interim Financial Statements
Frontline Ltd.
Condensed Balance Sheets
(in thousands of $)
2004 2003
June 30 Dec 31
(unaudited) (audited)
ASSETS
Short term
Cash and cash equivalents 112,859 121,726
Restricted cash 594,478 894,350
Other current assets 208,437 181,928
Long term
Newbuildings and vessel purchase options 8,370 8,370
Vessels and equipment, net 2,286,717 2,165,239
Vessels under capital lease, net 742,035 765,126
Investment in finance leases 114,237 120,894
Investment in associated companies 12,971 173,329
Deferred charges and other long-term assets 45,816 32,573
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Total assets 4,125,920 4,463,535
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LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term interest bearing debt 184,605 191,131
Current portion of obligations under capital leases 20,787 20,138
Other current liabilities 139,431 110,043
Long term
Long term interest bearing debt 2,047,057 2,091,286
Obligations under capital leases 743,536 753,823
Other long term liabilities 41,879 41,697
Minority interests 141,105 -
Stockholders' equity 807,520 1,255,417
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Total liabilities and stockholders' equity 4,125,920 4,463,535
=============================================================================================
See accompanying Notes that are an integral part of the Interim Financial Statements
Frontline Ltd.
Unaudited Condensed Statements of Cash Flows
(in thousands of $)
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
OPERATING ACTIVITIES
Net income (loss) 169,188 155,067 383,620 334,746
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortisation 47,241 35,509 97,605 72,146
Unrealised foreign currency exchange (gain) loss (6,081) 188 2,327 (1,070)
Gain or loss on sale of assets 469 4,271 225 3,778
Results from associated companies (1,483) (13,287) (4,346) (30,452)
Adjustment of financial derivatives to market value (28,998) (16,250) (16,156) (22,410)
Other 4,780 (3,983) 2,800 (4,963)
Change in operating assets and liabilities 4,322 145,659 26,292 92,322
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Net cash provided by operating activities 189,438 307,174 439,784 444,097
INVESTING ACTIVITIES
Maturity (placement) of restricted cash (22,619) 5,671 299,872 4,697
Additions to newbuildings, vessels and equipment - (157,899) - (172,213)
Dividends from (advances to) associated companies, net 1,400 226 (30,743) 495
Acquisition of subsidiaries and businesses, net of cash (4,145) - (4,145) -
Receipts from investment in finance lease and loans 8,109 - 8,109 -
receivables
Purchases of other assets (417) - (417) -
Proceeds from sale of assets 682 111,942 11,864 115,885
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Net cash provided by (used in) investing activities (16,990) (40,060) 284,359 (51,136)
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FINANCING ACTIVITIES
Proceeds from long-term debt, net of fees paid 88,776 52,149 1,552,894 51,073
Repayments of long-term debt (99,026) (116,038) (1,616,956) (178,141)
Repayment of capital leases (4,842) (1,853) (9,638) (5,009)
Dividends paid (329,630) (76,037) (661,618) (87,508)
Issuances and repurchases of own shares, net (192) (24,045) 1,128 (23,993)
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Net cash used in financing activities (344,914) (165,824) (733,190) (243,578)
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Net increase in cash and cash equivalents (172,466) 101,290 (8,867) 149,383
Cash and cash equivalents at start of period 285,325 138,850 121,726 90,757
Cash and cash equivalents at end of period 112,859 240,140 112,859 240,140
=============================================================================================================================
See accompanying Notes that are an integral part of the Interim Financial Statements
Frontline Ltd.
Unaudited Statements of Changes in Stockholders' Equity
(in thousands of $, except number of shares)
Six months ended June 30,
2004 2003
NUMBER OF SHARES OUTSTANDING
Balance at beginning of year 73,647,930 76,466,566
Shares issued 297,436 76,500
Shares bought back (20,197) (3,070,000)
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Balance at end of period 73,925,169 73,473,066
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SHARE CAPITAL
Balance at beginning of year 184,120 191,166
Shares issued 743 192
Shares bought back and cancelled (50) (7,675)
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Balance at end of period 184,813 183,683
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ADDITIONAL PAID IN CAPITAL
Balance at beginning of year 513,859 552,241
Shares issued 8,601 94
Shares bought back (581) (42,156)
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Balance at end of period 521,879 510,179
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ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year (6,953) (9,498)
Other comprehensive income 2,732 1,001
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Balance at end of period (4,221) (8,497)
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RETAINED EARNINGS
Balance at beginning of year 564,391 493,065
Net income 383,620 334,746
Cash dividends declared (701,618) (160,977)
Stock dividends (141,344) -
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Balance at end of period 105,049 666,834
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Total Stockholders' Equity 807,520 1,352,199
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COMPREHENSIVE INCOME (LOSS)
Net income 383,620 334,746
Unrealised gains from marketable securities and cash flow
hedging instruments 2,514 1,024
Foreign currency translation and other 218 (23)
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Other comprehensive income 2,732 1,001
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Comprehensive income 386,352 335,748
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See accompanying Notes that are an integral part of the Interim Financial Statements
Frontline Ltd.
Notes to the Interim Financial Statements
1. Basis of Presentation
The accompanying interim financial statements of Frontline Ltd ("Frontline"
or the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The principal accounting policies used in the preparation of these
financial statements are set out below.
These interim financial statements should be read in conjunction with the
audited financial statements and accompanying notes included in the
Company's Annual Report on Form 20-F for the year ended December 31, 2003.
The interim financial statements include the assets and liabilities of the
Company and its subsidiaries and certain variable interest entities in
which the Company is deemed to be subject to a majority of the risk of loss
from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. All intercompany
balances and transactions have been eliminated on consolidation.
The Company uses the equity method to account for investments in companies
it exercises significant influence over but does not consolidate. The
Company records its investments in equity-method investees on the
consolidated balance sheets as "Investments in associated companies" and
its share of the investees' earnings or losses in the consolidated
statements of operations as "Share in results from associated companies".
The excess, if any, of purchase price over book value of the Company's
investments in equity method investees is included in the accompanying
consolidated balance sheets in "Investment in associated companies".
Preparation of financial statements in accordance with generally accepted
accounting principles requires that management make estimates and
assumptions affecting the reported amounts of assets and liabilities and
disclosure 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.
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current period. Effective December 31, 2003 we
have reclassified voyage expenses and commission and depreciation and
amortisation as components of total operating expenses. We no longer
present "net operating revenues", "net operating income before depreciation
and amortization" and "net operating income after depreciation and
amortization"
2. Accounting Changes
Our adoption of FASB Interpretation 46, Consolidation of Variable Interest
Entities, required us to consolidate effective December 31, 2003 Golden
Fountain Corporation, which owns a VLCC, and Independent Tankers
Corporation (ITC), which owns six VLCCs and four Suezmax tankers. We
previously accounted for our interest in Golden Fountain Corporation using
the equity method and accounted for our interest in ITC as a purchase
option. Full disclosure of the accounting impact of our adoption of FIN 46
is included in our annual report on Form 20-F for the year ended December
31, 2003.
3. Fleet Changes
During the quarter ended March 31, 2004 we exchanged interests in six joint
ventures, each owning a VLCC, with our joint venture partner. As a result
of these transactions we increased our interests in three VLCCs from 50.1%
to 100% and disposed of our 50.1% interests in three VLCCs. (See Note 4.)
On May 27, 2004 we exercised our option to acquire all of the shares of ITC
for $4.1 million. ITC owns a fleet of six VLCCs and four Suezmax tankers.
As explained in Note 2 above, we have consolidated ITC with effect from
December 31, 2003. Additionally on July 12, 2004 we announced the
acquisition of two newbuilding VLCCs for delivery in 2006. On July 13, 2004
we announced the acquisition of three 1989-1990 built Suezmax tankers for
delivery in September, 2004.
4. Earnings per share (EPS)
The computation of basic EPS is based on the weighted average number of
shares outstanding during the period. The computation of diluted EPS
assumes the foregoing and the exercise of stock options and warrants using
the treasury stock method.
The components of the denominator for the calculation of basic EPS and
diluted EPS are as follows:
Three months ended Six months ended
June 30, June 30,
(in thousands ) 2004 2003 2004 2003
Basic earnings per share:
Weighted average number of ordinary 73,759 76,108 73,759 76,288
shares outstanding
=====================================================================================
Diluted earnings per share:
Weighted average number of ordinary 73,759 76,108 73,759 76,288
shares outstanding
Stock options - 75 - 75
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73,759 76,183 73,759 76,363
=====================================================================================
In the three and six months ended June 30, 2004 and three and six month
ended June 30, 2003 nil, nil, 170,800 and 170,800 options respectively were
anti-dilutive and have been excluded from the calculation of the
denominator for diluted earnings per share.
5. Investment in Associated Companies
At June 30, 2004, the Company has the following participation in
investments that are recorded using the equity method:
Percentage
Front Tobago Inc 40.00%
Summarised balance sheet information of the Company's equity method
investees is as follows:
(in thousands of $) June 30, December 31,
2004 2003
Current assets 7,917 38,057
Non current assets 29,223 417,653
Current Liabilities 6,554 115,323
Non current liabilities - 205,087
Summarised statement of operations information of the Company's equity
method investees is as follows:
Three months Six months
ended June 30, ended June 30,
2004 2003 2004 2003
Total operating revenues 8,130 52,059 14,649 110,142
Net operating income 6,013 35,967 11,369 77,538
Net income (loss) 5,237 27,595 10,478 61,920
In the six months ended June 30, 2003, the Company recorded an impairment
charge of $5.2 million related to the other-than-temporary decline in value
of its investments in Golden Lagoon Corporation and Ichiban Transport
Corporation. This impairment charge was triggered by signing agreements on
June 25, 2003 to restructure the Company's investments in certain
associated companies. These agreements provided for the sale of the
Company's investments in Golden Lagoon Corporation and Ichiban Transport
Corporation and an increase in the Company's investments in Ariake
Transport Corporation, Sakura Transport Corporation, Tokyo Transport
Corporation and Hitachi Hull No 4983 Ltd from 33.33% to 50.10%. These
transactions were completed in July 2003 through a combination of sale,
acquisition and exchange of interest transactions which were accounted for
using the book values of assets exchanged.
The company held 33.3% of the shares of Ichiban Transport Corporation and
50% of the shares of Golden Lagoon Corporation until July 2003 when these
investments were sold. The statement of operations includes 33.3% of the
earnings of Ichiban Transport Corporation and 50% of the earnings of Golden
Lagoon Corporation until the date of sale.
The Company held 50% of the shares of Golden Tide Corporation during the
six months ended June 30, 2003. The statement of operations includes 50%
share of the earnings of Golden Tide Corporation for the six months ended
June 30, 2003. On June 30, 2003, the Company acquired the remaining 50% of
the shares of Golden Tide Corporation for $9.5 million, being 2.4 million
net of cash acquired, and has combined the assets, principally the vessel,
and liabilities, principally the long-term debt, from that date. The
Company has determined that it is the primary beneficiary of Golden
Fountain Corporation under FIN 46 and has therefore consolidated the entity
as of December 31, 2003.
In December 2003, Frontline agreed with its partner, Overseas Shipholding,
Group, Inc ("OSG"), to swap interests in six joint venture companies, which
each own a VLCC. These agreements resulted in Frontline exchanging its
interest in the vessels Dundee, Sakura I and Tanabe for OSG's interest in
the vessels Edinburgh, Ariake and Hakata, thereby increasing its interest
in these vessels to 100.0% each. The exchanges of interests were completed
on February 24, 2004. In connection with the above transaction, the Company
advanced $34,600,000 to the joint venture companies representing its share
of the amounts required to repay the combined bank debt of those joint
venture companies. Frontline received a net cash settlement of $2.3 million
in the exchange transaction to reflect the difference in values of the
assets exchanged. These transactions were recorded as a non-monetary
exchange of productive assets. We recorded the increases of our investments
at the book value of our investments given up in the exchanges. A gain on
$0.2 million was recognized in connection with the exchange insofar as it
related to the cash element of the transactions.
6. Debt
(in thousands of $) June 30, December 31,
2004 2003
US Dollar denominated floating rate debt (LIBOR + 1,071,820 937,936
1.25% to 1.50%) due through 2011
Yen denominated floating rate debt (LIBOR + 1.25% to 13,383 157,210
1.313%) due through 2011
Fixed rate debt 0% due through 2005 2,000 2,000
8.5% Senior notes 560,000 580,000
Serial notes (6.42% to 7.62%) 99,370 120,620
Term notes (7.84% to 8.52%) 480,745 484,100
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2,227,318 2,281,867
Credit facilities 4,344 550
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Total debt 2,231,662 2,282,417
Less: short-term and current portion of long-term (184,605) (191,131)
debt
===============================================================================
2,047,057 2,091,286
===============================================================================
The outstanding debt as of June 30, 2004 is repayable as follows:
Year ending June 30,
(in thousands of $)
2005 184,605
2006 144,885
2007 129,524
2008 129,654
2009 111,124
2010 and later 1,531,769
----------------------------------------------------
Total debt 2,231,662
====================================================
The weighted average interest rate for the floating rate debt denominated
in US dollars was 3.98 per cent as of per cent). The weighted average
interest rate for the floating rate debt denominated in Yen was 1.36 per
cent as of June 30, 2004 (December 31, 2003 - 1.33 per cent). These rates
take into consideration related interest rate swaps.
7. Non-Cash Dividend and Minority Interest
On June 16, 2004, the Company completed the partial spin off of its
subsidiary Ship Finance International Limited ("Ship Finance") and
distributed 25 per cent of Ship Finance's common shares to the Company's
shareholders with each shareholder receiving one share in Ship Finance for
every four shares held in the Company. In accordance with US GAAP, the
value of the dividend received and the corresponding minority interest has
been established as $141.3 million, representing 25 per cent of the book
value of Ship Finance on the date of distribution.
8. Subsequent Events
On July 13, 2004, the Company announced that it had completed the private
placement of 600,000 ordinary shares to institutional investors at a
purchase price of NOK 246 per share. The total proceeds of $21.5 million
have been being used to finance the acquisition of three 1989-90 built
Suezmax tankers. These vessels were delivered during the third quarter of
2004.
On August 19, 2004, the Company declared a dividend of $1.60 per share.
This dividend was paid on September 13, 2004.
On August 19, 2004, the Company announced that it would distribute a
further 10 per cent of its shareholding in Ship Finance. Consequently, on
September 24, 2004, the Company's shareholders of record as of September
10, 2004, received one share in Ship Finance for every ten shares they held
in Frontline. Frontline's Board has announced that it intends to fully
divest its remaining interest in Ship Finance by means of further stock
dividends, private placements or other type of corporate transaction.
On October 6, 2004 the Company announced that it had completed the issue
and private placement of 300,000 ordinary shares to institutional investors
at a purchase price of NOK 352 per share. The total proceeds of $15.7
million have been being used to assist in financing the purchase of a 1992
built Suezmax tanker that the Company acquired on October 5, 2004.
Selected Financial Data
The selected income statement and cash flow data of the Company with respect to
the six months ended June 30, 2004 and 2003 and the selected balance sheet data
of the Company with respect to the six months ended June 30, 2004 have been
derived from the Company's interim financial statements included herein and
should be read in conjunction with such statements and the notes thereto. The
following table should also be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations for the interim
period ended June 30, 2004.
Six Months Ended June 30,
2004 2003
(in thousands of $, except Ordinary Shares,
per Ordinary Share data and ratios)
Income Statement Data
Total operating revenues(1) 806,581 677,410
Total operating expenses 348,660 352,445
Net operating income (loss) 457,696 321,187
Net income (loss) 383,620 334,746
Earnings per Ordinary Share
- basic 5.20 4.39
- diluted 5.20 4.38
Cash dividends per Ordinary Share 9.50 1.15
Balance Sheet Data
Cash and cash equivalents 112,859
Newbuildings and vessel purchase options 8,370
Vessels and equipment, net 2,286,717
Vessels under capital lease, net 742,035
Investments in associated companies 12,971
Total assets 4,125,920
Short-term debt and current portion of long-term debt 184,605
Current portion of obligations under capital lease 20,787
Long-term debt 2,047,057
Obligations under capital lease 743,536
Share capital 184,813
Stockholders' equity 807,520
Ordinary Shares outstanding 73,925,169
Weighted average number of Ordinary Shares outstanding 73,758,695 76,288,141
Cash Flow Data
Cash provided by operating activities 439,784 444,097
Cash provided by (used in) investing activities 284,359 (51,136)
Cash provided by (used in) financing activities (733,190) (243,578)
Other Financial Data
Equity to assets ratio (percentage)(2) 19.60% 42.10%
Debt to equity ratio(3) 3.71 1.24
Price earnings ratio(4) 6.64 3.24
(1) Previously we have reported net operating revenues in our income statement
data. Effective December 31, 2003, we have reclassified voyage expenses and
commission as a component of total operating expenses and now report total
operating revenues and total operating expenses for all periods presented.
The Company's vessels are operated under time charters, bareboat charters,
voyage charters pool arrangements and COAs. Under a time charter, the
charterer pays substantially all of the vessel voyage costs. Under a
bareboat charter the charterer pays substantially all of the vessel voyage
and operating costs. Under a voyage charter, the vessel owner pays such
costs. Vessel voyage costs are primarily fuel and port charges.
Accordingly, charter income from a voyage charter would be greater than
that from an equally profitable time charter to take account of the owner's
payment of vessel voyage costs. In order to compare vessels trading under
different types of charters, it is standard industry practice to measure
the revenue performance of a vessel in terms of average daily time charter
equivalent earnings, or TCEs. For voyage charters, this is calculated by
dividing net voyage revenues by the number of days on charter. Days spent
off-hire are excluded from this calculation. Net voyage revenues, a
non-GAAP measure, provides more meaningful information to us than voyage
revenues, the most directly comparable GAAP measure. Net voyage revenues
are also widely used by investors and analysts in the tanker shipping
industry for comparing financial performance between companies and to
industry averages. The following table reconciles our net voyage revenues
to voyage revenues.
Quarter ended June 30, Six months ended June 30,
2004 2003 2004 2003
Voyage revenues 257,127 294,867 612,104 596,625
Voyage expenses and commission (82,865) (97,505) (164,625) (177,175)
-------------------------------------------------------
Net voyage revenues 174,262 197,362 447,479 419,450
========================================================
(2) Equity to assets ratio is calculated as total stockholders' equity divided
by total assets.
(3) Debt to equity ratio is calculated as total interest bearing current and
long-term liabilities, including obligations under capital leases, divided
by stockholders' equity.
(4) Price earnings ratio is calculated using the closing period end share price
divided by basic Earnings per Share.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the quarter and six months ended June 30, 2004
Results of Operations
Quarter and six months ended June 30, 2004 compared with the quarter and six
months ended June 30, 2003
Total operating revenues increased by 8% and 19% to $357.0 million and
$806.6 million in the quarter and six months ended June 30, 2004
respectively compared with $330.2 million and $677.4 million in the quarter
and six months ended June 30, 2003. This increase is due primarily to fleet
changes outlined in our previous quarterly reports, our consolidation of
the earnings of ITC and Golden Fountain Corporation effective December 31,
2003 noted above and a strong tanker market in the first half of 2004. Net
voyage revenues decreased by 12% and increased by 7% to $174.3 million and
$447.5 million in the quarter and six months ended June 30, 2004
respectively compared with $197.4 million and $419.5 million in the same
periods in 2003. Voyage charter revenue represents 72% and 76% of our total
operating revenues in the quarter and six months ended June 30, 2004
respectively compared with 89% and 88% in the same periods in 2003. Eight
Suezmax OBOs went onto timecharters in late 2003 and are still operating
under time charters. Previously, they operated in the spot market. The
Company's voyage revenues are significantly affected by the prevailing spot
market rates in which the vessels operate. Traditionally, spot market rates
are highly volatile and are determined by market forces such as worldwide
demand, changes in the production of crude oil, changes in seaborne and
other transportation patterns including changes in the distances that
cargoes are transported, environmental concerns and regulations and
competition from other sources of energy. Average daily time charter
equivalent earnings (TCEs) earned by the Company's VLCCs, Suezmax tankers,
and Suezmax OBO carriers in the quarter ended June 30, 2004 were $58,500,
$36,700 and $27,000 respectively compared with $46,000, $39,600 and
$35,200, respectively in the second quarter of 2003. Average daily TCEs
earned by the Company's VLCCs, Suezmax tankers, and Suezmax OBO carriers in
the six months ended June 30, 2004 were $66,700, $48,200 and $26,600
respectively compared with $50,700, $40,200 and $38,700 respectively in the
six months ended June 30, 2003.
Ship operating expenses, which include drydocking costs, increased 3% and 9% to
$29.9 million and $60.6 million in the quarter and six months ended June 30,
2004 respectively from $28.9 million and $55.8 million in the quarter and six
months ended June 30, 2003. This increase is due primarily to fleet changes
outlined in our previous quarterly reports and our consolidation of the
operating expenses of ITC and Golden Fountain Corporation effective December 31,
2003 noted above. Beginning April 2004, we delivered four VLCCs to Shell on
bareboat charters. Placing vessels on bareboat charters reduces our total ship
operating expenses as the charterer is responsible for paying these costs under
a bareboat charter. Average daily operating costs, including drydockings, of the
Company's VLCCs, Suezmax tankers and Suezmax OBO carriers were $6,700, $5,500
and $4,900 respectively compared with $6,400, $5,600 and $5,000 respectively in
the quarter ended June 30, 2003. Average daily operating costs, including
drydockings, of the Company's VLCCs, Suezmax tankers and Suezmax OBO carriers
were $6,600, $5,400 and $5,300 respectively compared with $6,000, $5,400 and
$5,200 respectively in the six months ended June 30, 2003.
Charterhire expenses decreased to $9.4 million and $21.3 million in the quarter
and six months ended June 30, 2004 respectively from $19.3 million and $42.9
million in the comparable periods in 2003, principally due to the redelivery in
December 2003 and January 2004 of four VLCCs that were on time charter to us
from BP Shipping Ltd., the shipping arm of BP Plc - these charters commenced in
July 2002.
Administrative expenses increased 108% and 100% to $5.2 million and $11.4
million in the quarter and six months ended June 30, 2004 respectively from $2.5
million and $5.7 million in the same periods in 2003. Administrative expenses
are reported net of management fee income of $0.6 million and $1.7 million for
the quarter and six months ended June 30, 2004 respectively and $1.1 million and
$1.9 million for and the same periods in 2003. The increase in administrative
expenses is primarily as a result of the Company recording non-cash charges of
$1.7 million and $4.2 million in connection with employee stock options in the
quarter and six months ended June 30, 2004 respectively compared with $0.5
million and $0.9 million in the comparable periods in 2003.
Depreciation increased 28% and 28% to $45.6 million and $90.8 million in the
quarter and six months ended June 30, 2004 respectively from $35.6 million and
$70.9 million in the same periods in 2003. This increase is due primarily to
fleet changes noted in our previous quarterly reports, our consolidation of the
depreciation charges recorded by ITC and Golden Fountain Corporation effective
December 31, 2003 noted above and increased depreciation on the Company's
single-hull vessels since October 1, 2003. We reduced our estimates of the
useful lives of single-hull tankers effective October 1, 2003. As a result, our
aggregate depreciation charge on those vessels has increased by approximately
$1.3 million per quarter.
Net interest expense (being interest expense net of interest income) for the
quarter and six months ended June 30, 2004 was $42.7 million and $88.6 million
respectively, increases of 206% and 199% compared with $13.8 million and $29.6
million in the same periods in 2003. Interest income increased to $8.3m and
$16.3 million in the quarter and six months ended June 30, 2004 respectively
from $3.3 million and $6.0 million in the same periods in 2003, mainly as a
result of the consolidation of Independent Tankers Corporation (ITC) with effect
from December 31, 2003. ITC maintained average cash balances of $322.7 million
and $331.1 million during the quarter and six months ended June 30, 2004
generating interest income of $6.1 million and $11.9 million over the periods.
Interest expense increased to $51.1 million and $104.9 million in the quarter
and six months ended June 30, 2004 from $17.1 million and $35.6 million in the
same periods in 2003 with the increase primarily relating to the consolidation
of ITC with effect from December 31, 2003. ITC had average outstanding interest
bearing liabilities of $883.8 million and $888.0 million during the quarter and
six months ended June 30, 2004 respectively and generated interest expense of
$16.6 million and $33.6 million during those periods. Additionally interest
costs of $12.3 million and $24.6 million were incurred in the quarter and six
months ended June 30, 2004 respectively due to the issuance in December 2003 of
$580 million 8.5% Senior Notes by Ship Finance International Limited, a
subsidiary of the Company.
The Company's share in results of associated companies decreased to $1.5 million
and $4.3 million in the quarter and six months ended June 30, 2004 respectively
from $13.3 million and $30.5 million in the quarter and six months ended June
30, 2003. This decrease is principally due to the Company terminating its joint
ventures which owned six VLCCs jointly with OSG in the first quarter of 2004.
Another joint venture which owns a VLCC, which the Company accounted for using
the equity method in 2003 is now consolidated with effect from December 31,
2003. As a result, the Company only accounted for two investees using the equity
method throughout the quarter and six months ended June 30, 2004.
The Company incurred foreign currency exchange gains of $6.2 million and $2.1
million in the quarter and six months ended June 30, 2004 respectively compared
with losses of $0.9 million and gains of $0.1 million in the same periods in
2003. The gains recorded in the quarter and six months ended June 30, 2004 were
principally due to the effect of a weakening of the Japanese Yen on Yen
denominated forward currency contracts and debt which are held by the Company.
During the quarter ended June 30, 2004 the Company repaid Yen denominated debt
of Yen 5.5 billion and at June 30, 2004, the Company had Yen denominated debt of
Yen 1.5 billion.
Other financial items increased from income of $14.3 million and $12.5 million
in the quarter and six months ended June 30, 2003 respectively to income of
$25.3 million and $12.6 million in the quarter and six months ended June 30,
2004. In all periods, other financial items consists primarily of market value
adjustments on derivative instruments including interest rate swaps and freight
future agreements. These mark to market adjustments represent income of $12.5
million and $10.1 million included in the total of other financial items in the
quarter and six months ended June 30, 2003 respectively and income of $26.8
million and $14.0 million included the total in the quarter and six months ended
June 30, 2004.
Liquidity and Capital Resources
In January and February 2004 our subsidiary Ship Finance refinanced
substantially all of its secured bank debt with a new $1,058.0 million
syndicated senior secured credit facility. This facility bears interest at Libor
plus 1.25% and is repayable between 2004 and 2010 with a final bullet of $499.7
million payable on maturity. As at June 30, 2004 the outstanding amount on this
facility is $994.3 million. In common with other secured loans, this facility
contains a minimum value covenant which requires that the aggregate value of
Ship Finance's vessels exceed 140% of the outstanding amount of the facility.
Ship Finance also has $560.0 million of outstanding 8.5% Senior Notes due 2013.
Frontline Ltd. does not guarantee any of Ship Finance's debt facilities.
In the six months ended June 30, 2004 net maturity of restricted cash of $299.9
million includes the release of $565.5 million held in escrow at December 31,
2003 in connection with Ship Finance issuance of $580.0 million of 8.5% Senior
Notes and placement of a $250.0 million restricted deposit which may only be
used under certain circumstances to make hire payments to Ship Finance.
In the quarter ended June 30, 2004 we drew $49.5 million under a short-term loan
facility from a related party and used the proceeds to repay Yen denominated
debt of Yen 5.5 billion (equivalent to $49.4 million). Subsequent to June 30,
2004 we drew a new secured long-term loan of $50.0 million and repaid the
short-term facility.
Covenants contained in our secured loan agreements may restrict our ability to
obtain new secured facilities in future. We were in compliance with all loan
covenants at December 31, 2003 and June 30, 2004.
In connection with its new $1,058.0 million syndicated senior secured credit
facility, Ship Finance entered into new 5-year interest rate swaps with a
combined principal amount of $500.0 million in the first quarter of 2004. These
swaps are at rates between 3.3% and 3.5%.
During the six months ended June 30, 2004 we declared total cash dividends of
$9.50 per share which amounted to $701.6 million. We paid a total of $661.6
million prior to June 30, 2004 and $40.0 million subsequent to June 30, 2004.
Cash dividends declared reflect strong earnings in the six months ending June
30, 2004, liquidity generated by the Ship Finance transaction and the positive
short to medium term outlook for the business.
There have been no other significant changes to our liquidity and capital
resources since we issued our annual report on Form 20-F for the year ended
December 31, 2003 which includes a full discussion of these items.
SIGNATURES
Pursuant to the requirements 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 authorised.
Frontline Ltd.
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(Registrant)
Date October 6, 2004 By /s/ Kate Blankenship
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Kate Blankenship
Secretary and Chief Accounting Officer
02089.0009 #516317