UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K/A
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of February 2005
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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/A REPORT
This report contains an update to the earnings release of Frontline Ltd (the
"Company") for the quarter ended September 30, 2004 along with a Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
quarter and nine months ended September 30, 2004.
In July, 2004, Ship Finance International Limited, a subsidiary of the Company,
issued 1.6 million shares resulting in a gain of $9.1 million to the Company. In
the financial information contained in the Form 6-K filed by the Company as of
December 22, 2004, this gain was recorded in the Statement of Operations for the
three and nine months ended September 30, 2004. This report contains a
restatement of the accounting treatment of this gain of $9.1 million that is now
recorded as an increase in additional paid in capital in the three and nine
months ended September 30, 2004.
Frontline Ltd
Index to Interim Financial Information
Selected Financial Data 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the nine months
ended September 30, 2004 5
Condensed Statements of Operations for the three and
nine month periods ended September 30, 2004 and 2003 17
Condensed Balance Sheet as of September 30, 2004 and
Audited Condensed Balance Sheet as of December 31, 2003 18
Condensed Statements of Cash Flows for the three and
nine month periods ended September 30, 2004 and 2003 19
Statements of Changes in Stockholder's Equity for the
nine months ended September 30, 2004 and 2003 20
Notes to Interim Financial Statements 22
Signatures 28
Selected Financial Data
The selected income statement and cash flow data of the Company with respect to
the nine months ended September 30, 2004 and 2003 and the selected balance sheet
data of the Company as at September 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
September 30, 2004.
(in thousands of $, except Ordinary Shares, Nine Months Ended
per Ordinary Share data and ratios) September 30,
2004 2003
(Unaudited) (Unaudited)
----------- -----------
Income Statement Data
Total operating revenues(1) 1,216,679 886,185
Total operating expenses 538,244 520,311
Net operating income 678,210 369,010
Net income (loss) 525,150 372,650
Earnings per Ordinary Share
- basic $7.10 $4.95
- diluted $7.10 $4.94
Cash dividends per Ordinary Share $11.10 $3.25
Balance Sheet Data
Cash and cash equivalents 159,599
Newbuildings and vessel purchase options 24,231
Vessels and equipment, net 2,297,344
Vessels under capital lease, net 730,438
Investments in associated companies 13,078
Total assets 4,166,352
Short-term debt and current portion of long-term debt 147,559
Current portion of obligations under capital lease 21,139
Long-term debt 2,057,741
Obligations under capital lease 737,615
Share capital 186,314
Stockholders' equity 800,749
Ordinary Shares outstanding 74,525,169
Weighted average number of Ordinary Shares outstanding 73,986,474 75,347,064
Cash Flow Data
Cash provided by operating activities 664,773 424,913
Cash provided by investing activities 253,471 286,150
Cash used in financing activities (880,371) (579,354)
Other Financial Data
Equity to assets ratio (percentage)(2) 19.2%
Debt to equity ratio(3) 3.70
Price earnings ratio(4) 6.65 9.53
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(1) 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 and charter income
from a bareboat charter would be lower that that from a equally profitable time
charter, to take account of the charterer's payment of vessel operating 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 bareboat
charters this is calculated by dividing the sum of bareboat charter revenues and
an estimate of operating costs that we would pay under a comparable time charter
by the number of days on charter. 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. Other companies may calculate TCE
using a different method. 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.
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
--------------------- ----------------------
Voyage revenues 329,128 200,556 998,593 846,237
Voyage expenses and commission (92,538) (78,837) (257,163) (256,012)
----------------------------------------------
Net voyage revenues 236,590 121,719 741,430 590,225
==============================================
(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 nine months ended September 30, 2004
We intend for this discussion to provide the reader with information that will
assist in understanding our financial statements, the changes in certain key
items in those financial statements from year to year, and the primary factors
that accounted for those changes, as well as how certain accounting standards
affect our financial statements.
Overview
The Company's principal focus and expertise is the transportation of crude oil
and oil products cargoes for major integrated oil companies and other customers.
The Company's tanker fleet, which is one of the largest and most modern in the
world, and as at September 30, 2004, consisted of 22 wholly owned VLCCs, two
part owned VLCCs, and 30 wholly owned Suezmax tankers, of which 8 were Suezmax
OBOs. In addition, the Company owned three dry bulk carriers. The Company also
chartered in 13 modern VLCCs and 3 modern Suezmax tankers on long-term charters.
The Company also has a purchase option to acquire a further VLCC tanker.
Summary of Fleet Changes
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
VLCCs(1)
At start of period 39 29 36 28
Acquired - 1 3 2
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At end of period 39 30 39 30
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VLCCs owned by equity
investees(2)
At start of period 1 10 7 11
Sold - 2 6 3
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At end of period 1 8 1 8
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Suezmax
At start of period 23 21 23 21
Acquired 2 - 2 -
Sold - 2 - 2
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At end of period 25 19 25 19
Suezmax OBOs
At start and end of period 8 8 8 8
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Drybulk
At start and end of period 3 3 3 3
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Total fleet
At start of period 74 71 77 71
Acquired 2 1 5 2
Sold - 4 6 5
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At end of period 76 68 76 68
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(1) Includes Golden Fountain which is 50% owned but is consolidated in our
financial statements as a result of the adoption of FASB Interpretation 46,
Consolidation of Variable Interest Entities
(2) Excludes Golden Fountain
On October 3, 2004 we took delivery of the final of three 1989-1990 built
Suezmax tankers which were acquired from General Maritime Corporation in a
purchase announced on July 13, 2004.
On October 5, 2004 we acquired a 1992 built Suezmax tanker.
On October 22, 2004 we announced the sale of the single hull VLCC Golden
Fountain for delivery to new owners during December 2004.
On October 22, 2004 the Company announced the acquisition of the 1988 built
single hull Suezmax tanker New Horizon. This vessel was delivered to the Company
on December 14, 2004.
We currently have contracts for two newbuilding VLCCs for delivery in 2006 and
one option to acquire a VLCC on or before March 2005.
Summary of Fleet Employment
As at September 30, 2004 As at September 30, 2003
No. Percent No. Percent
------------------------ --------------------------
VLCCs
Spot or pool 26 67% 23 77%
Time charter 2 5% 3 10%
Bareboat charter 11 28% 4 13%
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Total 39 100% 30 100%
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VLCCs owned by equity
investees
Spot or pool 1 100% 8 100%
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Total 1 100% 8 100%
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Suezmax
Spot or pool 21 84% 18 95%
Time charter - - 1 5%
Bareboat charter 4 16% - -
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Total 25 100% 19 100%
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Suezmax OBOs
Spot or pool - - 1 13%
Time charter 8 100% 7 87%
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Total 8 100% 8 100%
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Drybulk
Time charter 2 67% 2 67%
Bareboat charter 1 33% 1 33%
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Total 3 100% 3 100%
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Total fleet
Spot or pool 48 63% 51 75%
Time charter 12 16% 12 18%
Bareboat charter 16 21% 5 7%
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Total 76 100% 68 100%
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On November 3, 2004 the Company announced that it had chartered out two 1991
built single hull VLCCs (which at September 30, 2004 were trading in the spot
market) to a subsidiary of Titan Petrochemicals Group, a Hong Kong Stock
Exchange listed company. The vessels are chartered out until 2010. The contracts
will provide the Company with a guaranteed minimum hire of $35,000 per day and
in addition provide for a 50:50 profit sharing of earnings in excess of $37,500
per day.
Tanker market
The strong tanker market that we experienced in the second quarter of 2004
continued into the third quarter at even higher levels. Except for a brief weak
period in the beginning of September, the VLCC market from the Middle East to
the Far East stayed above Worldscale (WS) 100 (or $54,000 per day Time Charter
Equivalent (TCE)) for the whole quarter. The average WS rate from the Arabian
Gulf to the East was about WS 119 versus WS 110 in the second quarter. This
equates to a TCE of $67,000 per day versus $61,000 per day in the second
quarter. In the Suezmax market from West Africa to the east coast of the U.S.
the average WS rate for the third quarter was WS 161 or about $45,500 per day
TCE. The continued strong market was a result of the high world oil demand
especially into China, and improving world economic activity in general. Almost
all additional demand was met by increased production in the Middle East,
resulting in increased ton-miles.
According to the IEA, average OPEC oil production, including Iraq, in the third
quarter of 2004 was approximately 29.2 million barrels per day (b/d), an
increase from the second quarter when they produced about 28.1 million b/d.
During the quarter, OPEC continued their policy of `producing what is needed to
supply the market', but despite this, oil prices continued to climb to record
levels.
The IEA estimates that world oil demand averaged 81.9 million b/d in the third
quarter, an increase of 3.3 % from the third quarter of 2003. The IEA further
predicts that the average demand for 2005 will be 83.8 million b/d. Many oil
analysts are still concerned that demand might end up being higher than
production capacity this coming winter.
The world VLCC fleet totalled 441 vessels at the end of the third quarter 2004,
an increase of five vessels or 1.4 % over the quarter. One VLCC was scrapped in
the period and six were delivered. The total order book is now at 86 vessels.
This represents 20 % of the current VLCC fleet. A total of nine VLCCs were
ordered during the quarter.
The world Suezmax fleet totalled 306 vessels at the end of the quarter. One
Suezmax was scrapped during the quarter and three were delivered. The total
order book for Suezmaxes is now at 79. This represents 26 % of the current
Suezmax fleet. A total of five Suezmaxes were ordered in the quarter.
Ship prices continued a strong upwards movement in the quarter. Modern VLCCs for
prompt delivery have been sold at prices up to $125 million, while similar type
Suezmaxes are approaching $80 million price levels. Newbuilding prices have
crossed $100 million for VLCCs, supported by increases in steel prices and
currency movements, but also driven by significant cost increases in main engine
and other equipment prices.
The tanker market looks very attractive for the remainder of the year. The
freight futures market seems to be reflecting this view, and it is currently
possible to sell freight futures for the rest of this year at a level that
equates to approximately $196,000 per day for a VLCC, and $75,000 per day for
next year.
See below for a summary of the Company's TCE's for the periods reported.
For Suezmaxes we can now hedge the rest of this year at $86,000 per day and
$48,000 per day for next year.
Frontline expects a strong market for the rest of the winter with very strong
earnings.
Results of Operations
Three and nine months ended September 30, 2004 compared with the three and nine
months ended September 30, 2003
Amounts included in the following discussion are derived from our unaudited
interim financial statements as at and for the nine months ended September 30,
2004.
Operating revenues and voyage expenses and commission
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Voyage charter revenues 329,127 200,556 998,593 846,237
Time charter revenues 32,594 15,597 97,448 32,374
Bareboat charter revenues 45,684 6,692 112,388 21,644
Finance lease interest income 2,692 - 8,250 -
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Total operating revenues 410,097 222,845 1,216,679 900,255
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The increases in voyage charter revenues of 64% and 18% in the three and nine
month periods ended September 30, 2004 compared with the corresponding prior
periods, respectively primarily reflects the strength in the freight market in
2004. Voyage charter revenues includes pool revenues. Certain pools are
responsible for paying voyage expenses and distribute net pool revenues to the
participants while other pools require the participants to pay and account for
voyage expenses, and distribute gross pool revenues to the participants such
that the participants' resulting net pool revenues are equal to net pool
revenues calculated according to the agreed formula. An analysis of the
Company's pool revenues included within voyage revenues is as follows:
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Pool earnings allocated
on gross basis 14,760 8,795 44,322 38,187
Pool earnings allocated
on net basis 23,163 9,793 74,473 52,871
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Total pool earnings 37,923 18,589 118,795 91,058
The increases in time charter revenues of 109% and 201% in the three and nine
month periods ended September 30, 2004 mainly reflect the changing of our eight
Suezmax OBOs from employment in the spot market to employment on time charters
in the third and fourth quarters of 2003.
In March and April of 2004, four wholly owned VLCCs entered into bareboat
charters which provide for bareboat revenue at a flat rate along with a profit
share based on market rates and in the three and nine month periods ended
September 30, 2004, bareboat revenues of $25.6 million and $47.2 million were
earned by these four vessels. The consolidation of the results of Independent
Tanker Corporation effective December 31, 2003 has resulted in an additional six
vessels that are fixed on bareboat charters. This has increased revenue by $14.0
million and $42.1 million in the three and nine month periods ended September
30, 2004 respectively.
Finance lease interest income represents the earnings of four Suezmax tankers on
long-term bareboat charters which are accounted for as capital leases in the
results of Independent Tankers Corporation ("ITC"). As discussed in fully in our
annual report on Form 20-F for the year ended December 31, 2003, ITC was
consolidated effective December 31, 2003.
Summary of average time charter equivalent earnings per day for our fleet:-
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
VLCC
Spot and pool 71,400 27,500 72,900 45,600
Time charter 34,000 35,600 33,800 35,200
Bareboat charter(3) 61,221 27,200 51,984 31,300
Suezmax 45,900 22,000 47,000 34,300
Suezmax OBO 27,300 22,500 26,800 33,300
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(3) For comparability, TCEs for bareboat charters include an allowance for
estimated operating costs that would be paid by us under an equivalently
profitable time charter. In 2004 we include an allowance of $6,500 per day for
estimated operating costs (2003 - $6,300 per day). Refer to Note 1 of Selected
Financial Data for discussion on TCEs.
Net voyage revenues
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Voyage charter revenues 329,128 200,556 998,593 846,237
Voyage expenses and commission (92,538) (78,837) (257,163) (256,012)
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Net voyage revenues 236,590 121,719 741,430 590,225
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The increases in net voyage revenues of 94% and 26% in the three and nine month
periods ended September 30, 2004 from the corresponding prior periods
respectively primarily reflects the strength in the freight market in 2004.
Ship operating expenses
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Suezmax OBO 3,342 4,159 11,105 11,733
Suezmax 9,838 10,690 28,483 31,576
VLCC 20,194 15,599 53,132 41,900
Drybulk 411 586 1,682 1,584
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33,785 31,034 94,402 86,793
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In the three month period ended September 30, 2003, costs were incurred in
upgrading a Suezmax OBO which are not expected to recur on a frequent basis.
Suezmax operating costs have decreased by $0.8 million and $3.0 million in the
three and nine month periods ended September 30, 2004 compared to the same
periods in 2003. In 2003, five Suezmaxes were drydocked resulting in total
drydocking costs of $1.9 million. There were no drydockings of Suezmaxes in
2004. In the second and third quarters of 2003, the Company sold two Suezmaxes
which had reported total costs of $2.1 million in the nine month period ended
September 30, 2003. The Company took delivery of two Suezmax vessels during
August 2004 therefore incurring additional operating costs of $0.7 million in
the third quarter.
VLCC operating costs have increased by $4.5 million and $11.2 million in the
three and nine month periods ended September 30, 2004 compared to the same
periods in 2003. The acquisition of three vessels that were previously jointly
owned and the consolidation of Golden Fountain has resulted in additional costs
of $2.0 million and $7.1 million in the quarter and nine months ended September
30, 2004 respectively. In the third quarter of 2004, we terminated two bareboat
charters in order to employ the two VLCCs in the spot market thereby increasing
operating costs by $1.2 million in the period. In the nine month period ended
September 30, 2004, five VLCCs had drydocked resulting in drydocking costs of
$3.1 million. Three of these drydockings occurred in the third quarter at a cost
of $1.8 million. In 2003, four VLCCs were drydocked at a cost of $1.8 million,
of which, one was in the third quarter.
Charterhire expenses
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Charterhire expenses 12,072 16,117 33,327 58,967
The decreases in charterhire expenses of $4.0 million and $25.6 million in the
three and nine month periods ended September 30, 2004 respectively are primarily
a result of a decrease in the number of vessels that are chartered in and
accounted for operating leases. As at September 30, 2004 we have six vessels,
comprising three VLCCs, two Suezmaxes and one drybulk carrier, chartered in and
accounted for as operating leases compared with eight vessels, comprising seven
VLCCs and one Suezmax, at September 30, 2003. The chartering of a Suezmax and a
drybulk carrier in 2004 has increased charterhire expense by approximately $5.6
million and $6.6 million in the three and nine month periods ended September 30,
2004 respectively. Offsetting this is a decrease of approximately $9.4 million
and $32.5 million in the three and nine month periods ended September 30, 2004
compared to the corresponding periods in 2003 in relation to the termination of
the charters relating to four VLCCs.
Management fees that we receive for operating vessels that we charter under
operating leases are accounted for as a reduction in the total charterhire
expense. During the three and nine month periods ended September 30, 2004 these
management fees amounted to approximately $40,000 per day per vessel compared
with approximately $39,000 per day in the comparable periods in 2003.
Charterhire expense for the nine months ended September 30, 2004 includes $2.8
million in respect of charters that ended in the period. As a result, future
charterhire expenses and related revenues are expected to be lower.
Administrative expenses
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Administrative expenses 4,961 4,566 16,313 10,286
Administrative expenses have increased 9% and 59% in the three month and nine
month periods ended September 30, 2004 respectively when compared to the same
periods in 2003. Administrative expenses include charges related to accounting
for employee stock option grants. These amounted to $nil and $0.9 million in the
three months ended September 30, 2004 and 2003 and $5.1 million and $1.9 million
in the nine month periods ended September 30, 2004 and 2003 respectively. The
employee stock option plan was terminated in June 2004. In the three and nine
month periods ended September 30, 2004, additional administrative expenses
relating to our new subsidiary Ship Finance were $1.1 million and $2.0 million
respectively.
Depreciation
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Depreciation 46,228 37,311 137,039 108,253
Depreciation has increased 24% and 27% in the three month and nine month periods
ended September 30, 2004 respectively when compared to the same periods in
2003.The consolidation of the depreciation charges recorded by Independent
Tankers Corporation ("ITC") and Golden Fountain Corporation effective December
31, 2003 have resulted in an increase of $5.8 million and $17.2 million of the
three and nine month periods ended September 30, 2004. The purchase in 2004 of
the remaining share in three VLCCs which were previously jointly owned has
resulted in an increase in depreciation of $2.1 million and $5.8 million in the
three and nine months ended September 30, 2004 respectively. On June 30, 2003,
we purchased the remaining 50% of a vessel previously jointly owned which has
increased our depreciation charge by approximately $1.4 million in the nine
months ended September 30, 2004.
Effective October 1, 2003, we reduced our estimates of the useful lives of
single-hull tankers. As a result, our aggregate depreciation charge on those
vessels has increased by approximately $1.3 million per quarter.
Interest income
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Interest income 6,962 1,467 23,220 7,448
Interest income has increased 375% and 212% in the three month and nine month
periods ended September 30, 2004 respectively when compared to the same periods
in 2003. The increase in interest income is primarily a result of the
consolidation of ITC with effect from December 31, 2003 and the restructuring of
our investment in associated companies. ITC maintained average cash balances of
$318.1 million and $321.6 million during the three and nine months ended
September 30, 2004 generating interest income of $5.8 million and $17.8 million
over the respective periods.
Interest income from associated companies decreased by $4.6 million in the nine
month period ended September 30, 2004 compared to the same period in 2003 as a
result of the restructuring of the associated companies as discussed in Note 5
of the interim financial statements included herein. Bank interest income earned
increased by $2.7 million on the nine months ended September 30, 2004, the
majority of the increase being attributable to interest earned by our subsidiary
Ship Finance International Limited ("Ship Finance").
Interest expense
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Interest expense 51,109 17,543 155,979 53,096
Interest expense has increased 191% and 194% in the three month and nine month
periods ended September 30, 2004 respectively when compared to the same periods
in 2003. The increase is mainly as a result of the consolidation of ITC with
effect from December 31, 2003. ITC had average outstanding interest bearing
liabilities of $868.7 million and $881.1 million during the three and nine
months ended September 30, 2004 respectively and generated interest expense of
$16.5 million and $50.0 million during those periods. Additionally interest
costs of $11.3 million and $35.7 million were incurred in the quarter and nine
months ended September 30, 2004 respectively due to the issuance in December
2003 of $580 million 8.5% Senior Notes by Ship Finance.
Share of results of associated companies
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Share of results from
associated companies 1,587 1,662 5,933 32,115
The Company's share in results of associated companies decreased 5% and 82% in
the three and nine months ended September 30, 2004 respectively when compared to
the same periods in 2003. The Company terminated 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 accounts for one investee which owns a VLCC using the equity method
as at September 30, 2004.
Foreign currency exchange gains and losses
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Foreign currency exchange
gain (loss) 3,016 (12,221) 5,071 (12,093)
The Company's foreign currency exchange gains and losses principally result from
Yen debt in subsidiaries and certain forward currency exchange contracts, also
denominated in Yen. As at September 30, 2004 the Company has total Yen debt of
JPY 1.4 billion and total forward Yen sales contracts of JPY 15.0 billion at
fixed exchange rates of between JPY 108.9 per dollar and JPY 109.3 per dollar.
Other financial items, net
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Mark to market adjustments
for financial derivatives (10,943) 2,041 3,059 24,452
Gains and losses from
forward freight agreements (17,187) (1,770) (15,585) (14,070)
Other 1,970 2,373 (1,007) 4,811
--------------------------------------------------------------------------------
(26,160) 2,644 (13,533) 15,193
--------------------------------------------------------------------------------
As at September 30, 2004 our financial derivatives comprise interest rate swap
agreements with a total notional principal of $633.9 million. These contracts
provide for us to pay fixed rates of interest on the notional principal amount
in exchange for receiving floating rate interest based on the current LIBOR. The
average fixed rate we pay on these contracts is 3.94%.
We enter into forward freight agreements ("FFAs") as part of our overall
strategy in order to manage our exposure to changes in freight rates. These
agreements provide that we pay or receive a fixed daily payment in exchange for
paying or receiving a variable daily payment based on the actual underlying
freight market.
At September 30, 2004 we were party to FFAs with a total notional principal
amount of $72.1 million. We estimate that as at September 30, 2004 a 5% increase
in underlying freight market rates would decrease our net income by $5.2 million
and vice versa based on these FFAs. Contracts entered into since September 30,
2004 will change our overall exposure to gains and losses from FFAs.
Minority interest
Minority interest comprises minority investors interests in our subsidiary Ship
Finance's net income. As at September 30, 2004 minority investors owned 36.5% of
the shares of Ship Finance. Since September we have distributed an additional
13.2% of Ship Finance's shares.
Liquidity and Capital Resources
Liquidity
September 30, 2004 December 31, 2003
Cash and cash equivalents 159,599 124,189
Restricted cash 566,865 891,887
In the nine months ended September 30, 2004, net maturity of restricted cash of
$327.5 million includes the release of $565.5 million held in escrow at December
31, 2003 in connection with the 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.
Borrowing activities
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 September 30, 2004 the outstanding amount on
this facility is $971.4 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.
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%.
Ship Finance also has $530.3 million of outstanding 8.5% Senior Notes due 2013.
Frontline Ltd. does not guarantee any of Ship Finance's debt facilities.
In June 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). In August, 2004 we drew a new secured
long-term loan of $50.0 million and repaid the short-term facility.
In September 2004 we drew $65.0 million under a new 5-year secured loan
facility. We used the proceeds to repay loans totalling $28.0 million and to
part finance the acquisitions in September and October of three 1989-1990 built
Suezmax tankers.
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 September 30, 2004.
Equity
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 used
to part finance the acquisition of three 1989-90 built Suezmax tankers.
On October 6, 2004, the Company announced the issuance 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 used to assist in
financing the purchase of a 1992 built Suezmax tanker that Frontline acquired on
October 5, 2004.
During the nine months ended September 30, 2004 we declared total cash dividends
of $11.10 per share which amounted to $820.9 million. Cash dividends declared
reflect strong earnings in the nine months ending September 30, 2004, liquidity
generated by the Ship Finance transaction and the positive short to medium term
outlook for the business.
We believe that cash flows generated by the current strength in freight markets
enables us to meet our short and medium term operating liquidity requirements.
We will continue to use a mixture of equity and debt issues to finance
acquisitions of vessels and for other long-term investments.
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.
Frontline Ltd.
Condensed Statements of Operations
(in thousands of $, except per share data)
Three months ended September 30, Nine months ended September 30,
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Total operating revenues 410,097 222,845 1,216,679 900,255
Gain (loss) from sale of assets - 6,914 (225) 3,136
Operating expenses
Voyage expenses and commission 92,538 78,837 257,163 256,012
Ship operating expenses 33,785 31,034 94,402 86,793
Charterhire expenses 12,072 16,117 33,327 58,967
Administrative expenses 4,961 4,566 16,313 10,286
Depreciation 46,228 37,311 137,039 108,253
-----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 189,584 167,865 538,244 520,311
Net operating income 220,513 61,894 678,210 383,080
Other income/(expenses)
Interest income 6,962 1,467 23,220 7,448
Interest expense (51,109) (17,543) (155,979) (53,096)
Share of results from associated companies 1,587 1,662 5,933 32,115
Foreign currency exchange gain (loss) 3,016 (12,221) 5,071 (12,093)
Other financial items, net (26,160) 2,644 (13,533) 15,193
-----------------------------------------------------------------------------------------------------------------------------------
Net other income/(expenses) (65,704) (23,991) (135,288) (10,433)
-----------------------------------------------------------------------------------------------------------------------------------
Net income before income taxes and minority interests 154,809 37,903 542,922 372,647
Minority interests 13,279 - 17,659 -
Income taxes - - 113 (3)
-----------------------------------------------------------------------------------------------------------------------------------
Net income 141,530 37,903 525,150 372,650
===================================================================================================================================
Basic earnings per share $1.90 $0.52 $7.10 $4.95
Diluted earnings per share $1.90 $0.51 $7.10 $4.94
See accompanying Notes that are an integral part of the Interim Financial
Statements
Frontline Ltd.
Condensed Balance Sheets
(in thousands of $)
September 30, December 31,
2004 2003
---- ----
(Unaudited)
ASSETS
Short term
Cash and cash equivalents 159,599 124,189
Restricted cash 566,865 891,887
Other current assets 222,674 181,928
Long term
Newbuildings and vessel purchase options 24,231 8,370
Vessels and equipment, net 2,297,344 2,165,239
Vessels under capital lease, net 730,438 765,126
Investment in finance leases 113,668 120,894
Investment in associated companies 13,078 173,329
Deferred charges and other long-term assets 38,455 32,573
-------------------------------------------------------------------------------
Total assets 4,166,352 4,463,535
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term interest bearing debt 147,559 191,131
Current portion of obligations under capital leases 21,139 20,138
Other current liabilities 133,134 110,043
Long term
Long term interest bearing debt 2,057,741 2,091,286
Obligations under capital leases 737,615 753,823
Other long term liabilities 46,393 41,697
Minority interests 222,022 -
Stockholders' equity 800,749 1,255,417
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity 4,166,352 4,463,535
===============================================================================
See accompanying Notes that are an integral part of the Interim Financial
Statements
Frontline Ltd.
Condensed Statements of Cash Flows
(in thousands of $)
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
OPERATING ACTIVITIES
Net cash provided by operating activities 224,990 80,971 664,773 424,913
INVESTING ACTIVITIES
Maturity (placement) of restricted cash 27,613 744 327,485 4,549
Additions to newbuildings, vessels and equipment (61,107) (51,938) (61,352) (66,565)
Proceeds from sales of vessels - 236,180 - 352,065
Dividends from (advances to) associated companies, net 1,480 (5,858) (29,263) (5,363)
Acquisition of subsidiaries and businesses, net of cash - - (4,145) (2,363)
Purchase of option - (10,042) - (10,042)
Receipts from investment in finance lease and loans receivables 946 - 9,056 -
Purchases and sales of other assets, net - 13,934 11,690 13,869
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (31,068) 183,020 253,471 286,150
---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt, net of fees paid 119,155 (472) 1,672,049 45,537
Repayments of long-term debt (147,111) (122,274) (1,763,066) (347,715)
Repayment of capital leases (5,569) (3,614) (15,207) (8,622)
Dividends paid (159,392) (154,335) (821,010) (241,843)
Issuances and repurchases of own shares, net 45,735 351 46,863 (26,711)
---------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (147,182) (280,344) (880,371) (579,354)
---------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 46,740 (16,353) 37,873 131,709
Cash and cash equivalents at start of period 112,859 240,140 121,726 92,078
Cash and cash equivalents at end of period 159,599 223,785 159,599 223,787
=================================================================================================================================
See accompanying Notes that are an integral part of the Interim Financial Statements
Frontline Ltd.
Statements of Changes in Stockholders' Equity
(in thousands of $, except number of shares)
Nine months ended
September 30,
2004 2003
(Unaudited) (Unaudited)
NUMBER OF SHARES OUTSTANDING
Balance at beginning of year 3,647,930 76,466,566
Shares issued 897,436 130,164
Shares bought back (20,197) 3,070,000)
--------------------------------------------------------------------------------
Balance at end of period 4,525,169 73,526,730
--------------------------------------------------------------------------------
SHARE CAPITAL
Balance at beginning of year 184,120 191,166
Shares issued 2,244 325
Shares bought back and cancelled (50) (7,675)
--------------------------------------------------------------------------------
Balance at end of period 186,314 183,817
--------------------------------------------------------------------------------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of year 513,859 552,241
Shares issued 28,140 311
Shares bought back (581) (42,156)
Gain on issue of shares by subsidiary 9,050 -
--------------------------------------------------------------------------------
Balance at end of period 550,468 510,396
--------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year (6,953) (9,498)
Other comprehensive income 2,607 889
--------------------------------------------------------------------------------
Balance at end of period (4,347) (8,609)
--------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year 564,391 493,065
Net income 525,150 372,650
Cash dividends declared (820,862) (241,843)
Stock dividends (202,285) -
Minority interest in deemed equity contributions
to and dividends paid by subsidiary, net 1,920 -
--------------------------------------------------------------------------------
Balance at end of period 68,314 623,872
--------------------------------------------------------------------------------
Total Stockholders' Equity 800,749 1,309,477
--------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS)
Net income 525,150 372,650
Unrealised gains from marketable securities 2,534 803
Foreign currency translation and other 73 87)
--------------------------------------------------------------------------------
Other comprehensive income 2,607 889
--------------------------------------------------------------------------------
Comprehensive income 527,757 373,539
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. We acquired ITC from Hemen Holding Ltd, a related entity
that is indirectly controlled by John Fredriksen, our Chairman and Chief
Executive Officer. The total purchase price paid to Hemen Holding Limited
for ITC was $14.1 million. This comprised a payment of $10.0 million for an
option to acquire all of the shares and a payment of $4.1 million to
exercise the option in accordance with the terms of the option agreement.
We initially recorded the $10.0 million paid for the option in July 2003 as
the purchase of an option that was recognized on the Company's balance
sheet as an asset at cost. In December 2003 the Company implemented the
provisions of FASB Interpretation 46, Consolidation of Variable Interest
Entities ("FIN 46"). One effect of implementation of FIN 46 by the Company
was to require consolidation of ITC. At that time the $10.0 million option
cost represented the total recorded amount of our interests in ITC. The
assets and liabilities of ITC had a net deficit value of $15.2 million. The
values of ITC's assets and liabilities were determined by reference to the
principles contained in FIN46 and in particular to principles relating to
variable interest entities under common control with the primary
beneficiary. We eliminated the option cost from our balance sheet and
consolidated the assets and liabilities of ITC at their determined values.
The resulting difference of $25.2 million in the amounts eliminated from
and amounts added to our balance sheet was recorded as the cumulative
effect of a change in accounting principle in accordance with the guidance
of FIN 46. In May 2004 we paid $4.1 million to exercise the option to
acquire the shares of ITC. We accounted for the exercise payment as an
addition to the total purchase price for ITC and specifically as an
addition to the recorded cost of the underling long-term assets, being the
vessels owned by ITC.
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 which were delivered
during September and October, 2004.
On October 5, 2004 we acquired a 1992 built single hull Suezmax tanker.
On October 22, 2004 we announced the sale of the single hull VLCC Golden
Fountain for delivery to new owners during December 2004.
On October 22, 2004 the Company announced the acquisition of the 1988 built
single hull Suezmax tanker New Horizon. This vessel was delivered to the
Company on December 14, 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:
(in thousands of $) Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Basic earnings per share:
Weighted average number of
ordinary shares outstanding 74,434 73,496 73,986 75,347
==============================================================================
Diluted earnings per share:
Weighted average number of
ordinary shares outstanding 74,434 73,496 73,986 75,347
Stock options - 141 - 141
-----------------------------------------------------------------------------
74,434 73,637 73,986 75,488
==============================================================================
5. Investment in Associated Companies
At September 30, 2004, the Company has the following participation in
investments that are recorded using the equity method:
Percentage
Front Tobago Inc 40.00%
At December 31, 2003, the Company had the following participations in
investments that were recorded using the equity method:
Percentage
Front Tobago Inc 40.00%
Dundee Navigation SA 50.10%
Edinburgh Navigation SA 50.10%
Ariake Transport Corporation 50.10%
Sakura Transport Corporation 50.10%
Tokyo Transport Corporation 50.10%
Hitachi Hull No 4983 Ltd. 50.10%
Summarised balance sheet information of the Company's equity method
investees is as follows:
(in thousands of $) September 30, 2004 December 31, 2003
Current assets 7,968 38,057
Non current assets 28,669 417,653
Current liabilities 5,784 115,323
Non current liabilities - 205,087
Summarised statement of operations information of the Company's equity
method investees is as follows:
(in thousands of $) Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
Total operating revenues 8,560 20,695 20,009 130,837
Net operating income 6,270 7,152 15,383 84,690
Net income (loss) 5,496 3,219 14,446 65,139
In the nine months ended September 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:
In the second quarter of 2003, the Company recorded an impairment loss in
the amount of $2.4 million related to its 50% interest in Golden Lagoon
Corporation. In the third quarter, the Company entered into an agreement to
sell this interest. At point of signing these agreements, the Company's
carrying value of its investment in Golden Lagoon Corporation was $9.7
million, compared to the sale proceeds due under the contract of $7.3
million. The Company believed that the signing of an agreement to sell its
interest in Golden Lagoon Corporation for less than its carrying value was
an indicator of impairment and accordingly recognized the impairment loss.
No gain or loss was subsequently recorded on the sale of this interest.
In the third quarter of 2003, the Company entered into an agreement to
exchange its 33% interest in Ichiban Transport Corporation for a 17%
interest in Tanabe and a 17% interest of Hakata with a net settlement cost
of $0.4 million. The Company accounted for the exchange of these interests
at historical cost, after reduction for an indicated impairment of book
value, as the interests were determined to be similar productive assets as
defined by APB 29, Accounting for Nonmonetary Transactions. At the time of
signing the exchange agreement, the Company believed that there were
indicators of impairment of their existing investment in Ichiban Transport
Corporation. These indicators were based upon the impairment recognized on
the Company's investment in Golden Lagoon Corporation, and the implied fair
value of the assets being received in this particular transaction. As a
consequence, the Company booked an impairment of $2.8 million in respect of
its investment in Ichiban Transport Corporation. The exchange of
investments in Ichiban, Tanabe and Hakata was then accounted for at book
value of the assets exchanged.
Additionally, during the third quarter of 2003, the Company entered into an
agreement regarding the acquisition of a 17% interest in Ariake and a 17%
interest in Sakura for cash consideration of $10.2 million. The
Consideration for the interests in Ariake and Sakura were based upon the
fair market value of the vessels at the time that the purchase agreement
was entered into. The Company accounted for the acquisition of these
interests at historical cost, as the assets acquired do not meet the
definition of a business under EITF 98-3.
The Company held 50% of the shares of Golden Tide Corporation during the
nine months ended September 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 $) September 30, December 31,
2004 2003
US Dollar denominated floating rate debt
(LIBOR + 1.25% to 1.50%) due through 2011 1,091,447 937,936
Yen denominated floating rate debt
(LIBOR + 1.25% to 1.313%) due through 2011 12,611 157,210
Fixed rate debt 0% due through 2005 2,000 2,000
8.5% Senior notes 530,270 580,000
Serial notes (6.42% to 7.62%) 86,170 120,620
Term notes (7.84% to 8.52%) 480,745 484,100
-------------------------------------------------------------------------
2,203,243 2,281,867
-------------------------------------------------------------------------
Credit facilities 2,057 550
-------------------------------------------------------------------------
Total debt 2,205,300 2,282,417
Less: short-term and current portion
of long-term debt (147,559) (191,131)
-------------------------------------------------------------------------
2,057,741 2,091,286
=========================================================================
The outstanding debt as of September 30, 2004 is repayable as follows:
Year ending September 30,
(in thousands of $)
2005 147,559
2006 144,886
2007 142,770
2008 134,049
2009 128,824
2010 and later 1,507,212
Total debt 2,205,300
The weighted average interest rate for the floating rate debt denominated
in US dollars was 3.98% as of September 30, 2004 (December 31, 2003 -
3.08%). The weighted average interest rate for the floating rate debt
denominated in Yen was 1.36% as of September 30, 2004 (December 31, 2003 -
1.33%). 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% 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 $142.5 million, representing 25% of the book value of
Ship Finance on the date of distribution.
On September 24, 2004, the Company completed a further partial spin off of
its subsidiary Ship Finance and distributed 9.9% of Ship Finance's common
shares to the Company's shareholders with each shareholder receiving one
share in Ship Finance for every ten 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 $59.8 million,
representing 9.9% of the book value of Ship Finance on the date of
distribution.
A further partial spin off of Ship Finance occured on December 15, 2004
(see Note 10).
8. Pool revenues
Voyage charter revenues includes pool revenues. Certain pools are
responsible for paying voyage expenses and distribute net pool revenues to
the participants while other pools require the participants to pay and
account for voyage expenses, and distribute gross pool revenues to the
participants such that the participants' resulting net pool revenues are
equal to net pool revenues calculated according to the agreed formula. An
analysis of the Company's pool revenues included within voyage revenues is
as follows:
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Pool earnings allocated
on gross basis 14,760 8,795 44,322 38,187
Pool earnings allocated
on net basis 23,163 9,793 74,473 52,871
-----------------------------------------------------------------------------
Total pool earnings 37,923 18,589 118,795 91,058
-----------------------------------------------------------------------------
9. Gain on issue of shares by subsidiary
In July 2004, our subsidiary, Ship Finance, issued 1.6 million shares to an
institutional investor for $15.75 per share, for a total of $25.2 million.
Ship Finance was formed in October 2003. Ship Finance has purchased from
the Company a fleet of 47 crude oil tankers, which are chartered under long
term, fixed rate charters to Frontline Shipping Limited, also a wholly
owned subsidiary of the Company. As a result of this transaction, the
Company's ownership interest in Ship Finance is reduced from 75.00% to
73.41%, resulting in a "dilution gain". This gain of $9.1 million has been
recorded as an increase in additional paid in capital and is calculated as
the increase on the underlying book values of Frontline's holding in Ship
Finance as a result of the share issue. No related deferred income tax has
been recognized as the Company is not subject to taxes with respect to this
share issuance.
10. Subsequent Events
On October 6, 2004, the Company announced the issuance and private
placement of 300,000 ordinary shares to institutional investors at a
purchase price of NOK 352 per share (equivalent to approximately $52.33 per
share). The total proceeds of $15.7 million have been used to assist in
financing the purchase of a 1992 built Suezmax tanker that Frontline
acquired on October 5, 2004.
On October 22, 2004 the Company announced that it had sold the joint owned
single hull VLCC Golden Fountain to Chinese interests. The vessel was
delivered to the new owner in December 2004.
On November 3, 2004 the Company announced that it had chartered out two
1991 built single hull VLCCs to a subsidiary of Titan Petrochemicals Group,
a Hong Kong Stock Exchange listed company. The vessels are chartered out
until 2010. The contracts will provide the Company with a guaranteed
minimum hire of $35,000 per day and in addition provide for a 50:50 profit
sharing of earnings in excess of $37,500 per day.
On October 22, 2004 the Company announced the acquisition of the 1988 built
single hull Suezmax tanker New Horizon. This vessel was delivered to the
Company on December 14, 2004.
On November 5, 2004 the Company informed the KG owners of three leased
VLCCs that it wants to declare its purchase options on these vessels. These
vessels were delivered to the Company in January and February 2005.
Frontline will consider a refinancing and subsequent long-term leasing of
these vessels with Ship Finance.
On November 15, 2004, the Board declared a dividend of $2.50 per share. The
record date for the dividend is November 26, 2004 and the dividend was paid
on or about December 17, 2004.
On November 15, 2004, the Board announced a further distribution of shares
in Ship Finance whereby each Frontline shareholder received 2 shares in
Ship Finance for every 15 shares held in Frontline. The record date for the
dividend was December 1, 2004 and the distribution was made on December 15,
2004.
On December 1, 2004 the Company announced a de-merger and spin off of its
subsidiary Golden Ocean Group Limited ("Golden Ocean"). Golden Ocean owns
two Capesize drybulk carriers and charters in a third Capesize drybulk
carrier on a long-term time charter. On December 13, 2004 Frontline
distributed the shares of Golden Ocean to its shareholders in a 3 for 1
stock dividend. Certain U.S. shareholders of Frontline were excluded from
the distribution and received a cash payment in lieu of shares. The amount
of the cash payment was based on the average price of Golden Ocean's shares
over the first 5 trading days after the Company is listed on the Oslo Stock
Exchange. Golden Ocean was listed on the Oslo Stock Exchange on December
15, 2004. The Company retained approximately 10.7% of the shares in Golden
Ocean, of which 23,918,832 were sold on February 2, 2005 through market
transactions at an average price of NOK 4.20. The Company holds 179,136
shares in Golden Ocean after this transaction.
During the period from October 27 through December 3, 2004 the Company
acquired 6.5% of General Maritime Corporation's ordinary shares (NYSE: GMR,
"Genmar") for a total price of $100.2 million. Subsequent to December 3,
2004 Frontline reduced its holding in Genmar to 4.3%.
On December 14, 2004, the Company announced that it had entered into
contracts to purchase two newbuilding Panamax drybulk vessels for delivery
in 2005. The vessels will cost $42.5 million each. The company has granted
options to Golden Ocean to acquire these vessels from the company at cost.
These options must be declared by the end of 2005.
On January 28, 2005 the Company announced a further distribution of its
shares in Ship Finance by way of a dividend. On February 18, 2005 every
Frontline shareholder of record on February 7, 2005, will receive four
shares of Ship Finance for every one share of Frontline that the
shareholder holds.
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 February 16, 2005 By /s/ Kate Blankenship
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Kate Blankenship
Company Secretary and Chief Accounting Officer
02089.0009 #548963