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 June , 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
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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
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If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
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Item 1. INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached is a copy of the earnings release of Frontline Ltd. (the "Company")
dated May 28, 2004, for the quarter ended March 2004.
FRONTLINE LTD.
FOR IMMEDIATE RELEASE
Frontline Ltd. Interim Report January - March 2004
HIGHLIGHTS
o Frontline reports a record quarterly result of $214.4 million and
earnings per share of $2.91 for the first quarter of 2004.
o Frontline announces a cash dividend of $5.00 per share.
o Frontline announces the partial spin off of Ship Finance
International Limited ("Ship Finance") through the distribution
of one share in Ship Finance for each four shares held in
Frontline.
o In the first quarter, Frontline's wholly-subsidiary, Ship
Finance, completed the acquisition of 46 tankers, plus an option
to acquire a further tanker, from Frontline. The acquisition was
financed using the proceeds of the issue of $580 million in 8.5%
Senior Notes in December 2003, and refinancing of existing debt
with a new $1,058 million facility.
FIRST QUARTER RESULTS
The Board of Frontline Ltd. is pleased to announce net income of $214.4 million
for the first quarter of 2004, equivalent to earnings per share of $2.91. Net
operating revenues (being total operating revenues less voyage expenses) and net
operating income before depreciation for the quarter were $368.9 million and
$320.4 million, respectively.
The average daily time charter equivalents ("TCEs") earned in the spot and
period market by the Company's VLCCs, Suezmax tankers, and Suezmax OBO carriers
were $74,900, $59,100 and $26,100, respectively, compared with $40,600 $32,600
and $27,900 respectively in the fourth quarter of 2004.
In accordance with FASB Interpretation 46 Revised, Frontline has consolidated
Independent Tankers Corporation ("ITC"), a company over which Frontline holds a
purchase option, with effect from December 31, 2003. The net effect of ITC in
the first quarter is a net income of approximately $1.0 million. As at March 31,
2004, the total book value of ITC's consolidated assets was approximately $900
million, including restricted cash balances of $307.0 million. ITC has total
Notes outstanding of $596.4 million. (See Note to the Unaudited Frontline Group
First Quarter Report).
Interest income for the quarter was $7.9 million, of which $5.8 million relates
to ITC. Interest expense for the quarter was $53.8 million, increased from $22.0
million in the immediately preceding quarter. This increase reflects the
inclusion of ITC, a full quarters interest on the 8.5% Senior Notes and the
write off of deferred fees due to the debt refinancing amounting to $16.8
million, $12.3 million and $4.2 million, respectively. In the first quarter of
2004 the Company entered into interest rates swaps with a total notional
principal amount of $500 million. Other financial items for the quarter were an
expense of $13.7 million of which $12.8 million is attributable to the mark to
market valuation of these interest rate swaps. The strengthening of the Yen in
the first quarter resulted in the Company recording a foreign exchange loss of
$4.1 million on the Yen debt in subsidiaries and certain Yen currency contracts.
The Yen rate at the end of the quarter was 105.64 while 5 years US Treasury
Bonds traded March 31st with a yield of 2.78%. Both prices have moved in the
second quarter and look as of today to generate mark to market revaluation gains
in the second quarter
As at March 31, 2004, the Company had total cash and cash equivalents of $857.2
million. This amount includes restricted cash of $571.8 million of which $307.0
million relates to deposits in ITC and $250.0 million in Frontline Shipping
Limited.
As of May 28, 2004, Frontline has cash breakeven rates for VLCCs and Suezmaxes
of $21,878 and $15,961, respectively.
CORPORATE AND OTHER MATTERS
In December 2003, Ship Finance, a newly formed wholly owned subsidiary of
Frontline issued $580 million in 8.5% Senior Notes. In the first quarter of
2004, Ship Finance has used the proceeds of the note issue, together with a
refinancing of existing debt, to fund the acquisition of a fleet of 47 crude oil
tankers, including one purchase option for a VLCC, from Frontline. Ship Finance
has chartered each of the ships back to Frontline for most of the remaining life
of each of the vessels. The registration statement for the Senior Notes was
declared effective by the United States Securities and Exchange Commission on
May 25, 2004. Ship Finance has filed a registration statement to register its
common shares under the Securities Exchange Act of 1934. Upon effectiveness of
that registration statement, Ship Finance International's common shares will be
eligible for listing on the New York Stock Exchange. Frontline announces the
distribution of 25 per cent of Ship Finance's common shares to Frontline's
common shareholders in a partial spin off. Each Frontline shareholder will
receive one share in Ship Finance for every four Frontline shares held. The
record date for the distribution will be June 7, 2004, and the distribution date
is expected to be June 16, 2004. Due to the nature of the distribution the New
York Stock Exchange is expected to establish the ex-dividend date as June 17,
2004, at which time the Ship Finance common shares will commence trading under
the ticker symbol "SFL". It is the Board's further intention that during 2004,
Frontline shall divest all its shares in Ship Finance either through a straight
sale, a corporate transaction, or through further dividend distribution to
Frontline's shareholders.
Ship Finance will, based on the existing charters, have a free cash flow of a
minimum of $200 million before debt principal and interest repayment and $100
million after scheduled debt principal and interest repayments. In addition,
Ship Finance will receive 20 per cent of any earnings, calculated on an annual
basis, in excess of the agreed daily charter rates, being $25,575 for VLCCs and
$21,100 for Suezmaxes. This excess, which under US GAAP will only be accounted
for by Ship Finance following the completion of the annual calculation, is
estimated to equal approximately $20 million at March 31, 2004.
On May 28, 2004, the Board declared a dividend of $5.00 per share. The record
date for the dividend is June 7, 2004, ex dividend date is June 3, 2004 and the
dividend will be paid on or about June 16, 2004. The dividend consists of $0.25
per share in normal quarterly dividend and an extra dividend of $4.75 per share
reflecting the strong earnings achieved in the quarter, the liquidity generated
from the Ship Finance transaction and the positive short to medium term outlook
for the business. After payment of the dividend in mid June, Frontline is
expected to have a solid cash position in addition to the $250 million which is
restricted to support the Ship Finance charter payments.
In the first quarter, the Company completed an agreement with its joint venture
partner, Overseas Shipholding Group, Inc. (OSG), to exchange interests in six
joint companies, which each own a VLCC. This agreement resulted in the Company
becoming the 100% owner of three VLCCs, Edinburgh, Ariake and Hakata.
On July 1, 2003, the Company entered into an option agreement with Hemen Holding
Ltd (Hemen) that gives the Company the right to acquire all shares in ITC from
Hemen for a total consideration of $4.0 million plus 4 per cent interest per
year. ITC operates a total of six VLCCs and four Suezmaxes which are on long
term charters to BP and Chevron. Hemen is a holding company indirectly
controlled by Frontline's Chairman, John Fredriksen. Frontline announces that it
has exercised this purchase option effective May 27, 2004.
During the first quarter of 2004, the Company issued 150,399 shares in
connection with the exercise of employee share options and at March 31, 2004,
73,798,329 ordinary shares were outstanding and the weighted average number of
shares outstanding for the quarter was 73,691,072.
THE MARKET
The strong VLCC market that we experienced in the last quarter of 2003 continued
in the first quarter of 2004. Except for brief dips at the beginning and very
end of the quarter, the market from the Middle East to the Far East stayed above
WS 100 (or TCE $57,000 per day) for the whole quarter. This was the result of
continued high world oil demand due to seasonal cold weather in the U.S and
Europe, continued strong growth in the demand for oil into China, and improving
world economic activity. In addition, logistical problems with exports from
Russia deteriorated further, and this reduction in the Russian export had to be
replaced from the Middle East resulting in increased ton miles for the world
VLCC fleet. Finally, oil production in Venezuela has still failed to reach
pre-strike levels, the shortfall being covered from the Middle East, again
resulting in increased ton miles.
The logistical problems with the oil export from Russia, in particular, the long
delays in transiting the Bosporus, created an extremely good market for the
Suezmaxes in the first quarter. At certain stages during the quarter more than
10 percent of the world Suezmax fleet was tied up in waiting for transit into or
out of the Black Sea, or waiting to load in Novorossiysk. These logistical
problems were largely due to weather conditions, and as they have improved the
delays have been reduced. At present the export from the Black Sea is back to
normal, and the problems are not expected to start again until this fall or
early winter.
According to IEA, the average OPEC 10 oil production (which excludes Iraq) in
the first quarter of 2004 was approximately 25.8 million barrels per day (b/d),
while the official OPEC 10 quota in the same period was 24.5 million b/d. On the
10th of February, OPEC announced that they would cut their quota by 1.0 million
b/d with effect from April 1st in order to compensate for the expected
seasonally weaker demand for oil. Current estimates from IEA are that OPEC 10
have produced an average of about 1.9 million b/d more than their official
quotas in April, a trend that is expected to continue through the second quarter
especially in view of the current exceptionally strong crude oil prices.
IEA estimates that world oil demand averaged more than 81 million b/d in the
first quarter, an increase of 2.3 percent from the first quarter of 2003.
Industry analysts have expected a seasonal decrease in the demand in the second
quarter, but at present more and more analysts are announcing that they have
underestimated the demand for oil. Thus, the downward adjustment in the present
quarter will most probably be less than originally expected.
The world tanker fleet totalled 295.3 million dwt at the end of the first
quarter 2004, an increase of 2.1 percent over the quarter. The world VLCC fleet
increased marginally from 433 to 435 vessels. The total orderbook expanded to 83
vessels as a total of 15 VLCC's were ordered during the quarter. This represents
19 percent of the current VLCC fleet. Three VLCC's were scrapped in the same
period. The total orderbook for Suezmax tankers were 84 vessels at the end of
the first quarter. This represents 34 percent of the current Suezmax fleet. Four
Suezmaxes were scrapped in the first quarter.
The prices for second hand tonnage and newbuilding prices have continued
upwards, driven by strong spot earnings, limited sellers, a tight yard
situation, and increasing commodity prices.
The Board is somewhat concerned over the long term demand effects of the raising
crude oil prices. Combined with the anticipated growth in the overall fleet the
tanker market is sensitive to a reduced demand for crude oil, particularly in
the US as well as China. However, the current trend is convincingly strong and
the tanker market looks healthy for the remainder of the year. At present we are
far enough into the second quarter to say that the crash in earnings that many
observers were predicting did not take place. The freight futures market seems
to be reflecting this view, and at the moment it is possible to sell freight
futures for the rest of the year at a level that equates to approximately
$73,000 per day on VLCC. The indications for 2005 are around $47,000 per day.
Frontline will consider using the physical as well as financial markets to
secure some stability in earnings and thereby lower the cash break even rates on
the spot orientated tonnage. Frontline expects a good market for the rest of the
year with strong, although volatile, earnings.
STRATEGY
Following the spin off of 25 per cent of Ship Finance, Frontline will be
comprised of four main parts. One part will be the charter agreement for the 47
vessels with Ship Finance including the $250 million in cash tied up to this
transaction. Another part will be the ownership of 75 per cent of Ship Finance.
The third part will be the ownership of the ITC structure. The fourth part will
include the remaining vessels; three drybulk vessels, nine VLCCs and three
Suezmaxes financed through the German K/G market, two joint venture owned VLCCS,
one wholly-owned non-recourse financed VLCC and a comfortable cash position.
The main strategy is that Frontline over time shall be a world leading
chartering company which will adjust the exposure to the market depending on
where in the cycle we are. As a part of this strategy Frontline will divest the
ownership of Ship Finance. This can happen through a sale of the share position,
a corporate transaction or through a share dividend to existing Frontline
holders. The Board will focus on maximizing the value of this strategic
position. Frontline will, when the financing arrangements permit, consider
divesting the "non Ship Finance" vessels. This can be done through leasebacks or
through straight sales of the vessels.
Frontline will after the anticipated spin off of Ship Finance be more
financially exposed to the chartering market. This is likely to increase
Frontline's activity in the chartering market with respect to in and out
chartering short as well as long term. The purpose will be to manage the risk
through a portfolio of charters.
Frontline will have a good financial position after the spin off. Total recourse
bank debt in Frontline after this will be less than $23 million. The main
purpose of the split of Frontline was to obtain access to cheaper and different
kinds of financing instruments. It is Frontline's intention to use the strong
financial position which has been created, combined with an effectively priced
equity, to continue the consolidation of the tanker market.
OUTLOOK
So far in the second quarter, Frontline has chartered out approximately 89% of
the VLCC capacity and 78% of Suezmax capacity at rates of around $55,600 and
$39,700. This is significantly above the necessary cash break even rates and
will give strong free cash generation. The current market is higher than the
average rates achieved so far in the quarter. The shareholders should expect a
continued high dividend payment as well as well as further attempts to
consolidate the tanker market. The strengthening of long term charter market
rates provides an interesting opportunity to lock in fixed long term cash
generation. The Board is optimistic on the outlook for the Company.
FORWARD LOOKING STATEMENTS
This press release contains forward looking statements. These statements are
based upon various assumptions, many of which are based, in turn, upon further
assumptions, including Frontline management's examination of historical
operating trends. Although Frontline believes that these assumptions were
reasonable when made, because assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible to predict and
are beyond its control, Frontline cannot give assurance that it will achieve or
accomplish these expectations, beliefs or intentions.
Important factors that, in the Company's view, could cause actual results to
differ materially from those discussed in this press release include the
strength of world economies and currencies, general market conditions including
fluctuations in charter hire rates and vessel values, changes in demand in the
tanker market as a result of changes in OPEC's petroleum production levels and
world wide oil consumption and storage, changes in the Company's operating
expenses including bunker prices, dry-docking and insurance costs, changes in
governmental rules and regulations or actions taken by regulatory authorities,
potential liability from pending or future litigation, general domestic and
international political conditions, potential disruption of shipping routes due
to accidents or political events, and other important factors described from
time to time in the reports filed by the Company with the United States
Securities and Exchange Commission.
May 28, 2004
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
Questions should be directed to:
Contact: Oscar Spieler: Chief Executive Officer, Frontline Management AS
+47 23 11 40 79
Tom Jebsen, Chief Financial Officer, Frontline Management AS
+47 23 11 40 21
FRONTLINE GROUP FIRST QUARTER REPORT (UNAUDITED)
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INCOME STATEMENT 2004 2003 2003
(in thousands of $) Jan-Mar Jan-Mar Jan-Dec
(restated)
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Total operating revenues 450,636 338,612 1,140,818
Gain (loss) from sale of assets 244 493 436
Voyage expenses 81,760 79,670 323,598
Ship operating expenses 30,713 26,840 117,604
Charter hire expenses 11,884 23,547 81,009
Administrative expenses 6,115 3,263 17,889
Operating income before depreciation 320,408 205,785 601,154
Depreciation 45,183 35,359 146,907
Operating income after depreciation 275,225 170,426 454,247
Interest income 7,962 2,708 9,185
Interest expense (53,815) (18,470) (75,097)
Share of results from associated companies 2,863 17,165 38,723
Other financial items (13,698) 6,843 33,264
Foreign currency exchange gain (loss) (4,104) 1,007 (17,193)
Income before taxes 214,433 179,679 443,129
Taxes - (2) 3
Cumulative effect of change in accounting principle - - 33,767
Net income (loss) 214,433 179,681 409,359
Earnings per Share ($)
EPS before cumulative effect of change in accounting principle $2.91 $2.35 $5.92
Cumulative effect of change in accounting principle - - $(0.45)
EPS $2.91 $2.35 $5.47
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Income on time charter basis ($ per day per ship)*
VLCC 74,900 55,400 42,300
Suezmax 59,100 40,800 33,900
Suezmax OBO 26,100 42,400 31,900
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* Basis = Calendar days minus off-hire. Figures after deduction of broker commission
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BALANCE SHEET 2004 2003 2003
(in thousands of $) Mar 31 Mar 31 Dec 31
(restated)
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ASSETS
Short term
Cash and cash equivalents 285,325 139,984 121,726
Restricted cash 571,858 9,194 894,350
Other current assets 229,070 193,265 181,851
Long term
Newbuildings and vessel purchase options 8,370 35,019 8,370
Vessels and equipment, net 2,316,654 2,345,498 2,165,239
Vessels under capital lease, net 753,580 260,366 765,126
Investment in finance leases 120,958 - 120,894
Investment in associated companies 12,888 136,687 173,329
Deferred charges and other long-term assets 42,829 18,417 32,651
Total assets 4,341,532 3,138,430 4,463,536
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term interest bearing debt 138,763 163,702 191,131
Current portion of obligations under capital leases 20,446 13,481 20,138
Other current liabilities 107,431 63,608 100,827
Long term
Long term interest bearing debt 2,115,341 1,218,222 2,091,286
Obligations under capital leases 748,718 256,747 753,823
Other long term liabilities 65,643 26,717 50,913
Stockholders' equity 1,145,190 1,395,953 1,255,418
Total liabilities and stockholders' equity 4,341,532 3,138,430 4,463,536
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STATEMENT OF CASHFLOWS 2004 2003 2003
(in thousands of $) Jan-Mar Jan-Mar Jan-Dec
restated)
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OPERATING ACTIVITIES
Net income (loss) 214,433 179,681 409,359
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortisation 45,184 35,359 146,907
Unrealised foreign currency exchange (gain) loss 8,407 (1,258) 17,955
Gain or loss on sale of assets (244) (493) (436)
Results from associated companies (2,863) (17,165) (38,723)
Change in accounting principle - 33,767
Adjustment of financial derivatives to market value 12,842 (6,160) (28,180)
Other 3,201 482 2,377
Change in operating assets and liabilities (30,614) (54,217) (18,342)
Net cash provided by operating activities 250,346 136,229 524,684
INVESTING ACTIVITIES
Maturity (placement) of restricted cash 322,491 (974) (562,322)
Purchase of short-term investment (9,988) - -
Additions to newbuildings, vessels and equipment - (14,313) (356,927)
Advances to associated companies, net (32,143) 3,651 (90,150)
Purchase of minority interest - (3,382) -
Proceeds from sale of assets 11,181 3,943 459,592
Net cash provided by (used in) investing activities 291,541 (11,075) (549,807)
FINANCING ACTIVITIES
Proceeds from long-term debt, net of fees paid 1,464,119 (1,076) 661,091
Repayments of long-term debt (1,506,943) (62,290) (465,313)
Repayment of capital leases (4,796) (2,463) (13,134)
Addition to capital leases - - 218,844
Dividends paid (331,989) (11,471) (338,033)
Issue of shares, net 1,321 52 (19,876)
Net cash provided by (used in) financing activities (378,288) (77,248) 43,579
Net increase (decrease) in cash and cash equivalents before change in accounting principle 163,599 47,906 18,456
Cash effect of change in accounting principle - - 11,192
Net increase (decrease) in cash and cash equivalents after change in accounting principle 163,599 47,906 29,648
Cash and cash equivalents at start of period 121,726 92,078 92,078
Cash and cash equivalents at end of period 285,325 139,984 121,726
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Notes
In December 2003, the FASB issued Interpretation 46 Revised, Consolidation of
Variable Interest Entities. FIN 46R requires Frontline to consolidate any
variable interest entities that are also considered to be "Special Purpose
Entities" effective December 31, 2003. The Company has a number of arrangements
which may be considered to be variable interest entities under the provisions of
FIN 46R and has determined that it is required to consolidate these entites.
Consequently, at December 31, 2003 the Company has consolidated Independent
Tankers Corporation ("ITC"), a group that operates a total of six VLCCs and four
Suezmax tankers, which are on long-term charters to BP and Chevron. On July 1,
2003, the Company entered into an option agreement with Hemen Holding Ltd
(Hemen) that gives the Company the right to acquire all shares in ITC from Hemen
for a total consideration of $4.0 million plus 4 per cent interest per year.
Hemen is a holding company indirectly controlled by Frontline's Chairman, John
Fredriksen. Total book value of ITC's consolidated assets at December 31, 2003
was approximately $950 million and the Company's maximum exposure to loss is $10
million. In addition, the Company has consolidated a joint venture for which the
Company has determined it is the primary beneficiary of that entity.
Consolidation of these entities as of December 31, 2004 has given rise to an
income statement charge of $33.8 million which is classified as the cumulative
effect of a change in accounting principle. The addition of cash balances
totaling $11.2 million has been classified as the cash effect of a change in
accounting principle in the statement of cashflows.
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 June 2, 2004 By /s/ Kate Blankenship
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Kate Blankenship
Secretary and Chief Accounting Officer
02089.0009 #490468