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 March , 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-
Item 1. INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached is a copy of the earnings release of Frontline Ltd. (the "Company")
dated February 29, 2004, for the year ended December 31, 2003.
FRONTLINE LTD.
FOR IMMEDIATE RELEASE
PRELIMINARY FOURTH QUARTER AND FINANCIAL YEAR 2003 RESULTS
Frontline Ltd. reports net operating income before depreciation of $123.9
million and net income of $70.5 million for the fourth quarter of 2003. Earnings
per share for the quarter were $0.96. Net operating revenues increased by 32 per
cent compared with the immediately preceding quarter of 2003 due to
strengthening in the tanker market. 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 $40,600, $32,600 and $27,900,
respectively, compared with $28,200, $22,000 and $22,500, respectively in the
third quarter.
Administrative expenses increased to $7.6 million in the fourth quarter, of
which $4.1 million relates to a non-cash charge for stock option compensation
costs. Net interest expense for the quarter was $20.3 million. Included in this
amount is interest expense of $2.1 million incurred on the $580 million 8.5%
Senior Notes issued by Ship Finance International Limited, a wholly-owned
subsidiary of the Company, in December 2003 as discussed below. In the fourth
quarter of 2003 the Yen continued to strengthen against the US Dollar, resulting
in a foreign exchange loss of $5.1 million arising on the Yen debt in
subsidiaries.
For the year ended December 31, 2003 the Company reports record highest annual
earnings of net operating income before depreciation of $601.2 million and net
income of $443.1 million. These results compares with net operating income
before depreciation of $232.6 million and a net loss of $8.9 million in 2002.
Earnings per share for 2003 were $5.92 and cash generated from operating
activities was $524.7 million. The average daily TCEs earned in the spot and
period market by the Company's VLCCs, Suezmax tankers, and Suezmax OBO carriers
in 2003 were $42,300, $33,900 and $31,900, respectively. As of today Frontline
has cash breakeven rates for VLCCs and Suezmaxes of $21,400 and $15,900,
respectively.
Ship operating expenses, including drydockings, increased from $109.3 million in
2002 to $117.6 million in 2003, reflecting the increased size of the fleet.
Administrative expenses increased from $12.8 million in 2002 to $17.9 million in
2003 primarily due to a non-cash charge of $5.5 million in 2003 in connection
with employee stock options compared with a charge of $0.5 million in 2002.
Net interest expense for 2003 was $65.9 million compared with $58.3 million in
2002. This increase is due to several vessels put on capital leases in 2002 and
2003 plus the effect of the bond issue as discussed above. Other financial items
for 2003 were positive $33.3 million, of which $22.1 million is attributable to
the gain recorded on the Bank of Nova Scotia Equity Swap Line that was settled
in June 2003. In 2003, the strengthening of the Yen against the US Dollar
resulted in the recognition of an unrealized foreign exchange loss $17.2
million.
In the fourth quarter of 2003 the Company changed its estimate of the useful
life of certain of its single hull vessels from 2017 to 2015. A change in
accounting estimate was recognised to reflect this decision, resulting in an
increase in depreciation expense and consequently decreasing net income by
approximately $1.3 million and basic earnings per share by $0.02 for 2003.
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. Variable interest entities that are not
considered to be special purposes entities will need to be consolidated
effective March 31, 2004 under the requirements of FIN 46R. The Company has a
number of arrangements which may be considered to be variable interest entities
under the provisions of FIN 46R and is in the process of making the
determination as to whether it will be required to consolidate these entities.
The significant arrangement that Frontline is evaluating is the call option held
by its subsidiary, Golden Ocean Group Limited, to acquire all of the shares of
Independent Tankers Corporation ("ITC") from Hemen Holding Ltd, a related party.
ITC operates a total of six VLCCs and four Suezmax tankers, which are on
long-term charters to BP and Chevron. Golden Ocean paid $10.0 million for the
option in July 2003, which expires on July 1, 2010. The 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.
THE MARKET
In the fourth quarter of 2003, the tanker market experienced a strong increase
during the last week of October, when Suezmax rates more than doubled to TCEs of
approximately $40,000 and VLCC TCE rates exceeded $90,000. The market remained
strong for the rest of the quarter, Suezmax rates leading the way to historical
record high TCE levels of $100,000 during a short period in December, mainly
explained by extensive congestion in the north and south bound Strait of
Bosporus. As much as 5-7 per cent of the total Suezmax fleet was held up in this
area during the last week of the quarter.
The VLCC market was mainly driven by crude imports to the United States
exceeding 10 mbpd during the last week of October and continued growth of crude
imports to Asia, in particular China. As a result, Middle East production
increased to levels of about 23 mbpd. The oil demand forecasts from agencies,
including IEA were upgraded during the quarter as oil demand for 2003
experienced its strongest growth in 15 years with an increase of 2.8 mbpd which
is approximately 3.5 per cent for the 2003 calendar year.
The prices for second-hand tonnage and newbuilding have continued upwards in the
quarter. Second-hand prices have been driven by the strong spot earnings and
newbuilding prices driven by rising commodity prices and a tight yard situation.
The development is likely to continue.
In 2004 we will see, for the first time in some years, an increase in the VLCC
and Suezmax fleet. However, based on the continued strong growth in oil demand
the balance should remain favourable. A strong increase in crude oil prices from
today's level could change this picture.
CORPORATE AND OTHER MATTERS
In December 2003, Ship Finance International Limited, 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 from Frontline and has chartered each of the ships back
to Frontline for most of the remaining life of each of the vessels. At December
31, 2003 the cash of $681.1 million recorded by the Company includes the
proceeds of the note issue, which were held in escrow pending completion of the
purchase transaction. These funds have subsequently been released from escrow.
On February 29, 2004, the Board declared a dividend of $4.50 per share. The
record date for the dividend is March 12, 2004, ex dividend date is March 10,
2004 and the dividend will be paid on or about March 29, 2004. The dividend
consists of $0.25 per share in normal quarterly dividend, $0.75 additional
quarterly dividend and an extraordinary dividend of $3.50 per share resulting
from the liquidity generated from the Ship Finance transaction. The decision to
pay a $4.50 dividend is taken after thorough consideration of the Company's
existing cash position and is further supported by the strong market development
in 2004. After payment of the dividend at the end of March, Frontline is
expected to have in excess of $540 million in cash, of which $250 million is
restricted to support the Ship Finance charter payments. A continued strong
market will support a high dividend payout also for the first quarter of 2004.
In the fourth quarter of 2003, the Company sold one of its VLCCs, Front Hawk,
thereby generating net cash of $28 million.
During the fourth quarter of 2003, the Company issued 121,200 shares in
connection with the exercise of employee share options and at December 31, 2003,
73,647,930 ordinary shares were outstanding and the weighted average number of
shares outstanding for the quarter and twelve months were 73,580,923 and
74,901,900, respectively (2002 - 76,456,000).
The registration statement for Ship Finance has been filed on a confidential
basis with the United States Securities and Exchange Commission. A final
clearance of the document is expected in April. It is Frontline's intention to
immediately thereafter distribute 20 per cent of the shares in Ship Finance to
the shareholders of Frontline. The Board will apply for a listing of the Ship
Finance shares at the New York Stock Exchange. It is the Board's further
intention that during 2004, Frontline shall divest all its shares in Ship
Finance either through a straight sale or through further distribution to
Frontline's shareholders. In this process the Board will also look for corporate
opportunities where Ship Finance can be combined with other yield orientated
assets companies within the marine sector.
Ship Finance will, based on the existing charters, have a free cash flow of a
minimum of $200 million before debt repayment and $100 million after scheduled
debt repayment. In addition, Ship Finance will receive 20 per cent of any
earnings in excess of the agreed daily charter rates, being $25,575 for VLCCs
and $21,100 for Suezmaxes. This excess has the last 5 years averaged
approximately $30 million. With this strong cash flow Ship Finance should have a
strong basis for growing the asset base as well as giving shareholders a good
long-term yield on their investment. It is the Board's intention to make Ship
Finance into an attractive long-term equity story.
OUTLOOK
Frontline has used the current strength in the bulk market to fix out most of
the Company's OBO tonnage long term. Recently two of the OBO carriers have been
fixed for three years charter starting in the end of 2004 at rates around
$40,000 per day. These charter agreements strongly support the charter
commitments in the Ship Finance transaction, and secure long-term earnings
visibility.
The restructuring of Frontline into a chartering company, Frontline Ltd., and an
assets company, Ship Finance, has now been successfully completed. The next step
will be to make Ship Finance public. The Board is excited with the restructuring
and are hopeful that it will create a competitive edge in order to grow both
companies to the benefit of their owners.
The Tanker market has continued its strong development in the first months of
2004. Frontline has so far fixed more than 83 per cent of the VLCC capacity in
the first quarter at TCE rates of $85,000, 65 per cent of the Suezmax capacity
at $62,000 and 100 per cent of the Suezmax OBO capacity at $26,100. Even if the
current market is somewhat lower than the levels achieved so far, the Board is
pleased to report that the Frontline Group in the first quarter of 2004 is
likely to achieve its best quarterly results ever.
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, conditions in the debt and equity markets that
may affect the proposed restructuring and other corporate actions and other
important factors described from time to time in the reports filed by the
Company with the United States Securities and Exchange Commission.
February 29, 2004
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
FRONTLINE GROUP FOURTH QUARTER REPORT (UNAUDITED)
2002 2003 INCOME STATEMENT 2003 2002
Oct-Dec Oct-Dec (in thousands of $) Jan-Dec Jan-Dec
(restated) (audited)
158,637 187,047 Net operating revenues 817,220 416,521
(1,968) (2,700) Gain (loss) from sale of assets 436 (1,228)
26,943 30,812 Ship operating expenses 117,604 109,286
21,365 22,042 Charterhire expenses 81,009 60,634
3,140 7,602 Administrative expenses 17,889 12,806
105,221 123,891 Operating income before depreciation 601,154 232,567
35,980 38,655 Depreciation 146,907 136,891
69,242 85,236 Operating income (loss) after depreciation 454,247 95,676
5,239 1,737 Interest income 9,185 13,042
(17,405) (22,001) Interest expense (75,097) (71,311)
(873) 6,609 Share of results from associated companies 38,723 (10,711)
12,556 4,001 Other financial items 33,264 (8,614)
(3,353) (5,100) Foreign currency exchange gain (loss) (17,193) (10,932)
65,405 70,482 Income (loss) before taxes and minority interest 443,129 7,150
(24) 5 Taxes 3 (22)
- - Cumulative effect of change in accounting - (14,142)
principle
(327) - Discontinued operations - (1,929)
65,102 70,477 Net income (loss) 443,126 (8,899)
Basic Earnings (loss) Per Share Amounts ($)
$0.85 $0.96 EPS from continuing operations before cumulative $5.92 $0.09
effect of change in accounting principle
$0.85 $0.96 EPS $5.92 $(0.12)
Income on timecharter basis ($ per day per ship)*
30,900 40,600 VLCC 42,300 22,500
25,300 32,600 Suezmax 33,900 18,400
24,200 27,900 Suezmax OBO 31,900 17,700
* Basis = Calendar days minus off-hire. Figures
after deduction of broker commission
BALANCE SHEET 2003 2002
(in thousands of $) Dec 31 Dec 31
(audited)
ASSETS
Short term
Cash and cash equivalents (including restricted cash) 681,076 100,298
Other current assets 132,707
160,566
Long term
Newbuildings and vessel purchase options 18,412 27,405
Vessels and equipment, net 1,981,559 2,373,239
Vessels under capital lease, net 459,695 264,902
Investment in associated companies 212,571 119,329
Deferred charges and other long-term assets 31,408 16,863
Total assets 3,545,287 3,034,743
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term interest bearing debt 153,326 167,807
Current portion of obligations under capital lease 20,138 13,164
Other current liabilities 74,356 78,850
Long term
Long term interest bearing debt 1,524,371 1,277,665
Obligations under capital lease 458,263 259,527
Other long term liabilities 25,648 10,757
Minority interest -
Stockholders' equity 1,289,185 1,226,973
Total liabilities and stockholders' equity 3,545,287 3,034,743
2002 2003 STATEMENT OF CASHFLOWS 2003 2002
Oct-Dec Oct-Dec (in thousands of $) Jan-Dec Jan-Dec
(restated) (audited)
OPERATING ACTIVITIES
65,102 70,477 Net income (loss) 443,126 (8,899)
Adjustments to reconcile net income to net cash
provided by operating activities
36,949 38,654 Depreciation and amortisation 146,907 142,154
3,779 6,078 Unrealised foreign currency exchange (gain) loss 17,955 14,176
1,466 2,700 Gain or loss on sale of assets (436) 4,337
873 (6,609) Results from associated companies (38,723) 10,711
(3,190) (3,729) Adjustment of financial derivatives to market value (28,180) 7,495
- - Change in accounting principle - 14,142
1,968 1,477 Other, net 2,377 1,968
(57,666) (13,176) Change in operating assets and liabilities (18,343) (44,059)
49,281 95,872 Net cash provided by operating activities 524,683 142,025
INVESTING ACTIVITIES
(179,089) - Additions to newbuildings, vessels and equipment (356,927) (376,844)
(9,944) (74,882) Advances to associated companies, net (90,147) (20,010)
- - Purchase of minority interest - (6,822)
103,661 83,461 Proceeds from sale of assets 459,625 177,902
(85,372) 8,579 Net cash provided by (used in) investing activities 12,515 (225,774)
FINANCING ACTIVITIES
153,336 563,271 Proceeds from long-term debt, net of fees paid 661,092 380,294
(144,055) (117,598) Repayments of long-term debt (465,313) (341,959)
(25,945) (4,511) Repayment of capital leases (13,134) (92,838)
68,167 - Additions to capital leases 218,844 68,167
- (96,190) Dividends paid (338,033) (19,117)
- 3,766 Issue of shares, net (19,876) 223
51,503 348,738 Net cash provided by (used in) financing activities 43,580 (5,230)
Net increase (decrease) in cash and cash
15,412 453,189 equivalents 580,778 (88,979)
84,886 227,887 Cash and cash equivalents at start of period 100,298 189,277
100,298 681,076 Cash and cash equivalents at end of period 681,076 100,298
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 March 5, 2004 By /s/ Kate Blankenship
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Kate Blankenship
Secretary and Chief Accounting Officer
02089.0009 #469069