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 August , 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 an update to the earnings release of Frontline Ltd. (the "Company")
dated May 28, 2004, for the quarter ended March 31, 2004. This update is
provided in order to conform the presentation of the income statement to that
adopted in the Company's filing of its annual report on Form 20-F for the year
ended December 31, 2003 which was filed on June 30, 2004. In addition, a
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the quarter ended March 31, 2004 is included in this update.
FRONTLINE LTD.
Unaudited Condensed Statements of Operations - Three Month Periods Ended March
31, 2004 and 2003
(in thousands of $, except per share data)
2004 2003
Total operating revenues 449,577 338,612
Gain (loss) from sale of assets 244 493
Operating expenses
Voyage expenses and commission 81,760 79,670
Ship operating expenses 30,713 26,840
Charterhire expenses 11,884 23,547
Administrative expenses 6,115 3,263
Depreciation 45,183 35,359
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Total operating expenses 175,655 168,679
Other income/(expenses)
Interest income 7,962 2,708
Interest expense (53,815) (18,470)
Share of results from associated companies 2,863 17,165
Foreign currency exchange gain (loss) (4,104) 1,007
Other financial items, net (12,639) 6,843
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Net other income/(expenses) (59,733) 9,253
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Net income before income taxes 214,433 179,679
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Income taxes - (2)
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Net income 214,433 179,681
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Earnings per Share (EPS)
EPS before cumulative effect of change in $2.91 $2.35
accounting principle
Cumulative effect of change in accounting - -
principle EPS $2.91 $2.35
Frontline Ltd.
Unaudited Condensed Balance Sheets - March 31, 2004 and December 31, 2003
(in thousands of $)
2004 2003
Mar 31 Dec 31
ASSETS
Short term
Cash and cash equivalents 285,325 121,726
Restricted cash 571,858 894,350
Other current assets 229,070 181,851
Long term
Newbuildings and vessel purchase options 8,370 8,370
Vessels and equipment, net 2,316,654 2,165,239
Vessels under capital lease, net 753,580 765,126
Investment in finance leases 120,958 120,894
Investment in associated companies 12,888 173,329
Deferred charges and other long-term assets 42,829 32,651
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Total assets 4,341,532 4,463,536
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LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term interest bearing debt 138,763 191,131
Current portion of obligations under 20,446 20,138
capital leases
Other current liabilities 107,431 100,827
Long term
Long term interest bearing debt 2,115,341 2,091,286
Obligations under capital leases 748,718 753,823
Other long term liabilities 65,643 50,913
Stockholders' equity 1,145,190 1,255,418
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Total liabilities and stockholders' equity 4,341,532 4,463,536
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Frontline Ltd.
Unaudited Condensed Statements of Cash Flows - Three Month Periods Ended March
31, 2004 and 2003
(in thousands of $)
2004 2003
OPERATING ACTIVITIES
Net income (loss) 214,433 179,681
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortisation 45,184 35,359
Unrealised foreign currency exchange (gain) 8,407 (1,258)
loss
Gain or loss on sale of assets (244) (493)
Results from associated companies (2,863) (17,165)
Change in accounting principle -
Adjustment of financial derivatives to 12,842 (6,160)
market value
Other 3,201 482
Change in operating assets and liabilities (30,614) (54,217)
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Net cash provided by operating activities 250,346 136,229
INVESTING ACTIVITIES
Maturity (placement) of restricted cash 322,491 (974)
Purchase of short-term investment (9,988) -
Additions to newbuildings, vessels - (14,313)
and equipment
Advances to associated companies, net (32,143) 3,651
Purchase of minority interest - (3,382)
Proceeds from sale of assets 11,181 3,943
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Net cash provided by (used in) investing 291,541 (11,075)
activities
FINANCING ACTIVITIES
Proceeds from long-term debt, net of 1,464,119 (1,076)
fees paid
Repayments of long-term debt (1,506,943) (62,290)
Repayment of capital leases (4,796) (2,463)
Dividends paid (331,989) (11,471)
Issue of shares, net 1,321 52
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Net cash used in financing activities (378,288) (77,248)
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Net increase in cash and cash equivalents 163,599 47,906
Cash and cash equivalents at start of period 121,726 92,078
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Cash and cash equivalents at end of period 285,325 139,984
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Frontline Ltd.
Notes to the Unaudited Condensed Financial Statements
Basis of Presentation
The accompanying unaudited condensed financial statements 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 condensed 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 condensed 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.
Investments in companies over which the Company exercises significant influence
but does not consolidate, are accounted for using the equity method. 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".
The 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"
In our earnings release date May 28, 2004 for the quarter ended March 31, 2004
we classified gains on freight future contracts of $1.1 million as a component
of "Total operating revenues". In this filing we have reclassified gains on
freight future contracts as a component of "Other financial items, net" to
conform to the presentation adopted in our annual report on Form 20-F for the
year ended December 31, 2003 which was filed on June 30, 2004.
Accounting Changes
Our adoption of FASB issued 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 6 VLCCs and 4 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.
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.
Reconciliation of Non-GAAP Measures
Effective December 31, 2003, we have presented our income statement using total
operating revenues and total operating expenses. The Company's vessels are
operated under time charters, bareboat charters, voyage charters pool
arrangements and COAs. Under a time charter, the charterer pays substantially
all of the vessel voyage costs. Under a bareboat charter the charterer pays
substantially all of the vessel voyage and operating costs. Under a voyage
charter, the vessel owner pays such costs. Vessel voyage costs are primarily
fuel and port charges. Accordingly, charter income from a voyage charter would
be greater than that from an equally profitable time charter to take account of
the owner's payment of vessel voyage costs. In order to compare vessels trading
under different types of charters, it is standard industry practice to measure
the revenue performance of a vessel in terms of average daily time charter
equivalent earnings, or TCEs. For voyage charters, this is calculated by
dividing net voyage revenues by the number of days on charter. Days spent
off-hire are excluded from this calculation. Net voyage revenues, a non-GAAP
measure, provides more meaningful information to us than voyage revenues, the
most directly comparable GAAP measure. Net voyage revenues are also widely used
by investors and analysts in the tanker shipping industry for comparing
financial performance between companies and to industry averages. The following
table reconciles our net voyage revenues to voyage revenues.
Quarter ended March 31,
2004 2003
Voyage revenues 354,977 301,758
Voyage expenses and commission (81,760) (79,670)
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Net voyage revenues 273,217 222,088
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Frontline Ltd.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the quarter ended March 31, 2004
Results of Operations
Quarter ended March 31, 2004 compared with the quarter ended March 31, 2003
Total operating revenues increased by 33% to $449.6 million in the quarter ended
March 31, 2004 compared with $338.6 million in the quarter ended March 31, 2003.
This increase is due primarily to fleet changes noted above, our consolidation
of the earnings of ITC and Golden Fountain Corporation effective December 31,
2003 noted above and a strong tanker market in early 2004. Net voyage revenues
increased by 23% to $273.2 million in the quarter ended March 31, 2003 compared
with $222.1 million in 2003. Voyage charter revenue represents 79% of our total
operating revenues in the quarter ended March 31, 2004 and as a result, the
Company's revenues are significantly affected by the prevailing spot market
rates in which the vessels operate. Traditionally, spot market rates are highly
volatile and are determined by market forces such as worldwide demand, changes
in the production of crude oil, changes in seaborne and other transportation
patterns including changes in the distances that cargoes are transported,
environmental concerns and regulations and competition from other sources of
energy. The tanker market experienced significantly stronger charter rates in
the quarter ended March 31, 2004 compared with the quarter ended March 31, 2003.
Average daily time charter equivalent earnings (TCEs) earned by the Company's
VLCCs, Suezmax tankers, and Suezmax OBO carriers in the quarter ended March 31,
2004 were $74,900, $59,100 and $26,100 respectively compared with $55,400,
$40,800 and $42,400, respectively in the first quarter of 2003.
Ship operating expenses, which include drydocking costs, increased 15% to $30.7
million in the quarter ended March 31, 2004 from $26.8 million in the quarter
ended March 31, 2003. This increase is due primarily to fleet changes noted
above and our consolidation of the operating expenses of ITC and Golden Fountain
Corporation effective December 31, 2003 noted above. Average daily operating
costs, including drydockings, of the Company's VLCCs, Suezmax tankers and
Suezmax OBO carriers were $6,500, $5,300 and $5,700 respectively compared with
$5,600, $5,100 and $5,500 respectively in the quarter ended March 31, 2003.
Charterhire expenses decreased to $11.9 million in the quarter ended March 31,
2004 from $23.5 million in the comparable quarter in 2003, principally due to
the redelivery in December 2003 and January 2004 of four VLCCs that were on time
charter to us from BP Shipping Ltd., the shipping arm of BP Plc - these charters
commenced in July 2002.
Administrative expenses increased 84% to $6.1 million in the quarter ended March
31, 2004 from $3.3 million in 2003. Administrative expenses are reported net of
management fee income of $1.1 million and $0.8 million for 2004 and 2003,
respectively. The increase in administrative expenses is primarily as a result
of the Company recording a non-cash charge of $2.6 million in connection with
employee stock options in the quarter ended March 31, 2004 compared with nil in
the comparable quarter in 2003.
Depreciation increased 28% to $45.2 million in the quarter ended March 31, 2004
from $35.4 million in the same period in 2003. This increase is due primarily to
fleet changes noted above and our consolidation of the depreciation charges
recorded by ITC and Golden Fountain Corporation effective December 31, 2003
noted above and increased depreciation on the Company's single-hull vessels
since October 1, 2003. We reduced our estimates of the useful lives of
single-hull tankers effective October 1, 2003. As a result, our aggregate
depreciation charge on those vessels has increased by approximately $1.3 million
per quarter.
Net interest expense (being interest expense net of interest income) for the
quarter ended March 31, 2004 was $45.9 million, an increase of 190% compared
with $15.8 million in the same quarter in 2003. Interest income increased to
$8.0m in 2004 from $2.7 million in 2003, mainly as a result of the consolidation
of Independent Tankers Corporation (ITC) with effect from December 31, 2003. ITC
maintained average cash balances of $325.1 million during the quarter ended
March 31, 2004 generating interest income of $5.8 million over the period.
Interest expense increased to $53.8 million from $18.5 million in 2002 with the
increase primarily relating to the consolidation of ITC with effect from
December 31, 2003. ITC had average outstanding interest bearing liabilities of
$896.1 million during the quarter ended March 31, 2004 and generated interest
expense of $17.0 million during the period. Additionally interest costs of $12.3
million were incurred in the quarter ended March 31, 2004 due to the issuance in
December 2003 of $580 million 8.5% Senior Notes by Ship Finance International
Limited, a subsidiary of the Company.
The Company's share in results of associated companies decreased to $2.9 million
in the quarter ended March 31, 2004 from $17.2 million in the quarter ended
March 31, 2003. This decrease is principally due to the Company terminating its
joint ventures which owned six VLCCs jointly with OSG in the first quarter of
2004. Another joint venture which owns a VLCC, which the Company accounted for
using the equity method in 2003 is now consolidated with effect from December
31, 2003. As a result, the Company only accounted for one investee using the
equity method in the quarter ended March 31, 2004.
The Company incurred foreign currency exchange losses of $4.1 million in the
quarter ended March 31, 2004 compared with gains of $1.0 million in 2003. The
loss recorded in the quarter ended March 31, 2004 was principally due to the
effect of a strengthening of the Japanese Yen on Yen denominated forward
currency contracts which are held by the Company. At March 31, 2004, the Company
had Yen denominated debt of Yen 7.0 billion.
Other financial items changed from income of $6.8 million in the quarter ended
March 31, 2003 to an expense of $12.6 million in the quarter ended March 31,
2004. In both periods, other financial items consists primarily of market value
adjustments on derivative instruments including interest rate swaps and freight
future agreements. These mark to market adjustments represent income of $6.1
million included in the total of other financial items in the quarter ended
March 31, 2003 and losses of $12.8 million included the total in the quarter
ended March 31, 2004.
Liquidity and Capital Resources
In January and February 2004 our subsidiary Ship Finance refinanced
substantially all of its secured bank debt with a new $1,058.0 million
syndicated senior secured credit facility. This facility bears interest at Libor
plus 1.25% and is repayable between 2004 and 2010 with a final bullet of $499.7
million payable on maturity. 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.
Frontline does not guarantee any of Ship Finance's debt facilities.
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 March 31, 2004.
In connection with its new $1,058.0 million syndicated senior secured credit
facility, Ship Finance entered into new 5-year interest rate swaps with a
combined principal amount of $500.0 million in the first quarter of 2004. These
swaps are at rates between 3.3% and 3.5%.
There have been no significant changes to our liquidity and capital resources
since we issued our annual report on Form 20-F for the year ended December 31,
2003 which includes a full discussion of these items.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Frontline Ltd.
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(Registrant)
Date August 2, 2004 By /s/ Kate Blankenship
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Kate Blankenship
Secretary and Chief Accounting Officer
02089.0009 #502889