UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 333-63055
MILLENIUM SEACARRIERS, INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's Name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
c/o Ugland House
South Church Street
Grand Cayman, Cayman Islands
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
Not Applicable
Not Applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Millenium Seacarriers, Inc.
12% First Priority Ship Mortgage Exchange Notes Due 2005
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
9,500,000 shares of common stock, US$.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 / / Item 18 /X/
MILLENIUM SEACARRIERS, INC.
INDEX TO REPORT ON FORM 20-F
TABLE CAPTION
PART I PAGE
----
Item 1. Description of Business................................................................. 1
Item 2. Description of Property................................................................. 8
Item 3. Legal Proceedings.......................................................................10
Item 4. Control of Registrant...................................................................11
Item 5. Nature of Trading Market................................................................11
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders..............................................................................11
Item 7. Taxation............................................................................... 11
Item 8. Selected Financial Data................................................................ 13
Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................14
Item 9A. Quantitative and Qualitative Disclosures About Market Risk..............................18
Item 10. Directors and Officers of Registrant....................................................18
Item 11. Executive Compensation..................................................................20
Item 12. Options to Purchase Securities From Registrant
or Subsidiaries.........................................................................20
Item 13. Interest of management in Certain Transactions..........................................20
PART II
Item 14. Description of Securities to be Registered...........................................Not applicable
PART III
Item 15. Defaults Upon Senior Securities......................................................Not applicable
Item 16. Changes in Securities, Changes in Security for
Registered Securities and Use of Proceeds............................................Not applicable
PART IV
Item 17. Financial Statements.................................................................Not applicable
Item 18. Financial Statements....................................................................20
Item 19. Financial Statements and Exhibits.......................................................20
Signature........................................................................................21
-4-
PART I
Item 1. DESCRIPTION OF BUSINESS
- ------- -----------------------
THE COMPANY
Millenium Seacarriers, Inc. ("Millenium Seacarriers"), a Cayman Islands
company formed in 1998, is an international shipping company that owns and
operates a fleet of drybulk carriers, primarily in the 20,000 to 49,999
deadweight ton ("dwt") range ("Handysize drybulk carriers"). Millenium
Seacarriers, through its wholly-owned subsidiaries (collectively, the
"Subsidiary Guarantors" and, together with Millenium Seacarriers, the "Company")
had a fleet as of December 31, 2000 consisting of 21 vessels with an aggregate
tonnage of approximately 593,401 dwt. During 2000, the Company's fleet
transported approximately 3.5 million tons of drybulk cargo worldwide.
Millenium Seacarriers began operations on July 24, 1998, with the
acquisition of the ship-owning companies which operated the Clipper Atlantic,
Clipper Pacific, Clipper Golden Hind, Clipper Harmony, and Monica Marissa. By
the end of 1998, the Company had acquired the Millenium Amethyst, Millenium
Yama, Millenium Majestic, Millenium Condor, Millenium Osprey, Millenium Leader,
Millenium Hawk, Millenium Falcon, Millenium Eagle, Millenium Aleksander, and
Millenium Elmar. The Company continued its acquisitions in the year ended
December 31, 1999 and acquired the Millenium Raptor, Millenium Trader, Millenium
Dawn, Millenium Express and Millenium Amanda. In the year ended December 31,
2000, the Company acquired the Adamas and the Millenium Mexico. During 1999, the
Company sold the Monica Marissa, and in 2000, the Millenium Yama was disposed
off due to engine damage for which the Company received insurance proceeds.
The Company's strategy is to provide superior transportation services
to its charterers by operating a fleet of high quality second hand drybulk
carriers. The Company intends to generate stable cash flows by mostly using
period time charters and to focus on the Handysize drybulk sector of the
shipping industry.
The Company's business strategy is intensely customer and
operations-oriented. By focusing on the Handysize drybulk sector, the Company is
able to identify and respond to its market and customer needs. As a
customer-oriented service provider, the Company can use this market and customer
information to develop creative solutions for its clients, including acquiring
additional vessels or reconfiguring existing vessels within its fleet and
developing customized trade routes.
The Company also has the ability to serve its charter customers in
niche trades which require specialized vessels. The Company is generally able to
achieve significant cost efficiencies as a result of operating a fleet focused
in one sector. These include more efficient drydock service, better rates for
insurance and spares and purchasing efficiencies from suppliers. In addition,
many of the vessels in the Company's fleet include sister vessels that have
similar design characteristics, allowing the Company to benefit from operating,
maintenance and crew efficiencies.
-1-
The vessels in the Company's fleet are all of Cayman Islands, Cypriot,
Bahamian, Panamanian, Liberian or Maltese registry. All of the vessels are
currently "in class" with Lloyds Register, the American Bureau of Shipping,
Germanischer Lloyd or Det Norske Veritas, each a leading classification society.
Each of the vessels in the Company's fleet has received certification under the
International Maritime Organization's ("IMO") International Management Code for
the Safe Operation of Ships and Pollution Prevention (the "ISM Code") by
successfully completing audits conducted by Det Norske Veritas. However, there
can be no assurance that such certification will be maintained indefinitely.
MANAGEMENT
The Company has engaged Millenium Management, Inc. ("MMI"), the sole
shareholder of Millenium Seacarriers, to provide certain commercial and
technical management services to the Company at current market rates. MMI has
subcontracted with Millenium Maritime Services Ltd. ("Millenium Maritime
Greece") and Millenium Maritime Services, Inc. ("Millenium Maritime USA" and,
collectively with Millenium Maritime Greece, "Millenium Maritime") to provide
management services. Millenium Maritime Greece and Millenium Maritime USA
collectively employ approximately 38 individuals. Millenium Maritime Greece has
offices in Piraeus and Millenium Maritime USA has offices in New York, providing
full service and support to the Company's fleet from two locations, each located
in strategic shipping epicenters. Millenium Maritime Greece and Millenium
Maritime USA coordinate their activities to eliminate duplicative effort and
conflicting priorities so as to provide the most complete, efficient, cost
effective management services to their respective clients. Millenium Maritime's
multi-disciplined and coordinated structure allows it to provide the most
effective management services for the differing sizes and types of vessels
operated by the Company.
MMI and Millenium Maritime provide commercial management services by
coordinating with various third party brokers. MMI solicits, researches,
evaluates and proposes charters for the Company's fleet and, pursuant to the
Company's direction, also negotiates the terms and conditions for the sale and
purchase of the Company's fleet, through recognized shipbrokers worldwide.
Finally, at the Company's instruction, MMI obtains insurance for the Company's
fleet, working through recognized third party brokers worldwide.
MMI and Millenium Maritime also provide comprehensive technical
management services to each vessel of the Company's fleet. MMI's services
include: obtaining qualified officers and crews; managing day-to-day vessel
operations and relationships with charterers; purchasing stores, supplies and
new equipment; performing general vessel maintenance, reconditioning and repair,
including commissioning and supervising shipyards, subcontractors, or drydock
facilities required for such work; ensuring regulatory and classification
society compliance; performing operational budgeting, evaluating and arranging
financing for the vessels and performing accounting, treasury and finance
functions (including cash disbursements and collections). MMI provides these
services on a collective basis to the Company's fleet, thereby allowing the
Company to benefit from certain economies of scale.
-2-
Each member of Millenium Maritime's staff that interacts with vessels
is provided with home and portable linkages to the vessels' communication and
data system, so that ship management services can be provided around the clock,
seven days a week. All vessels in the Company's fleet are also linked by
electronic communication to Millenium Maritime to allow immediate response to
vessel management operations.
CREWING
The Company employs mainly Russian officers and crews on its vessels,
all of whom must be fully licensed and certified in accordance with
international regulatory requirements and shipping conventions. As part of its
ongoing commitment to maintain a high quality fleet and efficient operations,
the Company places great emphasis on attracting qualified crew members and on
regular training. Prior to and during employment, the Company requires all
shipboard personnel to undergo training courses both in-house and at recognized
national training centers. All these courses are selected with a view toward
enabling shipboard personnel to maintain a high level of skill within their
respective areas, with an emphasis on safety and keeping up to date with the
latest technical and professional developments. The Company's seaboard personnel
are responsible for carrying out routine maintenance aboard the vessels while at
sea.
COMPETITION
Seaborne transportation services are provided by independently owned
fleets, proprietary fleets and state-owned fleets. Competition for charters can
be intense and depends on freight rates offered, location, size, age, condition
and acceptability of a vessel and its operator to the charterer. Competition in
the drybulk sector is also affected by the availability of other size vessels
that compete in the Company's markets. Although the Company believes that the
markets in which the Company competes are highly fragmented and that no single
competitor has a dominant position, the Company is aware that certain
competitors may be able to devote greater financial and other resources to their
activities, which may result in a competitive threat to the Company.
CLASSIFICATION SOCIETY AND OTHER SAFETY REQUIREMENTS
Every commercial vessel's hull and machinery must be "classed" by a
classification society authorized by its country of registry. The classification
society verifies that a vessel is constructed, maintained and equipped in
accordance with the rules of such classification society and that the vessel
complies with flag state regulations and with international conventions,
including the Safety of Life at Sea Convention ("SOLAS") and the regulations
promulgated by the IMO. Insurance underwriters make it a condition of insurance
coverage for the vessel to be "classed" and the failure of a vessel to be
"classed" may render such a vessel uninsurable. Insurance underwriters may also
require that vessels comply with standards more restrictive than those of the
classification society. All the Company's fleet is currently "in class," with
the Lloyds Register, the American Bureau of Shipping, Germanischer Lloyd or Det
Norske Veritas, each of which is a member of the International Association of
Classification Societies.
-3-
A vessel must be inspected by a surveyor of the classification society
at least every year, every two and one-half years ("Intermediate Survey") and
every four or five years ("Special Survey"). If any defects are found, the
classification society will issue a "recommendation" which requires the ship
owner to remedy the defect within a prescribed time limit. The Intermediate
Survey includes an underwater examination of the vessel's submerged hull and
machinery. The Special Survey includes a mandatory drydocking. In connection
with a Special Survey, the vessel is examined extensively, including an
inspection to determine the thickness of the steel plates in various parts of
the vessel. If the vessel experiences excessive wear and tear, substantial
expenditures may become necessary for steel renewals and other repairs to pass a
Special Survey. Although the useful life of a vessel may be extended by capital
improvements and upgradings, the costs necessary to meet classification society
and other safety and regulatory requirements generally increase significantly as
a vessel becomes older. All the vessels in the Company's fleet are on a
five-year Special Survey cycle. In addition to the drydocking conducted as part
of the Special Survey, each vessel must be drydocked at some time between
special surveys.
INSURANCE
The business of the Company is affected by a number of risks, including
mechanical failure, personal injury, vessel and cargo loss or damage, business
interruption due to political conditions in foreign countries, hostilities,
labor strikes, adverse weather conditions and catastrophic marine disaster,
including environmental accidents and collisions. The Company's fleet is insured
against these risks with the following forms of insurance for each vessel.
Hull and Machinery Insurance. The Company maintains marine hull and
machinery insurance, which insures against the risk of damage and the total or
constructive total loss of an insured vessel and against damage to third parties
directly caused by an insured vessel. Constructive total loss occurs when the
vessel is damaged to the extent that the repair costs exceed the insured value
of the vessel. The Company also maintains war risk insurance, which insures
against the risk of damage and the total or constructive total loss of an
insured vessel directly caused by certain warlike situations such as military
use of weapons or terrorist activities. Coverage for areas designated from time
to time as war zones may be excluded or additional premiums may be required in
respect of vessels operating in such zones. The Company maintains coverage for
at least the full value of each insured vessel and updates this insurance at
least annually. The Company maintains civil and war risk hull and machinery
insurance on all of its vessels. This insurance has been placed in the French,
Italian, Norwegian and American markets, and is subject to deductibles
consistent with industry practice.
P&I Insurance. The Company maintains protection and indemnity ("P&I")
insurance coverage for its shipping activities, which includes the legal
liability and other related expenses of injury to or death of crew members and
third parties, loss or damage to cargo, claims arising from collisions with
other vessels, damage to other third party property, pollution liability and
salvage, towing and other related costs. The Company's P&I insurance coverage is
arranged through P&I mutual insurance clubs. As a member of a club, the Company
may be required to pay additional premiums at the end of a year in which claims
made on the club were particularly large. The Company's total premium is based
on the Company's own claims record, the total claims record of the members of
the club and the aggregate claims record of all clubs which are members of the
international association of P&I clubs.
-4-
In line with industry practice, coverage for damages arising out of
hazardous materials discharges is limited to $500 million per vessel per
incident. For trading in United States Waters, the Company arranges additional
insurance coverage, satisfactory to United States Coast Guard ("USCG")
regulatory approval, for liability arising from oil pollution.
The Company's insurance policies are subject to commercially reasonable
deductibles.
REGULATION
The Company's operations are materially affected by regulation in the
form of international conventions and national, state and local laws and
regulations in force in the jurisdictions in which the Company's fleet operates,
as well as in the country or countries of their registration. Because such
conventions, laws and regulations are subject to revision, the Company cannot
predict the ultimate cost of compliance or the impact thereof on the resale
price or useful life of its vessels. The Company is required to carry certain
permits, licenses and certificates with respect to its operations. The Company
believes that the heightened environmental and quality concerns of insurance
underwriters, regulators and charterers will impose greater inspection and
safety requirements on all vessels. The Company's fleet is subject to both
scheduled and unscheduled inspections by a variety of governmental and private
interests, each of which may have a different perspective or impose different
standards. These interests include the local port state authority (USCG or
equivalent), classification society, flag state administration (country of
registry) and charterers.
ENVIRONMENTAL REGULATION--INTERNATIONAL
The IMO is an agency of the United Nations whose purpose is to develop
international regulations and practices affecting shipping and international
trade, and to encourage the adoption of standards of safety and navigation. All
IMO agreements must be ratified by the IMO's individual government constituents.
The International Convention on Civil Liability for Oil Pollution Damage, 1969,
as amended (the "CCL"), and the Convention for the Establishment of an
International Fund for Oil Pollution of 1979, as amended, are the principal
international laws adopted by most jurisdictions for imposing strict liability
on a vessel's registered owner for pollution damage caused on the territorial
waters of a contracting state by the discharge of persistent oil. The liability
of the vessel owner is subject to certain complete defenses. The United States
is not a party to the CCL. Approximately one-quarter of the countries that have
ratified the CCL have increased the liability limits through a 1992 Protocol to
the CCL that has recently entered into force. As of April 12, 2001 for vessels
of between 5,000 and 140,000 gross tons, the liability limits in the countries
that have ratified this Protocol to the CCL are approximately $3.9 million plus
approximately $546 per gross ton above 5,000 gross tons, with an approximate
maximum of $78.0 million. The exact amount of liability is tied to a unit of
account which varies according to a basket of currencies. The exchange rate in
effect on April 12, 2001 for the dollar equivalent of this unit of account was
approximately 1.3. The right to limit liability is forfeited under the CCL where
the spill is caused by the owner's intentional or reckless conduct. Vessels
carrying cargo in bulk trading to contracting states must establish evidence of
insurance covering the limited liability of the owner. In jurisdictions where
the CCL has not been adopted, various legislative schemes or common law govern,
and liability is imposed either on the basis of fault or in a manner similar to
the CCL.
-5-
The ISM Code and implementing regulations require shipowners and
bareboat charterers to have developed, no later than July 1, 1998, an extensive
"Safety Management System" that includes policy statements and instruction
manuals that set forth standard operating, maintenance and communication
protocol. Noncompliance with the ISM Code may subject shipowners and bareboat
charterers to increased liability, may lead to decreases in available insurance
coverage for affected vessels, and may result in the denial of access to, or
detention in, certain ports. The Company, through Millenium Maritime, has
obtained ISM certification for all of the vessels in the Company's fleet.
The IMO recently adopted new survivability and structural requirements
for drybulk carriers aimed at preventing the sinking of any such vessel if one
cargo hold floods. The new requirements will apply to existing ships carrying
heavy cargoes, including iron ore, steel, bauxite and cement and future vessels
carrying lighter cargo. On certain of the vessels in the Company's fleet, the
transverse watertight bulkhead below the foremost cargo hold, and the bottom of
that hold, would have to withstand flooding of the fore hold. All drybulk
vessels of 150 meters or more built after July 1, 1999 would have to withstand
flooding of any one hold, even if they only haul lighter cargo, such as grain.
The IMO has called on member states to enact these new requirements and begin
enforcing them on July 1, 1999. The Company believes that it will be able to
comply with these requirements without incurring material costs.
The IMO continues to review and introduce new regulations on a regular
basis. It is impossible to predict what additional regulations, if any, may be
passed by the IMO, whether those regulations will be adopted by member
countries, and what effect, if any, such regulations might have on the Company's
operations.
ENVIRONMENTAL REGULATION--OPA 90
OPA 90 applies to all owners, operators and bareboat charterers of
vessels ("Responsible Parties") that trade within the United States or its
territories or possessions or that operate in the navigable waters of the United
States or adjoining shorelines, including the 200-nautical mile exclusive
economic zone of the United States ("U.S. Waters").
Under OPA 90, Responsible Parties are strictly liable, on a joint and
several basis, for all oil spill containment, removal costs and damages arising
from actual or threatened discharges of oil from their vessels (unless the
discharge results solely from the act or omission of a third party, an act of
God or an act of war). Damages include (i) natural resources damages and the
costs of assessment thereof, (ii) real and personal property damages, (iii) net
loss of taxes, royalties, rent fees and other lost government revenues, (iv)
lost profits or impairment of earning capacity due to property or natural
resources damage, (v) net cost of public services necessitated by a spill
response, such as protection from fire, safety or health hazards and (vi) loss
of subsistence use of natural resources. OPA 90 limits the strict liability of
Responsible Parties to the greater of $1,200 per gross ton or $10 million per
tanker, but such limitation may not be available to the Responsible Parties in
certain circumstances. The Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended ("CERCLA") contains a similar strict
liability regime for the release of hazardous substances, which the Company's
vessels may carry. Liability under CERCLA is limited to the greater of $300 per
gross ton or $5 million. These limits of liability under CERCLA and OPA 90 do
not apply if the incident is proximately caused by violation of applicable
United States federal safety, construction or operating regulations, or by the
Responsible Party's gross negligence or willful misconduct, or if the
Responsible Party failed or refused to report the incident or to cooperate and
assist in connection with oil removal activities. OPA 90 specifically permits
-6-
individual states to impose their own liability regimes with regard to oil
pollution incidents occurring within their waters, and most states that border
on a navigable waterway have enacted legislation providing for unlimited
liability for the discharge of pollutants. Moreover, OPA 90 and CERCLA preserve
the right to recover damages under existing law, including maritime tort law.
OPA 90 increased the financial requirements of the Federal Water
Pollution Control Act for vessels operating in United States waters and requires
owners and operators of vessels to establish and maintain with the USCG evidence
of financial responsibility sufficient to meet the limit of their potential
strict liability under OPA 90 and CERCLA. Bulk carriers must demonstrate
financial responsibility in the amount of the greater of $500,000 or $600 per
gross ton. Such financial responsibility, evidenced by the USCG's issuance of a
Certificate of Financial Responsibility ("COFR"), may be demonstrated by a
guarantee in the form of acceptable insurance, surety bond, self-insurance or
other means approved by the USCG. Claimants may bring suit directly against an
insurer, surety or other party that furnishes that guarantee. An insurer, surety
or other party that is sued directly is limited to asserting the following
defenses: (i) the defense that the incident was caused by the willful misconduct
of the Responsible Party; (ii) the defenses available to the Responsible Party
under OPA 90 or CERCLA; (iii) the defense that the claim exceeds the amount of
the guarantee; (iv) the defense that the claim exceeds the property amount of
the guarantee based on the gross tonnage of the vessel; and (v) the defense that
the claim has not been made under either OPA 90 or CERCLA. The Company has
demonstrated its financial responsibility by purchasing insurance from special
purpose insurers approved by the USCG. The Company believes that its vessels
that call within U.S. Waters comply with these USCG requirements.
OPA 90 requires owners or operators of vessels operating in U.S. Waters
to file vessel response plans with the USCG and with certain states detailing
the steps to be taken to address an oil spill and to operate their vessels in
compliance with their USCG-approved plans. Such response plans must, among other
things, (i) address a "worst case" scenario and identify and ensure, through
contract or other approved means, the availability of necessary private response
resources to respond to a "worst case discharge," (ii) describe crew training
and drills and (iii) identify a qualified individual with full authority to
implement removal actions. The Company has vessel response plans approved by the
USCG for vessels in its fleet operating in United States Waters and the
Company's vessels are operated in substantial compliance with such plans.
INDUSTRY
The Company operates in the Handysize drybulk carrier sector. Handysize
drybulk carriers are versatile, single deck ships that transport unpacked cargo,
which is poured, tipped or placed through hatchways into the hold of the vessel.
Their size, dimension and self-sustaining cargo gear enable Handysize drybulk
carriers to access geographic markets which larger and gearless vessels cannot
service and respond to the widest range of trade movements. Handysize drybulk
carriers carry a wide variety of cargoes, including agricultural products,
sugar, salt, minerals, phosphates, bauxite and alumina, forest products,
petcoke, cement, steel products, scrap metal and pig iron, as well as cargoes
generally carried by larger, gearless drybulk carriers, such as coal, iron ore
and grain.
The Handysize drybulk carrier market is highly fragmented and cyclical.
Demand for Handysize drybulk carriers is geographically diverse and is affected
by a number of factors including world and regional economic and political
conditions, developments in international trade, changes in seaborne and other
transportation patterns, weather patterns, crop yields, armed conflicts, port
congestion, canal
-7-
closures and other diversions in trade. These factors cause the demand for
drybulk cargoes, and consequently the demand for Handysize drybulk carriers, to
fluctuate. In addition, demand for Handysize drybulk carriers is affected by
geo-political trends. As political and economic barriers to international trade
are removed, international trade increases, thereby increasing demand for the
seaborne transportation of cargoes, such as the cargoes Handysize drybulk
carriers transport.
Freight rates are strongly influenced by the supply of and demand for
shipping capacity. The demand for shipping capacity is primarily determined by
demand for the commodities carried and by the distance that those commodities
are to be moved by sea. Demand for commodities is affected by, among other
things, world and regional economic and political conditions (including
developments in international trade, fluctuations in industrial and agricultural
production and armed conflicts), environmental concerns, weather patterns, and
changes in seaborne and other transportation costs.
TAXATION
Millenium Seacarriers has been incorporated as an exempted company
under the laws of the Cayman Islands and has received an undertaking from the
Governor in Council of the Cayman Islands under Section 6 of The Tax Concessions
Law (1995 Revision) that for a period of 20 years from the date of the
undertaking (a) that no Law which is hereafter enacted in the Cayman Islands
imposing any tax to be levied on profits, income, gains or appreciation shall
apply to Millenium Seacarriers or its operations; and (b) that no tax to be
levied on profits, income, gains, or appreciations or which is the nature of
estate duty or inheritance tax shall be payable by Millenium Seacarriers (i) on
or in respect of its shares, debentures or other obligations; or (ii) by way of
the withholding in whole or in part of any relevant payment as defined in
Section 6(3) of the Tax Concessions Law (1995 Revision). The Cayman Islands does
not have an income tax treaty arrangement with the United States or any other
country.
EXECUTIVE OFFICES
The principal executive offices of the Company are located at c/o
Ugland House, South Church Street, Grand Cayman, Cayman Islands and its
telephone number is 345-949-8066.
ITEM 2. DESCRIPTION OF PROPERTIES
- ------- -------------------------
THE COMPANY'S FLEET
The following list provides information with respect to the Company's
vessels as of December 31, 2000.
NAME OF VESSEL YEAR BUILT CAPACITY (DWT) FLAG
- -------------- ---------- -------------- ----
Millenium Aleksander 1988 52,670 (a) Cayman Islands
Millenium Elmar 1987 52,640 (a) Cayman Islands
Millenium Express 1984 39,055 Liberia
Millenium Mexico 1974 37,715 Malta
Millenium Leader 1984 37,489 Cayman Islands
Millenium Amanda 1983 36,249 Liberia
Millenium Raptor 1982 30,670 Cayman Islands
-8-
Millenium Hawk 1984 28,791 Cayman Islands
Millenium Eagle 1983 28,786 Cayman Islands
Millenium Osprey 1984 28,786 Cayman Islands
Millenium Falcon 1981 27,048 Cayman Islands
Millenium Condor 1981 27,036 Cayman Islands
Millenium Dawn 1985 26,563 Liberia
Millenium Trader 1985 26,536 Liberia
Adamas 1978 23,560 Cayman Islands
Millenium Amethyst 1978 23,538 Bahamas
Millenium Majestic 1979 17,152 Bahamas
Millenium Harmony 1978 16,711 Panama
Millenium Golden Hind 1978 16,560 Liberia
Clipper Pacific 1976 7,923 Cyprus
Clipper Atlantic 1975 7,923 Cyprus
(a) Although the vessel capacity is slightly greater than 49,999 dwt, it is
considered a Handy size drybulk carrier. During 2000, the Millenium Yama built
in 1979 of 23,540dwt and of Bahamas flag was a total loss due to engine damage.
-9-
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
principally personal injury and property claims. Such claims, even if lacking
merit, could result in the expenditure of significant financial and managerial
resources. As of December 31, 2000, the Company was not aware of any legal
proceedings or claims that it believed would have, individually or in the
aggregate, a material adverse effect on the Company or on its financial
condition or results of operation.
On March 28, 2000, an action was brought against the Company by Wayland
Investment Fund, LLC ("WIF") in the United States District Court, Southern
District of New York. In the First Amended Complaint filed on March 30, 2000,
WIF claimed that it is a beneficial holder of in excess of 25% of the 12% First
Priority Ship Mortgage Notes. The factual basis alleged to underlie the
proceeding concerns the calculation of interest due and owing on the 12% First
Priority Ship Mortgage Notes. WIF makes three claims in the First Amended
Complaint: the first is for mutual mistake; the second is for breach of
contract; and the third is for violations of Section 10(b) of the Exchange Act
and Rule 10b-5. WIF's first claim for relief is that the 12% First Priority Ship
Mortgage Notes be reformed to provide for interest on the principal amount at
maturity of the 12% First Priority Ship Mortgage Notes and that damages be paid
in the amount of $517,263. WIF's second claim for relief is damages in the
amount of $74,417,263. WIF's third claim for relief is that damages be paid in
the amount of $517,263. On April 19, 2000, the Company filed a Motion to Dismiss
WIF's second claim and answered WIF's first and third claims.
On or about July 13, 2000, WIF filed a Second Amended Complaint
repeating the claims in its First Amended Complaint and adding a fourth claim
for common law fraud and a fifth claim for negligent misrepresentation. The
Second Amended Complaint changes the allegation concerning WIF's beneficial
ownership; the lawsuit now alleges that WIF is a beneficial holder of in excess
of 25% of the 12% First Priority Ship Mortgage Exchange Notes. WIF's first claim
for relief is that the 12% First Priority Ship Mortgage Exchange Notes be
reformed to provide for interest on the principal amount at maturity of the 12%
First Priority Ship Mortgage Exchange Notes and that damages be paid in the
amount of $605,801. WIF's second claim for relief is damages in the amount of
$74,505,801. WIF's third claim for relief is that damages be paid in the amount
of $605,801. WIF's fourth claim for relief is that damages be paid in the amount
of $605,801. WIF's fifth claim for relief is that damages be paid in the amount
of $605,801. On or about July 27, 2000, the Company made a Motion to Dismiss
WIF's third, fourth, and fifth claims for relief and answered WIF's first claim.
By agreement of the parties, the Company's Motion to Dismiss the second claim
for relief in the First Amended Complaint was treated as a motion to dismiss the
second claim for relief in the Second Amended Complaint.
On or about August 22, 2000, WIF consented to the withdrawal of its
fifth claim for relief for negligent misrepresentation and agreed not to seek to
replead such claim. On or about August 31, 2000, the Company agreed to withdraw
without prejudice that portion of its Motion to Dismiss the third and fourth
claims for relief in the Second Amended Complaint. By decision dated September
7, 2000, the Court granted the Company's Motion to Dismiss the second claim for
relief in the Second Amended Complaint for breach of contract.
On November 13, 2000, the Company and WIF entered into a settlement
agreement and a stipulation dismissing all of the claims in the action in their
entirety, without prejudice.
-10-
ITEM 4. CONTROL OF REGISTRANT
- ------- ---------------------
As of April 12, 2001, all of the Company's issued and outstanding
shares are owned by MMI.
ITEM 5. NATURE OF TRADING MARKET
- ------- ------------------------
The Millenium Seacarriers, Inc.12% First Priority Ship Mortgage
Exchange Notes Due 2005 (the "Exchange Notes") do not trade on an organized
exchange but rather trade in private transactions among the parties.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
- ------- ------------------------------------------------------------------
Not applicable.
ITEM 7. TAXATION
- ------- --------
UNITED STATES - CAYMAN ISLAND INCOME TAX TREATY
There is currently no income tax treaty between the United States and the Cayman
Islands.
CAYMAN ISLANDS TAX CONSIDERATIONS
There is no income tax, corporation tax, capital gains tax, withholding
tax or any other kind of tax on profits or gains or tax in the nature of estate
duty or inheritance tax currently in effect in the Cayman Islands. Holders who
bring individual Exchange Notes in original form to the Cayman Islands may be
liable to pay stamp duty in an amount of up to C.I.$250 on each Exchange Note.
LIBERIAN TAX CONSIDERATIONS
No taxes or withholding will be imposed by the Republic of Liberia on
or with respect to any payments to be made in respect of the Exchange Notes,
provided that (i) each of the Subsidiary Guarantors that is incorporated under
the laws of the Republic of Liberia (each a "Liberian Guarantor") is and
maintains its status as a "nonresident Liberian entity" under the Liberian
Internal Revenue Code, (ii) each of the Liberian Guarantors is not now carrying
on, and in the future does not expect to carry on, any operations within the
Republic of Liberia, (iii) the Exchange Notes and all related documentation will
be executed outside of the Republic of Liberia and (iv) the holders of the
Exchange Notes will neither reside in, maintain offices in, nor engage in
business in, the Republic of Liberia.
CYPRIOT TAX CONSIDERATIONS
No taxes or withholding will be imposed by the Republic of Cyprus on or
with respect to any payments to be made in respect of the Exchange Notes,
provided that (i) each of the Subsidiary Guarantors is and maintains its status
as a shipping company of limited liability under the Cyprus Merchant Shipping
(Fees and Taxing Provisions) Law No. 38(1)(92), (ii) the Company and each of the
Subsidiary Guarantors is not now carrying on, and in the future is not expected
to carry on, any
-11-
operations exclusively within the Republic of Cyprus, (iii) the
Exchange Notes and all related documentation will be executed outside the
Republic of Cyprus and (iv) the Holders of the Exchange Notes will neither
reside in, maintain offices in, nor engage in business in, the Republic of
Cyprus.
-12-
ITEM 8. SELECTED FINANCIAL DATA
- ------- -----------------------
The selected consolidated financial and other data set forth below for
the Company have been derived from the Company's consolidated financial
statements. The data set forth below should be read in conjunction with the
consolidated financial statements and related notes thereto and the reports of
the independent accountants.
(in thousands, except ratios and operating data)
INCOME STATEMENT DATA: Year ended Year ended 161-day period
December 31, December 31, ended December
31, 2000 31, 1999 31, 1998
-------- -------- --------
Net revenue (a).................................... $ 34,603 $ 32,253 $ 12,136
Operating expenses (b)............................. 26,299 22,882 8,563
Depreciation and amortization...................... 6,506 7,048 2,318
Provision for vessel impairment ................... 4,560 7,000 0
Loss on sale of vessel............................. 152 2,089 0
---------------------------------------------------------
Vessel Operating Income/(loss).............. (2,914) (6,766) 1,255
Interest expense................................... 12,869 12,643 5,812
Other income....................................... (164) (611) (1,030)
Net Loss.................................... $ (15,619) $ (18,798) $ ( 3,527)
OTHER FINANCIAL DATA:
Capital Expenditures........................ $ 4,069 $ 24,219 $ 55,119
BALANCE SHEET DATA: as of December 31, as of December 31, as of December 31,
2000 1999 1998
---- ---- ----
Net book value of vessels (c)...................... $ 84,538 $ 93,485 $ 82,719
Total assets....................................... 98,074 112,687 129,625
Total long-term debt............................... 96,597 96,070 95,604
Shareholder's equity............................... (13,844) 1,775 20,573
(a) Net revenue is gross revenues from charters net of charter commissions
and voyage related expenses.
(b) Operating expenses include, among other things, vessel running costs,
management fees and general and administrative expenses.
(c) During 1999, Millenium Seacarriers, through its subsidiaries, purchased
the Millenium Raptor, Millenium Trader, Millenium Dawn, Millenium
Express, and Millenium Amanda. During 2000, Millenium Seacarriers,
through its subsidiaries, purchased the Adamas and the Millenium
Mexico.
-13-
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
- -------------------------------------------------------------------------
GENERAL
The Company is an international shipping company that owns and operates a fleet
of drybulk carriers, primarily Handysize (generally classified as being in the
20,000-49,000 deadweight-ton range) drybulk carriers. As of December 31, 2000,
the Company's fleet consisted of 21 vessels totalling 593,401 deadweight-tons.
The Company was incorporated on March 10, 1998 in the Cayman Islands. The
Company began operations on July 24, 1998, with five vessels and subsequently
expanded its fleet to 21 vessels as of June 30, 1999, all of which were acquired
from the net proceeds of an offering of Units ("Units") consisting of $100
million principal amount at maturity of Notes and $1.2 million of Warrants. The
Company also received an equity contribution of $24 million from Millenium
Management, Inc., MMI, the holder of 100% of the outstanding common stock of the
Company. In the year ended December 31, 1999, the Company sold a vessel, the
Monica Marissa. In the year ended December 31, 2000, the Company disposed the
Millenium Yama due to total constructive loss and acquired the vessels Adamas
and Millenium Mexico.
The following benchmarks are used by the Company to measure revenues: (i)
utilization as an index that indicates vessel earning days (on the basis that
350 calendar days per year equals 100% utilization), and (ii) the average daily
time charter equivalent (TCE) rate to analyze net revenues after commissions on
the basis of 350-days utilization.
The following table sets forth certain statement of operations and other
operating data for the Company.
Year ended Year ended
December 31, December 31,
2000 1999
---- ----
Net Revenue $ 34,603,547 $ 32,253,199
Vessel Operating Expenses (19,007,675) (18,237,342)
Mangement Fees (5,262,612) (3,822,801)
General and Administrative (2,029,166) (821,507)
---------------- ----------------
Earnings before Interest, Tax, Depreciation and
Amortization (Adjusted EBITDA) $ 8,304,094 $ 9,371,549
================ ================
Average utilization 97.0% 97.5%
================ ================
Adjusted EBITDA consists of net income prior to deductions for interest expense,
income taxes, other income or expense net, depreciation and amortization,
impairment write-downs and loss on sale-disposal of vessels. Adjusted EBITDA is
not required by United States generally accepted accounting principles, and
should not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows from operations as a measure of
liquidity.
RESULTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 2000
NET REVENUE
Net revenue for the year ended December 31, 2000 was $34.6 million compared to
$32.2 million the year ended December 31, 1999. During 2000, 81% of the
Company's gross revenues were earned from period time charters contracted with
first class charterers many of which continued from the previous years. The year
ended December 31, 2000 consisted of 7,240 ship-operating days compared to 6,877
ship-operating days in the year ended December 31, 1999 . The fleet averaged a
utilization rate of 97% during the year ended December 31, 2000.
-14-
The year 2000 saw the Company's fleet expand from 20 vessels to 21 vessels. The
revenue earnings profile of the fleet also changed as many vessels ended their
period charters contracted in 1998 and 1999 and were entered into service with
new charterers at market rates of hire. This change is also reflected in the
fact that 19% of gross revenues in 2000 were obtained from voyage charters
compared with 8% in 1999. Although market conditions for handy-size bulk
shipping improved during 2000, the Company's growth in net revenue during the
year was impacted by a decline in charter rates for the older tonnage in the
Company's fleet and adverse bunker fuel market conditions which existed through
most of the year which resulted in sharply higher voyage expenses. Voyage
expenses and direct vessel expenses relating to voyage or spot market charters
primarily include only those specific costs which are borne by the Company in
connection with voyage charters which would otherwise have been borne by the
charterer under time charter agreements. These expenses principally consist of
fuel and port charges.
During the year, 81% of revenues were earned from period time charters. A few of
the Company's vessels performed short voyages in the spot market during the
course of the year. The Clipper Atlantic and the Clipper Pacific were on the
spot market for most of year 2000. The Millenium Golden Hind, Millenium Harmony
and Millenim Amethyst were on short term period charters interspersed with
positioning spot market voyages. The Millenium Leader, the Millenium Aleksander,
the Millenium Elmar, the Millenium Majestic, the Millenium Trader, the Millenium
Dawn, the Millenium Express, and the Millenium Amanda, the Adamas and the
Millenium Mexico were on period charters throughout the year. Fednav
International ("Fednav") continued to charter the Millenium Osprey, the
Millenium Condor, the Millenium Falcon, the Millenium Eagle, the Millenium Hawk
and the Millenium Raptor. As per the terms of the Fednav charter, the Millenium
Osprey, the Millenium Condor, the Millenium Falcon, the Millenium Eagle, and the
Millenium Hawk were redelivered back to the Company during the winter months
when the Great Lakes freeze. These vessels were immediately placed into short
term charters with other reputable charterers. In April, these vessels then
revert back to Fednav for the balance of the year.
VESSEL OPERATING EXPENSES
Vessel operating expenses, excluding management fees and depreciation and
amortization, and impairment provisions, were $19.0 million for the year ended
December 31, 2000 compared to $18.2 million for the year ended December 31,
1999. The year ended December 31, 2000 consisted of 7,240 ship-operating days
compared to 6,877 ship-operating days in the year ended December 31, 1999. The
average vessel running costs for crewing, insurance, lubricants, repairs and
maintenances, registry and survey costs, and vessel communications, came to
$2,625 per day in the year ended December 31, 2000 compared to $2,652 per day
during year ended December 31, 1999.
MANAGEMENT FEES
Management fees incurred to MMI for contracted technical and commercial
management services for the year ended December 31, 2000 were $5.3 million
compared to $3.8 million during year ended December 31, 1999. This increase was
primarily due to an increase in the technical management fee.
Each of the Company's vessels receives management services from its equity
shareholder MMI pursuant to a Management Agreement among the Company's vessel
owning subsidiaries (the "Vessel Owning Subsidiaries") and MMI. Under the
Management Agreement, MMI acts as the fleet's technical and commercial manager.
As a technical manager, MMI, on behalf of the Vessel Owning Subsidiaries, (i)
provides qualified officers and crews on board vessels, (ii) manages day-to-day
vessel operations and maintains relationships with charterers, (iii) purchases
on behalf of the Company stores, spares, supplies and equipment for vessels,
(iv) performs general vessel maintenance, subcontracts for drydock facilities
for any major repairs and overhauls, (v) ensures regulatory and classification
society compliance, (vi) performs vessel operational budgeting and evaluations,
and (vii) provides accounting, treasury and finance functions (including cash
collections and disbursements on behalf of the Company). As remuneration for its
services, MMI receives a fixed management fee (payable monthly in advance)
ranging from $350 to $600 per day per vessel. The Company treats the management
fee paid to MMI as an operating expense.
Under commercial management services, MMI, on behalf of the Vessel Owning
Subsidiaries, primarily maintains and negotiates vessel charters, vessel
sale-and-purchase brokering, and places insurance covers for vessels. As
remuneration for its services, MMI receives a commission of 1.25% on all gross
time charter revenue and 1.75% on all gross spot charter revenue earned by each
vessel managed, 1% on the gross sale or purchase price of a vessel for brokerage
services, and 2% of all insurance covers placed per vessel managed.
-15-
MMI sub-contracts certain of its technical and commercial management services to
Millenium Maritime Services Ltd. and Millenium Maritime Services, Inc.
GENERAL AND ADMINISTRATIVE
These expenses totalled $2.0 million for the year ended December 31, 2000
compared to $0.8 million for the year ended December 31,1999. A portion of this
increase is attributable to costs associated with the settlement of the legal
proceedings described in Item 3. Other significant components of general and
administrative expenses for the year ended December 31, 2000 included $1.1
million in legal and professional expenses and advisory fees of $300,000 paid to
Millenium Advisors, L.L.C.
DEPRECIATION AND AMORTIZATION
Total depreciation for the year ended December 31, 2000 was $5.4 million
compared to $5.8 million for the year ended December 31, 1999. Vessel
depreciation is calculated based on the remaining useful life of the vessel,
assuming a maximum life of 30 years, net of salvage value.
Deferred vessel costs, including deferred dry-docking expenses, are capitalized
and amortized over a period of two and a half years (30 months). During the year
ended December 31, 2000, new deferred charges for dry-docking and special
surveys related expenses amounted to $1,472,538 which included $213,193 for the
Clipper Pacific, $318,085 for the Millenium Golden Hind, $458,308 for the
Millenium Leader, $345,168 for Millenium Dawn, $137,784 for Millenium Amanda.
For the year ended December 31, 2000, total amortization of deferred vessel
charges, including deferred dry-docking expenses, were $1,114,573. For the year
ended December 31, 1999, total amortization of deferred vessel charges,
including deferred dry-docking expenses, were $ 804,654. Also included in
amortization in the the statement of operations for the year ended December 31,
1999, is $465,682 of amortization of goodwill associated with the acquisition
costs relating to the issuance of the Units. These costs were amortized over the
life of the Notes, being 7 years from their issuance in July 1998. In December
1999, these costs were reduced to $0 and the total charge was included in
Provision for vessel impairment.
PROVISION FOR VESSEL IMPAIRMENT
The Company continues to test the impact of current market conditions on the
market value of the fleet. In the year ended December 31, 1999 the Company had
recorded an impairment of $4.4 million. In the year ended December 31, 2000 the
Company has recorded an impairment of $4.56 million.
Additionally, in December 1999, during the Company's periodic review of the
carrying value of its goodwill based on undiscounted estimated future cash flows
of the vessels acquired, determined that none of the goodwill remaining at
December 31, 1999 would be recoverable. Accordingly, in December 1999, the
Company also recorded a $2,600,088 charge which reduced the remaining balance of
goodwill to $0. The total charge as included in Provision for vessel impairment
on the statement of operations for the year ended December 31, 1999 amounts to
$7,000,088.
INTEREST EXPENSE
For the year ended December 31, 2000, the interest expense on the Company's
long-term debt was $11,661,320, compared to $11,498,404 in the year ended
December 31, 1999. Interest expense in the statement of operations for the year
ended December 31, 2000 also includes amortization of $527,708 recorded in
connection with the bond discount relating to the debt issue, and the
amortization of $680,140 recorded in connection with the deferred financing
costs incurred relating to the debt issue. Comparable amortization charges
recorded for the year ended December 31, 1999 were $465,160 and $680,140
respectively. During the year ended December 31, 2000, interest earned on cash
balances was $199,105 compared to $682,050 in the year ended December 31, 1999.
LOSS ON SALE OF VESSEL
During the year ended December 31, 2000, a total constructive loss was declared
on the Millenium Yama which had suffered engine damage. The full insured value
was recovered from the vessel's Hull & Machinery underwriters, and the net event
of loss proceeds were placed in collateral. The disposal of this vessel resulted
in a net loss of $152,358.
-16-
During the year ended December 31, 1999, the vessel Monica Marissa was sold for
scrap. Net proceeds from the sale amounted to $1,610,196. The loss on the sale
was $2,088,655 which is recorded in the statement of operations for the year
ended December 31, 1999.
NET LOSS
Net loss for the year ended December 31, 2000 was $15.6 million. Earnings were
adversely affected by the steep increase in fuel prices. Earnings were also
impacted by a decline in charter rates for the older tonnage and a $4.56 million
impairment loss. Earnings before interest, taxes, depreciation and amortization,
and provision for impairment (Adjusted EBITDA) for the year ended December 31,
2000 was $8.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company. As of December 31, 2000, it owns all of the
issued and outstanding shares of 21 Vessel Owning Subsidiaries.
As of December 31, 2000, the Company's cash position consisted of $1.61 million
in unrestricted cash and cash equivalents. Restricted cash includes deposits
made toward contingencies and vessel upgrades.
OPERATING ACTIVITIES
Net cash flows used in operations for the period ended December 31, 2000 were
$6.1 million compared to cash used in operations in 1999 of $2.8 million. As is
common in the shipping industry, the Company collects its hire for all time
charters 15 days in advance. The Company also has established long-term
relationships with many suppliers resulting in the Company receiving favorable
credit terms.
INVESTING ACTIVITIES
Principal investing activities were the acquisition of the companies which own
the Existing Vessels and the purchase of Committed Vessels. Transactions for the
purchase of vessels from the international shipping market is usually conducted
in two stages: (i) a deposit of approximately 10% of the purchase price is paid
upon the execution of the related purchase agreement, and (ii) the balance of
the purchase price is paid upon the vessel's physical delivery, usually within
90 days from the date of the execution of the agreement.
Net cash used in investing activities in 2000 were $0.6 million compared to net
cash used of $22.7 million in 1999. This decrease is attribuable to use of cash
in 2000 was partially offset by the proceeds from the loss of a vessel. The
Company acquired two vessels during the year ended December 31, 2000 from
proceeds from the loss of a vessel and remaining restricted cash.
FINANCING ACTIVITIES
Net cash provided by financing activities were $1.4 million in 2000 compared to
$26.7 million in 1999. In 2000, cash provided consisted of $1.42 released from
restricted cash in connection with the purchase of 2 additional vessels. In
1999, cash provided consisted of $26.7 million released from escrow in
connection with the purchase of 5 additional vessels.
The Company believes that based upon the current level of operation, cash flow
from operations, together with other readily available sources of funds, it has
adequate liquidity to fund its working capital requirements, meet capital
expenditures for repairs and maintenance and make required payments of interest
on the Company's debt. The Company intends to change the fleet profile through
sale and purchase of vessels and this will be partly assisted by its ability to
raise capital through either borrowing activities or from cash generated from
operations, or both.
-17-
WORKING CAPITAL
Pursuant to a Working Capital Facility Agreement between the Company and The
Bank of New York, the Company had a standby line of credit in a principal amount
up to $7.0 million available for its working capital requirements, which expired
on July 20, 1999. The Bank, however, extended the maturity of a $500,000 tranche
until August 5, 1999 which also expired unused. The facility was only used once
during its tenure for an amount of $250,000 which was repaid. The facility,
collateralized by the Company's vessels and subject to various covenants, bore
interest at LIBOR+1.5% and was subject to a 0.375% commitment fee on the unused
portion.
On December 23, 1999, the Company accepted a commitment for a standby line of
credit in a principal amount up to $2.5 million available for its working
capital requirements from the Allfirst Bank. The facility, collateralized by the
Company's vessels and subject to various covenants, provided that interest would
accrue at the US Prime rate and was subject to a 1% commitment fee on the unused
portion. This commitment, which was valid until March 23, 2000, was subject to
consent from Note Holders due to the fact that the Allfirst Bank will be both
the Working Capital Facility provider as well as the Indenture Trustee and a
potential of conflict of interest could arise under certain conditions. The
Allfirst Bank had extended the commitment until June 1, 2000, when it expired
absent such consents.
FOREIGN EXCHANGE RATE FLUCTUATIONS
All of the Company's revenue, and most of its expenses, are denominated in
United States dollars. For the year ended December 31, 2000, approximately 5% of
the Company's expenses were denominated in foreign currencies, primarily Greek
drachmae. The Company does not hedge its exposure to foreign currency
fluctuations.
INFLATION
The Company does not believe that inflation has had a material impact on its
operations during the periods presented, although certain of the Company's
operating expenses (e.g. crewing, insurance and drydocking costs) are subject to
fluctuations as a result of market forces. Inflationary pressures on bunker
costs are not expected to have a material effect on the Company's results from
operations and cash flows since such costs are paid by the charterers and the
majority of the Company's vessels are on period time charters.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
The Company's outstanding debt bears a fixed interest rate and therefore the
Company is not susceptible to interest rate fluctuations. In addition, all of
the Company's revenues and expenses are denominated in United States dollars,
except for 5% of its expenses which are denominated primarily in Greek drachmae.
Therefore the Company believes it is not susceptible to foreign exchange
fluctuations.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
- -------- ------------------------------------
The following table sets forth the name, age and principal position with the
Company of each of its directors and executive officers.
The following individuals are the senior officers and directors of Millenium
(ages as of April 12, 2000):
Vassilios M. Livanos 53 Chairman and Director
Theotokis S. Milas 57 Chief Operating Officer
Nicholas A. Cotzias, Jr. 40 Chief Financial Officer and Director
Emanuel Kyprios 57 Vice President, Projects
Connor O'Brien 39 Director
Robert Tangney 53 Director
-18-
Certain biographical information about each of these individuals is set forth
below:
Vassilios M. Livanos has been involved in the shipping industry for over 25
years. In 1993 he was one of the founding partners of Millenium Maritime Greece.
From 1985 to 1993, Mr. Livanos was president of Kedma Ltd., a New York-based
shipowning company which was founded in 1985. As President of Kedma, Mr. Livanos
directed the growth of Kedma's fleet from four vessels to over 20 vessels. From
1972 to 1985, Mr. Livanos worked for Seres Shipping Inc., in New York and Tokyo,
as Director of Engineering responsible for the technical management of a fleet
of over 100 vessels. Mr. Livanos spent four years in Japan, where he supervised
the construction of over 20 vessels of various types. During his tenure at Seres
Shipping Inc., Mr. Livanos was a principal shipowner of two vessels from 1981
and a principal in a drybulk chartering operation from 1983. Mr. Livanos
graduated from the Massachusetts Institute of Technology in 1971, with a B.A.
and M.S. in Naval Architecture and Marine Engineering, and an M.S. in Shipping
and Shipbuilding Management.
Theotokis S. Milas has been involved in the shipping industry for over 30 years.
In 1993 Mr. Milas was one of the founding members of Millenium Maritime Greece.
In 1984 he was a founding partner of IMI, a New York based shipowning company
with 15 vessels having an aggregate tonnage of 1.25 million dwt. Prior to 1984,
Mr. Milas held various management positions with other shipping companies based
in the United States. Also during that time, Mr. Milas was appointed and acted
as a qualified surveyor for the American Bureau of Shipping and the NKK, the
Japanese Classification society. He graduated from City University of New York
with a B.S. degree in Mechanical Engineering in 1966, and from Massachusetts
Institute of Technology in 1971 with M.S. degrees in Naval Architecture and
Marine Engineering, as well as in Shipping and Shipbuilding Management. Mr.
Milas was elected a member of the Society of Maritime Arbitrators in 1981.
Nicholas A. Cotzias, Jr. has been involved in the shipping industry for over 15
years. In 1993, he was one of the founding partners of Millenium Maritime
Greece. From 1988 to 1993, Mr. Cotzias served as the General Manager and
Director of Trade and Transport (UK) Ltd. in London, part of Brokerage &
Management Group, a United States connected shipping venture which controlled,
at the time, in excess of 40 vessels including drybulk carriers, tankers and
offshore supply and support vessels, trading primarily in the North Seas. Mr.
Cotzias handled a number of transactions in the sale and purchase sector, and
period charter employments, for and on behalf of the owners of vessels, and was
responsible for successfully preparing, analyzing and negotiating investment
proposals in assisting the group implement various programs and maximizing
returns by meeting targets. From 1984 to 1988, Mr. Cotzias worked at Cotzias
Shipping of Greece, an international family owned concern established in 1892,
as sale and purchase manager. Mr. Cotzias graduated from Boston University in
1982 with a B.A. and an M.A. degree in International Economics.
Emanuel Kyprios has been involved in the shipping industry for over 25 years. In
1993 Mr. Kyprios was one of the founding members of Millenium Maritime Greece.
In 1985, Mr. Kyprios founded the OSI Group which specializes in merchant banking
for the shipping industry, and has provided financial services to some of the
leading shipping groups and financial shipping institutions in the world. From
1970 to 1984, Mr. Kyprios was an executive at Bankers Trust Company and
Manufacturers Hanover Trust Company and Vice President and Group Head of
Shipping and Transportation at Marine Midland Bank. Mr. Kyprios graduated from
The Wharton School of Finance and Commerce in 1968 with an MBA degree.
Connor O'Brien is a co-founder and Managing Director of Stanton Capital
Corporation, a private equity investment firm based in New York. Prior to
forming Stanton Capital in 1995, he worked in the Investment Banking Group at
Merrill Lynch & Co., following four years in the Mergers & Acquisitions and
Natural Resources Groups at Lehman Brothers Inc. and two years at a major New
York bank. Mr. O'Brien received an M.B.A. from the Tuck School at Dartmouth
College.
Robert Tangney has been involved in the shipping industry for over 25 years. He
was a principal at Gannet Freighting, Inc. for the past 20 years and prior to
that was Chartering Manager at Seres Shipping Inc., from 1972 to 1980. He has an
MBA from Suffolk University in 1971.
-19-
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
- -------- --------------------------------------
The directors of the Company are each entitled to receive approximately $10,000
plus expenses from the Company annually. Neither the Company nor any of its
subsidiaries have set aside or reserved funds for pension, retirement or similar
benefits for directors and officers. Certain officers and directors of the
Company will also be officers and directors of and might be compensated by MMI,
Millenium Maritime Greece and/or Millenium Maritime USA.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE REGISTRANT OR SUBSIDIARIES
- -------- ------------------------------------------------------------------
Not applicable.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
- -------- ----------------------------------------------
The Company has engaged MMI, the sole shareholder of Millenium Seacarriers, to
provide certain commercial and technical management services to the Company at
current market rates. MMI has subcontracted with Millenium Maritime Greece and
Millenium Maritime USA to provide management services.
PART II
-------
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
- -------- ------------------------------------------
Securities have already been registered.
PART III
--------
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
- -------- -------------------------------
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
- ----------------------------------------------------------------------
Inapplicable.
PART IV
-------
ITEM 17. FINANCIAL STATEMENTS
- -------- --------------------
See Item 19 for a list of financial statements required under Item 18. The
financial information and the report of the Independent Certified Public
Accountants set forth on pages F-2 to F-14 of the annexed Financial Statements
of the Company are incorporated into this Annual Report on Form 20-F.
ITEM 18. FINANCIAL STATEMENTS
- -------- --------------------
See Item 19(a) below.
ITEM 19. FINANCIAL STATEMENTS
- -------- --------------------
(a) Financial Statements
The following financial statements, together with the reports of independent
auditors thereon, are filed as part of this Annual Report.
(b) Exhibits
-20-
1. Copies of all amendments or modifications, not previously filed, to all
exhibits previously file. Not Applicable.
2. Copies of all contracts and other documents of a character required to be
filed as an exhibit to an original registration statement which were executed or
in effect during the fiscal year end and not previously filed. Not Applicable.
SIGNATURES
- ----------
Pursuant to the requirements of Section 12 of the Securities Act of 1934, the
registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MILLENIUM SEACARRIERS, INC.
By: /s/ Vassilios M. Livanos
Name: Vassilios M. Livanos
Title: Chairman
Dated: April 27, 2001
-21-
MILLENIUM SEACARRIERS INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
PAGES
-----
Independent Auditors' Report F-2
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Cash Flows F-6
Consolidated Statements of Shareholders' Equity/Deficit F-7
Notes to the Consolidated Financial Statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Millenium Seacarriers, Inc.
Grand Cayman, Cayman Islands
We have audited the accompanying consolidated balance sheet of Millenium
Seacarriers, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholder's equity (deficit),
and cash flows for the years then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Millenium Seacarriers, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
April 12, 2001
F-2
PRICEWATERHOUSECOOPERS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Millenium Seacarriers Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, cash flows and shareholders' equity
present fairly, in all material respects, the financial position of Millenium
Seacarriers Inc. and its subsidiaries at December 31, 1998 and the results of
their operations and cash flows for the period from inception (March 10, 1998)
to December 31, 1998, in conformity with generally accepted accounting
principles in the United States. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and the significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Piraeus, Greece
April 21, 1999
F-3
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 2000 AND DECEMBER 31, 1999
DECEMBER 31, DECEMBER 31,
ASSETS 2000 1999
- ------
CURRENT ASSETS
Cash and cash equivalents $ 1,616,528 6,903,645
Restricted cash 3,400,167 4,827,135
-------------------------------------
5,016,695 11,730,780
Receivables :
Voyages 880,637 516,763
Claims and other 715,447 324,564
Inventories and prepaid expenses 2,093,513 1,479,206
------------------ ------------------
TOTAL CURRENT ASSETS 8,706,292 14,051,313
-------------------------------------
FIXED ASSETS
Vessels, net of accumulated depreciation of $11,992,543 84,537,841 93,484,950
and $7,164,750 at December 31, 2000 and 1999, respectively
Other, net of accumulated depreciation 139,455 138,337
-------------------------------------
TOTAL FIXED ASSETS 84,677,296 93,623,287
Other assets 4,690,076 5,012,248
-------------------------------------
TOTAL ASSETS $ 98,073,664 112,686,848
=====================================
LIABILITIES AND SHAREHOLDER'S EQUITY / (DEFICIT)
- ------------------------------------------------
CURRENT LIABILITIES
Trade accounts payable $ 6,747,400 5,705,471
Accrued liabilities 7,774,189 8,632,155
Charter revenue received in advance 799,003 504,290
-------------------------------------
TOTAL CURRENT LIABILITIES 15,320,592 14,841,916
Notes 96,597,348 96,069,637
------------------ ------------------
TOTAL LIABILITIES 111,917,940 110,911,553
-------------------------------------
Commitments and contingencies
SHAREHOLDER'S EQUITY/(DEFICIT)
Common stock and paid in capital 22,900,000 22,900,000
Warrants 1,200,000 1,200,000
Accumulated deficit (37,944,276) (22,324,705)
-------------------------------------
Total shareholder's equity/(deficit) (13,844,276) 1,775,295
-------------------------------------
Total Liabilities and shareholder's equity/(deficit) $ 98,073,664 112,686,848
=====================================
The accompanying notes are an integral part of these
consolidated financial statements
F-4
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999,
AND FOR THE PERIOD FROM MARCH 10, 1998 TO DECEMBER 31, 1998
YEAR ENDED YEAR ENDED PERIOD FROM MARCH
DECEMBER 31, DECEMBER 31, MARCH 10,
2000 1999 TO DECEMBER 31,
1998
REVENUE
Freight and hire from voyages $ 41,916,575 $ 36,488,454 $ 12,721,853
Voyage expenses (5,784,131) (2,642,675) (43,757)
Commissions (1,528,897) (1,592,580) (541,887)
------------------- ------------------- -------------------
Net revenue 34,603,547 32,253,199 12,136,209
------------------- ------------------- -------------------
EXPENSES
Vessel operating expenses 19,007,675 18,237,342 7,001,095
Management fees 5,262,612 3,822,801 965,666
General and administrative 2,029,166 821,507 596,497
Depreciation and amortization 6,505,709 7,047,988 2,318,452
Provision for vessel impairment 4,560,000 7,000,088 -
Loss on sale of vessel 152,358 2,088,655 -
------------------- ------------------- -------------------
37,517,520 39,018,381 10,881,710
------------------- ------------------- -------------------
Operating (loss) / income (2,913,973) (6,765,182) 1,254,499
------------------- ------------------- -------------------
OTHER INCOME / (EXPENSE)
Interest expense (12,869,168) (12,643,704) (5,811,573)
Other income 163,570 611,050 1,030,205
------------------- ------------------- -------------------
(12,705,598) (12,032,654) (4,781,368)
------------------- ------------------- -------------------
Loss before income taxes (15,619,571) (18,797,836) (3,526,869)
Income tax provision - - -
------------------- ------------------- -------------------
Net loss $ (15,619,571) $ (18,797,836) $ (3,526,869)
=================== =================== ===================
Loss per Share, Basic and Diluted
$ (1.64) $ (1.98) $ (0.67)
=================== =================== ===================
Weighted average shares outstanding 9,500,000 9,500,000 5,238,095
=================== =================== ===================
The accompanying notes are an integral part of
these consolidated financial statements
F-5
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999,
AND FOR THE PERIOD FROM MARCH 10, 1998 TO DECEMBER 31, 1998
YEAR ENDED YEAR ENDED PERIOD FROM
DECEMBER DECEMBER 31, MARCH 10, 1998
31, 2000 1999 TO DECEMBER
31, 1998
Cash flows from operating activities
Net loss $ (15,619,571) (18,797,836) (3,526,869)
Adjustments to reconcile loss to net cash provided by (used in) operating
activities:
Loss on sale of vessel 152,358 2,088,655 -
Provision for vessel impairment 4,560,000 7,000,088 -
Depreciation and amortization 6,505,709 7,047,988 2,318,452
Amortization of bond discount and deferred financing costs 1,207,848 1,145,300 534,420
Changes in operating assets and liabilities:
Increase in Receivables (754,757) (287,201) (443,643)
Increase in Inventories and prepaid expenses (614,307) (1,035,954) (291,063)
Increase in Trade accounts payable 514,863 58,888 2,571,585
Increase/(Decrease) in Accrued liabilities (857,966) 1,263,790 6,100,896
Deferred dry-docking and special survey (1,472,538) (1,148,574) (622,782)
(Decrease) Increase in Charter revenue received in advance 294,713 (108,741) 376,045
------------------ ------------------ -------------------
Net cash (used in)/provided by operating activities (6,083,648) (2,773,597) 7,017,041
------------------ ------------------ -------------------
Cash flows from investing activities
Purchase of vessels (4,000,000) (23,615,000) (53,412,500)
Additions to vessels (68,872) (603,797) (1,706,170)
Proceeds from sale of vessel 3,500,000 1,610,196 -
Acquisitions, net of cash acquired - - (106,944)
Purchase of other fixed assets (61,565) (148,557) (26,678)
------------------ ------------------ -------------------
Net cash used in investing activities (630,437) (22,757,158) (55,252,292)
------------------ ------------------ -------------------
Cash flows from financing activities
Proceeds from working capital facility - 250,000 -
Repayment of Proceeds from working capital facility - (250,000) -
Proceeds from Escrow account and restricted cash 1,426,968 26,697,755 (31,524,890)
Proceeds from long-term debt - - 95,393,000
Principal payments on Existing Vessel Debt - - (12,325,856)
Issuance of warrants - - 1,200,000
Deferred financing costs - - (5,870,360)
Shareholder contribution - - 7,100,000
------------------ ------------------ -------------------
Net cash provided by financing activities 1,426,968 26,697,755 53,971,894
------------------ ------------------ -------------------
Increase/(Decrease) in cash and cash equivalents (5,287,117) 1,167,000 5,736,643
Cash and cash equivalents at beginning of period 6,903,645 5,736,645 2
------------------ ------------------ -------------------
Cash and cash equivalents at end of period $ 1,616,528 6,903,645 5,736,645
================== ================== ===================
Supplementary cash flow information
Interest paid $ 11,641,080 11,445,018 480,872
================== ================== ===================
The accompanying notes are an integral part of these financial statements
F-6
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY/(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, DECEMBER 31, 1999,
AND FOR THE PERIOD FROM MARCH 10, 1998 TO DECEMBER 31, 1998
COMMON STOCK
AND PAID-IN ACCUMULATED
CAPITAL WARRANTS DEFICIT TOTAL
ISSUANCE OF STOCK :
Incorporation, March 10, 1998 $ 2 $ - $ - $ 2
Acquisition of Existing Vessel
Owning Companies, July 24, 1998 3,999,998 - - 3,998,998
------------ ----------- ------------ -------------
Balance, July 24, 1998 4,000,000 - - 4,000,000
Contributions 18,900,000 - - 18,900,000
Warrants - 1,200,000 - 1,200,000
Net Loss, December 31, 1998 - - (3,526,869) (3,526,869)
BALANCE DECEMBER 31, 1998 22,900,000 1,200,000 (3,526,869) 20,573,131
Net Loss for the year ended
December 31, 1999 - - (18,797,836) (18,797,836)
------------ ----------- ------------ -------------
BALANCE DECEMBER 31, 1999 22,900,000 1,200,000 (22,324,705) 1,775,295
Net Loss for the year ended December 31,
2000 - - (15,619,571) (15,619,571)
------------ ----------- ------------ -------------
BALANCE DECEMBER 31, 2000 $ 22,900,000 $ 1,200,000 $(37,944,276) $ (13,844,276)
============ =========== ============ =============
The accompanying notes are an integral part of these financial statements
F-7
MILLENIUM SEACARRIERS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. BUSINESS INFORMATION
On March 10, 1998, Millenium Seacarriers, Inc. ("Millenium") was formed (the
"Formation") to directly hold the capital stock of a group of subsidiaries
(collectively the "Company") each of which owns one of Millenium's vessels.
These consolidated financial statements give effect to the Formation pursuant to
which all of Millenium subsidiaries became wholly owned subsidiaries of
Millenium. Millenium owns and operates a fleet of dry-bulk carriers, primarily
of Handy-size type. As of December 31, 2000, the Company's fleet consisted of 21
vessels.
The Company is registered and incorporated in the Cayman Islands. Its principal
business is the acquiring, upgrading and operating of vessels. Millenium
conducts its operations through its subsidiaries whose principal activity is the
operation and ownership of dry-bulk vessels that will be under the exclusive
management of Millenium Management, Inc. ("MMI") and the sub-management of
Millenium Maritime Services Ltd. and Millenium Maritime Services, Inc.
The Company incurred losses of approximately $15.6 million and $18.8 million in
2000 and 1999, respectively. In addition, the Company has an accumulated deficit
of approximately $37.9 million and a shareholder's deficit of approximately
$13.8 million as of December 31, 2000. The Company has developed and is in the
process of implementing a plan that includes the strategic sale of certain of
its younger vessels, the proceeds from which will be used to purchase older
vessels. Management believes it can operate the vessels acquired profitably over
their remaining useful lives, enabling the Company to generate cash flows from
its operations. In addition, the Company is in the process of securing a line of
credit. Based on these facts and circumstances, management believes that the
Company will have the financial resources to meet its obligations as they come
due.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION AND ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America.
All inter-company balances and transactions have been eliminated upon
consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities at the date of
the consolidated financial statements, and the stated amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Certain reclassifications have been made to the 1998 and 1999
financial statements to conform to the classifications in the 2000 financial
statements.
REVENUE AND EXPENSE RECOGNITION
Revenue and expense recognition policies for voyage and time charter agreements
are as follows:
Voyage Charters : Voyage revenues, voyage expenses and direct vessel expenses
relating to voyage or spot market charters are recognized on a pro rata basis
based on the relative transit time in each period. Voyage expenses primarily
include only those specific costs which are borne by the Company in connection
with voyage charters which would otherwise have been borne by the charterer
under time charter agreements. These expenses principally consist of fuel and
port charges. Demurrage income represents payments by the charterer to the
vessel owner when loading and discharging time exceed the stipulated time in the
voyage charter. Demurrage income is recognized in
F-8
accordance with the provisions of the respective charter agreements and the
circumstances under which demurrage claims arise. Demurrage income was not
material in any of the periods presented. Time Charters : Revenue from time
charters are recognized on a straight line basis over the term of the respective
time charter agreement. Direct vessel expenses are recognized when incurred.
INCOME TAXES
The countries of the vessel-owning companies' incorporation do not impose taxes
on international shipping income. Minor registration and tonnage taxes must be
paid annually and have been included in the vessels' operating expenses in the
accompanying consolidated statements of operations. Pursuant to the Internal
Revenue Code of the United States (the Code), U.S. source income from the
international operations of ships is generally exempt from U.S. tax if the
company operating the ships meets certain requirements. Among other things, in
order to qualify for this exemption, the company operating the ships must be
incorporated in a country which grants an equivalent exemption from income taxes
to U.S. citizens and U.S. corporations and must be more than 50% owned by
individuals who are resident, as defined, in such country or another foreign
country that grants an equivalent exemption to U.S. citizens and U.S.
corporations. At December 31, 2000 the Company had met the requirement for
exemption from U.S. income tax.
FOREIGN CURRENCIES
The Company's functional currency is the U.S. dollar. Certain of the expenses
which are denominated in foreign currencies are remeasured into U.S. dollars at
exchange rates prevailing at the date of the transaction. Resulting exchange
gains and/or losses on settlement are included in operating expenses in the
accompanying consolidated statements of operations.
BASIC AND DILUTED LOSS PER ORDINARY SHARE
Basic and diluted loss per ordinary share have been computed by dividing net
loss by the average number of outstanding ordinary shares (9,500,000) following
the formation of the Company. There are also 500,000 warrants outstanding to
acquire 500,000 shares of common stock for $0.01 per share. Assumed exercise of
these warrants has been excluded from the calculation of loss per common share
as the effect of such exercise would be antidilutive.
CASH AND CASH EQUIVALENTS AND ESCROW ACCOUNTS
The Company considers time deposits or other certificates purchased with an
original maturity of three months or less to be cash equivalents. Restricted
cash includes deposits made towards contingencies and vessel upgrades, and also
includes proceeds from the sale of a vessel in 1999 and proceeds from insurance
for the total loss of a vessel in 2000 (see Note 6), all of which have been
placed in a restricted Escrow account under the governing rules of the Note
Indenture.
INVENTORIES AND PREPAID EXPENSES
Inventories consist of bunkers, lubricants, spares and stores on board the
Company's vessels at the balance sheet date. Inventories are stated at the lower
of cost or market value. Cost is determined on a first-in, first-out method.
Inventories and prepaid expenses as of December 31, 2000 and 1999 were
$2,093,513 and $1,479,206 respectively.
FIXED ASSETS
Vessels, net is stated at cost less accumulated depreciation. Vessels are
depreciated on a straight-line basis over their estimated remaining useful
lives, based on cost less scrap value. The useful lives have been estimated to
be 30 years from completion of construction. Depreciation is calculated on a
straight-line basis by reference to the vessels' cost, age and scrap value as
estimated at the date of acquisition which is $150 per ton.
The Company has adopted the provision of Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for Impairment of Long-lived Assets to Be
Disposed Of. The statement requires that long-lived assets used or disposed of
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the
F-9
carrying amount of an asset may not be recovered. An impairment loss for an
asset held for use should be recognized when the estimate of non-discounted
future net cash flows, excluding interest charges, expected to be generated by
the use of the asset is less than its carrying amount. Measurement of impairment
loss is based on the fair market value of the asset. (See Note 3.)
OTHER ASSETS
Other assets include dry-docking, special survey and debt issue costs.
Dry-docking and special survey costs are deferred and amortized over the
estimated period to the next scheduled dry-docking or survey, which are
generally, two and a half years and five years, respectively. The amortization
of dry-docking and special survey costs are included in amortization in the
accompanying consolidated statement of operations and amounted to $1,114,573 in
2000 and $804,654 in 1999.
Debt issue costs also include costs associated with the issuance of Notes and
the acquisition of the Millenium subsidiaries. These deferred financing costs
are amortized over the life of the Notes and is included in interest expense in
the accompanying consolidated statement of operations (see Note 4).
INTANGIBLE ASSETS
Intangible assets consist of goodwill relating the excess of cost over fair
value of five vessels built between 1975 and 1978 which were acquired on July
24, 1998. This goodwill, which aggregated $3,259,812 at the time the vessels
were acquired, was being amortized over a seven year period. Amortization was
$465,682 and $194,037 in 1999 and 1998, respectively, and is included in
amortization in the accompanying consolidated statement of operations.
In December 1999, the Company reviewed the carrying value of its goodwill and
determined that an impairment existed that based on a fair value analysis none
of the goodwill remaining would be recoverable. Accordingly, in December 1999,
the Company recorded a $2,600,088 charge which reduced the remaining balance of
goodwill to $0. This charge is included in Provision for vessel impairment on
the statement of operations for 1999.
ACCRUED LIABILITIES
Accrued liabilities primarily consists of accrued payroll, accrued interest and
other accrued expenses. These liabilities at December 31, 2000 were $1,459,498,
$5,350,840 and $963,851 respectively, and at December 31, 1999 were $1,393,366,
$5,330,600 and $1,908,189, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The Company will adopt SFAS 133 effective
January 1, 2001. Management does not expect the adoption of SFAS 133 to have a
significant impact on the financial position, results of operations, or cash
flows of the Company.
In November 1999, the United States Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") 101, REVENUE RECOGNITION. This Bulletin
sets forth the SEC Staff's position regarding the point at which it is
appropriate for a registrant to recognize revenue. The Company has reviewed
these criteria and believes its policy for revenue recognition to be in
accordance with SAB 101.
3. FIXED ASSETS
Fixed assets consists of the Company's fleet of dry bulk carriers and other
assets. Vessels owned by the Company are stated at cost, which comprises the
vessels' contract price, capital improvements, direct delivery and acquisition
expenses, and finance charges relating to the acquisition of vessels, reduced by
impairment writedowns described in the following paragraph.
F-10
Management believes that depressed freight market conditions have impacted the
fair market value of certain older vessels in the fleet. In December 2000, the
Company reviewed the carrying value of its vessels and determined that an
impairment existed. Accordingly, the Company estimated an impairment on three
vessels aggregating $4,560,000, which represents the amount by which carrying
value exceeded fair value of the vessels. This amount is included in Provision
for vessel impairment in the accompanying consolidated statement of operations
for 2000. In December 1999, the Company reviewed the carrying value of its
vessels and determined that an impairment existed. Accordingly, the Company
estimated an impairment of $4,400,000, which represents the aggregate amount by
which carrying value exceeded fair value of the vessels. This amount is included
in Provision for vessel impairment in the accompanying consolidated statement of
operations for 1999.
Balance at Balance at
December 31, 2000 December 31, 1999
----------------- -----------------
Vesssels, at cost $ 96,530,384 $ 100,649,700
Less : accumulated depreciation (11,992,543) (7,164,750)
----------------------- ----------------------
Vessels, net $ 84,537,841 93,484,950
======================= ======================
Other assets, at cost $ 236,799 $ 175,234
Less : accumulated depreciation (97,344) (36,897)
----------------------- ----------------------
Other assets, net $ 139,455 $ 138,337
======================= ======================
During the year ended December 31, 2000, a total loss was declared on the
Millenium Yama which had suffered engine damage. The full insured value was
recovered from the vessel's Hull & Machinery underwriters and the net event of
loss proceeds was placed in collateral. In October 2000, the Company acquired
the motor vessel Adamas (ex Adamas) at a purchase price of $2,200,000,which was
paid out of restricted cash. Also,in December 2000, the Company acquired the
motor vessel Millenium Mexico (ex Alam Mexico) at a purchase price of
$1,800,000, which was paid out of restricted cash.
4. LONG-TERM DEBT
December 31, December 31,
Long term debt is as follows: 2000 1999
---- ----
12% First Priority Ship Mortgage Exchange Notes due 2005 ($100 million
principal amount at maturity), (the "Notes"). Interest on the Notes is
payable semi-annually on January 15 and July 15 of each year,
commencing January 15, 1999, at a rate of 12% per annum on the
accreted value. The Notes will mature on July 15, 2005 and will be
redeemable, in whole or part, at the option of the Company at any time
on or after July 15, 2003. $100,000,000 $100,000,000
Less : Unamortized portion of bond discount (3,402,652) (3,930,363)
------------------- -------------------
Notes $96,597,348 $96,069,637
=================== ===================
The gross bond discount of $4,607,000 at date of issuance is amortized using the
effective interest method over the life of the Notes (7 years). Amortization
recorded in connection with this discount was $527,711, $465,160, and $211,477
in 2000, 1999 and 1998, respectively and is included in interest expense. The
deferred financing costs amortized in connection with the debt issue was
$680,140, $680,140, and $322,943 in 2000, 1999 and 1998, respectively and is
included in interest expense.
F-11
Semiannual interest payments are made on the Notes on January 15 and July 15 of
each year commencing on January 15, 1999. Cash interest payments are made to
holders of the Notes based on the Accreted Value of the Notes as defined in the
Note Indenture. The Company paid cash interest of $11,641,080 and $11,445,018 in
2000 and 1999, respectively, in accordance with the terms of the Note. No cash
interest payment was paid on the Notes in 1998.
The Notes are fully and unconditionally guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on a senior basis by each of the
subsidiaries of Millenium (the "Subsidiary Guarantors"). The Notes are currently
collateralized by First Priority Ship Mortgages on the Company's vessels. The
Company's bonds are registered by the United States Securities & Exchange
Commission pursuant to the United States Securities Act of 1933.
The indebtedness evidenced by the Notes constitutes a general secured senior
obligation of the Company and is fully and unconditionally guaranteed by each of
the subsidiaries of the Company and will rank pari passu in right of payment
with all future senior indebtedness of the Company and its subsidiary
guarantors. The Indenture, pursuant to where the Notes were issued (the Notes
Indenture), contains certain covenants that among other things, limit the type
and amount of additional indebtedness that may be incurred by the Company and
imposes certain limitations on investments, loans and advances, sales or
transfers of assets, dividends and other payments, the ability of the Company to
enter into sale-leaseback transactions, certain transactions with affiliates and
certain mergers, consolidations and purchases of assets, and amendments to
security agreements. The Company is currently in compliance with the terms of
the Notes Indenture at December 31, 2000.
5. RELATED PARTY TRANSACTIONS
Each of the Company's vessels receives management services from its equity
shareholder MMI pursuant to a Management Agreement among the Company's vessel
owning subsidiaries and MMI. Under the Management Agreement, MMI acts as the
fleet's technical manager and performs all commercial management functions,
including arranging chartering, advising the Company on the purchase and sale of
vessels and advising on obtaining insurance. As a technical manager, MMI (i)
provides qualified officers and crews on board vessels, (ii) manages day-to-day
vessel operations and maintains relationships with charterers, (iii) purchases
on behalf of the Company stores, spares, supplies and equipment for vessels,
(iv) performs general vessel maintenance, subcontracts for dry-dock facilities
for any major repairs and overhauls, (v) ensures regulatory and classification
society compliance, (vi) performs vessel operational budgeting and evaluations,
and (vii) provides accounting, treasury and finance functions (including cash
collections and disbursements on behalf of the Company). As remuneration for its
services, MMI receives a fixed management fee (payable monthly in advance)
ranging from $350 to $600 per day per vessel depending on the vessel type. In
addition, any visit to a vessel by a superintendent of MMI to evaluate and
supervise any repairs, dry-docking or other activities will entitle MMI to
expenses incurred and, from visits in excess of five days per annum per vessel,
its expenses incurred and an amount equal to $550 for each additional day. As
additional remuneration for its services, MMI receives commission of (i) 1.25%
on all gross time charter revenue, (ii) 1.75% on all gross freight revenue,
(iii) 1% on the gross sale or purchase price of a vessel and (iv) 2% of
insurance premiums for insurance placed, in each case as adjusted to reflect
fluctuations in market rates and practices.
MMI has sub-contracted certain of its technical and commercial
management services to Millenium Maritime Services Ltd. and Millenium
Maritime Services, Inc., both affiliates of MMI.
The Company records the management fee paid to MMI in operating expenses. During
2000, 1999, and 1998, the Company incurred management fees of $5,262,612,
$3,822,801, and $965,666, respectively, in connection with the aforementioned
agreement. As of December 31, 2000, there were no outstandings due to MMI,
compared to a payable of $550,957 as of December 31, 1999, which was reflected
in accrued liabilities.
6. LOSS ON SALE OF VESSEL
During the year ended December 31, 2000, a total constructive loss was declared
on the MILLENIUM YAMA which had suffered engine damage. The full insured value
was recovered from the vessel's Hull & Machinery underwriters. The disposal of
this vessel resulted in a loss of $152,358. In 1999, the Company disposed of one
vessel, the MONICA MARISSA, for scrap incurring a loss on sale of $2,088,655.
F-12
7. CONTINGENCIES
From time to time the Company has been, and expects to continue to be, subject
to legal proceedings and claims in the ordinary course of its business,
principally personal injury and property claims. Such claims, even if lacking
merit, could result in the expenditure of significant financial and managerial
resources. As of December 31, 2000, the Company was not aware of any legal
proceedings or claims that it believed would have, individually or in the
aggregate, a material adverse effect on the Company or on its financial
condition or results of operation.
On March 28, 2000, an action was brought against the Company by Wayland
Investment Fund, LLC ("WIF") in the United States District Court, Southern
District of New York. In the First Amended Complaint filed on March 30, 2000,
WIF claimed that it is a beneficial holder of in excess of 25% of the 12% First
Priority Ship Mortgage Notes. The factual basis alleged to underlie the
proceeding concerns the calculation of interest due and owing on the 12% First
Priority Ship Mortgage Notes. WIF makes three claims in the First Amended
Complaint: the first is for mutual mistake; the second is for breach of
contract; and the third is for violations of Section 10(b) of the Exchange Act
and Rule 10b-5. WIF's first claim for relief is that the 12% First Priority Ship
Mortgage Notes be reformed to provide for interest on the principal amount at
maturity of the 12% First Priority Ship Mortgage Notes and that damages be paid
in the amount of $517,263.16. WIF's second claim for relief is damages in the
amount of $74,417,263.15. WIF's third claim for relief is that damages be paid
in the amount of $517,263.16. On April 19, 2000, the Company filed a Motion to
Dismiss WIF's second claim and answered WIF's first and third claims.
On or about July 13, 2000, WIF filed a Second Amended Complaint repeating the
claims in its First Amended Complaint and adding a fourth claim for common law
fraud and a fifth claim for negligent misrepresentation. The Second Amended
Complaint changes the allegation concerning WIF's beneficial ownership; the
lawsuit now alleges that WIF is a beneficial holder of in excess of 25% of the
12% First Priority Ship Mortgage Exchange Notes. WIF's first claim for relief is
that the 12% First Priority Ship Mortgage Exchange Notes be reformed to provide
for interest on the principal amount at maturity of the 12% First Priority Ship
Mortgage Exchange Notes and that damages be paid in the amount of $605,801.34.
WIF's second claim for relief is damages in the amount of $74,505,801.34. WIF's
third claim for relief is that damages be paid in the amount of $605,801.34.
WIF's fourth claim for relief is that damages be paid in the amount of
$605,801.34. WIF's fifth claim for relief is that damages be paid in the amount
of $605,801.34. On or about July 27, 2000, the Company made a Motion to Dismiss
WIF's third, fourth, and fifth claims for relief and answered WIF's first claim.
By agreement of the parties, the Company's Motion to Dismiss the second claim
for relief in the First Amended Complaint was treated as a motion to dismiss the
second claim for relief in the Second Amended Complaint.
On or about August 22, 2000, WIF consented to the withdrawal of its fifth claim
for relief for negligent misrepresentation and agreed not to seek to replead
such claim. On or about August 31, 2000, the Company agreed to withdraw without
prejudice that portion of its Motion to Dismiss the third and fourth claims for
relief in the Second Amended Complaint. By decision dated September 7, 2000, the
Court granted the Company's Motion to Dismiss the second claim for relief in the
Second Amended Complaint for breach of contract.
On November 13, 2000, the Company and WIF entered into a settlement agreement
and a stipulation dismissing all of the claims in the action in their entirety,
without prejudice. Costs associated with this settlement agreement are reflected
in General and Administrative expenses.
8. COMMITMENTS
On December 23, 1999, the Company accepted a commitment for a standby line of
credit in a principal amount up to $2.5 million available for its working
capital requirements from the Allfirst Bank. The facility, collateralized by the
Company's vessels and subject to various covenants, provided that interest would
accrue at the US Prime rate and was subject to a 1% commitment fee on the unused
portion. This commitment, which was valid until March 23, 2000, was subject to
consent from Note Holders due to the fact that the Allfirst Bank would be both
the Working Capital Facility provider as well as the Indenture Trustee and a
potential of conflict of interest could arise under certain conditions. The
Allfirst Bank had extended the commitment until June 1, 2000, when it expired
absent such consents.
F-13
9. SUBSEQUENT EVENTS
In January 2001, the Company sold two vessels for an aggregate sales price of
$9,120,000. The Company acquired a vessel in January 2001 for $3,925,000 and
another vessel in April 2001 for $4,520,000.
F-14