<PAGE>
Filed pursuant to Rule 424(b)(1)
Registration No. 33-52079
3,000,000 SHARES
OVERSEAS SHIPHOLDING GROUP, INC.
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
----------------
All of the shares of Common Stock offered hereby are being sold by the
Company.
The last reported sale price of the Common Stock on the New York Stock
Exchange on February 24, 1994 was $23 5/8 per share. See "Price Range of
Common Stock and Dividends."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................... $23.25 $1.22 $22.03
Total(3)................................ $69,750,000 $3,660,000 $66,090,000
</TABLE>
- --------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $200,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 450,000 shares at the initial public offering price
per share, less the underwriting discount, solely to cover over-
allotments. If such option is exercised in full, the total initial public
offering price, underwriting discount and proceeds to the Company will be
$80,212,500, $4,209,000 and $76,003,500, respectively. See "Underwriting."
----------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery at the offices of
Goldman, Sachs & Co., New York, New York, on or about March 7, 1994.
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
FURMAN SELZ INCORPORATED
----------------
The date of this Prospectus is February 28, 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE PACIFIC STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
AVAILABLE INFORMATION
Overseas Shipholding Group, Inc. (the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the Commission's public reference facilities at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Suite 1300, Seven World Trade Center, New
York, New York 10048. Copies of such material can be obtained by mail from the
Commission's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such reports, proxy statements and other
information also can be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected by anyone without charge at the
principal office of the Commission in Washington, D.C., and copies of all or
part of it may be obtained from the Commission upon payment of the prescribed
fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference: (i) the Company's Annual Report on Form 10-K
for the year ended December 31, 1992; (ii) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1993, June 30, 1993, and September
30, 1993; and (iii) the Company's Current Report on Form 8-K dated September
27, 1993.
Each document or report subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated or
deemed to be incorporated by reference herein, shall be deemed to be modified
or superseded for purposes of the Registration Statement and this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
2
<PAGE>
The Company will provide without charge to any person to whom this Prospectus
is delivered, on the written or oral request of such person, a copy of any or
all of the foregoing documents incorporated by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference into such documents). Written requests should be directed to:
Overseas Shipholding Group, Inc., 1114 Avenue of the Americas, New York, New
York 10036, Attention: Secretary's Office (telephone (212) 869-1222).
THE COMPANY
The Company is one of the world's leading independent (non oil company) bulk
shipping companies. The Company owns and operates a modern, well-maintained and
diversified fleet of oceangoing bulk cargo vessels consisting principally of
tankers and dry bulk carriers and representing approximately 1% of the total
world tonnage of such vessels. In October 1992, the Company entered into the
passenger cruise business through a joint venture with the Chandris Cruise
Division, an established cruise line operator unrelated to the Company. The new
venture, Celebrity Cruise Lines Inc. (CCLI), represents a major diversification
for the Company while continuing a business begun by the Chandris Group over 30
years ago.
The Company's operating bulk fleet consists of 59 vessels having an aggregate
carrying capacity of approximately 5.7 million deadweight tons (DWT), including
11 ships aggregating approximately 1.8 million DWT which the Company owns
jointly with others. Forty-three vessels in the Company's operating bulk fleet,
aggregating approximately 4.7 million DWT, are registered under foreign flags,
and 16 vessels, aggregating approximately 1 million DWT, are registered under
the U.S. flag. At July 1, 1993, the average age of the Company's international
fleet as well as its international tanker fleet (in each case excluding non-
Company interests in jointly-owned ships) was 11.4 years compared with reported
worldwide averages of 12.9 years and 13.1 years, respectively.
The Company's vessels are diversified by type, by size and by the markets in
which they operate. The Company's fleet includes 40 tankers, 23 of which are
crude carriers and 17 of which are petroleum product carriers, accounting for
approximately 75% of the fleet's total tonnage. The Company's operating fleet
also includes 18 dry bulk carriers and a pure car carrier accounting for the
balance of the fleet's total tonnage. In addition to the Company's operating
bulk fleet, four 93,650 DWT (Aframax) double-hulled tankers are on order for
delivery during 1994 and two 295,250 DWT double-hulled very large crude
carriers (VLCC's) are on order for delivery in the third quarter of 1995. The
Company believes that the size and diversity of its fleet enables the Company
to compete in a variety of markets throughout the world and to reduce its
exposure to any one market.
CCLI owns and operates five cruise ships under the trade names Celebrity
Cruises and Fantasy Cruises. Celebrity Cruises operates three ships in the
premium segment of the cruise market, one built in 1990, one built in 1992 and
one rebuilt in 1990. CCLI also caters to more budget-conscious cruise
passengers through its Fantasy Cruises product line. CCLI has contracts for the
construction of two new cruise ships to be delivered in 1995 and 1996, and has
an option, which it intends to exercise, for the construction of a third
sistership, all for the Celebrity fleet. The Company owns 49% of the equity in
CCLI, which functions as an equal joint venture of the Chandris Group and the
Company.
The Company, which traces its history to predecessor shipping companies
operating since the mid-1950's, was organized in 1969 with a fleet of 31
vessels aggregating about 1.0 million DWT. The Company completed its initial
public offering of Common Stock in 1970.
The Company's Common Stock is listed on the New York Stock Exchange under the
stock symbol "OSG," where it is one of the longest continuously traded shipping
stocks. The Company's principal offices are located at 1114 Avenue of the
Americas, New York, New York 10036, and its telephone number is (212) 869-1222.
Unless the context indicates otherwise, references in this Prospectus to the
"Company" include Overseas Shipholding Group, Inc. and its consolidated
subsidiaries and information in this Prospectus as to the size, carrying
capacity and charter position of the Company's fleet is given as of January 28,
1994.
3
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of Common Stock offered hereby are estimated
to be approximately $65.9 million (assuming the Underwriters' over-allotment
option is not exercised) after deducting estimated expenses of the offering to
be paid by the Company. The Company intends to use approximately $50 million of
such net proceeds to reduce indebtedness outstanding under its revolving credit
agreement, with all remaining proceeds to be used for general corporate
purposes. Amounts repaid under the revolving credit agreement may be reborrowed
by the Company, and additional amounts may be borrowed, up to a maximum
aggregate of $500 million outstanding at any time, on a revolving credit basis
through February 1996, which date may be extended a year at a time by mutual
consent, after which the outstanding balance converts to a five-year term loan
payable in 10 equal semi-annual installments. Amounts outstanding under the
revolving credit agreement bear interest at the rate of 3.8152% per annum as of
February 24, 1994. See Note H to the Company's Consolidated Financial
Statements as at and for the year ended December 31, 1992. Affiliates of J.P.
Morgan Securities Inc. are parties to the revolving credit agreement.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed and traded on the New York Stock
Exchange and the Pacific Stock Exchange under the symbol "OSG." The following
table sets forth, for the periods indicated, the price range and cash dividends
paid per share of Common Stock.
Prices shown in the table are the high and low sales prices on the New York
Stock Exchange Composite Transactions by quarter as reported in The Wall Street
Journal. See the cover page of this Prospectus for a recent last reported sale
price of the Common Stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
MARKET PRICE
-------------
HIGH LOW DIVIDENDS
------ ------ ---------
(IN DOLLARS)
<S> <C> <C> <C>
1992
First Quarter......................................... 21 1/4 16 7/8 0.15
Second Quarter........................................ 18 1/8 15 1/8 0.15
Third Quarter......................................... 16 7/8 13 3/8 0.15*
Fourth Quarter........................................ 17 3/8 13 1/2 0.15**
1993
First Quarter......................................... 19 3/4 15 3/4 0.15
Second Quarter........................................ 19 7/8 18 0.15
Third Quarter......................................... 20 1/2 17 0.15*
Fourth Quarter........................................ 24 1/4 19 1/8 0.15**
1994
First Quarter through February 24, 1994............... 26 3/4 21 7/8 0.15
</TABLE>
- --------
*Declared in second quarter.
**Declared in third quarter.
The Company has paid dividends on the Common Stock quarterly since May 1974.
4
<PAGE>
CAPITALIZATION
The following table summarizes the capitalization of the Company and its
consolidated subsidiaries at September 30, 1993, (i) as adjusted to give effect
to the sale of $100 million principal amount of 8% Notes due 2003 and $100
million principal amount of 8 3/4% Debentures due 2013, in a public offering
consummated in December 1993 (the "Debt Offering"), and the application of a
portion of the proceeds thereof to the reduction of indebtedness outstanding
under the Company's revolving credit agreement, and (ii) as further adjusted to
give effect to the sale of the Common Stock offered hereby (assuming the
Underwriters' over-allotment option is not exercised and without giving effect
to the payment of expenses) and the application of $50 million of the net
proceeds to a reduction of indebtedness outstanding under the revolving credit
agreement. See "Use of Proceeds." The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus and the consolidated
financial information and related notes of the Company incorporated herein by
reference.
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, 1993
---------------------
AS
AS FURTHER
ADJUSTED ADJUSTED
--------- ---------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
Long-term debt:
Capital leases--8.40% to 10%........................... 182.3 182.3
Title XI Bonds--8.45%.................................. 12.9 12.9
Bank revolving credit.................................. 75.0 25.0
Private placement notes 7.77% to 9.57%................. 310.0 310.0
Other vessel financings 8.00% to 10.59%................ 109.4 109.4
8% Notes due 2003...................................... 99.8 99.8
8 3/4% Debentures due 2013............................. 99.7 99.7
Less: Current portion.................................... (22.9) (22.9)
--------- ---------
Total long-term debt................................. 866.2 816.2
--------- ---------
Shareholders' equity:
Common Stock, $1.00 par value(1)....................... 36.1 39.1
Paid-in additional capital............................. 20.9 84.0
Retained earnings...................................... 762.0 762.0
Less:
Treasury Stock......................................... (50.5) (50.5)
Unrealized loss on noncurrent marketable equity
securities............................................ (3.4) (3.4)
--------- ---------
Total shareholders' equity........................... 765.1 831.2
--------- ---------
Total capitalization............................... 1,631.3 1,647.4
========= =========
</TABLE>
- --------
(1) The Company's Certificate of Incorporation authorizes the issuance of a
total of 60,000,000 shares of Common Stock. At January 15, 1994, 32,741,826
shares of Common Stock were outstanding and 3,398,933 shares were held in
the Company's treasury, of which 1,286,679 shares were reserved for
issuance under certain stock option plans. All of the shares offered hereby
will be newly issued shares.
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information of
the Company. The financial information for the five years ended December 31,
1992 has been derived from the annual consolidated financial statements of the
Company and its subsidiaries, audited by Ernst & Young, independent auditors.
The financial information for the nine-month periods ended September 30, 1993
and 1992 has been derived from unaudited financial statements. The unaudited
financial statements include all adjustments (consisting only of normal
recurring accruals) which the Company's management considers necessary to
present fairly the results for such unaudited interim periods. The results for
interim periods are not necessarily indicative of results to be expected for a
full year. Results of CCLI, the Company's joint venture in the cruise business,
are reflected in the consolidated financial statements beginning as of October
1, 1992, the effective date of the joint venture. The table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus and the
consolidated financial information and related notes of the Company
incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Shipping Revenues....... $ 295,201 $ 276,099 $ 370,885 $ 419,105 $ 399,654 $ 310,117 $ 307,356
Income from Vessel
Operations............. 31,316 25,220 29,414 102,046 112,894 76,172 74,475
Income before Interest
and Tax................ 55,584 50,566 41,751(1)(2) 135,400 142,280 115,940 100,365
Income (Loss) before
Federal Income Tax..... 23,309 17,362 (2,829)(1)(2) 79,826 80,757 74,177 62,704
Income before Cumulative
Effect of Accounting
Change................. 14,909 12,087 71(2) 55,076 55,857 51,976 46,404
Net Income.............. 14,909 28,087(3) 16,071(2)(3) 55,076 55,857 51,976 46,404
BALANCE SHEET DATA
(AT PERIOD END):
Cash and Investments in
Marketable Securities.. 111,849 125,821 105,173 170,967 143,427 163,690 212,999
Working Capital......... 74,415 76,796 101,194 91,410 92,950 80,211 99,599
Vessels including
Capital Leases......... 1,034,122 1,057,420 1,067,122 1,026,817 1,035,463 1,069,679 856,239
Investment in CCLI...... 228,473 -- 219,886 -- -- -- --
Total Assets............ 1,699,437 1,557,664 1,714,548 1,545,675 1,498,277 1,540,621 1,318,178
Long-Term Debt and
Capital Lease
Obligations............ 749,652 593,832 784,452 576,321 612,819 673,143 477,852
Shareholders' Equity.... 765,147 776,650 762,425 760,322 707,128 700,784 695,684
OTHER FINANCIAL DATA:
Capital Spending........ 46,298 75,072 81,213 59,405 25,693 201,104 125,049
Depreciation and
Amortization........... 44,095 42,505 56,472 56,214 55,567 51,136 48,934
Cash Provided by
Operating Activities... 57,581 9,625 9,963 109,608 98,051 87,963 106,072
PER SHARE DATA:
Income before Cumulative
Effect of Accounting
Change................. $ .46 $ .37 -- $ 1.67 $ 1.63 $ 1.46 $ 1.29
Net Income.............. $ .46 $ .86 $ .49 $ 1.67 $ 1.63 $ 1.46 $ 1.29
Cash dividends declared. $ .60 $ .60 $ .60 $ .55 $ .50 $ .50 $ .36
AVERAGE SHARES
OUTSTANDING............ 32,676 32,843 32,806 33,012 34,317 35,698 36,008
</TABLE>
- --------
(1) Before cumulative effect of change in accounting for income tax.
(2) Reflects a provision of $20 million ($13.1 million net of tax) for loss on
investment in GPA Group plc.
(3) Includes $16 million credit from the Company's adoption of FAS 109
"Accounting for Income Taxes."
6
<PAGE>
THREE MONTH AND TWELVE MONTH RESULTS
The following table sets forth capsule consolidated financial information of
the Company for the three- and twelve-month periods ended December 31, 1993
and 1992.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
------------------------ -------------------------
1993 1992 1993 1992
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shipping Revenues $94,220,000 $ 94,786,000 $389,421,000 $370,885,000
Income/(Loss) Before
Cumulative Effect of
Accounting Change...... $ 3,037,000 $(12,016,000)(b) $ 17,946,000 $ 71,000(b)
Cumulative Effect of
Change in Accounting
for Income Taxes(d).... $ -- $ -- $ -- $ 16,000,000
Net Income/(Loss)(a)(c). $ 3,037,000 $(12,016,000) $ 17,946,000 $ 16,071,000
Per Share Amounts:
Income/(Loss) Before
Cumulative Effect of
Accounting Change..... $ .09 $ (.37) $ .55 $ --
Cumulative Effect of
Change in Accounting
for Income Taxes...... $ -- $ -- $ -- $ .49
Net Income/(Loss)...... $ .09 $ (.37) $ .55 $ .49
Average Number of Shares
Outstanding............ 32,685,036 32,693,831 32,678,031 32,805,549
</TABLE>
- --------
(a) Gains from disposal of vessels (net of income tax), totaled $7,327,000, or
$.22 per share, in 1993, reflecting provision for loss of $651,000, or
$.02 per share, net of income tax, in the fourth quarter for the disposal
of a 50%-owned vessel. In 1992, provision for loss from the disposal of a
vessel (net of income tax), amounted to $831,000, or $.03 per share (all
in the fourth quarter).
(b) After reserve of $13,100,000 (net of income tax), for investment in GPA
Group plc.
(c) Provision for income taxes in 1993 was $8,900,000 for the year, and
$500,000 for the fourth quarter; in 1992 there was an income tax credit of
$2,900,000 for the year, including a credit of $8,175,000 for the fourth
quarter.
(d) In the first quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues and income from vessel operations of the Company are highly
sensitive to patterns of supply and demand for vessels of the types and sizes
owned and operated by the Company and the markets in which those vessels
operate. Freight rates for major bulk commodities are determined by market
forces including local and worldwide demand for such commodities, volumes of
trade, distances between sources and destinations of cargoes and amount of
available tonnage both at the time such tonnage is required and over periods of
projected requirements. Available tonnage is affected, over time, by the amount
of newbuilding deliveries and removal of existing tonnage from service. See
"Business--Bulk Shipping Overview;--International Tanker Market;--International
Dry Bulk Carrier Market;--U.S. Flag Bulk Markets; and--Chartering Strategy and
Competition in the Bulk Shipping Markets."
Results in particular periods are also affected by such factors as the mix
between voyage and time charters, the timing of the completion of voyage
charters, the time and prevailing rates when charters that are currently being
performed were negotiated, the levels of applicable rates and the business
available as particular vessels come off existing charters, and the timing of
drydocking of vessels.
Historically, the diversity of the Company's fleet has tended to cushion the
effects of weakness in particular markets. However, 1992 was a particularly
difficult year in that there was simultaneous weakness in all of the Company's
major markets. Some of the effects of this weakness carried over into the
results of the Company's operations in 1993, primarily in the first half. In
general, market rates improved during 1993 from the depressed rates that
prevailed in 1992, but still remain at levels below those of the years 1989
through 1991. Beginning in the fourth quarter of 1993, freight rates for
foreign flag VLCC's and dry bulk carriers have weakened somewhat, while rates
for foreign and U.S. flag product carriers have experienced seasonal increases.
NINE MONTHS ENDED SEPTEMBER 30, 1993, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1992
Income from Vessel Operations. Income from vessel operations for the nine
months ended September 30, 1993 increased by approximately $6.1 million from
the results for the first nine months of 1992. This increase was attributable
to the inclusion in income of the Company's equity ($5.5 million) in the
results of CCLI and to $2.5 million of improved income from foreign flag vessel
operations, reflecting increased charter market rates primarily in the third
quarter of 1993 for certain Suezmax (approximately 128,000 DWT) and Aframax
tonnage compared to the rates obtained during the 1992 period for those
vessels. The favorable effect on revenues of less tonnage being idle due to
lack of employment and for drydockings in the 1993 nine months as compared to
1992 is also reflected. Income from foreign flag vessel operations in the 1993
nine month period was adversely affected by lower charter rates in the first
half of 1993 (primarily in the first quarter) for most classes of tankers and
dry bulk vessels compared with rates obtained in 1992, and by substantially
lower VLCC rates for certain tonnage throughout the 1993 period. During 1992,
certain foreign flag vessels were operating on time charters negotiated in
prior periods when rates were more favorable. Income from operations of the
U.S. flag fleet declined approximately $1.9 million in the 1993 nine months
compared to the 1992 period, resulting primarily from a crude carrier being
idle due to lack of employment during the 1993 period. This was partially
offset by better operating results for two U.S. flag dry bulk carriers,
reflecting fewer idle days and better rates.
Voyage expenses, such as fuel and port costs, are paid by the vessel owner
under a voyage charter and by the charterer under a time charter. The increase
in vessel and voyage expenses in the 1993 first nine months from 1992 reflects
a higher proportion of voyage charters to time charters in 1993 as compared to
1992. Vessel operating expenses were also higher in the first nine months of
1993 as compared to 1992 because of increased manning on most U.S. flag tankers
to comply with provisions of the United States Oil Pollution Act of 1990 (OPA
90). The effect of vessels sold in 1993 is also reflected.
8
<PAGE>
The increases in income attributable to 50% owned companies in the 1993
period as compared to 1992 resulted from improved rates on certain tonnage and
decreases in certain expenses.
Other Income (Net). Interest and dividends decreased in the first nine months
of 1993 as compared to the 1992 period because of reduced amounts utilized for
interest-bearing deposits and investments and lower rates of return on such
deposits and investments. Disposal of vessels resulted in gains of $12.1
million in the 1993 first nine months. No vessels were sold in the first nine
months of 1992. Gains on sale of securities were approximately $5.3 million in
the first nine months of 1993, and approximately $12.1 million in the
comparable 1992 period. Other income also reflects the results of foreign
currency transactions in both periods.
Interest Expense. Interest expense decreased in the first nine months of 1993
from the comparable period of 1992 as a result of reduced rates on floating
rate debt and increased interest costs capitalized in connection with vessel
construction, net of the effect of more debt being outstanding in the 1993 nine
months. Interest expense in both periods also reflects the effect of interest
rate swaps (see "--Liquidity and Sources of Capital").
Provision for Federal Income Taxes. The provision for Federal income taxes in
the first nine months of 1993 increased from the comparable 1992 period
primarily because of the provision in the third quarter of 1993 of $2.9
million, or $.09 per share, for additional deferred taxes resulting from the
increase in the Federal statutory rate from 34% to 35% enacted on August 10,
1993. The 1993 estimated annual effective tax rate was adjusted to reflect the
foregoing rate increase.
YEAR ENDED DECEMBER 31, 1992, COMPARED TO YEAR ENDED DECEMBER 31, 1991
Income from Vessel Operations. Income from vessel operations for 1992
decreased by approximately $72.6 million from the results for 1991. Over 90% of
this decrease was attributable to a decline in income from foreign flag vessel
operations, reflecting reduced charter market rates in 1992 for all classes of
the Company's international flag tanker and dry cargo fleets compared with
rates prevailing during 1991. Included in the 1992 foreign flag results was the
effect on revenues of more tonnage being idle due to lack of employment. The
1992 decrease also reflects reduced income from operations of the U.S. flag
fleet, resulting from lower charter rates for certain of the Company's
petroleum products carriers and certain crude carrier tonnage; the effect on
revenues of increased drydockings in 1992 as compared to 1991 is also included.
The increase in vessel and voyage expenses in 1992 as compared to 1991
reflects an increase in the number of voyage charters for international flag
vessels as compared with time charters. Vessel operating expenses were also
higher in 1992 as compared to 1991 because of increased manning on most U.S.
flag tankers to comply with provisions of OPA 90, expense increases (see "--
Effects of Inflation") and charter hire expense on a vessel delivered to the
Company in 1992 on a seven-year time charter.
The decline in income attributable to joint venture companies resulted
primarily from decreases in charter rates obtained for certain tonnage and
increases in costs of operations. The Company's share of the results of CCLI,
included in income on the equity method since October 1992, was not material.
Other Income (Net). In the fourth quarter of 1992, the Company took a reserve
of $20.0 million ($13.1 million, or $.40 per share, net of income tax) for its
entire investment in GPA Group plc. Interest and dividends in 1992 decreased
from 1991 because of lower rates of return on interest-bearing deposits and
investments and reduced amounts utilized for such deposits and investments.
Gain on sale of securities was approximately $14.1 million in 1992 compared to
approximately $5.5 million in 1991. There was a provision for loss on disposal
of vessels of approximately $1.3 million in 1992 compared to a gain of
approximately $4.1 million in 1991. Other income also reflects the results of
foreign currency transactions and the effect of minority interest in both
years, and a decrease in 1992 compared to 1991 in income earned from other
investments.
9
<PAGE>
Interest Expense. Interest expense decreased in 1992 from 1991 as a result of
reduced rates on floating rate debt and increased interest costs capitalized in
connection with vessel construction. The decrease was net of more debt being
outstanding, on average, in 1992. Interest expense in 1992 also reflects the
effect of interest rate swaps (see "--Liquidity and Sources of Capital").
Provision for Federal Income Taxes. The tax credit in 1992 results from the
pretax loss adjusted to reflect the dividends received deduction and other
nontaxable items.
Cumulative Effect of Accounting Change. The Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), starting in 1992. In accordance with FAS 109, prior years' financial
statements have not been restated. The impact of applying FAS 109 was to reduce
deferred tax liabilities by $16.0 million, with a corresponding increase in net
income (cumulative effect of change in accounting) for 1992.
YEAR ENDED DECEMBER 31, 1991, COMPARED TO YEAR ENDED DECEMBER 31, 1990
Income from Vessel Operations. Income from vessel operations for 1991
decreased by approximately $10.8 million from the results for 1990.
Approximately 85% of this decrease was attributable to reduced income from
foreign flag vessel operations, resulting from the effect of vessels sold in
1991 (see Other Income (Net) below) and reduced charter rates in the fourth
quarter of 1991 for the Company's petroleum products carriers, a trend that
continued into early 1992 for this and certain other classes of tankers. The
reduced income is net of increased rates for the petroleum products carriers in
the first half of 1991, reflecting the effects of the Gulf war, and for the
Company's VLCC's (including 50%-owned VLCC's) and certain other foreign flag
tankers. Certain foreign flag dry cargo vessels that completed charters in 1991
(mostly in the first quarter) obtained lower rates than rates obtained in 1990;
such latter rates were based on charters negotiated primarily in 1989. In the
fourth quarter of 1991, certain of the Company's foreign flag dry cargo vessels
obtained increased rates compared to 1990. The effect on revenues of increased
drydockings in 1991 as compared to 1990 is also reflected. The balance of the
1991 decrease was attributable to reduced income from operations of the U.S.
flag fleet, resulting from reduced charter rates obtained in order to
reposition three vessels redelivered in the third quarter of 1991 from long-
term charters and increases in certain general and administrative costs. The
U.S. flag decline was net of increased charter rates for certain of the
Company's crude carriers and one of its U.S. flag dry bulk carriers.
The increases in revenues from voyages and vessel and voyage expenses in 1991
as compared to 1990 reflect the effects of vessels entering the fleet and
expense increases (see "--Effects of Inflation"), net of increases in the
number of time charters as compared to voyage charters.
Other Income (Net). Interest income in 1991 decreased from 1990 because of
lower rates of return on deposits and investments, net of increased amounts,
including the proceeds of vessels sold in 1991, utilized for such investments.
Dividends in 1991 increased from 1990, reflecting an increase in the relative
amount of higher yielding securities in the Company's marketable securities
portfolio. The amount invested in marketable securities increased during 1991,
although, on average, the amount invested was lower than in 1990. Sale of
marketable securities resulted in a gain of approximately $5.5 million in 1991
compared to a loss of approximately $6.2 million in 1990. Gain on disposal of
vessels was approximately $4.1 million in 1991 compared to approximately $16.2
million in 1990. Other income also reflects foreign currency exchange losses
and the effect of minority interest in both years and an increase in 1991
compared to 1990 in income earned from other investments.
Interest Expense. Interest expense decreased in 1991 from 1990 primarily as a
result of reduced rates on floating rate debt and less debt being outstanding.
The decrease was net of reduced interest costs capitalized in connection with
vessel construction.
Provision for Federal Income Taxes. The decrease in the provision for Federal
income taxes in 1991 as compared to 1990 resulted primarily from the decrease
in pretax income.
10
<PAGE>
FEDERAL INCOME TAXES
Federal income taxes for each of the three years ended December 31, 1992 and
the nine-month periods ended September 30, 1993 and September 30, 1992 reflect
the effects of the Tax Reform Act of 1986, including current taxation of post-
1986 results of the Company's foreign owned vessels.
LIQUIDITY AND SOURCES OF CAPITAL
Working capital at September 30, 1993 was approximately $74 million. Current
assets are highly liquid, consisting principally of cash, interest-bearing
deposits and receivables. The Company also had investments in marketable
securities carried as noncurrent assets, other than securities included in
restricted funds, with a market value of approximately $17 million.
Net cash provided by operating activities in the first nine months of 1993
approximated $58 million (which is not necessarily indicative of the cash to be
provided by operating activities for a full fiscal year), including a $6.8
million tax refund. Current financial resources, together with cash anticipated
to be generated from operations, are expected to be adequate to meet
requirements for short-term funds in 1994. In December 1993, the Company sold
an aggregate of $100 million principal amount of 8% Notes due 2003 and $100
million principal amount of 8 3/4% Debentures due 2013 in the Debt Offering. In
June 1993, the Company sold an aggregate of $110 million of long-term,
unsecured, senior notes to major institutional investors in a private
placement. These private placement notes have a weighted average life of
approximately 12.25 years and a weighted average interest rate of 8.01%. The
net proceeds of the private placement notes and approximately $83 million of
the net proceeds of the notes and debentures sold in the Debt Offering were
used to reduce amounts outstanding under the Company's revolving credit
agreement.
As of January 15, 1994, the Company is a party to fixed to floating interest
rate swap agreements ranging between three and fifteen years with various banks
covering notional amounts aggregating $685 million, pursuant to which it pays
LIBOR and receives fixed rates ranging from 5.3% to 8.1% calculated on the
notional amounts. The Company is also a party to a five-year interest rate swap
agreement with a notional amount of $24 million, expiring in 1996, pursuant to
which it pays a fixed interest rate of 8.4% and receives LIBOR, calculated on
the notional amount.
The Company has an unsecured long-term credit facility of $500 million, of
which $153 million was used at September 30, 1993. The Company also has an
unsecured short-term credit facility of $30 million, of which $5 million was
used at September 30, 1993.
The Company has under construction six foreign flag tankers scheduled for
delivery in 1994 and 1995. At January 15, 1994, after giving effect to
prepayments of an aggregate of $163.4 million subsequent to September 30, 1993
and discounts resulting from such prepayments, there remains an aggregate
unpaid cost of approximately $86 million with respect to such vessels.
Approximately $50 million of the net proceeds from the sale of the Common
Stock offered hereby will be used to reduce indebtedness under the Company's
revolving credit agreement, with all remaining proceeds being available for
general corporate purposes. See "Use of Proceeds."
EFFECTS OF INFLATION
Additions to the costs of operating the fleet due to wage, insurance and
price level increases were experienced during 1990, 1991, 1992 and the first
nine months of 1993. In some cases these increases were offset by rates
available to tonnage open for chartering and to some extent by charter
escalation provisions.
ENVIRONMENTAL MATTERS
See "Business--Environmental Matters Relating to Bulk Shipping" for a
discussion regarding OPA 90 and certain regulations of the International
Maritime Organization (IMO), the United Nations agency for international
maritime affairs.
11
<PAGE>
BUSINESS
The following table sets forth a summary of the Company's operating bulk
fleet at January 28, 1994. In addition, the Company has on order four 93,650
DWT double-hulled Aframax tankers for delivery during 1994, and two 295,250 DWT
double-hulled VLCC's scheduled for delivery during the third quarter of 1995.
<TABLE>
<CAPTION>
CAPACITY PERCENTAGE OF
VESSEL TYPE NUMBER (DWT) TOTAL BY DWT
----------- ------ --------- -------------
<S> <C> <C> <C>
U.S. FLEET
Tankers..................................... 13 926,350 16.3%
Dry Bulk Carriers........................... 2 51,100 0.9
Pure Car Carrier............................ 1 15,900 0.3
--- --------- -----
Sub-Total................................. 16 993,350 17.5%
--- --------- -----
INTERNATIONAL FLEET
Tankers..................................... 27 3,294,750 57.9%
Dry Bulk Carriers........................... 16 1,398,950 24.6
--- --------- -----
Sub-Total................................. 43 4,693,700 82.5%
--- --------- -----
Total*.................................. 59 5,687,050 100.0%
=== ========= =====
</TABLE>
- --------
*These figures include 11 ships aggregating 1.8 million DWT which the Company
owns jointly with others, one of which, a 252,350 DWT tanker, is under
contract for sale for delivery at the end of March 1994. Eight vessels are
leased from financial institutions under bareboat charters with remaining
terms of 8 to 18 years. The figures do not include a 94,450 DWT crude
carrier chartered in under a time charter with approximately 5 years
remaining or a 29,300 DWT petroleum barge that is 50% owned by the Company.
The Company charters its ships to commercial shippers and United States and
foreign governmental agencies for the carriage of bulk commodities, principally
petroleum and petroleum products, grain, coal and iron ore. Approximately 75%
of the Company's voyage revenues in 1993, 78% in 1992 and 75% in 1991 came from
carrying petroleum and its derivatives. These liquid cargoes also accounted for
the majority of the voyage revenues of the Company's 50%-owned companies.
Generally, each ship is chartered for a specific period of time (time
charter) or for a specific voyage or voyages (voyage charter). Under the terms
of time and voyage charters covering the Company's vessels, the ships are
equipped and operated by the Company and are crewed by personnel in the
Company's employ. From time to time, the Company also has some of its vessels
on bareboat charter. Under the terms of bareboat charters, the ships are
chartered for fixed periods of time (generally medium-or long-term) during
which they are operated and crewed by the charterer. Chartering business is
generally conducted through a network of international brokers who track
worldwide supply of and demand for various types of vessels.
In late 1992, the Company entered into the passenger cruise business through
CCLI, a joint venture with the Chandris Cruise Division, an established cruise
line operator unrelated to the Company. CCLI represents a major diversification
for the Company while continuing a business begun by the Chandris Group over 30
years ago. CCLI currently operates five cruise ships, three of which, in the
Celebrity Cruises fleet, serve the premium segment of the cruise market. CCLI
also has two cruise ships on order, and an option, which it intends to
exercise, for a third sistership, all for the Celebrity fleet. For further
discussion of CCLI, see "Business--Cruise Business; --Historical Growth of the
Cruise Industry; --Cruise Industry Competition; and --Regulatory Matters
Relating to Cruise Industry."
12
<PAGE>
BULK SHIPPING OVERVIEW
The maritime bulk shipping industry is fundamental to international trade,
being the only practicable and cost effective means of transporting large
volumes of many essential commodities. In January 1994, the world bulk fleet,
with a carrying capacity of approximately 515 million metric deadweight tons
(MDWT), constituted 78% of the world's total merchant shipping capacity. Oil
tankers, the largest component of the world bulk fleet, comprised 265 million
MDWT or over 50% of this tonnage. The world's ocean bulk shipping fleet moved
more than 2.8 billion tons of cargo in each of 1992 and 1993. These vessels
deliver raw materials to the world's process industries and commodity products
to industries and distribution centers worldwide. Bulk shipping is
distinguished from other forms of seaborne transportation by the types of
vessels employed, the trades in which they operate and the manner in which
freight rates are determined. Unlike container or liner ships, which the
Company does not own, bulk vessels are not bound to specific ports or schedules
and therefore can respond to market demands by moving between trades and
geographical areas.
The following graph sets forth historical information relating to the
seaborne trade of major bulk commodities.
[Chart]
Seaborne
The bulk shipping industry is highly fragmented and competitive. There are
many operators with small fleets. Freight rates for major commodities are
determined by market forces and are highly sensitive to changes in vessel
supply and demand which results in both wide cyclical movements in the industry
and, in the spot and voyage markets, sharp rate fluctuations.
13
<PAGE>
Demand for ocean transportation is a function of the demand and supply
patterns for the commodities to be shipped, the resulting volumes of trade and
the distances between sources and destinations of cargoes. The supply of
particular shipping services, in the short run, reflects the amount of suitable
tonnage that is available and offered for use by the shipowners, or by
charterers who want to re-let vessels. Tonnage supply can be reduced through
lay-up, through drydocking for repairs or through a reduction in vessel speed.
Over time, the available tonnage supply is determined primarily by the amount
of newbuilding deliveries and of existing tonnage sold for scrap. Depending on
the size of the newbuilding orderbook, it generally takes two to three years
from the time a vessel is ordered to its delivery. Vessels generally have
useful lives of up to 25 years or more.
The following graph shows the age profile of the various segments of the
world bulk fleet.
[Chart]
World Bulk
The industry has many markets which have distinct characteristics and are
subject to different market and regulatory forces. As a result, the prospects
for a particular vessel may differ from those for other vessels based upon the
type of the vessel or its size or flag. The design of each vessel type must
reflect the type of cargo it is to carry. Moreover, the route over which
cargoes are carried can affect the type of vessel that practically or
economically can be used. Most ports have dimensional restrictions that put an
upper limit on the size of vessel they can accommodate.
Historically, the Company's diversified fleet has tended to cushion the
effects of weakness in particular markets. However, 1992 was a particularly
difficult year in that there was simultaneous weakness in all of the Company's
major markets. In general, market rates improved during 1993 from
14
<PAGE>
the depressed rates that prevailed in 1992, but still remain at levels below
those of the years 1989 through 1991. Beginning in the fourth quarter of 1993,
freight rates for foreign flag VLCC's and dry bulk carriers have weakened
somewhat, while rates for foreign and U.S. flag product carriers have
experienced seasonal increases.
At January 15, 1994, all of the vessels in the Company's operating bulk fleet
were employed.
INTERNATIONAL TANKER MARKET
World tanker demand is dominated by crude oil shipments, which currently
account for approximately 80% of total tanker shipments. Refined petroleum
products constitute the remainder of oil tanker demand. The international
demand for crude tankers depends primarily on the amount of crude oil to be
shipped on the long transoceanic routes from the Middle East, West Africa and
South America to oil-importing countries in North America, Europe and the Far
East. Shipments from the Arabian Gulf to the United States, Japan and Western
Europe have grown considerably over the last decade, thus absorbing a larger
proportion of the available crude tanker tonnage.
Petroleum products carriers, which account for only a small portion of the
world's total tanker tonnage, are used in a large number of both long- and
short-haul trades, between and within the various continents. Demand for these
tankers is influenced both by product demand and by changes in refining
capacity in different regions of the world.
While difficult conditions persist in today's tanker markets, there were
increased inquiries for long-term contracts in 1993, an indication that
charterers expect tighter markets, particularly for modern tonnage. As a
result, the Company was able to enter into long-term charters with major oil
companies for two of its international tankers.
Both Europe and Japan experienced recessions in 1993, adversely affecting
global oil demand. Total world oil demand remained flat in 1993 compared to
1992. Excluding the former Soviet Union ("FSU"), however, oil consumption
increased by nearly 2%, most of which occurred in the developing economies in
Asia and Latin America. Supply patterns also shifted. U.S. and FSU oil
production fell, and the North Sea and Latin America, particularly Mexico,
Venezuela and Colombia, registered sizable increases in export volumes. Total
OPEC production for the first three quarters of 1993 was above that for the
comparable period in 1992, but the fourth quarter of 1993 was below the fourth
quarter of 1992 as the typical seasonal increase did not occur. Together, these
developments resulted in a change of incremental crude sources from long-haul
to short-haul routes, as the North Sea and Latin America provided most of the
additional crude imports to the United States.
Because of the relatively high cost of an individual vessel and the long lead
time for delivery, the supply of tankers is subject to pronounced cyclical
swings. Strong tanker demand in the early 1970's stimulated extensive
newbuilding programs which exceeded actual market needs, especially in light of
the oil price shock of 1973 that severely curtailed oil consumption. The
ensuing oversupply of tankers, particularly large tankers and VLCC's, drove
down charter rates which, in turn, led to increased scrapping, a decline in
newbuildings and a shrinkage of the fleet during most of the 1980's. The
average age of the world fleet rose during this period. Market conditions
improved in the late 1980's, and by 1990, rates had increased substantially
from the depressed levels of the mid-1980's. This improvement in the market
caused a resurgence of newbuilding orders, which peaked in 1990.
15
<PAGE>
Increased newbuilding deliveries during 1991 and 1992 coincided with
worldwide economic weakness, resulting in a widening imbalance between tonnage
supply and tonnage demand and a corresponding deterioration in charter rates
for 1992. This, in turn, has led to a decrease in newbuilding orders and a
higher level of scrapping during 1992. In 1993, the world tanker fleet
registered its sixth straight year of growth, increasing by nearly 5 million
MDWT to 265 million MDWT by year-end. Newbuilding deliveries amounted to 17
million MDWT, the highest since 1977. The Company believes that, from the long-
term perspective, fleet growth during 1992 and 1993 has not been excessive.
However, it has outpaced growth in tonnage demand. Sales for scrap in 1993
eased modestly from 12 million MDWT in 1992. The Company believes that, over
the next few years, sales for scrap are likely to be significant, reflecting
both the age of the fleet and stricter regulatory requirements. The amount of
international tanker tonnage in lay-up remained flat at 3 million MDWT at the
end of 1993.
Tanker newbuilding prices weakened early in 1993 and remained so throughout
the year. Secondhand prices for modern vessels strengthened somewhat, but
generally remained weak for vessels more than 10 years of age. Newbuilding
orders increased over 1992 but did not keep pace with deliveries. Thus, the
newbuilding orderbook for delivery over the next three years fell by 5 million
MDWT to 24 million MDWT (10 million MDWT scheduled in 1994).
The graph below sets forth historical information relating to scrapping and
newbuilding in the world tanker fleet.
[Chart]
Tanker
16
<PAGE>
INTERNATIONAL DRY BULK CARRIER MARKET
World demand for dry bulk carriers primarily reflects the international trade
flows of iron ore, coal and grain on the long-haul routes across the Atlantic
and Pacific Oceans and on various shorter routes. Over the past decade, the
seaborne movement of coal has grown significantly, and iron ore shipments have
increased moderately. Grain shipments, on the other hand, have remained
relatively flat.
Fluctuations in demand for iron ore and coking coal derive from changes in
steel production. In the 1980's, expanded steel output in Japan, Korea and
Taiwan led to larger iron ore and coking coal shipments into these countries,
principally from Australia. Over the past few years, China has become a
significant importer of iron ore. Steam coal shipments also grew in response to
increased demand for power generation in both the Far East and Europe. More
recently, the decline in Eastern European coal mining has stimulated shipments
of coal from the United States to Europe.
In 1992, while steel output in Korea continued to grow and in Taiwan fell
modestly, output in Japan contracted sharply, as did associated iron ore and
coking coal requirements. Because Japan accounts for one third of seaborne iron
ore shipments, rates in the Capesize (100,000 or more DWT) segment of the
market fell sharply. In the absence of offsetting increases in shipping demand
for other commodities, this decline led to some weakness in other segments of
the dry bulk market.
Freight rates in the dry bulk markets moved higher during the first five
months of 1993, recovering from their lows in the fall of 1992, but much of
those gains were relinquished by year-end. In early 1993, there were modest
increases in seaborne shipments of coal and iron ore, but, as the year
progressed, demand for these commodities weakened, causing seaborne shipments
to slacken. Overall tonnage shipped in 1993 for the major dry bulk
commodities--iron ore, coal and grain--was down marginally from the prior year.
The major economic forces at work were the persistent recessions in the OECD
countries counterbalanced by growth in the developing nations, most notably
China, Korea and Taiwan. Weak demand for steel in Europe resulted in a decline
in seaborne iron ore imports in 1993 relative to 1992. Japanese iron ore and
coking coal imports rose in 1993 relative to 1992. These increases reflected
demand for steel exports to China, not improved economic conditions in Japan,
where steel consumption declined in 1993. Besides importing a large quantity of
steel, China stepped up its domestic production, resulting in a substantial
year-over-year rise in its seaborne imports of iron ore.
The third largest dry bulk shipping commodity by cargo-ton is grain. Grain,
which was the only one of the three major dry bulk commodities to show a
significant increase in trade in 1992, experienced a decline in 1993. The key
exporters are the United States, Canada, Western Europe, Australia and
Argentina. Because trade is largely dependent on crop yields in numerous
countries, the shipping requirements for the grain trade can be highly variable
from year to year. For example, during 1992, severe drought in sub-Saharan
Africa led to significant shipments of grain to this normally self-sufficient
area. In recent years, the FSU, Japan and China have been the major importers
of grain, although better crops in Russia and China reduced imports in 1992 and
1993. As southern Africa began to recover from its drought, corn production
rose, reducing the region's requirements for substantial seaborne imports of
grain in 1993.
Generally, major shippers of iron ore and coal use their own tonnage or
tonnage controlled by them under long-term charters or contracts of
affreightment, while grain is typically shipped on voyage, or spot, charters.
Therefore, even though seaborne movements of grain are substantially smaller
than those of coal and iron ore, the amount of grain shipped in the spot market
is larger than the amount of coal or iron ore. Accordingly, variations in
demand for ships to transport grain have a disproportionately large effect on
short-term rates.
The international supply of dry bulk tonnage has been growing steadily for
the past few decades, except for a brief period in the mid to late 1980's. Weak
charter markets led to an increase in scrapping and a decrease in the placement
of newbuilding orders in 1992. After remaining virtually unchanged during 1992,
the dry bulk fleet increased in 1993 by nearly 2% to 221 million MDWT by year-
end. Newbuilding deliveries of 8 million MDWT were well above 1992 but still
not historically high. Sales for scrap fell to less than 3 million MDWT from
about 4 million MDWT in 1992. Dry bulk tonnage in lay-up
17
<PAGE>
remained small at less than 2 million MDWT. The newbuilding orderbook for
delivery over the next three years expanded in 1993, reaching 21 million MDWT,
up from 15 million MDWT in 1992, as shipowners continue to replace aging
vessels to meet more stringent environmental and safety requirements. Of this
total, 9 million MDWT are scheduled for delivery in 1994.
The graph below sets forth historical information relating to scrapping and
newbuilding in the world dry bulk fleet.
[Chart]
Dry Bulk
U.S. FLAG BULK MARKETS
The Company's U.S. flag bulk fleet operates substantially in a separate
market from the international tanker and dry bulk markets. Shipping between
United States coastal ports, including the movement of Alaskan oil, is reserved
by law primarily to unsubsidized U.S. flag vessels owned by U.S. citizens,
crewed by U.S. personnel and built in the United States. The principal market
in the unsubsidized coastwise U.S. flag shipping trade (the "Jones Act" trade)
is the transportation of Alaskan crude to ports on the U.S. West Coast and via
the trans-Panama pipeline to U.S. ports in the Gulf of Mexico. The Company owns
the largest independent fleet of Jones Act trade tankers and is a major
participant in the Alaskan oil trade.
Alaskan crude oil is shipped mostly on unsubsidized U.S. flag crude carriers
of over 60,000 DWT. Exports of Alaskan crude oil have been restricted by law
since 1973. Additional, more stringent limitations were incorporated in the
Export Administration Act of 1979, which has been extended to June 30, 1994.
The State of Alaska is contesting in Federal court the limitations on exports
of Alaskan
18
<PAGE>
oil. The Coalition to Keep Alaska Oil, of which the Company is a member, has
intervened on the side of the United States Government as a defendant in the
suit brought by the State of Alaska. The Coalition is actively opposing
Alaska's suit.
By law, vessels built with construction differential subsidies and operated
with operating differential subsidies (ODS) have not been permitted in the
Jones Act trade. Under a recent Maritime Administration interpretation, product
tankers and crude carriers built with subsidies may be eligible for full
coastwise privileges when they reach 20 years of age and their ODS contracts
expire. The Company believes that this interpretation is contrary to law and
recently commenced litigation in Federal Court seeking to overrule it. Should
the lawsuit fail, it is possible that several older product and crude carriers
may enter the coastwise trade over the next few years.
Demand for tonnage in the Alaskan trade depends on the volume of crude
shipped out of Alaska and its distribution to ports at varying distances from
the source. Significantly more tanker tonnage is required for longer haul
shipments of Alaskan crude to the Gulf of Mexico and East Coast, via the trans-
Panama pipeline, than for movements to the West Coast. In recent years, the
amount of crude shipped on the long-haul route to the Gulf of Mexico has fallen
sharply, and this development has reduced tonnage requirements. The total
Alaskan crude shipping requirements for 1992 declined by about 5% from 1991. In
1993, Alaskan crude shipments declined as production decreased 7% to an
estimated 1.65 million barrels per day (b/d). This drop partly reflects the
ongoing decline in mature Alaskan North Slope (ANS) fields, exacerbated by
production equipment maintenance and weather problems as well as temporary
shutdowns to upgrade gas-handling facilities. The first phase of the upgrading
was completed in the fall of 1993, resulting in a 50,000 b/d rise in crude
output. In addition, a new field, Point McIntyre, came onstream in October,
1993, initially producing 80,000 b/d. Together these increases have mitigated
the production decline in Prudhoe Bay and other mature fields. As Alaskan
production fell in 1993, the marginal volume for long-haul shipment via Panama
to the U.S. East Coast was nonexistent in some months, resulting in a 15% drop
year-over-year in the amount of tonnage required to transport Alaskan crude.
Current expectations are for a gradual decline in Alaskan crude production and
shipments over the balance of the decade. Despite declining demand, charter
rates for U.S. flag crude carriers have remained relatively stable over the
past few years as significant surplus tonnage has been scrapped.
Product tankers are used for shipping gasoline, diesel fuel, jet fuel and
other petroleum products including specialty products such as methyl tertiary
butyl ether (MTBE), an oxygenate. (Oxygenates are gasoline additives now
mandated for use in 39 metropolitan areas during at least part of the year by
provisions of the Clean Air Act.) Petroleum products are shipped from the U.S.
Gulf to the East Coast and between ports along the U.S. Gulf, West and East
coasts. The volume of this trade is closely linked to changes in regional
energy demands and in refinery activity. U.S. flag product carriers compete
with pipelines, oceangoing barges, and, with regard to imports from abroad,
foreign flag product carriers. Aside from a temporary boost provided by the
Gulf War, demand in the product tanker trades has been weak in the 1990's.
Tonnage demand in the domestic product tanker trades continued to decline in
1993, especially on the key Gulf to East Coast route as pipeline shipments and
East Coast refinery output rose.
U.S. government-related cargoes also generate demand for U.S. flag vessels,
including the Company's two U.S. flag dry bulk carriers. Federal law requires
that preference be given to U.S. flag vessels, if available at reasonable
rates, in the shipment of at least half of all U.S. government-generated
cargoes and 75% of food aid cargoes. The volume of U.S. preference cargoes
shipped in 1993 nearly doubled largely as a result of a $700 million
agricultural aid package for Russia.
In recent years, the U.S. flag fleet has been declining because of eroding
commercial opportunities and a stricter operating environment mandated under
OPA 90. At year-end 1993, the Jones Act trade tanker fleet totalled 8 million
DWT, down by approximately 540,000 DWT from a year earlier and by over 2
million DWT since the end of 1988. Of the current fleet, seven vessels,
totaling about 620,000 DWT, were laid up at year-end. There has been no
significant U.S. flag tanker construction in the last five years.
19
<PAGE>
THE COMPANY'S FLEET
The Company's fleet at January 28, 1994 is described in the following tables.
The vessels identified as "Tankers" carry crude oil. Petroleum Products
Carriers are tankers designed to carry refined petroleum products such as
gasoline, jet fuel and heating oil. Bulk Carriers transport iron ore, coal,
grain and other commodities. Geared Bulk Carriers carry similar cargoes and
have equipment for loading and unloading cargo.
INTERNATIONAL FLEET--OPERATING
<TABLE>
<CAPTION>
CHARTER
YEAR DEADWEIGHT EXPIRATION
TYPE OF SHIP BUILT TONNAGE DATE
- ------------ ----- ---------- ---------------
<S> <C> <C> <C>
Tanker (50% owned)............................. 1973 264,900 Sep. 1996
Tanker (50% owned)............................. 1975 264,850 May 1998
Tanker (50% owned)............................. 1974 264,850 Oct. 1997
Tanker (50% owned)............................. 1974 264,850 Apr. 1997
Tanker......................................... 1989 254,000 Apr. 1994
Tanker......................................... 1990 254,000 Voyage Charter*
Tanker** (50% owned)........................... 1972 252,350 Mar. 1994
Tanker......................................... 1989 133,000 Mar. 1994
Tanker......................................... 1989 133,000 June 2005
Tanker......................................... 1976 128,450 Voyage Charter
Tanker......................................... 1975 128,250 Voyage Charter
Tanker......................................... 1975 128,200 Voyage Charter
Tanker......................................... 1980 96,050 Voyage Charter
Tanker......................................... 1981 96,000 Voyage Charter
Tanker......................................... 1979 95,600 Voyage Charter
Petroleum Products Carrier..................... 1986 65,150 Voyage Charter
Petroleum Products Carrier..................... 1986 65,150 Voyage Charter
Petroleum Products Carrier..................... 1986 63,200 Sep. 1994
Petroleum Products Carrier..................... 1987 63,150 Sep. 1994
Petroleum Products Carrier..................... 1989 39,450 Voyage Charter
Petroleum Products Carrier..................... 1988 39,450 Voyage Charter
Petroleum Products Carrier..................... 1989 39,100 Voyage Charter
Petroleum Products Carrier..................... 1989 39,050 Voyage Charter
Petroleum Products Carrier..................... 1979 31,600 Voyage Charter
Petroleum Products Carrier..................... 1981 30,800 Voyage Charter
Petroleum Products Carrier..................... 1981 30,800 Voyage Charter
Petroleum Products Carrier..................... 1982 29,500 Voyage Charter
Bulk Carrier................................... 1982 138,800 Voyage Charter
Bulk Carrier................................... 1982 138,800 Feb. 1994
Bulk Carrier................................... 1975 121,050 Dec. 1994
Bulk Carrier................................... 1975 121,000 Voyage Charter
Bulk Carrier................................... 1990 120,900 Voyage Charter
Bulk Carrier................................... 1990 120,800 Voyage Charter
Bulk Carrier................................... 1973 116,100 Voyage Charter
Bulk Carrier................................... 1981 64,550 Voyage Charter
Bulk Carrier................................... 1983 64,200 Voyage Charter
Bulk Carrier................................... 1989 63,350 Apr. 1994
Bulk Carrier................................... 1989 63,250 Voyage Charter
Bulk Carrier................................... 1980 61,250 Voyage Charter
Bulk Carrier................................... 1980 61,200 May 1994
Bulk Carrier (49% interest).................... 1977 60,300 Voyage Charter
Bulk Carrier (49% interest).................... 1973 54,450 Aug. 1995
Geared Bulk Carrier............................ 1985 28,950 Voyage Charter
</TABLE>
Operating International Fleet Total: 43 vessels 4,693,700 DWT
- --------
* In late February 1994 this vessel commences employment under a time charter
for 8 years with an option for an additional 2 3/4 years.
** This vessel is under contract for sale for delivery at the end of March
1994.
20
<PAGE>
INTERNATIONAL FLEET--ON ORDER
<TABLE>
<CAPTION>
CHARTER
DEADWEIGHT EXPIRATION
TYPE OF SHIP DELIVERY DATE TONNAGE DATE
- ------------ ------------- ---------- ----------
<S> <C> <C> <C>
Tanker...................................... 2/94 93,650 Apr. 1994
Tanker...................................... 5/94 93,650 --
Tanker...................................... 8/94 93,650 --
Tanker...................................... 11/94 93,650 --
Tanker...................................... 8/95 295,250 --
Tanker...................................... 9/95 295,250 --
</TABLE>
International Fleet on Order Total: 6 vessels 965,100 DWT
INTERNATIONAL FLEET TOTAL: 49 VESSELS 5,658,800 DWT
U.S. FLEET
<TABLE>
<CAPTION>
CHARTER
YEAR DEADWEIGHT EXPIRATION
TYPE OF SHIP BUILT TONNAGE DATE
- ------------ ----- ---------- ---------------
<S> <C> <C> <C>
Tanker......................................... 1974 120,800 Mar. 1994
Tanker......................................... 1973 120,500 Mar. 1994
Tanker* (80% interest)......................... 1977 90,650 Feb. 1994
Tanker* (80% interest)......................... 1977 90,550 Feb. 1994
Tanker* (80% interest)......................... 1978 90,500 Oct. 1994
Tanker* (80% interest)......................... 1977 90,400 Feb. 1994
Tanker......................................... 1971 62,000 Jan. 1995
Tanker......................................... 1970 62,000 Apr. 1994
Petroleum Products Carrier**................... 1983 42,950 Voyage Charter
Petroleum Products Carrier**................... 1982 42,600 Voyage Charter
Petroleum Products Carrier..................... 1969 37,800 Aug. 1994
Petroleum Products Carrier..................... 1968 37,800 Voyage Charter
Petroleum Products Carrier..................... 1968 37,800 Sep. 1995
Geared Bulk Carrier*........................... 1978 25,550 Voyage Charter
Geared Bulk Carrier*........................... 1978 25,550 Voyage Charter
Pure Car Carrier (5,000 cars).................. 1987 15,900 1996 and beyond
</TABLE>
U.S. Fleet Total***: 16 vessels 993,350 DWT
- --------
*25-year capital leases, commencing in year built. The Company is currently
engaged in negotiations for an extension of the charters of the three 90,000
ton U.S.-flag tankers which are shown above as expiring in February 1994 and
which are continuing into March 1994.
**22-year capital leases, commencing in 1989
***Does not include a 29,300 DWT petroleum barge, 50% owned by the Company
21
<PAGE>
CHARTERING STRATEGY AND COMPETITION IN THE BULK SHIPPING MARKETS
The Company endeavors to minimize the effects of periods of weakness in its
markets by pursuing a chartering policy that favors medium- and long-term
charters, thereby avoiding, to some extent, the sharp rate fluctuations
characteristic of the spot or voyage markets. In recent years, the availability
of medium- to long-term business has been relatively limited, and, when
available, rates of return have been unattractive. Accordingly, only 22% of the
Company's fleet (including scheduled deliveries) is chartered through December
1995. In 1993, the Company entered into a long-term bareboat charter for one of
its 133,000 DWT (Suezmax) tankers with one of the major U.S. based
international oil companies and chartered one of its newer VLCC's to a major
Japanese oil company under a long-term charter.
The bulk shipping markets are highly fragmented and competitive. The Company
competes in its charter operations with other owners of United States and
foreign flag tankers and dry cargo ships operating on an unscheduled basis
similar to the Company and, to some extent, with owners operating cargo ships
on a scheduled basis. About one third of the world's tanker tonnage is owned by
oil companies and is primarily engaged in the carriage of proprietary cargoes.
In chartering vessels to the United States government, the Company competes
primarily with other owners of U.S. flag vessels. In the spot and short-term
charter market, the Company's vessels compete with all other vessels of a size
and type required by a charterer that can be available at the date specified.
In the spot market, competition is based primarily on price. Nevertheless,
within a narrow price band, factors related to quality of service and safety
enter into a potential customer's decision as to which vessel to charter.
While price also dominates the customer's chartering decision in the long-
term charter market, quality of service, safety and financial strength play a
more important role because of the length of commitment the charterer is
making. The Company believes this developing emphasis on safety and financial
strength is advantageous for the Company and that many customers, including
many of the world's major oil companies, prefer to limit longer term business
to well respected owners such as the Company.
The following table sets forth information relating to the relative age
profile of the Company's international fleet and the world fleet at the dates
shown.
[Chart]
Age Profile
22
<PAGE>
MARITIME OVERSEAS CORPORATION--AGENT
Maritime Overseas Corporation (the Agent), which was incorporated in 1953,
provides operating, chartering, financial and general and administrative
services required by the Company. These services are performed under the
direction and control of the Company.
The Agent has acted in this capacity for the Company and its predecessors
since the Agent's inception, a period of over 40 years. The Agent is owned by a
director of the Company, and directors or officers of the Company constitute
all four of the Agent's directors and a majority of its principal officers. The
nine most senior officers of the Company and the Agent have an average of 25
years of experience in the shipping industry and 20 years with the Company or
the Agent. See "Management."
The Company's agreements with the Agent renew automatically for five-year
terms unless the Company exercises its right to terminate as of the end of any
year or the Agent elects to terminate as of the end of any five-year term. The
current term runs through December 31, 1998. Under the various agreements, the
Agent's total compensation for any year is limited to the extent its
consolidated net income from shipping operations would exceed specified amounts
($689,245 and $758,170 for 1992 and 1993, respectively).
ENVIRONMENTAL MATTERS RELATING TO BULK SHIPPING
OPA 90. OPA 90 significantly expands the liability of a vessel owner or
operator (including a bareboat charterer), for damage resulting from spills in
U.S. waters (up to 200 miles offshore). OPA 90 applies to all U.S. and foreign
flag vessels.
Under OPA 90, a vessel owner or operator is liable without fault for removal
costs and damages, including economic loss without physical damage to property,
up to $1,200 per gross ton of the vessel. The Company's largest vessel measures
144,139 gross tons; therefore, the theoretical liability limit for that vessel
would be $173 million. When a spill is proximately caused by gross negligence,
willful misconduct or a violation of a Federal safety, construction or
operating regulation, liability is unlimited. OPA 90 did not preempt state law,
and therefore states remain free to enact legislation imposing additional
liability. Virtually all coastal states have enacted pollution prevention,
liability and response laws, many with some form of unlimited liability.
In addition, OPA 90 imposes a requirement that tankers calling at U.S. ports
have double hulls. This requirement applies to newly constructed tankers
contracted for after June 30, 1990, or delivered after January 1, 1994.
Beginning on January 1, 1995, the double-hull requirement is phased in for
existing tankers. The age requirement is reduced in stages so that by the year
2000, tankers of at least 30,000 gross tons over 23 years old (and tankers
between 15,000 and 30,000 gross tons over 30 years old) must have double hulls,
and by 2010, all tankers must have double hulls, except that tankers with
double bottoms or double sides are afforded an additional five years for
compliance but must comply no later than January 1, 2015. Tankers discharging
at a deepwater port or lightering more than 60 miles offshore will not be
required to have double hulls until January 1, 2015.
The double-hull requirement will not begin to affect the Company's existing
tanker fleet until near the end of the decade, with most of the Company's
vessels not affected until the next decade. Each of the 17 vessels in the
Company's current fleet to which the double-hull requirements are expected to
apply in the next ten years will be at least 23 years old on the applicable
double-hull requirement date and consequently near the end of its economic
life.
OPA 90 also requires owners and operators of vessels calling at U.S. ports to
adopt contingency plans for responding to a worst case oil spill under adverse
weather conditions. The plans must include contractual commitments with clean-
up response contractors in order to ensure an immediate response to an oil
spill. Furthermore, training programs and drills for vessel, shore and response
personnel are
23
<PAGE>
required. The Company has developed and timely filed its vessel response plans
with the United States Coast Guard and has received preliminary approval of
such plans.
OPA 90 requires that an owner demonstrate its ability to meet OPA 90's
liability limits in accordance with regulations promulgated by the Coast Guard.
While most owners would expect to meet such requirements by supplying evidence
of adequate insurance coverage, currently proposed Coast Guard regulations
would not deem such coverage sufficient unless the insurer consents to be
subject to direct third-party suits in the United States, which the major
insurers to date have declined to do. Although it is not possible to predict
the outcome of the pending rulemaking, the Company believes that it will be
able to establish its financial responsibility under the regulations as finally
adopted. Until final regulations are promulgated, owners continue to be able to
establish evidence of financial responsibility under existing regulations.
OPA 90 and regulations as well as various state laws and regulations have
increased the cost of operating, insuring and building ships for operation in
U.S. waters. The owners of all vessels that sail in U.S. waters will be subject
to these increased costs, and therefore the Company does not expect to be
disadvantaged relative to its competition.
INTERNATIONAL REQUIREMENTS FOR DOUBLE-HULLED VESSELS. The IMO adopted
regulations requiring double hulls on all oil tankers over 20,000 DWT and all
product tankers over 30,000 DWT for which building contracts are placed after
July 5, 1993 or, in the absence of a building contract, that have keels laid
after January 5, 1994, or that are delivered after July 5, 1996. Additionally,
the regulations require that any oil tanker over 20,000 DWT and any product
tanker over 30,000 DWT existing on July 6, 1995 that is not subject to the
requirements for newbuilding set forth in the previous sentence must have a
double hull not later than 25 years after the date of its delivery, unless it
is fitted with segregated ballast tanks or is designed so that loaded cargo
does not exert outward pressure on the vessel's bottom shell plating in excess
of the external hydrostatic water pressure (hydrostatically balanced loading),
in which case the vessel need not comply with the double-hull requirement until
30 years after the date of its delivery. In addition, more stringent surveys of
steel condition have been instituted for existing vessels.
These requirements will apply to all vessels trading to ports in countries
that are parties to the International Convention for the Prevention of
Pollution by Ships, as amended (MARPOL), which include the world's major
trading countries.
The United States has reserved its position on the IMO regulations. Since the
schedule for phasing in the double-hull requirements under the IMO regulations
is in certain instances faster and in certain instances slower than the
requirements under OPA 90, if the United States does not accept the IMO
regulations, tankers trading between U.S. ports and ports in countries that are
parties to MARPOL will have to meet the requirements of the earlier of the two
to apply.
The Company believes that as the double-hull requirements imposed by U.S. law
and international conventions become applicable, some older vessels will be
scrapped. The impact of the double-hull requirements of the IMO regulations on
the Company's vessels will not be significantly different from the impact of
the double-hull requirements of OPA 90.
INSURANCE. Consistent with the currently prevailing practice in the industry,
the Company presently carries a minimum of $700 million of pollution coverage
per occurrence on every vessel in its fleet. The first $500 million is carried
with the protection and indemnity club, Assuranceforeningen Gard, an
international mutual insurance association of which the Company is a member.
Excess coverage for oil pollution damages and cleanup is placed through the
London market. While the Company has
24
<PAGE>
historically been able to obtain such insurance at commercially reasonable
rates, no assurances can be given that such insurance will continue to be so
available in the future.
CRUISE BUSINESS
In late 1992, the Company entered the passenger cruise business through a
joint venture with the Chandris Cruise Division, an established cruise line
operator unrelated to the Company. Under the terms of the joint venture
agreement, the Company contributed approximately $220 million for 49% of the
equity in CCLI. The Chandris Cruise Division contributed six cruise ships (one
of which has since been sold) and their related management, marketing and sales
organizations. CCLI functions as an equal joint venture, and approval of both
shareholders is required on all substantive policy matters. All debt of the
joint venture is non-recourse to the joint venture partners. It is anticipated
that CCLI's earnings will be reinvested in the cruise business, and accordingly
the Company has made no provision for U.S. income taxation with respect to its
share of CCLI's earnings.
The cruise industry is generally divided into three segments: luxury, premium
and standard. Celebrity Cruises currently serves the premium segment of the
passenger cruise market with three ships having 3,834 berths in the aggregate.
The Zenith, delivered in 1992, sails year-round in the Caribbean and is the
most recent addition to the Celebrity fleet. The Horizon, a sistership to the
Zenith, was delivered in 1990 and serves the Bermuda trade in the summer months
and the Caribbean during the winter. The Meridian was substantially rebuilt in
1990 and also serves the Bermuda trade in the summer months and the Caribbean
during the winter. Celebrity Cruises' Horizon and Meridian are two of only five
ships having rights granted by the government of Bermuda to make regular calls
at its ports.
Fantasy Cruises is positioned as a more budget-conscious cruise product which
generally appeals to an entry-level, price-sensitive consumer. Fantasy's two
ships, the Amerikanis and the Britanis, were both rebuilt in 1987. They have an
aggregate of 1,543 berths. The Amerikanis serves the European and Caribbean
markets, while the Britanis offers two and five night cruises to Nassau and
Mexico, respectively, as well as a 55-night South American cruise in the fall.
In 1993, CCLI signed contracts providing for the construction of two cruise
ships of approximately 1,760 berths each at a contract price of approximately
$317.5 million per ship and has an option, which it intends to exercise, at
approximately the same price for an additional sistership, all for the
Celebrity Cruises fleet. The first ship is scheduled for delivery in November
1995 and the second for delivery in 1996. As of January 15, 1994 progress
payments of $48.9 million have been made (including $16.3 million paid
subsequent to September 30, 1993). Financing has been arranged for
substantially all the unpaid cost of these two ships. The contracts are with
the same shipyard that built the Horizon and Zenith.
THE CCLI CRUISE FLEET
CCLI's cruise fleet at January 28, 1994 is described in the following tables.
CELEBRITY CRUISE LINES INC.--OPERATING
<TABLE>
<CAPTION>
GROSS
NAME OF FLEET NAME OF SHIP BERTHS REGISTERED TONNAGE
- ------------- ------------ ------ ------------------
<S> <C> <C> <C>
Celebrity Fleet.......................... Zenith 1,374 47,250
Horizon 1,354 46,800
Meridian 1,106 30,450
Fantasy Fleet............................ Britanis 926 26,150
Amerikanis 617 19,900
</TABLE>
Operating Cruise Fleet Total: 5 ships 5,377 berths
25
<PAGE>
CELEBRITY CRUISE LINES INC.--ON ORDER/OPTION
<TABLE>
<CAPTION>
CELEBRITY CRUISES DELIVERY GROSS
CENTURY SERIES DATE BERTHS REGISTERED TONNAGE
- ----------------- -------- ------ ------------------
<S> <C> <C> <C>
Contract 1................................... 11/95 1,760 70,000
Contract 2................................... 10/96 1,760 70,000
Option ...................................... -- -- --
</TABLE>
Cruise Fleet on Order Total: 2 ships 3,520 berths
CRUISE FLEET TOTAL: 7 SHIPS 8,897 BERTHS
HISTORICAL GROWTH OF THE CRUISE INDUSTRY
The cruise industry has evolved from a trans-ocean carrier service into a
vacation alternative to land-based resorts and sightseeing destinations. The
North American passenger cruise industry dominates the worldwide cruise market;
it has experienced substantial growth over the past 25 years. According to the
Cruise Lines International Association (CLIA), an industry trade group, the
number of total passengers carried in the North American cruise market grew at
a compound annual rate of 10.6% for the period from 1982 to 1992. Approximately
1.5 million passengers took cruises for two or more consecutive nights in 1982.
According to CLIA, in 1992, despite a prolonged recession in the U.S., this
number reached 4.1 million.
The following graph sets forth historical information relating to the growth
of the North American Cruise Market, in millions of passengers.
[CHART]
[Passenger Growth]
26
<PAGE>
The Company believes that the growth in the cruise industry is due to a
number of factors. The all-inclusive cruise price, which includes meals,
entertainment, lodging and air transportation, is perceived by consumers to
offer good value for the vacation dollar. In addition, a reduction in the
average cruise length, expanded itineraries, new ship designs and expanded
shipboard and shoreside activities have attracted a wide range of age and
income groups, stimulating industry growth.
On the supply side, according to CLIA, cruise line capacity servicing North
America grew at a compound annual rate of 7.5% for the period from 1982 to
1992; in 1982 cruise ships with an aggregate capacity of approximately 47,300
berths offered voyages of two or more nights in the North American market. In
October 1993, CLIA estimated that the number of berths will have increased to
approximately 104,000 by the end of 1993.
CRUISE INDUSTRY COMPETITION
The North American cruise industry is characterized by large and generally
well-capitalized companies and is highly competitive. There are four companies
in the industry each of which has a fleet with an aggregate number of berths in
excess of 10,000, substantially more berths than CCLI's current fleet. Larger
capacity affords fleet owners certain economies of scale. According to recently
published data, the top six companies, including CCLI, have approximately 68%
of total capacity and the top fifteen companies have approximately 94% of total
capacity.
Cruise lines compete with other vacation alternatives such as land-based
resort hotels and sightseeing destinations for consumers' discretionary income.
The amount of discretionary income spent on vacations is influenced by general
economic conditions. Within the cruise industry, competition is primarily based
on product quality, itinerary and price. Product quality is a function of ship
design, on-board facilities, amenities, service and cuisine.
REGULATORY MATTERS RELATING TO CRUISE INDUSTRY
Each ship is subject to regulations of its country of registry, including
regulations issued pursuant to international treaties governing the safety of
the ship and its passengers. Each country of registry conducts periodic
inspections to verify compliance with these regulations. In addition, ships
operating from U.S. ports are subject to inspection by the U.S. Coast Guard for
compliance with international treaties and by the U.S. Public Health Service
for sanitary conditions.
With respect to passengers to and from U.S. ports, CCLI is required to obtain
certificates from the U.S. Federal Maritime Commission and the U.S. Coast Guard
relating to its ability to satisfy liabilities arising out of nonperformance of
obligations to passengers, casualty or personal injury and water pollution. The
Company believes CCLI is in compliance with all material regulations applicable
to its ships and has all licenses necessary for the conduct of its business.
The International Maritime Organization's SOLAS 1974 convention, which became
effective in 1980 and was last amended in 1992, established minimum safety,
fire prevention and fire fighting standards (the "SOLAS '74 standards"). Under
the amended SOLAS requirements, by October 1, 1997 all passenger ships must
have upgraded fire detection and fire fighting systems. The schedule for
compliance with certain other aspects of the amended requirements for passenger
vessels currently meeting SOLAS '74 standards extends until 2005 or 15 years
after construction, whichever is later.
Since substantial capital expenditures may be needed to bring older vessels
into compliance with the SOLAS requirements that become applicable in 1997, it
is likely that some ships for which such capital expenditures would not be
economical will be removed from the market. All three of CCLI's Celebrity
vessels were built or rebuilt within the past three years. Based on present
estimates, any work necessary for these vessels to meet SOLAS requirements
applicable in 1997 can be done without material capital expenditure. Whether
the two Fantasy vessels will be refitted to bring them into compliance with the
1997 SOLAS requirements will be determined at a later date.
27
<PAGE>
MANAGEMENT
The following table sets forth information concerning the Company's directors
and executive officers and their beneficial ownership of the Company's Common
Stock as of January 15, 1994 and with ownership percentages adjusted to reflect
the sale of the Common Stock offered hereby by the Company (assuming the
Underwriters' overallotment option is not exercised). The table includes, in
the case of certain persons, all shares owned by partnerships or other entities
in which the person, by reason of his position or interest, shares the power to
vote or dispose of the securities.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY
SERVED SHARES OF OWNED
AS COMMON STOCK -----------------
DIRECTOR BENEFICIALLY PRIOR TO AFTER
NAME AND AGE PRINCIPAL OCCUPATION SINCE OWNED(a) OFFERING OFFERING
------------ -------------------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Raphael Recanati,* 70... President, Finmar Equities Co., 1969 6,647,926(b)(h) 20.3% 18.6%
shipping, finance and
banking.
Morton P. Hyman,* 58.... President of the Company. 1969 190,000(c) 0.6% 0.5%
Michael A. Recanati,* Executive Vice President of the 1987 91,065(d)(h) 0.3% 0.3%
36..................... Company.
Robert N. Cowen, 45..... Senior Vice President, Secretary 1993 18,500 0.1% 0.1%
and General Counsel of the
Company.
Gabriel Kahana, 35...... Senior Vice President and n/a 12,000 - -
Treasurer of the Company
Alan Carus, 55.......... Controller of the Company n/a 37,000 0.1% 0.1%
George C. Blake,* 61.... Executive Vice President, 1988 49,400 0.1% 0.1%
Maritime Overseas
Corporation, ship agents and
brokers.
Thomas H. Dean, 65...... Senior Vice President-Corporate 1976 - - -
Development and Planning,
Continental Grain Company,
integrated food company.
Michel Fribourg, 80..... Chairman of the Board, 1969 2,823,241(e) 8.6% 7.9%
Continental Grain Company.
William L. Frost, 67.... Attorney and President, 1989 4,000(f) - -
Lucius N. Littauer Foundation.
Ran Hettena,* 70........ President, Maritime Overseas 1969 30,241(g)(h) 0.1% 0.1%
Corporation.
Stanley Komaroff, 58.... Partner in the law firm of 1993 200 - -
Proskauer Rose Goetz &
Mendelsohn, the Company's
counsel.
Solomon N. Merkin, 37... Vice President, Leib Merkin, 1989 (i) - -
Inc., private investment
company.
Joel I. Picket, 55...... President and Chairman of the 1989 200 - -
Board, Gotham Organization
Inc., real estate, construction
and development.
All directors and executive officers as a group.......... 9,883,773(j) 29.9% 27.4%
</TABLE>
- --------
*Member of Finance and Development Committee of the Board, of which
Committee Mr. Raphael Recanati is Chairman and Mr. Michael A. Recanati is
Vice Chairman.
28
<PAGE>
(a) Unless otherwise indicated, each of the persons listed has the sole power
to vote and direct disposition of the shares shown as beneficially owned
by him. Number of shares shown includes shares issuable on exercise of
vested options held by Messrs. Hyman (120,000 shares), M. Recanati (90,000
shares), Cowen (18,000 shares), Kahana (12,000), Carus (36,000) and Blake
(48,000 shares), and all directors and executive officers as a group
(324,000 shares).
(b) Includes 5,670,362 shares as to which Mr. Raphael Recanati shares the
power to vote and/or to direct disposition, of which 2,986,416 shares are
owned by OSG Holdings, a partnership in which Mr. Recanati and his wife,
as tenants in common, have a 25% partnership interest.
(c) Includes 20,000 shares owned by a corporation in which Mr. Hyman shares
the power to vote and/or to direct disposition; excludes 280 shares
owned by Mr. Hyman's wife, beneficial ownership of which is disclaimed by
him.
(d) In addition, Mr. Michael A. Recanati is a 0.57% partner in OSG Holdings.
(e) All of these shares are owned by Fribourg Enterprises, L.P., a
partnership; Mr. Fribourg has the sole power to vote and direct the
disposition of all of said shares.
(f) Excludes 400 shares owned by Mr. Frost's wife, beneficial ownership of
which is disclaimed by him.
(g) Excludes 12,493 shares owned by Mr. Hettena's wife, beneficial ownership
of which is disclaimed by him.
(h) Mr. Hettena and Mr. Raphael Recanati are brothers-in-law. Mr. Michael A.
Recanati is a son of Mr. Raphael Recanati and a nephew of Mr. Hettena.
(i) Mr. Merkin is a 0.91% partner in OSG Holdings.
(j) Of the 9,883,773 shares, persons who are directors or executive officers
have sole power to vote and direct disposition of 4,213,411 shares (12.7%
of the outstanding shares of the Company prior to the offering) and share
with other persons the power to vote and/or direct disposition of
5,670,362 shares (17.2% of the outstanding shares prior to the offering).
Each of the persons listed above has been principally engaged in his present
employment for the past five years except Messrs. Cowen and Kahana. Mr. Cowen
has served as General Counsel of the Company since November 1989 and Senior
Vice President since February 1993; he also serves as executive vice president
and a director of Overseas Discount Corporation, which is engaged in the
business of finance and investment. Mr. Kahana has served as Senior Vice
President and Treasurer of the Company since February 1993 and has also served
as an officer of the Agent for more than five years. Mr. Komaroff is a
director of Club Med, Inc. Mr. Raphael Recanati is a director of the IDB
Holding Corporation Ltd. and several of its subsidiaries. On February 16,
1994, following a lengthy trial in Israel, the four largest banks in that
country, including Israel Discount Bank Limited, and its former parent IDB
Holding Corporation Ltd., and members of their senior management were found
guilty, in connection with acts that occurred prior to October 1983, of
engaging in fraudulent securities transactions and making false statements
within the meaning of certain provisions of that country's banking, securities
and other laws. The violations involve activities, which terminated in October
1983, relating to shares of these Israeli institutions. Mr. Raphael Recanati
was chief executive officer of Israel Discount Bank Limited and is among the
defendants found guilty. Mr. Recanati has categorically denied any wrongdoing
and has advised the Company that he intends to appeal. None of the activities
in question relate to or involve the Company or its business in any way.
DESCRIPTION OF COMMON STOCK
The following statements with respect to the capital stock of the Company
are subject to the detailed provisions of the Company's certificate of
incorporation, as amended (the "Certificate of Incorporation"), and by-laws,
as amended (the "By-Laws"). These statements do not purport to be complete, or
to give full effect to the provisions of statutory or common law, and are
subject to, and are qualified in their entirety by reference to, the terms of
the Certificate of Incorporation and the By-Laws.
29
<PAGE>
GENERAL
The Certificate of Incorporation authorizes the issuance of a total of
60,000,000 shares of Common Stock. At January 15, 1994, 32,741,826 shares of
Common Stock were outstanding. Stock certificates for Common Stock of the
Company are issuable in two series, designated respectively Domestic Share
Certificates and Foreign Share Certificates. Except as stated below under
"Qualifications for Ownership and Transfer of Shares," the rights of the
holders of Domestic Share Certificates and Foreign Share Certificates are
identical in all respects.
QUALIFICATIONS FOR OWNERSHIP AND TRANSFER OF SHARES
The By-Laws of the Company provide that the outstanding shares must at all
times be owned by citizens of the United States to such extent as will in the
judgment of the Board of Directors reasonably assure the preservation of the
Company's status as a United States citizen within the provisions of the
Shipping Act of 1916 and related laws, rules and regulations (the "Act")
applicable to the business being conducted by the Company. Since some of the
Company's vessels are engaged in the United States coastwise trade, the Act
requires that at least 75% of the shares be owned by United States citizens, as
defined by the Act. In order to provide a reasonable margin the Board of
Directors has determined that until further action by the Board at least 77% of
the outstanding shares must be owned by persons who are citizens of the United
States.
Shares owned of record or beneficially by foreign citizens are evidenced by
Foreign Share Certificates and are freely transferable both to United States
and foreign citizens. Shares owned of record and beneficially by United States
citizens are evidenced by Domestic Share Certificates and may be transferred to
United States citizens at any time. Such shares may be transferred to foreign
citizens only if at the time the certificate is presented to the Company's
transfer agent, the transfer will not reduce shareholdings of United States
citizens below the then permissible percentage of the total outstanding shares,
as determined by the Board of Directors. Any purported transfer to foreign
citizens of shares or of a beneficial interest in shares evidenced by Domestic
Share Certificates in violation of this limitation will be ineffective for all
purposes (including transfer of voting rights), the shares will not be
transferred on the books of the Company, and the Company may regard the share
certificate, whether or not validly issued, as having been invalidly issued.
Subject to the above limitation, upon surrender of any share certificate for
transfer, the transferee will receive Domestic Share Certificates or Foreign
Share Certificates, as the case may be, for shares of the series appropriate to
such person.
In the case of transferees that are corporations, partnerships, associations
or trusts, the transferee will be deemed a citizen of the United States if the
following conditions are satisfied: (1) at least 75% of the shares or interest
and voting power in the transferee is vested in United States citizens, free
from any trust or fiduciary obligation in favor of any non-United States
citizen; (2) there is no contract or understanding by which more than 25% of
the voting power in the transferee may be exercised directly or indirectly on
behalf of a non-United States citizen; (3) control of more than 25% of the
interests in the transferee is not by any other means conferred on or permitted
to be exercised by non-United States citizens; (4) in the case of a corporation
or association, the president or other chief executive officer and the chairman
of the Board of Directors (or any officer authorized to act in his absence) are
citizens of the United States, no more of its directors than a minority of the
number necessary to constitute a quorum are non-United States citizens, and the
corporation is organized under the laws of the United States or a State; (5) in
the case of a partnership or association, each general partner or member, as
the case may be, is a United States citizen, at least 75% of the interests are
owned by United States citizens free of any trust or fiduciary obligation in
favor of a non-citizen and the partnership or association is organized under
the laws of the United States or a State; and (6) in the case of a trust, the
trustee and each beneficiary with an enforceable interest in the trust is a
United States citizen.
As of February 1, 1994, according to the records of the transfer agent,
approximately 79.7% of the outstanding shares of the Company were represented
by Domestic Share Certificates. It is anticipated
30
<PAGE>
that the sale of the shares offered hereby by the Company, assuming all these
shares are sold to United States citizens, will have the effect of increasing
the percentage of shares represented by Domestic Share Certificates to
approximately 81.4%.
Shares represented by both Domestic Share Certificates and Foreign Share
Certificates are traded on the New York Stock Exchange at the same price.
Should the percentage of foreign ownership more closely approach the permitted
maximum, the Exchange may institute trading on a dual basis, depending on the
circumstances at the time.
TRANSFER PROCEDURES
The Board of Directors is authorized to establish procedures with respect to
the transfer of shares to enforce the limitations referred to above. Procedures
established by the Board of Directors require that, in connection with each
transfer of shares, the transferee complete and file with the Company's
transfer agent an application for transfer of the shares. Such application
calls for information about the transferee's citizenship status and the
citizenship status of any person who may have a beneficial interest in the
shares being acquired by the transferee. Such an application for transfer must
also be completed by each person who purchases shares from any of the
Underwriters.
VOTING RIGHTS
Each holder of Common Stock is entitled to one vote for each share registered
in such holder's name on the books of the Company on all matters submitted to a
vote of stockholders. Except as otherwise provided by law, the holders of
Common Stock do not have cumulative voting rights. As a result, the holders of
Common Stock entitled to exercise more than 50% of the voting rights in an
election of directors can elect 100% of the directors to be elected if they
choose to do so. In such event, the holders of the remaining Common Stock
voting for the election of directors will not be able to elect any persons to
the Board of Directors.
DIVIDEND RIGHTS
Holders of Common Stock are entitled to such dividends as the Board of
Directors may declare out of funds legally available therefor. Certain debt
agreements of the Company contain restrictions on certain payments by the
Company including dividends and purchases of Common Stock. As of September 30,
1993, such restricted payments were limited to approximately $21 million.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the Delaware General Corporation Law (the
"DGCL") which restricts certain business combinations between the Company and
an "interested stockholder" (in general, a stockholder owning 15% or more of
the Company's outstanding voting stock) or its affiliates or associates for a
period of three years following the date on which the stockholder becomes an
"interested stockholder". The restrictions do not apply if (i) prior to an
interested stockholder becoming such, the Board of Directors approves either
the business combination or the transaction in which the stockholder becomes an
interested stockholder, (ii) upon consummation of the transaction in which any
person becomes an interested stockholder, such interested stockholder owns at
least 85% of the voting stock of the Company outstanding at the time the
transaction commences (excluding shares owned by certain employee stock
ownership plans and persons who are both directors and officers of the Company)
or (iii) on or subsequent to the date an interested stockholder becomes such,
the business combination is both approved by the Board of Directors and
authorized at an annual or special meeting of the Company's stockholders, not
by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
LIQUIDATION RIGHTS AND OTHER PROVISIONS
Subject to the prior rights of creditors, the holders of the Common Stock are
entitled in the event of liquidation, dissolution or winding up to share pro
rata in the distribution of all remaining assets. There are no preemptive or
conversion rights or redemption or sinking fund provisions in respect of the
31
<PAGE>
Common Stock. The outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby upon delivery and payment will be, fully paid and
non-assessable.
The Certificate of Incorporation provides that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent the
exemption from or limitation of liability is not permitted under the DGCL. The
DGCL presently does not permit exemption from or limitation of liability (i)
for any breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL or (iv) for any transaction from which the director derived an
improper personal benefit. Section 174 of the DGCL specifies conditions under
which directors of Delaware corporations may be liable for unlawful dividends
or unlawful stock purchases or redemptions.
The Transfer Agent and Registrar for the Common Stock is Mellon Securities
Trust Company.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co.......................................... 533,400
J.P. Morgan Securities Inc................................... 533,300
Furman Selz Incorporated..................................... 533,300
Alex. Brown & Sons Incorporated.............................. 125,000
The Buckingham Research Group Incorporated................... 50,000
Doft & Co., Inc. ............................................ 50,000
Howard, Weil, Labouisse, Friedrichs Incorporated............. 75,000
Kidder, Peabody & Co. Incorporated........................... 125,000
Lazard Freres & Co. ......................................... 125,000
Lehman Brothers Inc. ........................................ 125,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........... 125,000
PaineWebber Incorporated..................................... 125,000
RBC Dominion Securities Corporation.......................... 75,000
Rauscher Pierce Refsnes, Inc. ............................... 75,000
The Robinson-Humphrey Company, Inc. ......................... 75,000
ScotiaMcLeod (USA) Inc. ..................................... 75,000
Wertheim Schroder & Co. Incorporated......................... 125,000
Wm Smith Securities Incorporated............................. 50,000
---------
Total.................................................... 3,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares of Common
Stock offered hereby if any are taken.
The Underwriters propose to offer the shares of Common Stock in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus, and in part to certain securities dealers at such price
less a concession of $.67 per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $.10 per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Underwriters.
32
<PAGE>
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 450,000
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price less the underwriting discount, as set forth on
the cover page of this Prospectus. If the Underwriters exercise their over-
allotment option, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by each of them, as shown in
the foregoing table, bears to the 3,000,000 shares of Common Stock offered
hereby. The Underwriters may exercise such option only to cover over-allotments
in connection with the sale of the shares of Common Stock offered hereby.
The Company has agreed that it will not, for a period of 90 days after the
date of this Prospectus, except with the prior written consent of Goldman,
Sachs & Co., offer, sell, contract to sell or otherwise dispose of any
securities of the Company (other than pursuant to stock option plans existing,
or conversion or exchange of convertible debt or exchangeable securities
outstanding, on the date on which the Company and the Underwriters execute the
Underwriting Agreement) which are substantially similar to the Common Stock, or
which are convertible or exchangeable into securities which are substantially
similar to the Common Stock.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Underwriters and certain affiliates thereof have engaged in transactions
with and performed various investment and commercial banking and other services
for the Company and its affiliates in the past, and may do so from time to time
in the future.
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Proskauer Rose Goetz & Mendelsohn, 1585 Broadway, New York, New York
10036, and for the Underwriters by Sullivan & Cromwell, 125 Broad Street, New
York, New York 10004. Stanley Komaroff, a member of Proskauer Rose Goetz &
Mendelsohn, is a director of the Company.
EXPERTS
The consolidated financial statements and schedules of Overseas Shipholding
Group, Inc., and Celebrity Cruise Lines Inc., incorporated by reference in this
Prospectus and in the Registration Statement have, with respect to Overseas
Shipholding Group, Inc., been audited by Ernst & Young, independent auditors,
and, with respect to Celebrity Cruise Lines Inc., been jointly audited by Ernst
& Young and Moore Stephens, independent auditors, to the extent indicated in
their respective reports thereon also incorporated by reference herein and in
the Registration Statement. Such consolidated financial statements and
schedules have been incorporated herein by reference in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
With respect to the unaudited condensed consolidated interim financial
information for Overseas Shipholding Group, Inc., incorporated by reference in
this Prospectus, Ernst & Young have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate reports included in Overseas Shipholding
Group, Inc.'s Quarterly Reports on Form 10-Q for the quarters ended March 31,
1993, June 30, 1993 and September 30, 1993, and incorporated herein by
reference, state that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on
their reports on such information should be restricted in light of the limited
nature of the review procedures applied. The independent auditors are not
subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because that report
is not a "report" or a "part" of the Registration Statement prepared or
certified by the auditors within the meaning of Section 7 and 11 of the
Securities Act.
33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE DOCUMENTS INCOR-
PORATED BY REFERENCE THEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OF-
FER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIR-
CUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 4
Price Range of Common Stock and
Dividends................................................................ 4
Capitalization............................................................ 5
Selected Consolidated Financial Information............................... 6
Three Month and Twelve Month Results...................................... 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 8
Business.................................................................. 12
Management................................................................ 28
Description of Common Stock............................................... 29
Underwriting.............................................................. 32
Legal Opinions............................................................ 33
Experts................................................................... 33
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
OVERSEAS SHIPHOLDING
GROUP, INC.
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
----------------
PROSPECTUS
----------------
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
FURMAN SELZ INCORPORATED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GRAPHICS APPENDIX LIST
EDGAR Version Typeset Version
- ------------------ ---------------------------------------
GRAPHIC NO. 1
Page 13 of Text -- Bar chart of Seaborne Trade
chart is omitted of Major Bulk Commodities, in
Billions of Metric Ton Miles
(Source: Fearnleys Review,
1993 and earlier issues)
<TABLE>
<CAPTION>
Three Major
Dry Bulk
Commodities
(Coal, iron Crude Oil and
ore and Petroleum
Year grain) Products Total
---- ----------- ------------- -----
<S> <C> <C> <C>
1985 4,179 5,157 9,336
1986 4,171 5,905 10,076
1987 4,444 6,016 10,460
1988 4,749 6,510 11,259
1989 4,859 7,276 12,135
1990 4,900 7,821 12,721
1991 5,076 8,287 13,363
1992 4,988 8,590 13,578
1993 (est.) 4,935 9,025 13,960
</TABLE>
GRAPHIC NO. 2
Page 14 of text -- Bar chart of World Bulk Fleet Age
chart is omitted Distribution, including order book,
as of July 1, 1993, by percentage
of deadweight tonnage (DWT) for
ships over 10,000 Metric DWT
(Source: Fearnleys
World Bulk Fleet, July, 1993)
<TABLE>
<CAPTION>
Bulk Combination
Tankers Carriers Carriers Total
(262.2 (218.9 (30.1 (511.2
(Total existing million million million million
tonnage) MDWT) MDWT) MDWT) MDWT)
------- ------- ----------- -------
<S> <C> <C> <C> <C>
Orderbook 9.3% 7.7% 0.8% 8.1%
1989-July 1
1993 21.0 14.5 9.9 17.5
1979-1988 22.2 44.3 28.5 32.1
Pre-1979 56.8 41.2 61.6 50.4
</TABLE>
Existing fleet represents 100%
<PAGE>
<TABLE>
<CAPTION>
EDGAR Version Typeset Version
----------------------- ---------------------------------------
GRAPHIC NO. 3
Page 16 of Text -- Graph of Tanker Newbuilding Deliveries and
chart is omitted Scrappings, in Millions of MDWT
(Source: Fearnleys Review, 1993
and earlier issues)
Newbuilding
Year Deliveries Scrappings
---- ----------- ----------
<S> <C> <C>
1972 28.8 2.5
1973 37.2 2.0
1974 45.1 1.8
1975 48.0 9.2
1976 43.3 11.0
1977 21.8 9.1
1978 10.7 13.4
1979 7.2 8.6
1980 7.5 9.4
1981 8.6 12.0
1982 6.6 25.3
1983 5.8 25.9
1984 3.2 19.3
1985 4.6 30.5
1986 7.4 15.1
1987 6.5 9.3
1988 7.5 3.6
1989 8.9 1.7
1990 8.7 1.8
1991 13.2 3.2
1992 16.9 10.7
1993 (est.) 17.2 13.8
</TABLE>
Data includes combination carriers; scrappings include losses.
<PAGE>
<TABLE>
<CAPTION>
EDGAR Version Typeset Version
- ------------------ --------------------------------------
GRAPHIC NO. 4
Page 18 of Text -- Graph of Dry Bulk Carrier Newbuilding
chart is omitted Deliveries and Scrappings, in Millions
of MDWT (Source: Fearnleys Review, 1993
and earlier issues)
Newbuilding
Year Deliveries Scrappings
---- ----------- ----------
<S> <C> <C>
1972 9.3 0.2
1973 9.7 0.5
1974 8.7 0.3
1975 8.2 0.5
1976 11.6 0.8
1977 13.6 0.9
1978 7.6 2.2
1979 3.6 1.5
1980 4.7 0.8
1981 10.6 0.7
1982 14.4 1.5
1983 11.3 3.2
1984 14.2 4.6
1985 14.7 7.7
1986 11.6 14.4
1987 6.6 9.6
1988 4.0 1.9
1989 6.7 0.8
1990 9.6 1.7
1991 5.6 2.7
1992 4.3 3.7
1993 (est.) 7.9 4.4
</TABLE>
Scrappings include losses.
GRAPHIC NO. 5
Page 22 of Text -- Bar chart of Age Profile of Company
chart is omitted and Worldwide Bulk Fleets, in years
(Source: Fearnleys World Bulk
Fleet, July 1993 and earlier
issues and OSG Company data)
(excludes non-Company interests
in jointly-owned vessels)
<TABLE>
<CAPTION>
Year-End Company World
-------- ------- -----
<S> <C> <C>
1970 5.0 6.8
1975 3.4 6.6
1980 6.9 8.6
1985 9.5 10.2
1990 9.4 12.4
1992 10.8 12.9
July 1, 1993 11.4 12.9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDGAR Version Typeset Version
------------- ---------------
GRAPHIC NO. 6
Page 26 of Text -- Bar chart of North American Cruise
chart is omitted Market, in millions of passengers
(Source: CLIA Industry Overview,
July 1993)
Year Passengers
---- ----------
<S> <C>
1982 1.5
1983 1.8
1984 1.9
1985 2.2
1986 2.6
1987 2.9
1988 3.2
1989 3.3
1990 3.6
1991 4.0
1992 4.1
</TABLE>
