UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
JUNE 30, 1996
-------------
OR
( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from --------
to --------
COMMISSION FILE NO.
1-6479-1
-------------------
OVERSEAS SHIPHOLDING GROUP, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2637623
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer Identi-
incorporation or organization) fication No.)
1114 Avenue of the Americas, New York, New York 10036
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (212) 869-1222
-----------------
No Change
- --------------------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
-- --
Common Shares outstanding as of August 7, 1996 - 36,234,479
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE DECEMBER
30, 1996 31, 1995 (A)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash, including interest-bearing
deposits of $113,694,000 and
$155,864,000 $ 117,244,000 $ 160,578,000
Receivables 29,632,000 31,537,000
Prepaid expenses 31,223,000 31,218,000
-------------- --------------
Total Current Assets 178,099,000 223,333,000
Investments in Marketable Securities 19,873,000 18,482,000
Capital Construction and Restricted
Funds 132,085,000 124,258,000
Vessels, at cost, less accumulated
depreciation of $540,432,000 and
$551,752,000 - Note F 1,133,555,000 1,173,029,000
Vessels Under Capital Leases, less
accumulated amortization of
$156,348,000 and $150,906,000 103,129,000 108,572,000
Investment in Celebrity Cruise Lines
Inc. - Note B 232,123,000 234,334,000
Investments in Bulk Shipping Joint
Ventures - Note C 90,731,000 87,794,000
Other Assets 85,847,000 95,024,000
-------------- --------------
$1,975,442,000 $2,064,826,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Accounts payable $ 5,206,000 $ 5,047,000
Sundry liabilities and accrued
expenses 44,329,000 39,706,000
-------------- --------------
49,535,000 44,753,000
Current installments of long-term
debt - Note F 15,037,000 15,943,000
Current obligations under capital
leases 11,107,000 10,630,000
-------------- --------------
Total Current Liabilities 75,679,000 71,326,000
Advance Time Charter Revenues 1,793,000 8,081,000
Long-term Debt - Note F 869,756,000 951,638,000
Obligations Under Capital Leases 144,380,000 150,120,000
Minority Interest 1,011,000 1,813,000
Deferred Federal Income Taxes
($99,218,000 and $93,218,000)
and Deferred Credits - Note E 103,112,000 97,067,000
Shareholders' Equity - Notes E and H:
Common Stock, par value $1 per share:
Authorized - 60,000,000 shares
Issued - 39,590,759 shares 39,591,000 39,591,000
Paid-in Additional Capital 93,721,000 93,687,000
Retained Earnings 699,360,000 707,220,000
-------------- --------------
832,672,000 840,498,000
Less - cost of Treasury Stock -
3,356,280 and 3,363,243 shares 49,220,000 49,297,000
-------------- --------------
783,452,000 791,201,000
Less - net unrealized loss on
marketable securities 3,741,000 6,420,000
-------------- --------------
Total Shareholders' Equity 779,711,000 784,781,000
Commitments and Other Comments - Note H
-------------- --------------
$1,975,442,000 $2,064,826,000
============== ==============
<FN>
(A) The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
(See Accompanying Notes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
- ------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ------------------------
JUNE JUNE JUNE JUNE
30, 1996 30, 1995 30, 1996 30, 1995
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Shipping Revenues:
Revenue from voyages $114,432,000 $ 90,875,000 $238,753,000 $196,618,000
Income attributable
to bulk shipping
joint ventures -
Note C
1,393,000 1,645,000 2,937,000 2,847,000
------------ ------------ ------------ ------------
115,825,000 92,520,000 241,690,000 199,465,000
------------ ------------ ------------ ------------
Shipping Expenses:
Vessel and voyage -
Note D 75,168,000 64,381,000 152,926,000 130,320,000
Depreciation of vessels
and amortization
of capital leases 17,298,000 16,146,000 35,452,000 32,621,000
Agency fees - Note D 8,386,000 8,602,000 16,869,000 16,184,000
General and
administrative 1,356,000 1,919,000 4,348,000 4,961,000
------------ ------------ ------------ ------------
102,208,000 91,048,000 209,595,000 184,086,000
------------ ------------ ------------ ------------
Income from Vessel
Operations 13,617,000 1,472,000 32,095,000 15,379,000
Equity in Results of
Celebrity Cruise
Lines Inc.- Note B 496,000 (696,000) (2,211,000) (1,957,000)
Other Income (net) -
Note G 7,704,000 6,587,000 17,938,000 5,922,000
------------ ------------ ------------ ------------
21,817,000 7,363,000 47,822,000 19,344,000
Interest Expense 17,366,000 16,497,000 33,777,000 33,084,000
------------ ------------ ------------ ------------
Income/(loss) before
Federal income taxes 4,451,000 (9,134,000) 14,045,000 (13,740,000)
Provision/(credit) for
Federal income taxes,
reflecting deferred
provision/(credit) of
$1,350,000, ($3,150,000),
$5,400,000 and
($4,450,000) - Note E 1,350,000 (3,150,000) 5,600,000 (4,450,000)
------------ ------------ ------------ ------------
Net Income/(loss) 3,101,000 (5,984,000) 8,445,000 (9,290,000)
Retained Earnings at
beginning of period 707,130,000 728,846,000 707,220,000 737,583,000
------------ ------------ ------------ ------------
710,231,000 722,862,000 715,665,000 728,293,000
Cash Dividends Declared 10,871,000 10,866,000 16,305,000 16,297,000
------------ ------------ ------------ ------------
Retained Earnings at end
of period $699,360,000 $711,996,000 $699,360,000 $711,996,000
============ ============ ============ ============
Per Share Amounts -
Note H:
Net income/(loss) $.08 ($.17) $.23 ($.26)
==== ==== ==== ====
Cash dividends declared* $.30 $.30 $.45 $.45
==== ==== ==== ====
<FN>
*Includes $.15 (1996 and 1995) per share for the third quarter.
(See Accompanying Notes)
</TABLE>
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE JUNE
30, 1996 30, 1995
<S> <C> <C>
Net cash provided by Operating Activities $ 32,958,000 $ 15,615,000
------------ ------------
Cash Flows from Investing Activities:
Purchases of marketable securities ( 4,409,000) ( 2,892,000)
Proceeds from sales of marketable
securities 7,356,000 22,218,000
Purchases of other investments ( 3,342,000)
Proceeds from disposal of other
investments 1,472,000 13,682,000
Additions to vessels ( 40,467,000) (121,698,000)
Proceeds from disposal of vessels 58,136,000
Other - net 13,000 ( 2,376,000)
------------ ------------
Net cash provided by/(used in)
investing activities 22,101,000 ( 94,408,000)
------------ ------------
Cash Flows from Financing Activities:
Issuance of long-term debt 166,000,000
Payments on long-term debt and
obligations under capital leases ( 88,051,000) (14,046,000)
Cash dividends paid ( 10,870,000) (10,865,000)
Other - net 528,000 219,000
------------ ------------
Net cash (used in)/provided by
financing activities ( 98,393,000) 141,308,000
------------ ------------
Net (Decrease)/increase in Cash ( 43,334,000) 62,515,000
Cash, including interest-bearing
deposits, at beginning of period 160,578,000 100,034,000
------------ ------------
Cash, including interest-bearing
deposits, at end of period $117,244,000 $162,549,000
============ ============
<FN>
(See Accompanying Notes)
</TABLE>
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
General - As contemplated by the Securities and Exchange Commission, the
accompanying financial statements and footnotes, which have been
rounded to the nearest thousand dollars, have been condensed and
therefore do not contain all disclosures required by generally
accepted accounting principles. Reference should be made to the
Company's Annual Report to Shareholders for the year ended December
31, 1995.
The statements as of June 30, 1996 and for the three month and six month
periods ended June 30, 1996 and June 30, 1995 are unaudited. In the
opinion of the Company all adjustments (which were of a normal
recurring nature) have been made to present fairly the results for
such unaudited interim periods.
The results of operations for the three month and six month periods ended
June 30, 1996 are not necessarily indicative of those for a full
fiscal year.
Note A - Foreign Subsidiaries:
A condensed summary of the combined assets and liabilities of the Company's
foreign (incorporated outside the U.S.) subsidiaries, whose operations
are principally conducted in U.S. Dollars, follows:
<TABLE>
<CAPTION>
AS OF
--------------------------------
JUNE DECEMBER
30, 1996 31, 1995
-------------- ---------------
<S> <C> <C>
Current Assets $ 44,895,000 $ 78,635,000
Vessels, net 948,053,000 981,053,000
Investment in Celebrity Cruise
Lines Inc. 232,123,000 234,334,000
Other Assets 111,027,000 111,119,000
-------------- --------------
1,336,098,000 1,405,141,000
-------------- --------------
Current Installments of
Long-term Debt, including inter-
company of $17,900,000 in 1996 26,576,000 9,821,000
Other Current Liabilities 14,289,000 15,581,000
-------------- --------------
Total Current Liabilities 40,865,000 25,402,000
Long-term Debt, including
intercompany, and Deferred
Credits, etc. 290,479,000 399,537,000
-------------- --------------
331,344,000 424,939,000
-------------- --------------
Net Assets $1,004,754,000 $ 980,202,000
============== ==============
<FN>
(See Notes on Following Pages)
</TABLE>
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note B - Investment in Celebrity Cruise Lines Inc.:
A condensed summary of the assets and liabilities of Celebrity Cruise Lines
Inc. ("CCLI"), the Company's cruise industry joint venture, and the
results of its operations follows:
<TABLE>
<CAPTION>
AS OF
----------------------------
JUNE DECEMBER
30, 1996 31, 1995
-------------- --------------
<S> <C> <C>
Current assets $ 116,265,000 $ 97,319,000
Vessels, net 1,031,633,000 1,042,928,000
Other assets 27,864,000 32,548,000
-------------- --------------
1,175,762,000 1,172,795,000
-------------- --------------
Short-term debt and current
installments of long-term debt 54,971,000 83,002,000
Other current liabilities 120,707,000 96,565,000
-------------- --------------
Total current liabilities 175,678,000 179,567,000
Long-term debt 529,194,000 517,864,000
-------------- --------------
704,872,000 697,431,000
-------------- ------------
Net assets (principally capital
contributions) $ 470,890,000 $ 475,364,000
============== ==============
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $101,900,000 $73,705,000 $196,461,000 $138,582,000
Costs and expenses 100,869,000 75,105,000 200,935,000 142,536,000
----------- ----------- ------------ ------------
Net income/(loss) $ 1,031,000 ($ 1,400,000) ($ 4,474,000) ($ 3,954,000)
=========== =========== =========== ============
</TABLE>
The Company's equity in the results of CCLI for each of the periods is
before interest expense of approximately $3,900,000 (three months
ended June 30, 1996), $4,200,000 (three months ended June 30, 1995),
$7,800,000 (six months ended June 30, 1996) and $8,100,000 (six months
ended June 30, 1995), estimated to have been incurred by the Company
in connection with the funding of its investment in CCLI. These
amounts were calculated based on the Company's average interest rates
during the respective periods.
As of August 7, 1996, CCLI has commitments (which are nonrecourse to OSG)
with an approximate aggregate unpaid cost of $642,000,000 for the
construction of two cruise ships scheduled for delivery in late 1996
and late 1997. Unpaid costs are net of $66,000,000 of progress
payments (all paid prior to July 1, 1996). Long-term financing
arrangements exist for substantially all of the unpaid cost of these
ships. Approximately 47% of the unpaid cost is denominated in German
marks, substantially all of which is covered by forward contracts or
option contracts; this includes 22% of the unpaid cost covered by
option contracts that terminate in the event that the exchange rate of
the German mark to the dollar falls below certain levels.
[FN]
(See Notes on Following Pages)
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note C - Bulk Shipping Joint Ventures:
Certain subsidiaries have investments in bulk shipping joint ventures. A
condensed summary of the combined assets and liabilities and results of
operations of the bulk shipping joint ventures follows:
<TABLE>
<CAPTION>
AS OF
--------------------------
JUNE DECEMBER
30, 1996 31, 1995
----------- ------------
<S> <C> <C>
Cash ($24,015,000 and $20,950,000) and
other current assets (including
$8,661,000 and $9,569,000 due
from owners) $ 38,921,000 $ 36,464,000
Vessels, net 143,453,000 134,601,000
Other assets (including $5,238,000
and $9,178,000 due from owners) 6,525,000 11,384,000
------------ -----------
188,899,000 182,449,000
Current liabilities 4,525,000 3,568,000
------------ -----------
Net assets (principally undistributed
net earnings) $184,374,000 $178,881,000
============ ============
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue, primarily from
voyages (including
$7,653,000,
$7,278,000,
$15,405,000 and
$14,772,000 from
vessels chartered
to other owners) $10,882,000 $11,497,000 $21,583,000 $22,629,000
Costs and expenses 8,111,000 8,071,000 16,090,000 15,842,000
----------- ----------- ----------- -----------
Net income $ 2,771,000 $ 3,426,000 $ 5,493,000 $ 6,787,000
=========== =========== =========== ===========
</TABLE>
As of August 7, 1996, certain 50%-owned companies have commitments (which
are nonrecourse to OSG) with an aggregate unpaid cost of approximately
$78,000,000 for the construction of two foreign flag VLCCs (very large
crude carriers) scheduled for delivery in late 1996 and early 1997.
Unpaid costs are net of $102,000,000 of progress payments and
prepayments (all paid prior to July 1, 1996) and of discounts resulting
from such prepayments. The joint venture companies expect to pay the
unpaid costs from their available cash resources and to utilize
existing long-term shipyard financing arrangements as needed. Upon
delivery, these vessels will commence eight-year charters to the joint
venture partner.
(See Notes on Following Pages)
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note D - Agency Fees and Brokerage Commissions:
All subsidiaries with vessels and certain joint ventures are parties to
agreements with Maritime Overseas Corporation ("Maritime") that
provide, among other matters, for Maritime and subsidiaries to render
services related to the chartering and operation of the vessels and
certain general and administrative services for which Maritime and
subsidiaries receive specified compensation. Vessel and voyage
expenses include $1,504,000 (three months ended June 30, 1996),
$1,262,000 (three months ended June 30, 1995), $3,179,000 (six months
ended June 30, 1996) and $2,708,000 (six months ended June 30, 1995),
of brokerage commissions to Maritime. By agreement, Maritime's
compensation for any year is limited to the extent Maritime's
consolidated net income from shipping operations would exceed a
specified amount (approximately $1,009,000 for 1996). Maritime is
owned by a director of the Company; directors or officers of the
Company constitute all four of the directors and the majority of the
principal officers of Maritime.
Note E - Taxes:
Effective from January 1, 1987, earnings of the foreign shipping companies,
other than CCLI, are subject to U.S. income taxation currently; post-
1986 taxable income may be distributed to the U.S. parent without
further tax. Prior thereto, tax on such earnings was deferred as long
as the earnings were reinvested in foreign shipping operations.
Foreign income, substantially all of which was earned by companies
which are not subject to income taxes in their country of
incorporation, aggregated $8,205,000 (three months ended June 30,
1996), $1,636,000 (three months ended June 30, 1995), $24,995,000 (six
months ended June 30, 1996) and $10,740,000 (six months ended June 30,
1995) before any U.S. income tax effect. No provision for U.S. income
taxes on the undistributed income of the foreign shipping companies
accumulated through December 31, 1986 was required, since such
undistributed earnings have been reinvested or are intended to be
reinvested in foreign shipping operations so that the qualified
investment therein is not expected to be reduced below the
corresponding amount at December 31, 1986. Further, no provision for
U.S. income taxes on the Company's share of the undistributed earnings
of CCLI was required, since it is intended that such undistributed
earnings will be indefinitely reinvested.
No payments of Federal income taxes were required or made during the six
month period ended June 30, 1996. Federal income taxes paid (which
related to prior periods) amounted to $600,000 in the six months ended
June 30, 1995.
Note F - Long-term Debt:
Agreements relating to long-term debt provide for prepayment privileges (in
certain instances with penalties), limitations on the amount of secured
debt and total borrowings, and acceleration of payment under certain
circumstances, including if any of the minimum consolidated financial
(See Notes on Following Pages)
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note F - Long-term Debt (continued):
covenants contained in certain of such agreements are not met. The amount
that the Company can use for Restricted Payments, as defined, including
dividends and purchases of its capital stock, is limited as of June 30,
1996 to $37,900,000.
As of June 30, 1996, the Company is a party to fixed to floating interest
rate swaps (designated as hedges against certain debt) with various
banks covering notional amounts aggregating $600,000,000, pursuant to
which it pays LIBOR (5.8% as of June 30, 1996) and receives fixed rates
ranging from 5.8% to 8.1% calculated on the notional amounts. The
Company is also a party to floating to fixed interest rate swaps
(designated as hedges against certain debt) with various banks covering
notional amounts aggregating approximately $61,000,000, pursuant to
which it pays fixed rates ranging from 6.9% to 7.1% and receives LIBOR.
These agreements contain no leverage features and have various maturity
dates from 1998 to 2008.
Approximately 15% of the net book amount of the Company's vessels,
representing three foreign flag and nine U.S. flag vessels, is pledged
as collateral for certain long-term debt.
Interest paid approximated $34,220,000 (six months ended June 30, 1996) and
$34,746,000 (six months ended June 30, 1995), excluding capitalized
interest.
Note G - Other Income - net:
Other income - net consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends $2,161,000 $2,715,000 $4,425,000 $ 5,397,000
Gain on sale of
securities 5,834,000 2,461,000 8,752,000 2,565,000
Provision for loss
on investments (2,857,000)
---------- ---------- ----------- -----------
7,995,000 5,176,000 10,320,000 7,962,000
Gain/(loss) on disposal
of vessels ( 628,000) 6,895,000
Foreign currency
exchange gain/(loss) 162,000 132,000 218,000
(2,254,000)
Minority interest 283,000 577,000 802,000 710,000
Miscellaneous - net (108,000) 702,000 (297,000) ( 496,000)
---------- ---------- ----------- -----------
$7,704,000 $6,587,000 $17,938,000 $ 5,922,000
=========== ========== ============ ===========
</TABLE>
[FN]
(See Note on Following Page)
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note H - Commitments and Other Comments:
1. As of August 7, 1996, the Company has commitments with an aggregate
unpaid cost of approximately $169,000,000 for the construction of four
foreign flag bulk vessels, of which three are scheduled for delivery in
late 1996 and one in 1997. Unpaid costs are net of approximately
$105,000,000 of progress payments and prepayments (including
approximately $9,000,000 paid subsequent to June 30, 1996) and of
discounts resulting from such prepayments. Long-term shipyard
financing arrangements exist for approximately $38,000,000 of the
unpaid cost of one of the vessels.
2. Net income/(loss) per share is based on the weighted average number of
common shares outstanding during each period, 36,234,000 shares (three
months ended June 30, 1996), 36,217,000 shares (three months ended June
30, 1995), 36,233,000 shares (six months ended June 30, 1996) and
36,215,000 shares (six months ended June 30, 1995).
Stock options have not been included in the computation of net income/(loss)
per share since their effect thereon would either be antidilutive or
not be material.
3. The Company has hedged its exchange rate risk with respect to contracted
future charter revenues receivable in Japanese yen by entering into
currency swaps with a major financial institution to deliver such
foreign currency at fixed rates that will result in the Company
receiving approximately $122,000,000 for such foreign currency from
July 1, 1996 through 2004.
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
Operations
Income From Vessel Operations
Revenues and results of 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.
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.
In the first half of 1996, rates in the international tanker markets
improved from the levels prevailing in the comparable period of 1995,
particularly for crude carriers. In the early part of the third
quarter of 1996, rates for VLCCs (200,000 DWT and greater) trended
upward, while rates for Aframax crude carriers (80,000 to 110,000 DWT)
in the primary market sector in which OSG's Aframaxes trade were below
their average for the second quarter and first half of 1996. Dry bulk
rates in the first six months of 1996 averaged only half of the levels
prevailing during the comparable 1995 period and have remained at low
levels in the early part of the third quarter. In May 1996,
legislation was implemented that permits the export of Alaskan North
Slope crude oil on U.S. flag vessels and five of OSG's eight U.S. flag
crude carriers have commenced long-term employment in the Alaska trade,
in most instances, in continuation of previous short-term charters.
Income from vessel operations for the second quarter and half year ended
June 30, 1996 increased by approximately $12,100,000 and $16,700,000,
respectively, from the results for the corresponding periods of 1995.
Approximately 60% of each of these increases was attributable to
improved income from operations of the Company's U.S. flag fleet,
primarily as a result of substantially increased employment of the
Company's U.S. flag tankers in the 1996 periods; there were two U.S.
flag tankers in the second quarter of 1996 and three such tankers in
the first half of 1996 that were idle for significant periods whereas
in the comparable 1995 periods, five of the tankers were idle for
significant periods. The balance of each of the 1996 second quarter and
first half increases was attributable to improved income from foreign
flag vessel operations, reflecting the
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income From Vessel Operations (continued)
positive effect on 1996 vessel operating results of two modern Aframaxes
purchased near the end of the first quarter of 1995 and two VLCCs
delivered in early 1996. Rates earned by certain crude carriers and
petroleum products carriers in the international markets were higher in
the 1996 periods than in 1995, the effects of which were partially
offset by lower rates obtained by certain dry bulk vessels in 1996.
The effects on revenues and expenses of a higher proportion of voyage
charters to time charters in the U.S. flag fleet and the effect on
revenues of less drydockings in the foreign flag fleet in both 1996
periods as compared to 1995 are also reflected.
Equity in Results of Celebrity Cruise Lines Inc. ("CCLI")
The Company recorded income of $496,000 in the second quarter of 1996, a
loss of $696,000 in the second quarter of 1995 and losses of $2,211,000
and $1,957,000 in the first half of 1996 and of 1995, respectively,
representing its share of CCLI's results. The 1996 results reflect the
addition in December 1995 of Century, a 1750 passenger vessel, to
CCLI's fleet. CCLI's overall results reflect strong competitive
pressures in the North American cruise market.
Other Income-net
The details of other income are shown in Note G. Interest and dividends
decreased in the 1996 second quarter and first half as compared to the
respective 1995 periods because of lower rates of return on interest-
bearing deposits and investments and decreased amounts utilized for
such deposits and investments. Gains on sale of securities were
$5,834,000 (1996 second quarter), $8,752,000 (1996 first half),
$2,461,000 (1995 second quarter) and $2,565,000 (1995 first half).
There was a loss on disposal of vessels of $628,000 in the second
quarter of 1996 and a gain on disposal of vessels of $6,895,000 in the
first half of 1996 (there were no sales of vessels in the 1995
periods). Other income also reflects a provision for loss on
investments of approximately $2,900,000 in the 1996 first half and the
results of foreign currency transactions in all periods.
Interest Expense
Interest expense increased slightly in both the second quarter and first
half of 1996 from the comparable periods of 1995 as a result of
decreased amounts of interest capitalized in 1996 in connection with
vessel construction, the net effect of changes in the average amount of
debt outstanding in the 1996 periods compared with 1995 (including debt
incurred in connection with vessels entering the operating fleet) and
decreased rates on floating rate debt in 1996. Interest expense
reflects $1,600,000 and $3,600,000 in the second quarter and first half
of 1996, respectively, and $1,400,000 and $2,400,000 in the comparable
1995 periods of net benefits from interest rate swaps referred to below
in Liquidity and Sources of Capital.
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Provision for Federal Income Taxes
The tax provisions in the second quarter and first half of 1996 and the
income tax credits in the comparable periods of 1995 were based on
pretax income and loss, respectively, adjusted to reflect items that
are not subject to tax and the dividends received deduction.
Liquidity and Sources of Capital
Working capital at June 30, 1996 was approximately $102,000,000. 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 $20,000,000 at June 30, 1996.
Net cash provided by operating activities in the first half of 1996
approximated $33,000,000 (which is not necessarily indicative of the
cash to be provided by operating activities for a full fiscal year).
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 the next year. The Company has
used interest rate swaps to effectively convert a portion of its debt
either from a fixed to floating rate basis or from floating to fixed
rate, reflecting management's interest rate outlook at various times.
As of June 30, 1996, the Company is a party to fixed to floating
interest rate swaps (designated as hedges against certain debt) with
various banks covering notional amounts aggregating $600,000,000,
pursuant to which it pays LIBOR (5.8% as of June 30, 1996) and receives
fixed rates ranging from 5.8% to 8.1% calculated on the notional
amounts. The Company is also a party to floating to fixed interest
rate swaps (designated as hedges against certain debt) with various
banks covering notional amounts aggregating approximately $61,000,000,
pursuant to which it pays fixed rates ranging from 6.9% to 7.1% and
receives LIBOR. These agreements contain no leverage features and have
various maturity dates from 1998 to 2008. The Company uses derivative
financial instruments for trading purposes from time to time. The
Company has hedged its exchange rate risk with respect to contracted
future charter revenues receivable in Japanese yen to minimize the
effect of foreign exchange rate fluctuations on reported income by
entering into currency swaps with a major financial institution that
will result in the Company receiving approximately $122,000,000 for
such foreign currency from July 1, 1996 through 2004.
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Liquidity and Sources of Capital (continued)
The Company has an unsecured long-term credit facility of $500,000,000, of
which $274,000,000 was used at June 30, 1996, and an unsecured short-
term credit facility of $30,000,000, of which $26,000,000 was used at
that date. The latter amount has been classified as long-term since it
is expected to be refinanced under the long-term credit facility. At
August 7, 1996, the Company has commitments with an aggregate unpaid
cost of approximately $169,000,000 for the construction of four foreign
flag bulk vessels, of which three are scheduled for delivery in late
1996 and one in 1997. Long-term shipyard financing arrangements exist
for approximately $38,000,000 of the unpaid cost of one of the vessels.
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges for the six months ended June 30,
1996 was 1.18 and has been computed by dividing the sum of income
before Federal income taxes and fixed charges by fixed charges. Fixed
charges consist of interest expense, including the proportionate share
of interest of joint venture companies, capitalized interest and an
estimate of the interest component of an operating lease.
Independent Accountant's Report on Review of Interim Financial Information
The accompanying financial statements as of June 30, 1996 and for the three
and six months ended June 30, 1996 and 1995 are unaudited; however,
such financial statements have been reviewed by the Company's
independent accountants.
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
The Company has been informed of an investigation by the United States
Attorney's office for the Southern District of New York concerning the
Company's compliance with certain regulations governing the monitoring
of discharges of oil, and the discharge of oil, into the ocean. In
connection with the investigation, the Company has received a subpoena
seeking records relating to the operation of the oil discharge
monitoring systems on, and to the discharge of oil and other materials
from, the Company's tankers during 1994 and 1995. The Company believes
that the primary focus of the investigation is in connection with the
operations of one tanker whose oil discharge monitor was malfunctioning
during this period. The Company is complying with the subpoena and
will give the Government its complete cooperation in the investigation.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on June 12, 1996 the stockholders
elected twelve directors, each for a term of one year, and approved the
appointment of Ernst & Young LLP as independent auditors for the year
1996. Proxies for the meeting were solicited pursuant to Regulation 14A
of the Securities Exchange Act of 1934. A total of 32,522,104 shares
were voted with respect to each of the aforementioned matters, and
there were no broker non-votes. The tabulation of the votes cast for
each nominee for director was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF NOMINEE WITHHELD AUTHORITY
FOR DIRECTOR VOTED FOR TO VOTE
<S> <C> <C>
Raphael Recanati 32,298,949 223,155
Morton P. Hyman 32,299,587 222,517
Robert N. Cowen 32,301,034 221,070
George C. Blake 32,301,034 221,070
Oudi Recanati 32,293,102 229,002
Thomas H. Dean 32,292,566 229,538
Michel Fribourg 32,295,739 226,365
William L. Frost 32,299,996 222,108
Ran Hettena 32,294,999 227,105
Stanley Komaroff 32,292,171 229,933
Solomon N. Merkin 32,300,794 221,310
Joel I. Picket 32,297,258 224,846
</TABLE>
The resolution to approve the appointment of Ernst & Young LLP as
independent auditors was adopted by a vote of 32,507,109 shares in
favor, 6,661 shares against and 8,334 shares abstained.
Item 6(a). Exhibits
See Exhibit Index on page 18.
Item 6(b). Reports on Form 8-K
The registrant was not required to file any report on Form 8-K during the
quarter ended June 30, 1996.
<PAGE>
Ernst & Young LLP 787 Seventh Avenue Phone: 212 773 3000
New York, New York 10019
INDEPENDENT ACCOUNTANTS' REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION
To the Shareholders
Overseas Shipholding Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Overseas Shipholding Group, Inc. and subsidiaries as of June 30, 1996
and the related condensed consolidated statements of operations and
retained earnings for the three month and six month periods ended June
30, 1996 and 1995 and the related condensed consolidated statements of
cash flows for the six month periods ended June 30, 1996 and 1995.
These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally
accepted auditing standards, which will be performed for the full year
with the objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed financial statements referred to above
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Overseas Shipholding
Group, Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations and retained earnings and cash
flows for the year then ended, not presented herein, and in our report
dated February 14, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1995, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
ERNST & YOUNG LLP
August 7, 1996
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OVERSEAS SHIPHOLDING GROUP, INC.
--------------------------------
(Registrant)
Date: August 12, 1996 MORTON P. HYMAN
----------------- ---------------------------------
Morton P. Hyman
President
Date: August 12, 1996 ALAN CARUS
----------------- ------------------------
Alan Carus
Controller
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
12. Computation of Ratio of Earnings to Fixed Charges.
15. Letter from Ernst & Young LLP.
27. Financial Data Schedule.
NOTE: Instruments authorizing long-term debt of the
registrant and subsidiaries, which do not exceed
10% of their total assets on a consolidated basis,
are not being filed herewith. The registrant
agrees to furnish a copy of each such instrument
to the Commission upon request.
<TABLE>
<CAPTION>
EXHIBIT 12
----------
OVERSEAS SHIPHOLDING GROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
For the six months ended June 30, 1996
(In thousands)
Presented in connection with Amendment No. 1
filed on November 9, 1993 to Registration Statement No. 33-50441
<S> <C>
Income before Federal income taxes $14,045
Adjustments of income related to
companies owned less than 100% ( 63)
Interest expense 33,777
Proportionate share of interest of
50% - owned companies 9,529
Interest component of an operating
lease 950
Amortization of capitalized interest 1,686
-------
Earnings $59,924
=======
Interest expense $33,777
Proportionate share of fixed charges
of 50% - owned companies 11,296
Capitalized interest 4,732
Interest component of an operating
lease 950
-------
Fixed charges $50,755
=======
Ratio of earnings to fixed charges 1.18X
=======
</TABLE>
EXHIBIT 15
----------
August 13, 1996
INDEPENDENT ACCOUNTANTS' REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION
To the Shareholders
Overseas Shipholding Group, Inc.
We are aware of the incorporation by reference in the Registration
Statements (Form S-8 No. 33-44013 and Form S-3 No. 33-50441) of
Overseas Shipholding Group, Inc. of our report dated August 7, 1996
relating to the unaudited condensed consolidated interim financial
statements of Overseas Shipholding Group, Inc. which are included in
its Form 10-Q for the quarter ended June 30, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not
part of the registration statement prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
New York, New York
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 117,244
<SECURITIES> 19,873
<RECEIVABLES> 29,632
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 178,099
<PP&E> 1,933,464
<DEPRECIATION> 696,780
<TOTAL-ASSETS> 1,975,442
<CURRENT-LIABILITIES> 75,679
<BONDS> 1,014,136
<COMMON> 39,591
0
0
<OTHER-SE> 740,120
<TOTAL-LIABILITY-AND-EQUITY> 1,975,442
<SALES> 0
<TOTAL-REVENUES> 257,417
<CGS> 0
<TOTAL-COSTS> 209,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,777
<INCOME-PRETAX> 14,045
<INCOME-TAX> 5,600
<INCOME-CONTINUING> 8,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,445
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
