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
SEPTEMBER 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 November 6, 1996 - 36,235,369
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 1996 31, 1995 (A)
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash, including interest-bearing deposits
of $116,826,000 and $155,864,000 $ 120,354,000 $ 160,578,000
Receivables 31,636,000 31,537,000
Prepaid expenses 28,829,000 31,218,000
-------------- --------------
Total Current Assets 180,819,000 223,333,000
Investments in Marketable Securities 16,705,000 18,482,000
Capital Construction and Restricted
Funds 136,695,000 124,258,000
Vessels, at cost, less accumulated
depreciation of $556,152,000 and
$551,752,000 - Notes F and H 1,205,534,000 1,173,029,000
Vessels Under Capital Leases, less
accumulated
amortization of $102,994,000 and
$150,906,000 - Note H 81,385,000 108,572,000
Investment in Celebrity Cruise Lines
Inc. - Note B 236,518,000 234,334,000
Investments in Bulk Shipping Joint
Ventures - Note C 91,696,000 87,794,000
Other Assets 91,315,000 95,024,000
-------------- --------------
$2,040,667,000 $2,064,826,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
- -------------------
<S> <C> <C>
Accounts payable $ 6,115,000 $ 5,047,000
Sundry liabilities and accrued
expenses 47,659,000 39,706,000
-------------- --------------
53,774,000 44,753,000
Current installments of long-term
debt - Note F 14,806,000 15,943,000
Current obligations under capital
leases - Note H 6,951,000 10,630,000
-------------- --------------
Total Current Liabilities 75,531,000 71,326,000
Advance Charter Revenues 3,516,000 8,081,000
Long-term Debt - Notes F and H 968,822,000 951,638,000
Obligations Under Capital Leases -
Note H 111,789,000 150,120,000
Minority Interest 1,079,000 1,813,000
Deferred Federal Income Taxes
($96,918,000 and
$93,218,000) and Deferred Credits -
Note E 100,871,000 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 698,593,000 707,220,000
-------------- --------------
831,905,000 840,498,000
Less - cost of Treasury Stock -
3,356,280 and 3,363,243 shares 49,220,000 49,297,000
-------------- --------------
782,685,000 791,201,000
Less - net unrealized loss on
marketable securities 3,626,000 6,420,000
-------------- --------------
Total Shareholders' Equity 779,059,000 784,781,000
Commitments and Other Comments -
Note H
-------------- --------------
$2,040,667,000 $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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
- ------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ----------------------------
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1996 30, 1995 30, 1996 30, 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shipping Revenues:
Revenue from
voyages $104,141,000 $ 98,171,000 $342,894,000 $294,789,000
Income attributable
to bulk shipping
joint ventures -
Note C 965,000 1,398,000 3,902,000 4,245,000
------------ ------------ ------------ ------------
105,106,000 99,569,000 346,796,000 299,034,000
------------ ------------ ------------ ------------
Shipping Expenses:
Vessel and voyage -
Note D 71,614,000 67,986,000 224,540,000 198,306,000
Depreciation of vessels
and amortization
of capital leases 17,595,000 17,100,000 53,047,000 49,721,000
Agency fees - Note D 8,363,000 9,208,000 25,232,000 25,392,000
General and
administrative 1,900,000 1,565,000 6,248,000 6,526,000
------------ ------------ ------------ ------------
99,472,000 95,859,000 309,067,000 279,945,000
------------ ------------ ------------ ------------
Income from Vessel
Operations 5,634,000 3,710,000 37,729,000 19,089,000
Equity in Results of
Celebrity Cruise
Lines Inc.- Note B 4,395,000 1,215,000 2,184,000 ( 742,000)
Other Income (net) -
Note G 4,888,000 10,297,000 22,826,000 16,219,000
------------ ------------ ------------ ------------
14,917,000 15,222,000 62,739,000 34,566,000
Interest Expense 18,184,000 17,568,000 51,961,000 50,652,000
------------ ------------ ------------ ------------
Income/(loss) before
Federal income taxes ( 3,267,000) (2,346,000) 10,778,000 (16,086,000)
Provision/(credit) for
Federal income taxes,
reflecting deferred
provision/(credit)
of ($2,500,000),
($1,600,000),
$2,900,000 and
($6,050,000) -
Note E ( 2,500,000) (1,600,000) 3,100,000 (6,050,000)
------------ ------------ ------------ ------------
Net Income/(loss) ( 767,000) ( 746,000) 7,678,000 (10,036,000)
Retained Earnings at
beginning of period 699,360,000 711,996,000 707,220,000 737,583,000
------------ ------------ ------------ ------------
698,593,000 711,250,000 714,898,000 727,547,000
Cash Dividends Declared 5,433,000 16,305,000 21,730,000
------------ ------------ ------------ ------------
Retained Earnings at
end of period $698,593,000 $705,817,000 $698,593,000 $705,817,000
============ ============ ============ ============
Per Share Amounts -
Note H:
Net income/(loss) ($.02) ($.02) $.21 ($.28)
==== ==== ==== ====
Cash dividends declared $.15* $.45 $.60*
==== ==== ====
<FN>
*Includes $.15 per share for the fourth quarter.
(See Accompanying Notes)
</TABLE>
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
-------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
30, 1996 30, 1995
----------- ------------
<S> <C> <C>
Net cash provided by Operating Activities $ 48,452,000 $ 13,557,000
----------- ------------
Cash Flows from Investing Activities:
Purchases of marketable securities ( 4,566,000) (10,455,000)
Proceeds from sales of marketable
securities 10,526,000 34,337,000
Purchases of other investments ( 3,219,000)
Proceeds from disposal of other
investments 1,385,000 13,909,000
Purchases of vessels under
capital leases ( 20,213,000)
Additions to vessels (104,907,000) (146,894,000)
Proceeds from disposal of vessels 58,136,000
Other - net ( 3,570,000) ( 2,597,000)
------------ ------------
Net cash (used in)
investing activities ( 63,209,000) (114,919,000)
------------ ------------
Cash Flows from Financing Activities:
Issuance of long-term debt 31,753,000 230,000,000
Payments on long-term debt and
obligations under capital leases ( 41,444,000) (19,946,000)
Cash dividends paid ( 16,305,000) (16,297,000)
Other - net 529,000 424,000
------------ ------------
Net cash (used in)/provided by
financing activities ( 25,467,000) 194,181,000
------------ ------------
Net (Decrease)/increase in Cash ( 40,224,000) 92,819,000
Cash, including interest-bearing
deposits, at beginning of period 160,578,000 100,034,000
------------ ------------
Cash, including interest-bearing
deposits, at end of period $120,354,000 $192,853,000
============ ============
<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 September 30, 1996 and for the three month and nine
month periods ended September 30, 1996 and September 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 nine month periods ended
September 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
--------------------------------
SEPTEMBER DECEMBER
30, 1996 31, 1995
-------------- ---------------
<S> <C> <C>
Current Assets $ 27,858,000 $ 78,635,000
Vessels, net 1,001,413,000 981,053,000
Investment in Celebrity Cruise
Lines Inc. 236,518,000 234,334,000
Other Assets 113,593,000 111,119,000
-------------- --------------
1,379,382,000 1,405,141,000
-------------- --------------
Current Installments of
Long-term Debt, including inter-
company of $26,850,000 in 1996 32,861,000 9,821,000
Other Current Liabilities 18,964,000 15,581,000
-------------- --------------
Total Current Liabilities 51,825,000 25,402,000
Long-term Debt, including
intercompany, and Deferred
Credits, etc. 318,974,000 399,537,000
-------------- --------------
370,799,000 424,939,000
-------------- --------------
Net Assets $1,008,583,000 $ 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
----------------------------
SEPTEMBER DECEMBER
30, 1996 31, 1995
------------ ------------
<S> <C> <C>
Current assets $ 106,961,000 $ 97,319,000
Vessels, net 1,031,324,000 1,042,928,000
Other assets 27,575,000 32,548,000
------------- -------------
1,165,860,000 1,172,795,000
------------- -------------
Short-term debt and current
installments of long-term debt 63,494,000 83,002,000
Other current liabilities 110,964,000 96,565,000
------------- -------------
Total current liabilities 174,458,000 179,567,000
Long-term debt 511,522,000 517,864,000
------------- -------------
685,980,000 697,431,000
------------- -------------
Net assets (principally capital
contributions) $ 479,880,000 $ 475,364,000
============ =============
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $120,860,000 $74,539,000 $317,321,000
$213,121,000
Costs and expenses 111,870,000 72,040,000 312,805,000 214,576,000
----------- ----------- ------------ ------------
Net income/(loss) $ 8,990,000 $ 2,499,000 $ 4,516,000 ($ 1,455,000)
============ =========== =========== =============
</TABLE>
The Company's equity in the results of CCLI for each of the periods is
before interest expense of approximately $4,000,000 (three months
ended September 30, 1996), $4,400,000 (three months ended September
30, 1995), $11,800,000 (nine months ended September 30, 1996) and
$12,500,000 (nine months ended September 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 November 6, 1996, CCLI has commitments (which are nonrecourse to OSG)
with an approximate aggregate unpaid cost of $634,000,000 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 October 1, 1996). Long-term financing
arrangements exist for substantially all of the unpaid cost of these
ships. Approximately 48% of the unpaid cost is denominated in German
marks, substantially all of which is covered by forward contracts or
option contracts; this includes 23% 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
--------------------------
SEPTEMBER DECEMBER
30, 1996 31, 1995
----------- ------------
<S> <C> <C>
Cash ($27,801,000 and $20,950,000) and
other current assets (including
$8,434,000 and $9,569,000 due
from owners) $ 41,747,000 $ 36,464,000
Vessels, net 143,070,000 134,601,000
Other assets (including $3,733,000
and $9,178,000 due from owners) 6,358,000 11,384,000
----------- ------------
191,175,000 182,449,000
Current liabilities 4,616,000 3,568,000
----------- ------------
Net assets (principally undistributed
net earnings) $186,559,000 $178,881,000
=========== ============
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue, primarily from
voyages (including
$7,230,000,
$7,900,000,
$22,635,000 and
$22,672,000 from
vessels chartered
to other owners) $10,286,000 $11,178,000 $31,869,000 $33,807,000
Costs and expenses 8,101,000 8,566,000 24,191,000 24,408,000
----------- ----------- ----------- -----------
Net income $ 2,185,000 $ 2,612,000 $ 7,678,000 $ 9,399,000
=========== =========== =========== ===========
</TABLE>
As of November 6, 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 early 1997. Unpaid costs are
net of $102,000,000 of progress payments and prepayments (all paid
prior to October 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 $1,274,000 (three months ended September 30, 1996),
$1,348,000 (three months ended September 30, 1995), $4,453,000 (nine
months ended September 30, 1996) and $4,056,000 (nine 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 $4,270,000 (three months ended September 30,
1996), $8,289,000 (three months ended September 30, 1995), $29,265,000
(nine months ended September 30, 1996) and $19,029,000 (nine months
ended September 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 nine
month period ended September 30, 1996. Federal income taxes paid
(which related to prior periods) amounted to $600,000 in the nine
months ended September 30, 1995.
Note F - 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 - 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
September 30, 1996 to $37,500,000.
As of September 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 (5.7% as of September 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 $49,896,000 (nine months ended September 30,
1996) and $48,734,000 (nine months ended September 30, 1995), excluding
capitalized interest.
Note G - Other Income - net:
Other income - net consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends $2,744,000 $ 3,135,000 $ 7,169,000 $ 8,532,000
Gain on sale of
securities 3,150,000 5,964,000 11,902,000 8,529,000
Provision for loss
on investments ( 2,857,000)
---------- ---------- ----------- -----------
5,894,000 9,099,000 16,214,000 17,061,000
Gain on disposal
of vessels 6,895,000
Foreign currency
exchange gain/(loss) ( 99,000) 261,000 119,000
(1,993,000)
Minority interest ( 68,000) 817,000 734,000 1,527,000
Miscellaneous - net (839,000) 120,000 (1,136,000) ( 376,000)
----------- ---------- ----------- -----------
$4,888,000 $10,297,000 $22,826,000 $16,219,000
=========== =========== ============ ============
</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 November 6, 1996, the Company has commitments with an aggregate
unpaid cost of approximately $119,000,000 for the construction of four
foreign flag bulk vessels, all of which are scheduled for delivery in
the next five months. Unpaid costs are net of approximately
$150,000,000 of progress payments and prepayments (all paid prior to
September 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 September 30, 1996), 36,224,000 shares (three months ended
September 30, 1995), 36,233,000 shares (nine months ended September 30,
1996) and 36,218,000 shares (nine months ended September 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 $119,000,000 for such foreign currency from
October 1, 1996 through 2004.
4. In September 1996, two vessels under capital leases with a net carrying
amount of $19,012,000 were purchased by subsidiaries for $40,912,000
including the assumption of $20,090,000 outstanding principal balance
of Title XI Bonds to which the vessels are subject. The excess
($3,427,000) of the purchase price over the carrying amount
($37,485,000) of the lease obligations (which were removed from the
balance sheet) has been recorded as an adjustment of the carrying
amount of the vessels.
The cash necessary to complete this transaction was borrowed under the
Company's long-term credit facility. The Company has commitments from
banks for long-term financing totaling $44,000,000. The Company
intends to draw upon such commitments in the fourth quarter of 1996 and
use the proceeds to reduce amounts outstanding under the long-term
credit facility and to prepay the Title XI Bonds referred to above.
5. In August 1996, the Company arranged a short-term (364 day) $250,000,000
special purpose revolving credit facility which is to be used only in
connection with the Company's obligation to provide Certificates of
Financial Responsibility under regulations related to the Oil Pollution
Act of 1990. There were no amounts outstanding as of September 30,
1996 under this facility.
<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 nine months of 1996, international tanker rates were higher, on
average, than rates prevailing in the comparable period of 1995,
particularly for VLCCs (200,000 DWT and greater). In the third quarter
of 1996, rates in most segments of the international tanker markets
were somewhat lower than rates prevailing in the second quarter. Dry
bulk rates in the first nine months of 1996 averaged approximately half
of the spot market levels prevailing during the first nine months of
last year. International tanker rates usually show seasonal
improvement in the fourth quarter of the year. Early in the fourth
quarter of 1996, such an improvement had not yet commenced, although
dry bulk rates had firmed somewhat from their late third quarter
levels. The Company has an Aframax (80,000 to 120,000 DWT) tanker pool
with PDV Marina - the marine transportation subsidiary of the Venezuela
state oil company - that includes a total of 12 vessels (six OSG
vessels). The pooling arrangement is expected to reduce idle time and
enhance opportunities for backhaul cargoes, thereby optimizing the
earnings of pool vessels.
In the fourth quarter of 1996, OSG's only 90,000 DWT U.S. flag tanker not
then on long-term charter joined the other five of OSG's larger U.S.
flag tankers in the Alaska trade, all operating under long-term
charters.
Income from vessel operations for the three months and nine months ended
September 30, 1996 increased by approximately $1,900,000 and
$18,600,000, respectively, from the results for the corresponding
periods of 1995. Operations of the U.S. flag fleet improved by
approximately $11,200,000 in the third quarter of 1996 and by
approximately $22,000,000 in the first nine months of 1996 from the
respective 1995 periods, primarily as a result of substantially
increased employment of the Company's U.S. flag tankers in the
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------
Income From Vessel Operations (continued)
- -----------------------------
1996 periods; one U.S. flag tanker in the third quarter of 1996 and three
such tankers in the first nine months of 1996 were idle for significant
periods whereas in the comparable 1995 periods, six of the tankers were
idle for significant periods. Income from foreign flag vessel
operations declined $9,300,000 and $3,400,000 in the third quarter and
first nine months of 1996, respectively, from the comparable 1995
periods, primarily as a result of the substantial decline in rates
earned by the Company's dry cargo fleet. These declines were net of
the positive effect on 1996 vessel operating results of two VLCCs
delivered in early 1996. In addition, foreign flag results for the
nine month period ended September 30, 1996 reflect the positive effect
on operations of the inclusion for the entire period of two modern
Aframaxes purchased near the end of the first quarter of 1995. The
effects on revenues and expenses of a higher proportion of voyage
charters to time charters in the U.S. flag fleet in both 1996 periods
as compared to 1995 are also reflected.
Equity in Results of Celebrity Cruise Lines Inc. ("CCLI")
- ---------------------------------------------------------
The Company's respective share of CCLI's results was income of $4,395,000
(third quarter-1996), $1,215,000 (third quarter-1995) and $2,184,000
(nine months ended September 30, 1996) and a loss of $742,000 (nine
months ended September 30, 1995). The 1996 results reflect the
addition in December 1995 of Century, a 1,750 passenger vessel, to
CCLI's fleet. CCLI's results in the third quarter of 1996, normally
its strongest quarter of the year, reflect higher per diems achieved
compared to last year by vessels traveling to Bermuda and on new
Alaskan itineraries. CCLI's overall results reflect pricing pressures,
which increased after the summer, particularly in the Caribbean market
and CCLI's results in the fourth quarter are expected to reflect this.
Other Income-net
- ----------------
The details of other income are shown in Note G. Interest and dividends
decreased in the 1996 third quarter and first nine months 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 $3,150,000 (1996 third quarter), $11,902,000 (1996
first nine months), $5,964,000 (1995 third quarter) and $8,529,000
(1995 first nine months). There was a gain on disposal of vessels of
$6,895,000 in the first nine months of 1996 (none in the third
quarter). 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 nine months and the results
of foreign currency transactions in all periods.
Interest Expense
- ----------------
Interest expense increased in both the third quarter and first nine months
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
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------
Interest Expense (continued)
- ----------------
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 $5,200,000 in
the third quarter and first nine months of 1996, respectively, and
$1,000,000 and $3,400,000 in the comparable 1995 periods of net
benefits from interest rate swaps referred to below in Liquidity and
Sources of Capital.
Provision for Federal Income Taxes
- ----------------------------------
The tax credit in the third quarter of 1996 and the tax provision in the
first nine months of 1996 and the income tax credits in the comparable
periods of 1995 were based on pretax income or loss, adjusted to
reflect items that are not subject to tax and the dividends received
deduction.
Liquidity and Sources of Capital
- --------------------------------
Working capital at September 30, 1996 was approximately $105,000,000.
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 $17,000,000 at September 30, 1996.
Net cash provided by operating activities in the first nine months of 1996
approximated $48,000,000 (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 September 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 (5.7% as of September 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
$119,000,000 for such foreign currency from October 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 $364,000,000 was used at September 30, 1996, and an unsecured
short-term credit facility of $30,000,000, of which $20,000,000 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. In August 1996, the Company arranged a short-term (364 day)
$250,000,000 special purpose revolving credit facility which is to be
used only in connection with the Company's obligation to provide
Certificates of Financial Responsibility under regulations related to
the Oil Pollution Act of 1990. There were no amounts outstanding as of
September 30, 1996 under this facility. In September 1996, two vessels
under capital leases with a net carrying amount of $19,012,000 were
purchased by subsidiaries for $40,912,000 including the assumption of
$20,090,000 outstanding principal balance of Title XI Bonds to which
the vessels are subject. The carrying amount ($37,485,000) of the
lease obligations were removed from the balance sheet. The cash
necessary to complete this transaction was borrowed under the Company's
long-term credit facility. The Company has commitments from banks for
long-term financing totaling $44,000,000. The Company intends to draw
upon such commitments in the fourth quarter of 1996 and use the
proceeds to reduce amounts outstanding under the credit facility and to
prepay the Title XI Bonds referred to above.
At November 6, 1996, the Company has commitments with an aggregate unpaid
cost of approximately $119,000,000 for the construction of four foreign
flag bulk vessels, all of which are scheduled for delivery in the next
five months. 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 nine months ended September
30, 1996 was 1.06 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 September 30, 1996 and for the
three and nine months ended September 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 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 September 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 September 30,
1996 and the related condensed consolidated statements of operations
and retained earnings for the three month and nine month periods ended
September 30, 1996 and 1995 and the related condensed consolidated
statements of cash flows for the nine month periods ended September
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
November 6, 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: November 13, 1996 MORTON P. HYMAN
----------------- ---------------------------------
Morton P. Hyman
President
Date: November 13, 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 nine months ended September 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 $10,778
Adjustments of income related to
companies owned less than 100% 774
Interest expense 51,961
Proportionate share of interest of
50% - owned companies 14,241
Interest component of an operating
lease 1,426
Amortization of capitalized interest 2,519
-------
Earnings $81,699
=======
Interest expense $51,961
Proportionate share of fixed charges
of 50% - owned companies 16,844
Capitalized interest 6,812
Interest component of an operating
lease 1,426
-------
Fixed charges $77,043
=======
Ratio of earnings to fixed charges 1.06X
=======
</TABLE>
EXHIBIT 15
----------
November 6, 1996
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
November 6, 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
September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 120,354
<SECURITIES> 16,705
<RECEIVABLES> 31,636
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 180,819
<PP&E> 1,946,065
<DEPRECIATION> 659,146
<TOTAL-ASSETS> 2,040,667
<CURRENT-LIABILITIES> 75,531
<BONDS> 1,080,611
<COMMON> 39,591
0
0
<OTHER-SE> 739,468
<TOTAL-LIABILITY-AND-EQUITY> 2,040,667
<SALES> 0
<TOTAL-REVENUES> 371,806
<CGS> 0
<TOTAL-COSTS> 309,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,961
<INCOME-PRETAX> 10,778
<INCOME-TAX> 3,100
<INCOME-CONTINUING> 7,678
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,678
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
