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, 1997
-------------
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 11, 1997 - 36,503,991
<PAGE>
<TABLE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------------
<CAPTION>
JUNE DECEMBER
30, 1997 31, 1996 (A)
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
-------
Current Assets:
- --------------
Cash, including interest-bearing deposits
of $118,697,000 and $103,338,000 $ 122,290,000 $ 109,120,000
Receivables 32,008,000 31,197,000
Prepaid expenses 27,787,000 28,227,000
-------------- --------------
Total Current Assets 182,085,000 168,544,000
Investments in Marketable Securities 31,672,000 15,337,000
Capital Construction and Restricted Funds 160,608,000 145,350,000
Vessels, at cost, less accumulated
depreciation of $573,605,000 and
$555,846,000 - Note F 1,292,701,000 1,214,401,000
Vessels Under Capital Leases, less
accumulated amortization of
$108,901,000 and $104,963,000 75,478,000 79,416,000
Investment in Cruise Business -
Notes B and H 239,121,000 239,255,000
Investments in Bulk Shipping Joint
Ventures - Note C 93,592,000 91,399,000
Other Assets 83,226,000 83,599,000
-------------- --------------
$2,158,483,000 $2,037,301,000
============== ==============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
- -------------------
<S> <C> <C>
Accounts payable $ 4,132,000 $ 4,878,000
Sundry liabilities and accrued
expenses 50,909,000 35,373,000
-------------- --------------
55,041,000 40,251,000
Current installments of long-term
debt - Note F 23,031,000 18,723,000
Current obligations under capital
leases 7,574,000 7,236,000
-------------- --------------
Total Current Liabilities 85,646,000 66,210,000
Advance Time Charter Revenues 5,449,000 7,694,000
Long-term Debt - Note F 1,092,732,000 985,032,000
Obligations Under Capital Leases 104,498,000 108,443,000
Minority Interest 1,457,000
Deferred Federal Income Taxes
($98,391,000 and $94,803,000)
and Deferred Credits - Note E 102,568,000 99,027,000
Shareholders' Equity - Notes E
and I:
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 94,047,000 93,725,000
Retained Earnings 680,801,000 687,981,000
-------------- --------------
814,439,000 821,297,000
Less - cost of Treasury Stock -
3,234,948 and 3,355,390 shares 47,616,000 49,210,000
-------------- --------------
766,823,000 772,087,000
Net unrealized gain/(loss) on
marketable securities 767,000 ( 2,649,000)
-------------- --------------
Total Shareholders' Equity 767,590,000 769,438,000
Subsequent Event and Other
Comments - Notes H and I
-------------- --------------
$2,158,483,000 $2,037,301,000
============== ==============
<FN>
(A) The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date.
(See Accompanying Notes)
</TABLE>
<PAGE>
<TABLE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(UNAUDITED)
- ----------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE JUNE JUNE JUNE
30, 1997 30, 1996 30, 1997 30, 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shipping Revenues:
Revenue from voyages $121,620,000 $114,432,000 $248,401,000 $238,753,000
Income attributable
to bulk shipping
joint ventures -
Note C 1,181,000 1,393,000 2,193,000 2,937,000
------------ ------------ ------------ ------------
122,801,000 115,825,000 250,594,000 241,690,000
------------ ------------ ------------ ------------
Shipping Expenses:
Vessel and voyage -
Note D 73,339,000 75,168,000 151,887,000 152,926,000
Depreciation of
vessels and
amortization of
capital leases 20,033,000 17,298,000 39,701,000 35,452,000
Agency fees - Note D 8,954,000 8,386,000 17,798,000 16,869,000
General and
administrative 2,156,000 1,356,000 5,285,000 4,348,000
------------ ------------ ------------ ------------
104,482,000 102,208,000 214,671,000 209,595,000
------------ ------------ ------------ ------------
Income from Vessel
Operations 18,319,000 13,617,000 35,923,000 32,095,000
Equity in Results of
Celebrity Cruise
Lines Inc.- Note B 1,293,000 496,000 (179,000) ( 2,211,000)
Other Income (net) -
Note G 11,805,000 7,704,000 19,576,000 17,938,000
------------ ------------ ------------ ------------
31,417,000 21,817,000 55,320,000 47,822,000
Interest Expense 21,567,000 17,366,000 41,383,000 33,777,000
------------ ------------ ------------ ------------
Income before Federal
income taxes 9,850,000 4,451,000 13,937,000 14,045,000
Provision for Federal
income taxes, reflecting
deferred provision of
$2,760,000, $1,350,000,
$4,800,000 and
$5,400,000 - Note E 2,760,000 1,350,000 4,800,000 5,600,000
------------ ------------ ------------ ------------
Net Income 7,090,000 3,101,000 9,137,000 8,445,000
Retained Earnings at
beginning of period 684,590,000 707,130,000 687,981,000 707,220,000
------------ ------------ ------------ ------------
691,680,000 710,231,000 697,118,000 715,665,000
Cash Dividends Declared 10,879,000 10,871,000 16,317,000 16,305,000
------------ ------------ ------------ ------------
Retained Earnings at
end of period $680,801,000 $699,360,000 $680,801,000 $699,360,000
============ ============ ============ ============
Per Share Amounts -
Note I:
Net income $.19 $.08 $.25 $.23
==== ==== ===== ====
Cash dividends declared* $.30 $.30 $.45 $.45
==== ==== ===== ====
<FN>
*Includes $.15 (1997 and 1996) per share for the third quarter.
(See Accompanying Notes)
</TABLE>
<PAGE>
<TABLE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(UNAUDITED)
------------------------------------------------------------
<CAPTION>
JUNE JUNE
30, 1997 30, 1996
----------- ------------
<S> <C> <C>
Net cash provided by Operating Activities $ 41,350,000 $ 32,958,000
----------- ------------
Cash Flows from Investing Activities:
Purchases of marketable securities ( 69,229,000) ( 4,409,000)
Proceeds from sales of marketable
securities 58,857,000 7,356,000
Proceeds from disposal of other
investments 1,472,000
Purchase of minority interest ( 5,102,000)
Additions to vessels ( 75,673,000)(a) (40,467,000)
Proceeds from disposal of vessels 1,409,000 58,136,000
Other - net (125,000) 13,000
------------ ------------
Net cash (used in)/provided by
investing activities (89,863,000) 22,101,000
------------ ------------
Cash Flows from Financing Activities:
Issuance of long-term debt 90,000,000 (a)
Payments on long-term debt and
obligations under capital leases ( 19,599,000) (88,051,000)
Cash dividends paid ( 10,878,000) (10,870,000)
Other - net 2,160,000 528,000
------------ ------------
Net cash provided by/(used in)
financing activities 61,683,000 (98,393,000)
------------ ------------
Net Increase/(decrease) in Cash 13,170,000 (43,334,000)
Cash, including interest-bearing
deposits, at beginning of period 109,120,000 160,578,000
------------ ------------
Cash, including interest-bearing
deposits, at end of period $122,290,000 $117,244,000
============ ============
<FN>
(a) Excludes $38,000,000 in connection with the delivery of a vessel.
(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, 1996.
The statements as of June 30, 1997 and for the three month and six month
periods ended June 30, 1997 and June 30, 1996 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, 1997 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, 1997 31, 1996
-------------- ---------------
<S> <C> <C>
Current Assets $ 33,386,000 $ 35,237,000
Vessels, net 1,094,007,000 1,013,415,000
Investment in Cruise Business 239,121,000 239,255,000
Other Assets 117,052,000 113,798,000
-------------- --------------
1,483,566,000 1,401,705,000
-------------- --------------
Current Installments of
Long-term Debt, including inter-
company of $35,800,000 in
1997 and 1996 45,930,000 41,882,000
Other Current Liabilities 20,626,000 12,842,000
-------------- --------------
Total Current Liabilities 66,556,000 54,724,000
Long-term Debt, including
intercompany of $125,300,000
and $143,200,000, and Deferred
Credits, etc. 392,653,000 334,467,000
-------------- --------------
459,209,000 389,191,000
-------------- --------------
Net Assets $1,024,357,000 $1,012,514,000
============== ==============
<FN>
(See Notes on Following Pages)
</TABLE>
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note B - Investment in Cruise Business:
See Note H regarding the disposal of the Company's interest in Celebrity
Cruise Lines Inc. ("CCLI") subsequent to June 30, 1997. A condensed
summary of the assets and liabilities of CCLI, and the results of its
operations follows:
<TABLE>
<CAPTION>
AS OF
-------------------------------
JUNE DECEMBER
30, 1997 31, 1996
-------------- --------------
<S> <C> <C>
Current assets $ 134,175,000 $ 114,084,000
Vessels, net 1,326,357,000 1,340,033,000
Other assets 28,610,000 30,878,000
-------------- --------------
1,489,142,000 1,484,995,000
-------------- --------------
Current installments of
long-term debt 89,732,000 99,639,000
Other current liabilities 158,789,000 114,121,000
-------------- --------------
Total current liabilities 248,521,000 213,760,000
Long-term debt 755,478,000 785,749,000
-------------- --------------
1,003,999,000 999,509,000
-------------- --------------
Net assets (principally capital
contributions) $ 485,143,000 $ 485,486,000
============== ==============
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $136,548,000 $101,900,000 $265,921,000 $196,461,000
Costs and expenses 133,907,000 100,869,000 266,264,000 200,935,000
----------- ------------ ------------ ------------
Net income/(loss) $ 2,641,000 $ 1,031,000 ($ 343,000) ($ 4,474,000)
============ ============ ============= =============
</TABLE>
The Company's equity in the results of CCLI for each of the periods is
before interest expense of approximately $4,100,000 (three months
ended June 30, 1997), $3,900,000 (three months ended June 30, 1996),
$8,100,000 (six months ended June 30, 1997) and $7,800,000 (six months
ended June 30, 1996) 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 June 30, 1997, CCLI has a commitment (which is nonrecourse to OSG)
with an approximate aggregate unpaid cost of $335,000,000 for the
construction of one cruise ship scheduled for delivery in late 1997.
The unpaid cost is net of $35,000,000 of progress payments (all paid
prior to July 1, 1997). Long-term financing arrangements exist for
substantially all of the unpaid cost of this ship. Approximately 48%
of the unpaid cost is denominated in German marks, substantially all
of which is covered by forward or option contracts; this includes
approximately 14% of the unpaid cost hedged by option contracts that
terminate in the event that the exchange rate of the German mark to
the dollar falls below certain levels.
(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, 1997 31, 1996
----------- ------------
<S> <C> <C>
Cash ($33,120,000 and $20,337,000) and
other current assets (including
$5,256,000 and $8,196,000 due
from owners) $ 43,064,000 $ 35,690,000
Vessels, net 211,765,000 150,108,000
Other assets (including $965,000
and $2,257,000 due from owners) 2,360,000 4,411,000
----------- ------------
257,189,000 190,209,000
------------ ------------
Current installments of long-term debt 7,500,000
Other current liabilities 7,130,000 4,535,000
------------ ------------
14,630,000 4,535,000
Long-term debt 52,500,000
------------ ------------
67,130,000 4,535,000
------------ ------------
Net assets (principally undistributed
net earnings) $190,059,000 $185,674,000
=========== ============
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue, primarily from
voyages (including
$10,456,000,
$7,653,000,
$18,545,000 and
$15,405,000 from
vessels chartered
to owners) $13,193,000 $10,882,000 $25,050,000 $21,583,000
Costs and expenses 10,816,000 8,111,000 20,665,000 16,090,000
----------- ----------- ----------- -----------
Net income $ 2,377,000 $ 2,771,000 $ 4,385,000 $ 5,493,000
=========== =========== =========== ===========
<FN>
(See Notes on Following Pages)
</TABLE>
<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 $1,566,000 (three months ended June 30, 1997),
$1,504,000 (three months ended June 30, 1996), $3,090,000 (six months
ended June 30, 1997) and $3,179,000 (six months ended June 30, 1996) 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 $1,110,000 for 1997). 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 $7,318,000 (three months ended June 30,
1997), $8,205,000 (three months ended June 30, 1996), $11,065,000 (six
months ended June 30, 1997) and $24,995,000 (six months ended June 30,
1996), 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.
Federal income taxes paid (which related to a prior period) amounted to
$200,000 in the six months ended June 30, 1997. No payments of Federal
income taxes were required or made during the six month period ended
June 30, 1996.
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,
1997 to $19,700,000.
As of June 30, 1997, the Company is a party to fixed to floating interest
rate swaps (designated as hedges against certain debt) with various
major financial institutions covering notional amounts aggregating
$600,000,000, pursuant to which it pays LIBOR (5.9% as of June 30,
1997) 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 with various financial institutions covering
notional amounts aggregating approximately $92,000,000, pursuant to
which it pays fixed rates ranging from 6.7% to 7.1% and receives LIBOR.
These agreements contain no leverage features and have various maturity
dates from 1998 to 2008.
Approximately 13% 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 $40,203,000 (six months ended June 30, 1997) and
$34,220,000 (six months ended June 30, 1996), 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,
----------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends $ 2,142,000 $2,161,000 $ 4,292,000 $ 4,425,000
Gain on sale of
securities 9,476,000 5,834,000 15,565,000 8,752,000
Provision for loss
on investments (714,000) (2,857,000)
---------- ---------- ----------- -----------
11,618,000 7,995,000 19,143,000 10,320,000
Gain/(loss) on disposal
of vessels 145,000 (628,000) 145,000 6,895,000
Foreign currency
exchange gain 162,000 218,000
Minority interest 283,000 802,000
Miscellaneous - net 42,000 (108,000) 288,000 (297,000)
---------- ---------- ------------ -----------
$11,805,000 $7,704,000 $19,576,000 $17,938,000
=========== ========== ============ ===========
<FN>
(See Notes on Following Page)
</TABLE>
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
---------------------------------------------------
Notes to Unaudited Condensed Financial Statements
Note H - Subsequent Event:
On July 30, 1997, the Company exchanged its 49% ownership interest in CCLI
(see Note B) for approximately $120,000,000 in cash and 3,650,000
shares of Royal Caribbean Cruises Ltd. ("RCCL") common stock,
representing approximately 5% of RCCL's outstanding common shares. The
Company will recognize a net after-tax gain on the exchange of
approximately $12,000,000 in the third quarter of 1997. The cash
received was used to reduce amounts outstanding under the Company's
Revolving Credit Agreement.
Note I - Other Comments:
1. Net income per share is based on the weighted average number of common
shares outstanding during each period, 36,280,000 shares (three months
ended June 30, 1997), 36,234,000 shares (three months ended June 30,
1996), 36,265,000 shares (six months ended June 30, 1997) and
36,233,000 shares (six months ended June 30, 1996).
Stock options have not been included in the computation of net income per
share since their effect thereon would not be material.
2. 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 that will result in
the Company receiving approximately $111,000,000 for such foreign
currency from July 1, 1997 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.
Rates in the international crude tanker market, on average, were higher in
the first half of 1997 than rates prevailing both in the comparable
period of 1996 and in the latter part of 1996, particularly for
Aframaxes (80,000 to 120,000 dwt) in the Caribbean market (the
Company's primary Aframax trading area). However, late in the second
quarter and early in the third quarter of 1997, Caribbean Aframax spot
rates declined significantly from their March/April highs of
approximately $40,000 per day to below $20,000 per day in July,
basically the average spot rate prevailing during the first half of
1996. VLCC (over 200,000 dwt) rates continued to rise in the early
part of 1997's third quarter, reaching a level of over $45,000 per day.
Rates for Suezmaxes (120,000 to 160,000) and product tankers were not
significantly different than comparable year ago periods through the
first half and early third quarter of 1997. Dry bulk rates remained at
low levels throughout the first half and early third quarter of 1997,
although somewhat improved from late 1996.
The Company's Aframax tanker pool with PDV Marina - the marine
transportation subsidiary of the Venezuelan state oil company - which
covers all 20 Aframaxes (ten OSG vessels) of both parties, continues to
demonstrate improved earnings for pool vessels due to enhanced
opportunities for backhaul cargoes and reduced idle time.
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------
Income From Vessel Operations (continued)
- -----------------------------
As one indication of recent trends in various charter markets, set forth
below are selected average daily spot market rates for various types
and sizes of vessels in the first and second quarters of 1997 and 1996
based on the published reports of one well-known industry research
organization. It is important to note that rates tend to fluctuate
significantly over the course of time, and can vary widely at any point
based on factors such as the age, condition and position of a
particular vessel. Accordingly, the rates shown are not necessarily
indicative of rates achieved by the Company's vessels during any of the
periods.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
First Second First Second
Tankers Quarter Quarter Quarter Quarter
- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Modern VLCCs $29,800 $31,500 $28,900 $25,600
Suezmaxes (W. Africa-U.S.) 21,500 21,100 20,000 20,200
Aframaxes (Caribbean Market) 24,700 27,700 20,800 20,500
Product Carriers 17,800 14,000 15,200 13,700
Dry Bulk Carriers
- -----------------
Capesize (over 100,000 dwt) 15,000 14,300 12,400 12,200
Panamaxes (50 - 80,000 dwt) 9,700 8,100 9,000 8,700
</TABLE>
Income from vessel operations for the second quarter and first half of 1997
increased by approximately $4,700,000 and $3,800,000, respectively,
from the results for the corresponding periods of 1996. These
increases reflect improvement in income from U.S. flag operations of
$2,400,000 (second quarter of 1997 compared to 1996) and $7,200,000
(first half of 1997 compared to 1996), primarily as a result of
increased utilization of the Company's U.S. flag tanker fleet,
following the commencement in 1996 of long-term employment for six of
OSG's U.S. flag tankers in the Alaska trade. Operating days for the
U.S. flag crude tanker fleet increased to 650 days in the second
quarter of 1997 and 1,350 days in the first half of 1997 from 550
days and 1,100 days, respectively, in the comparable periods of 1996,
net of the effect of an increase in the number of drydock days in both
1997 periods compared to 1996. Since late December 1996, the Company's
U.S. flag car carrier receives $175,000 per month under the U.S.
Maritime Security Program, which continues through 2005, subject to
annual Congressional appropriations. Income from foreign flag vessel
operations improved $2,300,000 in the second quarter of 1997 compared
to the second quarter of 1996. These results reflect the positive
operating contribution of vessels delivered in late 1996 and the first
quarter of 1997 as the Company's most recent newbuilding program was
completed. Also, earnings of the Company's Aframax fleet improved
substantially in the second quarter of 1997 compared to the 1996 second
quarter. This was partially offset by a decline in rates earned by
vessels that were in the Company's dry cargo fleet in both of those
periods. Income from foreign flag vessel operations decreased
$3,400,000 in the first half of 1997 compared to 1996, primarily as a
result of the decline in rates earned by the Company's dry cargo
vessels, partially offset by the contribution from the newbuilding
deliveries referred to above (but see Interest Expense below).
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
---------------------------------------------------
Equity in Results of Celebrity Cruise Lines Inc. ("CCLI")
- ---------------------------------------------------------
On July 30, 1997, the Company exchanged its 49% ownership interest in CCLI
for approximately $120,000,000 in cash and 3,650,000 shares of Royal
Caribbean Cruises Ltd. ("RCCL") common stock, representing
approximately 5% of RCCL's outstanding common shares. The Company will
recognize a net after-tax gain on the exchange of approximately
$12,000,000 in the third quarter of 1997. The Company will account for
its ownership of RCCL common stock as an investment in a corporate
joint venture, using the equity method of accounting.
The Company's share of CCLI's results was income of $1,293,000 (second
quarter of 1997) and $496,000 (second quarter of 1996) and losses of
$179,000 (first half of 1997) and $2,211,000 (first half of 1996).
These results reflect ongoing competitive pressures as a number of
cruise operators introduced new vessels into the Caribbean market. The
vessel Galaxy, which commenced operating in late 1996, contributed to
CCLI's improved performance, as did generally increased occupancy
levels in the 1997 first quarter and improved per diem rates achieved
on several vessels in the second quarter and first half of 1997
compared to 1996.
Other Income-net
- ----------------
The details of other income are shown in Note G. Aggregate interest and
dividends did not materially change in the 1997 periods as compared to
1996. Gains on sale of securities were $9,476,000 (second quarter of
1997), $15,565,000 (first half of 1997), $5,834,000 (second quarter of
1996) and $8,752,000 (first half of 1996). Disposal of vessels
resulted in a loss of $628,000 in the second quarter of 1996 and a gain
of $6,895,000 in the first half of 1996 (gains or losses from sales of
vessels in the 1997 periods were not material). Other income also
reflects provisions for losses on investments of approximately $700,000
and $2,900,000 in the 1997 and 1996 six month periods, respectively
(none in the second quarter of either year).
Interest Expense
- ----------------
Interest expense increased in the second quarter and first six months of
1997 from the comparable periods of 1996 as a result of an increase in
the average amount of debt outstanding in the 1997 periods compared
with 1996, including debt incurred in connection with vessels entering
the operating fleet, decreased amounts of interest capitalized in 1997
in connection with vessel construction and increased rates on floating
rate debt. Interest expense reflects $1,200,000 (second quarter of
1997), $2,600,000 (first half of 1997), $1,600,000 (second quarter of
1996) and $3,600,000 (first half of 1996) of net benefits from the
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 provision for federal income taxes in the second quarter of 1997
increased from the comparable period of 1996 primarily because of the
increase in pretax income, adjusted to reflect items that are not
subject to tax and the dividends received deduction. The provision
decreased in the 1997 first half from the 1996 half year because of a
decrease in the amount subject to tax.
New Accounting Standard
- -----------------------
Financial Accounting Standard No. 128 "Earnings Per Share" is effective for
periods ending after December 15, 1997. Earlier application is not
permitted. This standard is not expected to have any significant
impact on the Company's earnings per share.
Liquidity and Sources of Capital
- --------------------------------
Working capital at June 30, 1997 was approximately $96,000,000. 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 $32,000,000 at June 30, 1997.
Net cash provided by operating activities in the first half of 1997
approximated $41,000,000 (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 an
unsecured long-term credit facility of $500,000,000, of which
$448,000,000 was used at June 30, 1997, 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. The
cash received in the exchange referred to under Equity in Results of
Celebrity Cruise Lines Inc. was used to reduce amounts outstanding
under the long-term credit facility.
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, 1997, The Company is a party to fixed to
floating interest rate swaps (designated as hedges against certain
debt) with various major financial institutions covering notional
amounts aggregating $600,000,000, pursuant to which it pays LIBOR (5.9%
as of June 30, 1997) 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 major financial institutions covering
notional amounts aggregating approximately $92,000,000, pursuant to
which it pays fixed rates ranging from 6.7% 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
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
Liquidity and Sources of Capital (continued)
- --------------------------------
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 to deliver such foreign
currency at fixed rates that will result in the Company receiving
approximately $111,000,000 for such foreign currency from July 1, 1997
through 2004.
- -----------------------------------------------------------------------
Ratio of Earnings to Fixed Charges
- ----------------------------------
The ratio of earnings to fixed charges for the six months ended June 30,
1997 was 1.23 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, 1997 and for the three
and six months ended June 30, 1997 and 1996 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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Stockholders on June 10, 1997 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
1997. Proxies for the meeting were solicited pursuant to Regulation 14A
of the Securities Exchange Act of 1934. A total of 30,281,668 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:
NUMBER OF SHARES
- ----------------------------------------------------------------------------
NAME OF NOMINEE WITHHELD AUTHORITY
FOR DIRECTOR VOTED FOR TO VOTE
- ----------------------------------------------------------------------------
Raphael Recanati 30,236,817 44,851
Morton P. Hyman 30,241,397 40,271
Robert N. Cowen 30,241,737 39,931
George C. Blake 30,241,737 39,931
Oudi Recanati 30,241,184 40,484
Thomas H. Dean 30,236,918 44,750
Michel Fribourg 30,237,177 44,491
William L. Frost 30,240,287 41,381
Ran Hettena 30,237,227 44,441
Stanley Komaroff 30,134,469 147,199
Solomon N. Merkin 30,241,082 40,586
Joel I. Picket 30,240,283 41,385
The resolution to approve the appointment of Ernst & Young LLP as
independent auditors was adopted by a vote of 30,269,158 shares in
favor, 4,291 shares against and 8,219 shares abstained.
Item 6(a). Exhibits
- --------- --------
See Exhibit Index on page 19.
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, 1997.
<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, 1997
and the related condensed consolidated statements of income and
retained earnings for the three month and six month periods ended June
30, 1997 and 1996 and the related condensed consolidated statements of
cash flows for the six month periods ended June 30, 1997 and 1996.
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, 1996, 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 19, 1997, 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, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
ERNST & YOUNG LLP
August 11, 1997
<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 13, 1997 MORTON P. HYMAN
----------------- --------------------------------
Morton P. Hyman
President
Date: August 13, 1997 ALAN CARUS
----------------- --------------------------------
Alan Carus
Controller
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
EXHIBIT INDEX
-------------
10. Stock Purchase Agreement dated July 2, 1997 by and
among Archinav Holdings, Ltd., Overseas Cruiseship, Inc.
("OCI"), Celebrity Cruise Lines, Inc. and Royal
Caribbean Cruises Ltd. (filed via EDGAR on August 7,
1997 as Exhibit 7.1 to registrant's and OCI's combined
Schedule 13D and incorporated herein by reference).
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.
<PAGE>
EXHIBIT 12
----------
OVERSEAS SHIPHOLDING GROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
For the six months ended June 30, 1997
(In thousands)
Presented in connection with Amendment No. 1
filed on November 9, 1993 to Registration Statement No. 33-50441
Income before Federal income taxes $13,937
Adjustments of income related to
companies owned less than 100% 291
Interest expense 41,383
Proportionate share of interest of
50% - owned companies 16,396
Interest component of an operating
lease 622
Amortization of capitalized interest 1,902
-------
Earnings $74,531
=======
Interest expense $41,383
Proportionate share of fixed charges
of 50% - owned companies 17,307
Capitalized interest 1,326
Interest component of an operating
lease 622
-------
Fixed charges $60,638
=======
Ratio of earnings to fixed charges 1.23X
=======
<PAGE>
EXHIBIT 15
----------
August 11, 1997
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 11, 1997
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, 1997.
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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 118,697
<SECURITIES> 31,672
<RECEIVABLES> 32,008
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<CURRENT-ASSETS> 182,085
<PP&E> 2,050,685
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0
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<OTHER-SE> 727,999
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