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
MARCH 31, 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 May 12, 1997 - 36,262,504
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
MARCH DECEMBER
31, 1997 31, 1996 (A)
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Current Assets:
- --------------
Cash, including interest-bearing deposits
of $123,630,000 and $103,338,000 $ 127,596,000 $ 109,120,000
Receivables 31,986,000 31,197,000
Prepaid expenses 29,715,000 28,227,000
-------------- --------------
Total Current Assets 189,297,000 168,544,000
Investments in Marketable Securities 27,689,000 15,337,000
Capital Construction and Restricted Funds 146,670,000 145,350,000
Vessels, at cost, less accumulated
depreciation of $573,351,000 and
$555,846,000 - Note F 1,300,054,000 1,214,401,000
Vessels Under Capital Leases, less
accumulated amortization of
$106,932,000 and $104,963,000 77,447,000 79,416,000
Investment in Celebrity Cruise Lines
Inc. - Note B 237,783,000 239,255,000
Investments in Bulk Shipping Joint
Ventures - Note C 92,411,000 91,399,000
Other Assets 78,366,000 83,599,000
-------------- --------------
$2,149,717,000 $2,037,301,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
- -------------------
<S> <C> <C>
Accounts payable $ 4,596,000 $ 4,878,000
Sundry liabilities and accrued expenses 46,813,000 35,373,000
-------------- --------------
51,409,000 40,251,000
Current installments of long-term debt -
Note F 22,764,000 18,723,000
Current obligations under capital leases 7,275,000 7,236,000
-------------- --------------
Total Current Liabilities 81,448,000 66,210,000
Advance Time Charter Revenues 5,981,000 7,694,000
Long-term Debt - Note F 1,093,449,000 985,032,000
Obligations Under Capital Leases 107,999,000 108,443,000
Minority Interest 1,457,000
Deferred Federal Income Taxes ($95,931,000
and $94,803,000) and Deferred Credits -
Note E 100,120,000 99,027,000
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 93,833,000 93,725,000
Retained Earnings 684,590,000 687,981,000
-------------- --------------
818,014,000 821,297,000
Less - cost of Treasury Stock - 3,334,055
and 3,355,390 shares 48,954,000 49,210,000
-------------- --------------
769,060,000 772,087,000
Less - net unrealized loss on
marketable securities 8,340,000 2,649,000
-------------- --------------
Total Shareholders' Equity 760,720,000 769,438,000
Other Comments - Note H
-------------- --------------
$2,149,717,000 $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>
<CAPTION>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(UNAUDITED)
MARCH MARCH
31, 1997 31, 1996
----------- -----------
<S> <C> <C>
Shipping Revenues:
Revenue from voyages $126,781,000 $124,321,000
Income attributable to bulk shipping joint
ventures - Note C 1,012,000 1,544,000
------------ ------------
127,793,000 125,865,000
------------ ------------
Shipping Expenses:
Vessel and voyage - Note D 78,548,000 77,758,000
Depreciation of vessels and amortization
of capital leases 19,668,000 18,154,000
Agency fees - Note D 8,844,000 8,483,000
General and administrative 3,129,000 2,992,000
------------ ------------
110,189,000 107,387,000
------------ ------------
Income from Vessel Operations 17,604,000 18,478,000
Equity in Results of Celebrity Cruise Lines
Inc.- Note B ( 1,472,000) (2,707,000)
Other Income (net) - Note G 7,771,000 10,234,000
------------ ------------
23,903,000 26,005,000
Interest Expense 19,816,000 16,411,000
------------ ------------
Income before Federal Income Taxes 4,087,000 9,594,000
Provision for Federal Income Taxes,
reflecting deferred provision of
$2,040,000 and $4,050,000 - Note E 2,040,000 4,250,000
------------ ------------
Net Income 2,047,000 5,344,000
Retained Earnings at beginning of period 687,981,000 707,220,000
------------ ------------
690,028,000 712,564,000
Cash Dividends Declared 5,438,000 5,434,000
------------ ------------
Retained Earnings at end of period $684,590,000 $707,130,000
============ ============
Per Share Amounts - Note H:
Net income $.06 $.15
==== ====
Cash dividends declared $.15 $.15
==== ====
<FN>
(See Accompanying Notes)
</TABLE>
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(UNAUDITED)
-------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH MARCH
31, 1997 31, 1996
----------- ------------
<S> <C> <C>
Net cash provided by Operating Activities $ 30,033,000 $ 20,765,000
----------- ------------
Cash Flows from Investing Activities:
Purchases of marketable securities (27,440,000) ( 440,000)
Proceeds from sales of marketable
securities 15,406,000 1,055,000
Proceeds from disposal of other
investments 907,000
Purchase of minority interest ( 5,102,000)
Additions to vessels ( 63,325,000)(a) ( 23,550,000)
Proceeds from disposal of vessels 47,887,000
Other - net (75,000) 4,000
------------ ------------
Net cash (used in)/provided by
investing activities ( 80,536,000) 25,863,000
------------ ------------
Cash Flows from Financing Activities:
Issuance of long-term debt 86,000,000 (a)
Payments on long-term debt and
obligations under capital leases (11,957,000) ( 69,616,000)
Cash dividends paid ( 5,438,000) ( 5,434,000)
Other - net 374,000 504,000
------------ ------------
Net cash provided by/(used in)
financing activities 68,979,000 ( 74,546,000)
------------ ------------
Net Increase/(decrease) in Cash 18,476,000 ( 27,918,000)
Cash, including interest-bearing
deposits, at beginning of period 109,120,000 160,578,000
------------ ------------
Cash, including interest-bearing
deposits, at end of period $127,596,000 $132,660,000
============ ============
<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 and for the three month period ended March 31, 1997 and
for the three month period ended March 31, 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 period ended March 31, 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
--------------------------------
MARCH DECEMBER
31, 1997 31, 1996
-------------- ---------------
<S> <C> <C>
Current Assets $ 60,806,000 $ 35,237,000
Vessels, net 1,101,445,000 1,013,415,000
Investment in Celebrity Cruise
Lines Inc. 237,783,000 239,255,000
Other Assets 114,081,000 113,798,000
-------------- --------------
1,514,115,000 1,401,705,000
-------------- --------------
Current Installments
of Long-term Debt, including
intercompany of $35,800,000 in
1997 and 1996 45,855,000 41,882,000
Other Current Liabilities 17,076,000 12,842,000
-------------- --------------
Total Current Liabilities 62,931,000 54,724,000
Long-term Debt, including
intercompany of $134,250,000
and $143,200,000, and Deferred
Credits, etc. 434,104,000 334,467,000
-------------- --------------
497,035,000 389,191,000
-------------- --------------
Net Assets $1,017,080,000 $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 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
-------------------------------
MARCH DECEMBER
31, 1997 31, 1996
-------------- --------------
<S> <C> <C>
Current assets $ 126,213,000 $ 114,084,000
Vessels, net 1,331,517,000 1,340,033,000
Other assets 29,240,000 30,878,000
-------------- --------------
1,486,970,000 1,484,995,000
Current installments -------------- --------------
of long-term debt 87,179,000 99,639,000
Other current liabilities 140,536,000 114,121,000
-------------- --------------
Total current liabilities 227,715,000 213,760,000
Long-term debt 776,753,000 785,749,000
-------------- --------------
1,004,468,000 999,509,000
-------------- --------------
Net assets (principally capital
contributions) $ 482,502,000 $ 485,486,000
============== ==============
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Revenue $129,373,000 $ 94,561,000
Costs and expenses 132,357,000 100,066,000
-------------- -------------
Net(loss) ($ 2,984,000) ($ 5,505,000)
============== =============
</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
March 31, 1997) and $3,900,000 (three months ended March 31, 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 May 12, 1997, CCLI has a commitment (which is nonrecourse to OSG) with
an approximate aggregate unpaid cost of $339,000,000 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 April 1, 1997). Long-term financing arrangements exist for
substantially all of the unpaid cost of this ship. Approximately 47%
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.
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
(See Notes on Following Pages)
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
Notes to Unaudited Condensed Financial Statements
Note C - Bulk Shipping Joint Ventures (Continued)
operations of the bulk shipping joint ventures follows:
<TABLE>
<CAPTION>
AS OF
--------------------------
MARCH DECEMBER
31, 1997 31, 1996
----------- -------------
<S> <C> <C>
Cash ($23,989,000 and $20,337,000) and
other current assets (including
$7,468,000 and $8,196,000 due
from owners) $ 37,076,000 $ 35,690,000
Vessels, net 214,050,000 150,108,000
Other assets (including $1,515,000
and $2,257,000 due from owners) 3,175,000 4,411,000
----------- ------------
254,301,000 190,209,000
------------ -----------
Current installments of long-term debt 7,500,000
Other current liabilities 6,619,000 4,535,000
------------ -----------
14,119,000 4,535,000
Long-term debt 52,500,000
------------ -----------
66,619,000 4,535,000
------------ -----------
Net assets (principally undistributed
net earnings) $187,682,000 $185,674,000
============ ============
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
---------- -----------
<S> <C> <C>
Revenue, primarily from
voyages (including $8,089,000 and
$7,752,000 from vessels chartered
to owners) $11,857,000 $10,701,000
Costs and expenses 9,849,000 7,979,000
----------- -----------
Net income $ 2,008,000 $ 2,722,000
=========== ===========
</TABLE>
(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
$1,524,000 (three months ended March 31, 1997) and $1,675,000 (three
months ended March 31, 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
$3,747,000 (three months ended March 31, 1997) and $16,790,000 (three
months ended March 31, 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. 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.
Federal income taxes paid (which related to a prior period) amounted to
$200,000 in the three months ended March 31, 1997. No payments of
Federal income taxes were required or made during the three month period
ended March 31, 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
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
March 31, 1997 to $25,500,000.
(See Notes on Following Pages)
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
Notes to Unaudited Condensed Financial Statements
Note F - Long-term Debt (continued):
As of March 31, 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 March 31,
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 major financial institutions covering
notional amounts aggregating approximately $94,000,000, 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 $15,837,000 (three months ended March 31, 1997)
and $14,335,000 (three months ended March 31, 1996), excluding
capitalized interest.
Note G - Other Income - net:
Other income - net consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Investment income:
Interest and dividends $ 2,150,000 $ 2,264,000
Gain on sale of securities 6,089,000 2,918,000
Provision for loss on investments ( 714,000) ( 2,857,000)
----------- ------------
7,525,000 2,325,000
Gain on disposal of vessels 7,523,000
Foreign currency exchange gain 56,000
Minority interest 519,000
Miscellaneous - net 246,000 ( 189,000)
----------- ------------
$ 7,771,000 $ 10,234,000
=========== ============
</TABLE>
(See Note on Following Page)
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
Notes to Unaudited Condensed Financial Statements
Note H - Other Comments:
1. Net income per share is based on the weighted average number of common
shares outstanding during each period, 36,250,000 shares (three months
ended March 31, 1997) and 36,232,000 shares (three months ended March
31, 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 $114,000,000 for such foreign
currency from April 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 markets, on average, were modestly
higher in the first quarter of 1997 than rates prevailing in the
comparable period of the preceding year and in the fourth quarter of
1996. Rates for VLCCs (over 200,000 dwt) and Suezmaxes (120,000 to
160,000 dwt) traded in a relatively narrow range during the first
quarter and early second quarter of 1997, close to their 1996 levels.
Rates for Aframaxes (80,000 to 120,000 dwt) in the Caribbean market (the
Company's primary Aframax trading area), which declined significantly
early in the first quarter of 1997 to a low of approximately $14,000 per
day, recovered in the latter part of February, peaking at over $40,000
per day in mid-March, then declined slowly to approximately $30,000 per
day by early May. Product tanker rates showed some seasonal strength in
early 1997 before trending downward as the first quarter progressed.
Dry bulk rates have remained at low levels in the first quarter and
early second quarter of 1997, although somewhat improved from late 1996.
The Company has an Aframax tanker pool with PDV Marina - the marine
transportation subsidiary of the Venezuelan state oil company - that
includes a total of 20 vessels (ten OSG vessels). To date, pool
operations have resulted in enhanced opportunities for backhaul cargoes
and reduced idle time, thereby improving the earnings of pool vessels.
As one indication of recent rate 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 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,
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
-------------------------------------------------
Income from Vessel Operations (continued)
- -----------------------------
condition and position of a particular vessel. Accordingly, the rates shown
are not necessarily indicative of rates actually achieved by the
Company's vessels during either period.
<TABLE>
<CAPTION>
Tankers 1997 1996
- ------- ---- ----
<S> <C> <C>
Modern VLCCs $29,800 $28,900
Suezmaxes (W. Africa - U.S.) 21,500 20,000
Aframaxes (Caribbean market) 24,700 20,800
Products carriers 17,800 15,200
Dry Bulk Carriers
- -----------------
Capesize (over 100,000 dwt) 15,000 12,400
Panamaxes (50-80,000 dwt) 9,700 9,000
</TABLE>
Income from vessel operations for the quarter ended March 31, 1997 decreased
by approximately $900,000 from the results for the first quarter of
1996. This decrease occurred due to a decline of approximately
$5,700,000 in income from foreign flag vessel operations, primarily as a
result of the substantial decline in rates earned by the Company's dry
cargo fleet. This decline was partially offset by the positive effect
on 1997 vessel operating results of one VLCC delivered in late 1996 and
one delivered in early 1997. The effect of vessels sold in 1996 and
early 1997 (including a joint venture tanker) is also reflected.
Operations of the U.S. flag fleet improved by approximately $4,800,000
in the first quarter of 1997 from the comparable 1996 period, primarily
as a result of increased utilization of the Company's U.S. flag tanker
fleet in the 1997 quarter, following the commencement 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
approximately 700 in the 1997 quarter from approximately 550 days in the
comparable 1996 period. Also, rates earned by certain U.S. flag tanker
tonnage were higher in 1997. The effect on revenues and expenses of a
lower proportion of voyage charters to time charters in both the U.S.
flag and the international fleets in the 1997 period as compared with
1996 is also reflected.
Equity in Results of Celebrity Cruise Lines Inc. ("CCLI")
- ---------------------------------------------------------
The Company's share of CCLI's results was a loss of approximately $1,500,000
for the first quarter of 1997 and a loss of approximately $2,700,000 for
the first quarter of 1996. These results reflect ongoing competitive
pressures as a number of cruise operators introduced new vessels into
the winter Caribbean market. The vessel Galaxy, which commenced
operating in late 1996, contributed to CCLI's modestly improved
performance as did generally increased occupancy levels and improved per
diem rates achieved on several vessels, partially offset by fewer
cruising days in the 1997 period as compared to 1996 for four vessels.
Other Income - Net
- ------------------
The details of other income are shown in Note G. Aggregate interest and
dividends decreased slightly in the 1997 quarter as compared to 1996
because of decreased amounts utilized for interest-bearing deposits and
investments, partially offset by slightly higher rates of return for
such deposits and investments. Gain on sale of securities approximated
$6,100,000 in the first quarter of 1997 compared to approximately
$2,900,000 in the corresponding 1996 period. In the first quarter of
1996, disposal of vessels resulted in a gain of approximately $7,500,000
(there were no gains or losses from sales of vessels in the 1997
period). Other income also reflects provisions for losses on
investments of approximately $700,000 and $2,900,000 in the 1997 and
1996 quarters, respectively.
Interest Expense
- ----------------
Interest expense increased in the first quarter of 1997 from the comparable
period of 1996 as a result of an increase in the average amount of debt
outstanding in the 1997 period 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 $1,400,000 in the 1997 period and $2,000,000
in the 1996 period of net benefits from the interest rate swaps referred
to below in Liquidity and Sources of Capital.
Provision for Federal Income Taxes
- ----------------------------------
The provision for federal income taxes in the first quarter of 1997 decreased
from the comparable period of 1996 primarily because of the decrease in
pretax income, adjusted to reflect items that are not subject to tax and
the dividends received deduction.
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.
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
--------------------------------------------------
Liquidity and Sources of Capital
- --------------------------------
Working capital at March 31, 1997 was approximately $108,000,000. Current
assets are highly liquid, consisting principally of cash, interest-
bearing deposits and receivables. The Company also has investments in
marketable securities carried as noncurrent assets, other than
securities included in restricted funds, with a market value of
approximately $28,000,000 at March 31, 1997.
Net cash provided by operating activities in the first three months of 1997
approximated $30,000,000 (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
$450,000,000 was used at March 31, 1997, 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.
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 March 31, 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
March 31, 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 $94,000,000, 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 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 $114,000,000 for such foreign currency from April 1, 1997
through 2004.
<PAGE>
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
---------------------------------------------------
Ratio of Earnings to Fixed Charges
- ----------------------------------
The ratio of earnings to fixed charges for the three months ended March 31,
1997 was 1.12 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 March 31, 1997 and for the three
months ended March 31, 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 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 March 31, 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 March 31, 1997
and the related condensed consolidated statements of income and
retained earnings and cash flows for the three month periods ended
March 31, 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 consolidated 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
May 12, 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: May 13, 1997 MORTON P. HYMAN
----------------- ---------------------------------
Morton P. Hyman
President
Date: May 13, 1997 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 three months ended March 31, 1997
(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 $ 4,087
Adjustments of income related to
companies owned less than 100% 44
Interest expense 19,816
Proportionate share of interest of
50% - owned companies 8,098
Interest component of an operating
lease 311
Amortization of capitalized interest 885
-------
Earnings $33,241
=======
Interest expense $19,816
Proportionate share of fixed charges
of 50% - owned companies 8,543
Capitalized interest 1,016
Interest component of an operating
lease 311
-------
Fixed charges $29,686
=======
Ratio of earnings to fixed charges 1.12X
=======
</TABLE>
EXHIBIT 15
----------
May 12, 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 May 12, 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 March 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not part
of the registration statements 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 127,596
<SECURITIES> 27,689
<RECEIVABLES> 31,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 189,297
<PP&E> 2,057,784
<DEPRECIATION> 680,283
<TOTAL-ASSETS> 2,149,717
<CURRENT-LIABILITIES> 81,448
<BONDS> 1,201,448
<COMMON> 39,591
0
0
<OTHER-SE> 721,129
<TOTAL-LIABILITY-AND-EQUITY> 2,149,717
<SALES> 0
<TOTAL-REVENUES> 134,092
<CGS> 0
<TOTAL-COSTS> 110,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,816
<INCOME-PRETAX> 4,087
<INCOME-TAX> 2,040
<INCOME-CONTINUING> 2,047
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,047
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
