SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-6479-1
OVERSEAS SHIPHOLDING GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2637623
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1114 Avenue of the Americas, New York, New York 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-869-1222
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock - (par New York Stock Exchange
value $1.00 per share) Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of the Common Stock held by non-affiliates
of the registrant, based on the closing price on the New York Stock
Exchange on March 20, 1998: $549,199,429. (For this purpose, all
outstanding shares of Common Stock have been considered held by non-
affiliates, other than the shares beneficially owned by directors,
officers and certain 5% shareholders of the registrant; certain of
such persons disclaim that they are affiliates of the registrant.)
Number of shares of Common Stock outstanding at March 20, 1998:
36,792,563.
Documents incorporated by reference: portions of the registrant's
Annual Report to Shareholders for 1997 (incorporated in Parts I and
II); portions of the definitive proxy statement to be filed by the
registrant in connection with its 1998 Annual Meeting of
Shareholders (incorporated in Part III).
<PAGE>
ITEM 1. BUSINESS
- ------ --------
Overseas Shipholding Group, Inc. (the "registrant") and
its subsidiaries (collectively the "Company") constitute a major
international shipping enterprise owning and operating a
diversified fleet of oceangoing bulk cargo vessels (principally
tankers). The Company's total bulk fleet consists of 55 vessels
having an aggregate carrying capacity of approximately 6,450,400
deadweight tons ("DWT"), including five ships aggregating
approximately 1,386,000 DWT which the Company owns jointly with
others and in which the Company has a 50% interest.* Fourteen
vessels in the Company's fleet, which total approximately 917,850
DWT and represent about 23% of the Company's investment in ships
at cost, are registered under the U.S. flag; the balance are
registered under foreign flags. Forty-four tankers account for
86% of the total tonnage, and ten dry bulk carriers (including
six which are part of the disposal program described under
"Significant Events" below) and a pure car carrier account for
the remainder. A single company and its subsidiaries, for and
under the direction and control of the Company, act as
agents in respect of the vessels of the registrant's subsidiaries
and certain of its bulk shipping joint ventures.
- ----------------------------
* Except as otherwise noted, references herein to the
Company's "total bulk fleet" are as of March 10, 1998. Such
fleet includes four vessels that are leased from financial
institutions under bareboat charters having remaining terms
of from 5 to 14 years, but does not include a 29,300 DWT
petroleum barge which is owned by a partnership in which the
Company has a 50% interest, or two 120,800 DWT dry bulk
carriers, which are part of the disposal program described
under "Significant Events" below, both under contracts of
sale for delivery later in 1998.
<PAGE>
The bulk shipping industry is highly competitive and
fragmented, with no one shipping group owning more than 2% of the
world fleet. The Company ranks among the world's five largest
owners of tankers both in terms of the number of vessels and in
carrying capacity.
The Company charters its ships to commercial shippers
and U.S. and foreign governmental agencies for the carriage of
bulk commodities, primarily crude oil, petroleum products, grain,
coal and iron ore. Generally, each ship is chartered for a
specific period of time ("time charter"), or for a specific
voyage or voyages ("voyage charter"). Under the terms of time
and voyage charters covering the Company's vessels, the ships are
equipped and operated by the Company and are manned by personnel
in the Company's employ. From time to time, the Company also has
some of its vessels on bareboat charter. Under the terms of
bareboat charters, the ships are chartered for fixed periods of
time (generally medium- or long-term) during which they are
operated and manned by the charterer.
The Company's ships engage in carriage of cargo in
various parts of the world. Revenues from carriage of petroleum
and its derivatives represented approximately 85% of the voyage
revenues of the Company in 1997, 82% in 1996 and 77% in 1995.
Revenues from carriage of dry cargo accounted for the balance of
such voyage revenues for each of those years. The carriage of
petroleum and its derivatives also accounted for the majority of
the voyage revenues of the Company's bulk shipping joint
ventures. The relative contributions to voyage revenues of the
various types of cargoes carried varied from year to year,
depending upon demand for particular kinds of carriage and the
purposes for which and the terms on which the ships are
chartered. The Company does not employ any container or similar
vessels in its operation.
As of March 10, 1998, with the exception of one small
U.S.-flag crude carrier and two small U.S.-flag dry bulk
carriers, all of the vessels in the Company's fleet were
employed. Forty-two of these vessels were chartered to non-
governmental commercial shippers. These 42 ships include ten
U.S.-flag ships and 32 foreign-flag ships, which together
represent approximately 80% of the combined carrying capacity of
the Company's fleet. Of the remaining ships in the Company's
fleet, one U.S.-flag ship and nine foreign-flag ships were under
charter to foreign or U.S. governmental agencies.
U.S.-FLAG AND FOREIGN-FLAG OPERATIONS
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The Company's U.S.-flag and foreign-flag bulk fleets
operate substantially in separate markets. The Company believes
that ownership of a diversified fleet, with vessels of different
flags, types and sizes and with operating flexibility, enables
the Company to take advantage of chartering opportunities for
domestic and international shipment of bulk commodities and
thereby cushions the effects of weakness in particular markets.
Information about the Company's operations under U.S. and foreign
flags for the three years ended December 31, 1997 is set forth in
the table in Note B to the Company's financial statements
incorporated by reference in Item 8 below. For information
regarding the revenues and net income of the Company's bulk
shipping joint ventures for the three years ended December 31,
1997, see Note E to the Company's financial statements
incorporated by reference in Item 8 below.
In each of the years 1997, 1996 and 1995 the Company
had one charterer, BP Oil Company, USA ("BP"), from which it had
revenues in excess of 10% of revenues from voyages, amounting in
1997 to approximately $118 million, in 1996 to approximately
$98.3 million, and in 1995 to approximately $49.5 million. As a
result of a series of purchases in late 1996 through early 1998,
the Company now owns 100% of the four U.S.-flag crude carriers on
long-term charter to BP that were previously bareboat chartered
from financial institutions under capital leases to companies in
which the Company had an 80% interest.
U.S. DOMESTIC AND PREFERENCE TRADES
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Under the Jones Act, shipping between United States
coastal ports, including the movement of Alaskan oil, is reserved
by law primarily to U.S.-flag vessels, owned by U.S. citizens,
crewed by U.S. seafarers, built in the United States and operated
without operating differential subsidies. With a fleet that
includes eight crude carriers and three products carriers, the
Company is the largest independent owner of unsubsidized U.S.-
flag tankers and is a major participant in the Alaskan oil trade.
Also included in the Company's U.S.-flag fleet are two dry bulk
carriers that participate in the preference trades and one car
carrier that is on long-term charter transporting vehicles from
Japan.
Demand for tonnage in the Alaskan oil trade depends on
the volume of crude shipped out of Alaska and its distribution to
ports at varying distances from the source. The principal source
of employment for U.S.-flag crude carriers is the transportation
of Alaskan North Slope ("ANS") crude oil to ports on the U.S.
West Coast. In 1997, ANS crude oil shipments
declined for the sixth consecutive year as production dropped 6%
to 1.39 million barrels per day. Over the next several years,
enhanced recovery techniques and additional exploration are
expected to slow the rate at which production declines.
Since May 1996, following the implementation of
legislation lifting the long-standing ban on exports of ANS crude
oil, small volumes of ANS crude have been exported to Far Eastern
destinations. In the spring of 1996, six of the Company's U.S.-
flag crude carriers began long-term charters to BP. The charters
cover the full remaining depreciable lives of five vessels
extending in most cases until 2002, and a substantial portion of
the depreciable life of the sixth vessel. This employment should
provide a steady level of core earnings for the Company's U.S.-
flag fleet over the next few years. In addition, the Company is
continuing its close working relationship with its largest
customer, BP, assisting BP with its program to construct new
million-barrel-capacity, double-hulled U.S.-flag tankers to
transport ANS crude oil. In July 1997, BP awarded a vessel
design development contract to National Steel and Shipbuilding
Company.
United States military cargo must be transported on
U.S.-flag vessels, if available. The Merchant Marine Act, 1936,
as amended, requires that preference be given to U.S.-flag
vessels, if available at reasonable rates, in the shipment of at
least half of all U.S. government-generated cargoes and 75% of
food-aid cargoes.
In recent years there have been calls by members of
Congress and others to reduce or eliminate cargo preference and,
in some cases, to weaken the long-standing requirement that U.S.
coastwise trade be conducted by U.S.-flag Jones Act ships. If
such changes were implemented, they would adversely affect the
already diminished U.S.-flag merchant marine.
Vessels in the Company's fleet have been chartered from
time to time to the Military Sealift Command of the United States
Navy ("MSC"), and to recipient nations for the carriage of grain
and other cargoes under United States foreign aid and
agricultural assistance programs. Charters to MSC reflect in
large part the requirements of the United States military for
waterborne carriage of cargoes, and, accordingly, depend in part
on world conditions and United States foreign policy.
In late 1996, the Company's U.S.-flag car carrier,
OVERSEAS JOYCE, was selected to participate in the new U.S.
Maritime Security Program, which ensures that militarily-useful
U.S.-flag ships are available to the Department of Defense in the
event of war or national emergency. Under the program, the
Company receives approximately $2.1 million per year through
2005, subject to annual Congressional appropriations.
EMPLOYMENT OF VESSELS
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The Company competes with other owners of U.S. and
foreign-flag tankers and dry cargo ships operating on an
unscheduled basis similar to the Company and, to some extent,
with owners operating cargo ships on a scheduled basis. Because
of increasing environmental concerns and decreasing control over
their sources of oil, the major oil companies have sharply
reduced their tanker ownership in recent years.
In chartering vessels to the United States government,
the Company competes primarily with other owners of U.S.-flag
vessels. Demand for U.S.-flag product carriers is closely linked
to changes in regional energy demands and in refinery activity.
These vessels also compete with pipelines and oceangoing barges
and are affected by the level of imports on foreign-flag product
carriers. In the spot and short-term charter market, the
Company's vessels compete with all other vessels of a size and
type required by a charterer that can be available at the date
specified. In the spot market, competition is based primarily on
price. Nevertheless, within a narrow price band, factors related
to quality of service and safety enter into a potential
customer's decision as to which vessel to charter.
Prevailing rates for charters of particular types of
ships are subject to fluctuations depending on conditions in
United States and international bulk shipping markets and other
factors. Although medium- and long-term charter business avoids,
to some extent, the sharp rate fluctuations characteristic of the
spot or voyage markets, the availability of such business in
international markets in recent years has been relatively
limited, and, when available, rates of return have generally been
unattractive.
For additional information as of March 10, 1998
regarding the 55 vessels in the Company's total bulk fleet,
including information as to the employment of such vessels, see
the table in the "To Our Shareholders" section (page 2), and the
"International Bulk Fleet" and "U.S. Bulk Fleet" tables (pages 12
and 13), of the registrant's Annual Report to Shareholders for
1997, which tables are incorporated herein by reference.
ENVIRONMENTAL MATTERS RELATING TO BULK SHIPPING
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Since 1990, the tanker industry has experienced a more
rigorous regulatory environment. Safety and pollution concerns
have led to a greater emphasis on quality and to the
strengthening of the inspection programs of classification
societies, governmental authorities and charterers. Charterers
in Japan and South Korea, the two largest Very Large Crude
Carrier (VLCCs - greater than 200,000 DWT) charterers in 1997,
have demonstrated a clear preference for modern tonnage,
encouraged by various governmental policies in both countries.
OPA 90. The Oil Pollution Act of 1990 ("OPA 90")
significantly expands the potential liability of a vessel owner
or operator (including a bareboat charterer), for damage
resulting from spills in U.S. waters (up to 200 miles offshore).
OPA 90 applies to all U.S. and foreign-flag vessels.
Under OPA 90, a vessel owner or operator is liable
without fault for removal costs and damages, including economic
loss without physical damage to property, up to $1,200 per gross
ton of the vessel. When a spill is proximately caused by gross
negligence, willful misconduct or a violation of a Federal
safety, construction or operating regulation, liability is
unlimited. OPA 90 did not preempt State law, and therefore States
remain free to enact legislation imposing additional liability.
Virtually all coastal States have enacted pollution prevention,
liability and response laws, many with some form of unlimited
liability.
In addition, OPA 90 imposes a requirement that tankers
calling at U.S. ports have double hulls. This requirement applied
to newly constructed tankers contracted for after June 1990, or
delivered after 1993. Beginning in 1995, the double-hull
requirement was phased in for existing tankers. The age
requirement is reduced in stages so that by the year 2000,
tankers of at least 30,000 gross tons over 23 years old (and
tankers between 15,000 and 30,000 gross tons over 30 years old)
must have double hulls, and by 2010, all tankers must have double
hulls, except that tankers with double bottoms or double sides
are afforded an additional five years for compliance but must
comply no later than the year 2015. Tankers discharging at a
deepwater port or lightering more than 60 miles offshore will not
be required to have double hulls until 2015.
OPA 90 also requires owners and operators of vessels
calling at U.S. ports to adopt contingency plans for responding
to a worst case oil spill under adverse weather conditions. The
plans must include contractual commitments with clean-up response
contractors in order to ensure an immediate response to an oil
spill. Furthermore, training programs and drills for vessel,
shore and response personnel are required. The Company has
developed and timely filed its vessel response plans with the
U.S. Coast Guard and has received approval of such plans.
Under U.S. Coast Guard financial responsibility
regulations issued pursuant to OPA 90, all vessels entering U.S.
waters are required to obtain Certificates of Financial
Responsibility ("COFRs") from the Coast Guard demonstrating
financial capability to meet potential oil spill liabilities. All
the vessels in the Company's U.S. and foreign-flag fleets have
obtained COFRs.
INTERNATIONAL REQUIREMENTS. The Company's ships undergo
routine and rigorous in-house safety reviews. They are also
routinely inspected by port authorities, classification societies
and major oil companies. Following an extensive program by the
Company's agent, all of the Company's vessels are now certified
under the new standards reflected in ISO 9002's quality assurance
program, and International Safety Management's (ISM) safety and
pollution prevention protocols.
In addition to the OPA 90 requirements, in worldwide
trade MARPOL regulations of the International Maritime
Organization (IMO) require double hulls or equivalent tanker
designs for newbuildings ordered after 1993 and mandate double
hulls for existing tankers at 30 years of age. Under MARPOL
Regulation 13G, existing tankers upon reaching 25 years of age,
are required to either have protectively located segregated
ballast tanks or double bottom spaces not used for cargo carriage
covering at least 30% of the cargo tank area, or they must
utilize hydrostatically balanced loading. These tanker
modifications will reduce the carrying capacity of the affected
vessel. Given the large number of existing VLCCs that were
delivered in the mid-1970s, these pollution protection measures
should lead to an increase in scrapping.
INSURANCE. Consistent with the currently prevailing
practice in the industry, the Company presently carries $700
million of pollution coverage per occurrence on every vessel in
its fleet. While the Company has historically been able to
obtain such insurance at commercially reasonable rates, no
assurances can be given that such insurance will continue to be
available in the future.
BULK SHIPPING MARKETS
- ---------------------
Information regarding the international bulk shipping
markets and the markets for U.S.-flag vessels, including the
Alaskan oil trade, is set forth in the text of the "Global Bulk
Shipping Markets" section (pages 4, 7, 8 and 11) of the
registrant's Annual Report to Shareholders for 1997, which
information is incorporated herein by reference.
RENEWAL OF FLEET
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As part of the Company's ongoing modernization program,
the Company continually reviews its fleet profile. This entails
periodically selling older vessels, placing newbuilding orders
and purchasing existing modern tonnage, when available at
attractive prices.
In early 1997, the Company completed a major
newbuilding program, which included the delivery over the
preceding 15 months of six double-hulled VLCCs, as well as two
160,000 DWT Capesize bulk carriers. Today 60% of the Company's
tanker fleet is protected by double sides, double bottoms or
double hulls, and the average age of the Company's international
tanker fleet is only nine years, compared with 14 years for the
world tanker fleet. The Company's program to dispose of ten of
its older and less competitive dry bulk vessels, described under
"Significant Events" below, also reflects the Company's long-
standing policy of fleet modernization.
The Company's recently completed newbuilding program,
together with the selective upgrading of the Company's fleet
through acquisition and disposition of existing tonnage, reflects
changes that the Company makes from time to time in light of its
continuing review of changing market conditions and the needs of
its customers. All of the ships in the Company's fleet have been
either built to its exacting specifications or purchased after
stringent inspection. These vessels are designed for safe,
efficient and environmentally-friendly operation. Features in
the tankers in the recently completed newbuilding program such as
double hulls, satellite navigation systems and increased steel in
areas of high stress, have been included to improve their safety
and efficiency. There is no assurance that the Company's fleet
will expand, or that the Company will acquire vessels or place
orders for the construction of new vessels, to the same extent as
in the past.
POOLING ARRANGEMENT
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In 1997, the Company's tanker pooling arrangement with
PDV Marina, the marine transportation arm of the Venezuelan state
oil company, completed its first full year of operation. The
pool now includes the entire Aframax (80,000 to 120,000 DWT)
tanker fleets of both parties - ten vessels each. Through the
size and scope of pool operations, and with an assured volume of
PDV Marina-controlled cargoes, the pool has been able to enhance
opportunities for backhaul cargoes and reduce vessel idle time.
The pool has entered into a number of significant contracts of
affreightment which further improve the earnings of pool vessels.
Today Venezuela is the largest supplier of oil to the United
States, with plans to significantly expand production, refining
and marketing operations in the years ahead.
EMPLOYEES
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As of March 10, 1998, the Company employed
approximately 2,000 seagoing personnel to operate its ships.
The Company has collective bargaining agreements with three
different maritime unions, covering seagoing personnel employed
on the Company's U.S.-flag vessels. These agreements are in
effect through June 15, 2001 with one of the unions and through
June 15, 2000 with two of the unions. Under the collective
bargaining agreements, the Company is obligated to make
contributions to pension and other welfare programs. The Company
believes that its relations with its employees are satisfactory.
U.S. SUBSIDIES
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To encourage private investment in U.S.-flag ships, the
Merchant Marine Act of 1970 permits deferral of taxes on earnings
deposited into capital construction funds and amounts earned
thereon, which can be used for the construction or acquisition
of, or retirement of debt on, qualified U.S.-flag vessels
(primarily those limited to United States foreign and
noncontiguous domestic trades). The registrant is a party to an
agreement under the Act. Under the agreement, the general
objective is (by use of assets accumulated in the fund) for three
vessels to be constructed or acquired by the end of 2004. If the
agreement is terminated or amounts are withdrawn from the capital
construction fund for non-qualified purposes, such amounts will
then be subject to Federal income taxes. Monies can remain tax-
deferred in the fund for a maximum period of 25 years (commencing
January 1, 1987 for deposits prior thereto). See the second
paragraph of Note J to the Company's financial statements
incorporated by reference in Item 8 below.
SIGNIFICANT DEVELOPMENTS
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Reflected in the Company's 1997 results are the effects
of two significant events that occurred during the year:
In July 1997, the Company sold its 49% ownership
interest in Celebrity Cruise Lines Inc., the Company's joint
venture in the passenger cruise business which it entered into in
late 1992, to Royal Caribbean Cruises Ltd. ("RCCL") for
approximately $120,000,000 in cash and 3,650,000 shares of RCCL
common stock, representing approximately 5% of RCCL's then
outstanding common stock. The cash portion of the proceeds was
used to repay indebtedness. In early March 1998, the Company
sold its 3,650,000 shares in RCCL through an underwritten public
offering. The after-tax proceeds from the sale, approximately
$180,000,000, will be used by the Company to further reduce
indebtedness.
In November 1997, the Company announced a program for
the disposal of ten older and less competitive dry bulk vessels
for which it established an after-tax reserve at the end of the
third quarter of 1997 of $17,200,000. This program is expected to
generate proceeds of approximately $140,000,000, which the
Company intends to apply toward further reduction of
indebtedness. To date, two vessels have been sold and two
additional vessels are under contracts of sale, with aggregate
proceeds anticipated to be approximately $53,000,000.
FORWARD-LOOKING STATEMENTS
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This Form 10-K, including portions of the registrant's
Annual Report to Shareholders for 1997 incorporated herein by
reference, contains forward-looking statements relating to the
Company's prospects and the outlook for the tanker and dry cargo
markets, including its ongoing dry bulk disposal program. There
are a number of factors, risks and uncertainties that could cause
actual results to differ from the expectations reflected in these
forward-looking statements, including changes in production of or
demand for oil and petroleum products, and various dry bulk
commodities, either generally or in particular regions; greater
than anticipated levels of newbuilding orders or less than
anticipated rates of scrapping; timing of the Company's dry bulk
disposal program or the amount of actual proceeds generated by
the program; changes in trading patterns for particular
commodities significantly impacting overall tonnage requirements;
changes in the rates of growth of the world and various regional
economies; risks incident to vessel operation, including
pollution; and unanticipated changes in laws and regulations.
Forward-looking statements in the registrant's Annual Report to
Shareholders for 1997 and written and oral forward looking
statements attributable to the Company or its representatives
after the date of this Form 10-K are qualified in their entirety
by the cautionary statement contained in this paragraph and in
other reports hereafter filed by the registrant with the
Securities and Exchange Commission.
ITEM 2. PROPERTIES
- ------ ----------
See Item 1.
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
The Company is a party, as plaintiff or defendant, to
various suits in the ordinary course of business for monetary
relief arising principally from personal injuries, collision or
other casualty and to claims arising under charter parties. All
such personal injury, collision and casualty claims against the
Company are fully covered by insurance (subject to deductibles
not material in amount). Each of the other claims involves an
amount which in the opinion of management is not material in
relation to the consolidated current assets of the Company as
shown in the Company's Consolidated Balance Sheet as at December
31, 1997, incorporated herein by reference. There have not been
any material developments in the investigation reported on in
Item 1 of Part II of the registrant's Form 10-Q report for the
quarter ended June 30, 1996 and incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
Has Served as
Name Age Position Held Such Since
- ---- --- ------------- -------------
Morton P. Hyman 62 President October 1971
Robert N. Cowen 49 Senior Vice February 1993
President,
Secretary June 1982
Myles R. Itkin 50 Senior Vice June 1995
President, Chief
Financial Officer
and Treasurer
Alan Carus 59 Controller December 1987
Messrs. Hyman and Cowen are directors of the registrant
and members of the Finance and Development Committee of its Board
of Directors. The term of office of each executive officer
continues until the first meeting of the Board of Directors of
the registrant immediately following the next annual meeting of
its stockholders, to be held in June 1998, and until the election
and qualification of his successor. There is no family
relationship between the executive officers.
Mr. Morton P. Hyman has served as a director of the
registrant since 1969. Mr. Robert N. Cowen has served as a
director of the registrant since June 1993, as an officer and
director of certain of the registrant's subsidiaries during the
past five years, and as a director of Maritime Overseas
Corporation ("MOC"), the agent for the Company's vessels referred
to in the first paragraph of Item 1, during the past five years.
Prior to joining the registrant in June 1995, Mr. Myles R. Itkin
was employed for one year by Alliance Capital Management L.P. as
Senior Vice President-Finance, and prior thereto was employed by
Northwest Airlines, Inc. as Vice President-Finance. Mr. Alan
Carus has served as an officer and director of certain of the
registrant's subsidiaries during the past five years; he has also
served as a senior officer of MOC during the past five years.
PART II
--------
The information called for by Items 5 through 8 is
incorporated herein by this reference from the following
respective portions and page numbers of the registrant's Annual
Report to Shareholders for 1997:
ITEM INCORPORATED FROM:
---- -----------------
ITEM 5.Market for Registrant's Last three paragraphs under
- ------ Common Equity and Related "Shareholder Information" and
Stockholder Matters the "Stock Price and Dividend
Data" table, all on inside
back cover (page 35);
ITEM 6.Selected Financial Data The information for the years
- ------ 1993 through 1997 under
"Eleven-Year Statistical
Review" section (pages 32 and
33).
ITEM 7.Management's Discussion Information set forth in text
- ------ and Analysis of Financial of "Management's Discussion
Condition and Results of and Analysis" section (pages
Operations 15 through 18).
ITEM 8.Financial Statements and "Consolidated Statements of
- ------ Supplementary Data Operations", "Consolidated
Balance Sheets", "Consolidated
Statements of Cash Flows",
"Consolidated Statements of
Changes in Shareholders'
Equity", "Notes to
Consolidated Financial
Statements" and "Report of
Independent Auditors" sections
(pages 19 through 31).
ITEM 9.Changes in and Disagreements with Accountants on Accounting
- ------ and Financial Disclosure
None.
PART III
--------
The information called for by Items 10 through 13,
except for the information set forth in Part I above regarding
the executive officers of the registrant, is incorporated herein
by this reference from the following respective portions of the
definitive proxy statement to be filed by the registrant in
connection with its 1998 Annual Meeting of Shareholders.
ITEM INCORPORATED FROM:
---- -----------------
ITEM 10. Directors and Executive "Election of Directors"
- ------- Officers of the Registrant
ITEM 11. Executive Compensation "Compensation and Certain
- ------- Transactions"*
ITEM 12. Security Ownership of "Election of Directors"
- ------- Certain Beneficial Owners and "Information as to
and Management Stock Ownership"
ITEM 13. Certain Relationships and "Election of Directors" and
- ------- Related Transactions "Compensation and Certain
Transactions"*
___________
* Excluding material under "Stockholder Return Performance
Presentation" and "Executive Compensation Report of the
Executive Compensation Committee and the Stock Option
Committee".
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- Form 8-K
(a) See the accompanying index to financial statements
and schedules, and the accompanying Exhibit Index.
(b) Reports on Form 8-K: The registrant did not file
any report on Form 8-K during the quarter ended December 31,
1997.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
By: S/MYLES R. ITKIN
----------------------------------
Myles R. Itkin
Senior Vice President,
Chief Financial Officer & Treasurer
Date: March 25, 1998
<PAGE> Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated. Each of such persons appoints Morton P. Hyman
and Myles R. Itkin, and each of them, as his agents and attorneys-
in-fact, in his name, place and stead in all capacities, to sign
and file with the SEC any amendments to this report and any
exhibits and other documents in connection therewith, hereby
ratifying and confirming all that such attorneys-in-fact or either
of them may lawfully do or cause to be done by virtue of this power
of attorney.
By S/MORTON P. HYMAN
-------------------------------
Morton P. Hyman, Principal
Executive Officer and Director
By S/MYLES R. ITKIN
-------------------------------
Myles R. Itkin, Principal
Financial Officer
By S/ALAN CARUS
-------------------------------
Alan Carus, Controller
By S/ROBERT N. COWEN
-------------------------------
Robert N. Cowen, Director
By S/RAN HETTENA
-------------------------------
Ran Hettena, Director
By S/GEORGE C. BLAKE
-------------------------------
George C. Blake, Director
By S/SOLOMON N. MERKIN
-------------------------------
Solomon N. Merkin, Director
By S/WILLIAM L. FROST
-------------------------------
William L. Frost, Director
By S/THOMAS H. DEAN
-------------------------------
Thomas H. Dean, Director
By S/JOEL I. PICKET
-------------------------------
Joel I. Picket, Director
Date: March 25, 1998
<PAGE>
FORM 10-K--ITEM 14(a) (1) and (2)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Overseas
Shipholding Group, Inc. and subsidiaries, included in the annual
report of the registrant to its shareholders for the year ended
December 31, 1997 are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Operations -- Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows--
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 1997, 1996 and 1995
Notes to Financial Statements --December 31, 1997
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable,
and therefore have been omitted.
<PAGE>
Exhibit Index
3(i) Certificate of Incorporation of the registrant,
as amended to date (filed as Exhibit 3(a) to
the registrant's Form 10-K for 1988 and
incorporated herein by reference).
3(ii) By-Laws of the registrant, as amended to date
(filed via EDGAR as Exhibit 3(ii) to the
registrant's Form 10-K for 1993 and
incorporated herein by reference).
4(a) Second Amended and Restated Credit Agreement
dated as of August 19, 1997 (previously amended
and restated as of October 31, 1994), among the
registrant, two subsidiaries of the registrant
and certain banks (filed via EDGAR as Exhibit 4
to the registrant's Form 10-Q for the quarter
ended September 30, 1997 and incorporated
herein by reference).
4(b) Form of Note Purchase Agreement dated as of
March 1, 1992 between the registrant and each
of the purchasers of its senior notes (filed as
Exhibit 4(b) to the registrant's Form 10-K for
1991 and incorporated herein by reference).
4(c) Form of Note Purchase Agreement dated as of
June 1, 1993 between the registrant and each of
the purchasers of its senior notes (filed via
EDGAR as Exhibit 4 to the registrant's Form 10-
Q for the quarter ended June 30, 1993 and
incorporated herein by reference).
4(d)(1) Form of Indenture dated as of December 1, 1993
between the registrant and The Chase Manhattan
Bank (National Association) providing for the
issuance of debt securities by the registrant
from time to time (filed via EDGAR as Exhibit
4(d)(1) to the registrant's Form 10-K for 1993
and incorporated herein by reference).
4(d)(2) Resolutions dated December 2, 1993 fixing the
terms of two series of debt securities issued
by the registrant under the Indenture (filed
via EDGAR as Exhibit 4(d)(2) to the
registrant's Form 10-K for 1993 and
incorporated herein by reference).
4(d)(3) Form of 8% Notes due December 1, 2003 of the
registrant (filed via EDGAR as Exhibit 4(d)(3)
to the registrant's Form 10-K for 1993 and
incorporated herein by reference).
4(d)(4) Form of 8-3/4% Debentures due December 1, 2013
of the registrant (filed via EDGAR as Exhibit
4(d)(4) to the registrant's Form 10-K for 1993
and incorporated herein by reference).
NOTE: The Exhibits filed herewith do not
include other instruments authorizing long-term
debt of the registrant and its subsidiaries,
none of which exceeds 10% of total assets of
the registrant and its subsidiaries on a
consolidated basis. The registrant agrees to
furnish a copy of each such instrument to the
Commission upon request.
10(a) Form of Agency Agreements between Maritime
Overseas Corporation and each of the
registrant's majority-owned subsidiaries that
owns or operates a U.S.-flag vessel (refiled as
Exhibit 10(a) to the registrant's Form 10-K for
1989 and incorporated herein by reference).
10(b) Form of Agency Agreements between Maritime
Overseas Corporation and each of the
registrant's majority-owned subsidiaries that
owns or operates a foreign-flag vessel (refiled
as Exhibit 10(b) to the registrant's Form 10-K
for 1989 and incorporated herein by reference).
10(c)(1) Form of General Services Agreement dated
December 31, 1969 between the registrant and
Maritime Overseas Corporation (the form of
which was filed as Exhibit 13(3) to
Registration Statement No. 2-34124 and is
incorporated herein by reference).
10(c)(2) Form of Amendment dated as of January 1, 1975
to General Services Agreement between the
registrant and Maritime Overseas Corporation
(refiled via EDGAR as Exhibit 10(d)(2) to the
registrant's Form 10-K for 1994 and
incorporated herein by reference).
10(c)(3) Amendment dated January 10, 1980 to General
Services Agreement between the registrant and
Maritime Overseas Corporation (refiled as
Exhibit 10(d)(3) to the registrant's Form 10-K
for 1989 and incorporated herein by reference).
10(c)(4) Form of Amendment dated as of January 1, 1981
to General Services Agreement between the
registrant and Maritime Overseas Corporation
(refiled as Exhibit 10(d)(4) to the
registrant's Form 10-K for 1990 and
incorporated herein by reference).
*10(c)(5) Form of Amendment dated as of October 1, 1987
to General Services Agreement between the
registrant and Maritime Overseas Corporation
(previously filed more than 10 years ago and
refiled herewith).
10(c)(6) Form of Amendment dated as of July 1, 1994 to
General Services Agreement between the
registrant and Maritime Overseas Corporation
(filed via EDGAR as Exhibit 10(d)(6) to the
registrant's Form 10-K for 1994 and
incorporated herein by reference).
10(d)(1) Form of Letter Agreement dated as of August 9,
1973 between the registrant and Maritime
Overseas Corporation (refiled via EDGAR as
Exhibit 10(e)(1) to the registrant's Form 10-K
for 1994 and incorporated herein by reference).
10(d)(2) Form of Letter Agreement dated as of August 9,
1973 by Maritime Overseas Corporation (refiled
via EDGAR as Exhibit 10(e)(2) to the
registrant's Form 10-K for 1994 and
incorporated herein by reference).
10(d)(3) Form of Letter Agreement dated as of August 9,
1973 by Maritime Overseas Corporation (refiled
via EDGAR as Exhibit 10(e)(3) to the
registrant's Form 10-K for 1994 and
incorporated herein by reference).
10(d)(4) Form of Letter Agreement dated as of January 1,
1981 between the registrant and Maritime
Overseas Corporation (refiled as Exhibit
10(e)(4) to the registrant's Form 10-K for 1991
and incorporated herein by reference).
10(e)(1) Service Agreement dated January 27, 1983
between Cambridge Tankers, Inc. and Maritime
Overseas Corporation relating to the OVERSEAS
BOSTON (refiled as Exhibit 10(f)(2) to the
registrant's Form 10-K for 1992 and
incorporated herein by reference).
10(e)(2) Form of Service Agreement between respective
subsidiaries of the registrant and Maritime
Overseas Corporation relating to the OVERSEAS
NEW ORLEANS and OVERSEAS PHILADELPHIA (not
filed--substantially identical in all material
respects to the agreement listed as Exhibit
10(e)(1) hereto except as to the parties, the
vessels and the dates).
10(f)(1) Form of Management Agreements between Maritime
Overseas Corporation and each of First United
Shipping Corporation, Interocean Tanker
Corporation, Second United Shipping
Corporation and Third United Shipping
Corporation (refiled via EDGAR as Exhibit
10(g)(1) to the registrant's Form 10-K for 1994
and incorporated herein by reference).
10(f)(2) Form of Amendment No. 1 and Amendment No. 2 to
Management Agreements between Maritime Overseas
Corporation and each of First United Shipping
Corporation, Interocean Tanker Corporation,
Second United Shipping Corporation and Third
United Shipping Corporation (refiled via EDGAR
as Exhibit 10(g)(2) to the registrant's Form 10-
K for 1995 and incorporated herein by
reference).
10(f)(3) Form of Amendment No. 3 to Management
Agreements between Maritime Overseas
Corporation and each of First United Shipping
Corporation, Interocean Tanker Corporation,
Second United Shipping Corporation and Third
United Shipping Corporation (filed via EDGAR as
Exhibit 10(g)(3) to the registrant's Form 10-K
for 1994 and incorporated herein by reference).
10(f)(4) Form of Company Service Employees Agreement
between Maritime Overseas Corporation and each
of First Union Tanker Corporation and Second
Union Tanker Corporation (filed via EDGAR as
Exhibit 10(g)(4) to the registrant's Form 10-K
for 1994 and incorporated herein by reference).
10(g)(1) Agreement dated April 1, 1992 between the
registrant and Maritime Overseas Corporation
(filed as Exhibit 10 to the registrant's Form
10-Q for the quarter ended March 31, 1992 and
incorporated herein by reference).
10(g)(2) Letter Agreement dated November 9, 1993
amending the Agreement dated April 1, 1992
referred to above (filed via EDGAR as Exhibit
10(h)(2) to the registrant's Form 10-K for 1993
and incorporated herein by reference).
10(h) Indemnification Agreement dated December 21,
1992 among Continental Grain Company, Third
Contiship Inc., Fourth Contiship Inc., OSG Bulk
Ships, Inc., Third Shipco Inc., Fourth Shipco
Inc. and the registrant (filed as Exhibit 10(i)
to registrant's Form 10-K for 1992 and
incorporated herein by reference).
10(i)(1) Exchange Agreement dated December 9, 1969
(including exhibits thereto) between the
registrant and various parties relating to the
formation of the registrant (the form of which
was filed as Exhibit 2(3) to Registration
Statement No. 2-34124 and is incorporated
herein by reference).
10(i)(2) Form of Additional Exchange Agreement referred
to in Section 2.02 of Exhibit 10(j)(1) hereto
(filed as Exhibit 2(4) to Registration
Statement No. 2-34124 and incorporated herein
by reference).
10(j)(1) Supplemental Executive Retirement Plans of the
registrant, as amended and restated as of
January 1, 1997 (filed via EDGAR as Exhibit
10(k)(1) to the registrant's Form 10-K for 1996
and incorporated herein by reference).
10(j)(2) Employment Contract with an executive officer
(filed via EDGAR as Exhibit 10 to the
registrant's Form 10-Q for the quarter ended
June 30, 1995 and incorporated herein by
reference).
10(j)(3) Letter Agreement with a former executive
officer (filed via EDGAR as Exhibit 10 to the
registrant's Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by
reference).
10(j)(4) Agreement with an executive officer (filed via
EDGAR as Exhibit 10(k)(4) to the registrant's
Form 10-K for 1996 and incorporated herein by
reference).
10(j)(5) Agreement with an executive officer (filed via
EDGAR as Exhibit 10(k)(5) to the registrant's
Form 10-K for 1996 and incorporated herein by
reference).
10(k)(1) 1989 Stock Option Plan adopted for officers and
key employees of the registrant or its
subsidiaries (filed as Exhibit 10(l) to the
registrant's Form 10-K for 1989 and
incorporated herein by reference).
10(k)(2) Amendment adopted October 9, 1990 to the
registrant's 1989 Stock Option Plan referred to
above (filed as Exhibit 10(l)(2) to the
registrant's Form 10-K for 1990 and
incorporated herein by reference).
10(l) 1990 Stock Option Plan adopted for officers and
employees of the registrant or its
subsidiaries, excluding the recipients of
options under Exhibits 10(l)(1) and (2) listed
above (filed as Exhibit 10(m) to the
registrant's Form 10-K for 1990 and
incorporated herein by reference).
10(m)(1) Joint Venture Agreement dated September 23,
1992 among Archinav Holdings Ltd. ("Archinav"),
Overseas Cruiseship Inc. ("OCI"), and Celebrity
Cruise Lines Inc. ("CCLI") (excluding exhibits
and schedules) and the following related
agreements: Guarantee of the registrant dated
September 23, 1992 and Shareholders Agreement
dated October 21, 1992 among Archinav, OCI and
CCLI (excluding exhibits)(filed as Exhibits
2(a), (b) and (c), respectively, to the
registrant's Report on Form 8-K dated October
21, 1992 and incorporated herein by reference).
10(m)(2) Supplemental Agreement dated January 29, 1993
to the Shareholders Agreement referred to in
Exhibit 10(n)(1) above (filed as Exhibit
10(n)(2) to the registrant's Form 10-K for 1992
and incorporated herein by reference).
10(m)(3) Supplemental Agreement dated November 21, 1995
to the Shareholders Agreement referred to in
Exhibit 10(n)(1) above (filed via EDGAR as
Exhibit 10(n)(3) to the registrant's Form 10-K
for 1995 and incorporated herein by reference).
10(m)(4) Supplemental Agreement dated October 4, 1996 to
the Shareholders Agreement referred to in
Exhibit 10(n)(1) above(filed via EDGAR as
Exhibit 10(n)(4) to the registrant's Form 10-K
for 1996 and incorporated herein by reference).
10(m)(5) Stock Purchase Agreement dated July 2, 1997 by
and among Archinav, OCI, CCLI 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).
10(n) Form of Sublease dated as of November 1, 1996
between the registrant and Maritime Overseas
Corporation (filed via EDGAR as Exhibit 10(o)
to the registrant's Form 10-K for 1996 and
incorporated herein by reference).
*13 Such portions of the Annual Report to security
holders for 1997 as are expressly incorporated
herein by reference.
*21 List of subsidiaries of the registrant.
*23 Consent of Independent Auditors of the
registrant.
*27 Financial Data Schedule.
NOTE: The Exhibits which have not previously
been filed or listed or are being refiled are
marked with an asterisk (*).
List of Executive Compensation Plans and
Arrangements -
See Exhibits 10(j)(1),(2),(3),(4) and (5),
10(k)(1) and (2), and 10(l) above.
EXHIBIT 10(c)(5)
AMENDMENT NO. 3 TO GENERAL SERVICES AGREEMENT
BETWEEN
OVERSEAS SHIPHOLDING GROUP, INC.
AND
MARITIME OVERSEAS CORPORATION
This Amendment No. 3 dated as of October 1, 1987 to General
Services Agreement dated December 31, 1969, as heretofore amended
(the "General Services Agreement") between Overseas Shipholding
Group, Inc., a Delaware corporation (the "Owner") and Maritime
Overseas Corporation, a New York corporation ("MOC").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Owner and MOC acknowledge and agree that the
duties of MOC under the General Services Agreement relating to a
newbuilding begin earlier than keel laying or commencement of
erection on the building berth; and
WHEREAS, the Owner and MOC desire to amend the General
Services Agreement as hereinafter set forth:
NOW, THEREFORE, the parties hereto do mutually agree as
follows:
1. Section 5(c) of the General Services Agreement is
amended by deleting in its entirety the last sentence of the
Section and by substituting in its place the following sentence:
"Newbuilding vessels shall be deemed managed and
included in the computation from the date of
commencement of work on the vessel at the builder's
shipyard, in accordance with the advice received from
the builder."
2. Except as hereby amended, the General Services
Agreement shall remain unaltered and shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 3 to be executed and delivered as of the day and
year first above written.
OVERSEAS SHIPHOLDING GROUP, INC. MARITIME OVERSEAS CORPORATION
By: By:
----------------------------- --------------------------
President Vice President & Secretary
<PAGE>
EXHIBIT 13
----------
[From page 2 of the 1997 Annual Report]
<TABLE>
TWO-YEAR CHARTER POSITION OF OSG FLEET
(Excludes Vessels in Dry Bulk Disposal Program)
<CAPTION>
Through Year-End 1998 1999
- -------------------------------------------------------
<S> <C> <C>
Total Fleet dwt 5,917,450 5,267,250
- -------------------------------------------------------
% of Total Fleet on Charter 27 28
- -------------------------------------------------------
U.S. Fleet dwt 917,850 797,350
- -------------------------------------------------------
% of U.S. Fleet on Charter 67 63
- -------------------------------------------------------
Intl. Fleet dwt 4,999,600 4,469,900
- -------------------------------------------------------
% of Intl. Fleet on Charter 20 22
- -------------------------------------------------------
</TABLE>
<PAGE>
[From page 12 and 13 of the 1997 Annual Report]
THE FLEET
March 10, 1998
Total Bulk Tonnage: 55 vessels, 6,450,400 dwt
<TABLE>
INTERNATIONAL BULK FLEET
- ------------------------
<CAPTION>
Year Deadweight Charter
Built Tonnage Expiration Date
- -----------------------------------------------------------------
<S> <C> <C> <C>
Tankers
1997 305,100) Voyage Charter
1996 305,000) Voyage Charter
1997 50%-owned 295,850) March 2005
1996 295,800) Voyage Charter
1996 295,750) - VLCC Voyage Charter
1997 50%-owned 295,600) December 2004
1975 50%-owned 264,850) September 1998
1974 50%-owned 264,850) Voyage Charter
1974 50%-owned 264,850) Voyage Charter
1990 254,000) April 2002
1989 133,000) June 2005
1976 128,450) Voyage Charter
1975 128,250) - Suezmax Voyage Charter
1975 128,200) Voyage Charter
1980 (a) 96,050) Voyage Charter
1981 (a) 96,000) Voyage Charter
1979 (a) 95,600) Voyage Charter
1994 (a) 94,850) Voyage Charter
1994 (a) 94,650) - Aframax March 1998
1994 (a) 93,350) Voyage Charter
1994 (a) 93,350) Voyage Charter
1994 (a) 93,300) Voyage Charter
1994 (a) 93,300) Voyage Charter
- -----------------------------------------------------------------
Petroleum
Products
Carriers 1986 65,150 September 1998
1986 65,150 Voyage Charter
1986 63,200 Voyage Charter
1987 63,150 Voyage Charter
1989 39,450 Voyage Charter
1988 39,450 July 1998
1989 39,100 Voyage Charter
1989 39,050 June 1998
1979 31,600 June 1998
1982 29,500 Voyage Charter
- -----------------------------------------------------------------
Bulk Carriers
1997 157,500) Voyage Charter
1997 157,300) - Capesize April 1998
1982 (b) 138,800) April 1998
1982 (b) 138,800) Voyage Charter
1981 (b) 64,550) Voyage Charter
1983 (b) 64,200) - Panamax Voyage Charter
1989 (b) 63,350) Voyage Charter
1989 (b) 63,250) Voyage Charter
- -----------------------------------------------------------------
International
Bulk Fleet
Total(c) 41 vessels 5,532,550 dwt
=================================================================
</TABLE>
<TABLE>
U.S. BULK FLEET
<CAPTION>
Year Deadweight Charter
Built Tonnage Expiration Date
- -----------------------------------------------------------------
<S> <C> <C> <C>
Tankers 1974 (d) 120,800 May 2001
1973 120,500 December 1998
1977 90,650 May 2002
1977 90,550 September 2002
1978 90,500 February 2003
1977 90,400 November 2002
1971 62,000 Voyage Charter
1970 62,000 Idle
- -----------------------------------------------------------------
Petroleum
Products
Carriers
1983 (e) 42,950 Voyage Charter
1982 (e) 42,700 Voyage Charter
1969 37,800 September 1998
- -----------------------------------------------------------------
Geared Bulk
Carriers
1978 (f) 25,550 Idle
1978 (f) 25,550 Idle
- -----------------------------------------------------------------
Pure Car
Carrier
(5,000
cars)
1987 15,900 August 2002
- -----------------------------------------------------------------
U.S. Bulk
Fleet
Total(g) 14 vessels 917,850 dwt
=================================================================
<FN>
(a) Participates in OSG/PDV Marina Aframax Pool.
(b) Remaining vessels in OSG's dry bulk disposal program.
(c) Does not include two 120,800 dwt dry bulk carriers, which are
part of the disposal program and are under contract of sale
for delivery later in 1998.
(d) Rebuilt in 1981.
(e) 22-year capital leases, commencing in 1989.
(f) 25-year capital leases, commencing in year built.
(g) Does not include a 29,300 dwt petroleum barge, 50%-owned by
OSG.
</TABLE>
<PAGE>
[From pages 4, 7, 8 and 11 of the 1997 Annual Report]
GLOBAL BULK SHIPPING MARKETS
- ----------------------------
The bulk shipping industry is highly competitive and fragmented,
with no one shipping group owning more than 2% of the world
fleet. OSG ranks among the world's five largest owners of tankers
both in terms of the number of vessels and in carrying capacity.
Approximately 85% of the Company's voyage revenues in 1997, 82%
in 1996 and 77% in 1995 came from carrying petroleum and its
derivatives.
INTERNATIONAL TANKER MARKETS
- ----------------------------
The world tanker markets improved significantly in 1997,
particularly in the larger vessel segments. On average, rates for
crude carriers, which benefited from healthy growth in world oil
demand and moderate newbuilding deliveries, were considerably
higher than in 1996.
WORLD OIL DEMAND CONTINUES TO GROW
Global oil demand rose 3% in 1997, reflecting favorable economic
conditions in the major oil consuming regions throughout most of
the year. The Far East has been the main driver of demand growth
in recent years, and this trend continued in 1997, although the
growth slowed in the fourth quarter of the year as a result of
the financial crisis that developed in certain Asian countries.
Asia accounted for about 45% of the oil demand growth in 1997,
reflecting the continued expansion of this region's refinery
sector.
Oil consumption in North America increased 2.5% in 1997, with
demand up for all major products except residual fuel oil. The
greatest increase was in gasoline deliveries, which was spurred
by particularly strong demand during the summer driving season.
Oil demand in Western Europe showed only modest growth in 1997,
constrained by tight fiscal and monetary policies adopted by
European Union countries as they endeavor to comply with the
Maastricht Treaty criteria for European Monetary Union
membership.
VLCC MARKET STRENGTHENS ON INCREASED LONG-HAUL SHIPMENTS
In recent years the growth in short-haul supplies from Latin
America and the North Sea has tended to dampen the effect of
increased world oil demand on tonnage requirements. In 1997,
delays in new supplies from Latin America and the North Sea
partially reversed this trend, as increased oil demand was met to
some extent by growth in long-haul shipments from the Middle
East. This benefited VLCCs in particular, with VLCC rates spiking
to highs last seen during the Gulf War in 1990-91. Increased long-
haul shipments from West Africa to Far Eastern destinations
further enhanced opportunities for VLCCs. Tanker demand was also
positively affected by sizable volumes of U.N.-sanctioned Iraqi
exports, some of which were transported to the United States.
AFRAMAX TRADE BENEFITS FROM GROWTH IN LATIN AMERICAN OIL EXPORTS
Oil production in Latin America and the North Sea continued to
rise in 1997, albeit at a slower pace than in 1996. Movements
from Latin America and the North Sea to North America and Europe
increase demand for Aframax tankers, which are most competitive
on these shorter haul trades.
The increase in short-haul crude oil supplies is significant for
the United States, where crude oil imports continue to be
dominated by regional suppliers, particularly Venezuela, Mexico
and Colombia. Together, these three countries accounted for 43%
of seaborne crude oil imports to the United States in 1997, and
their market share is expected to increase based on planned
production expansion, particularly in Venezuela.
MODEST GROWTH IN INTERNATIONAL PRODUCT TRADES
Global seaborne trade in petroleum products increased by about
1.5% in 1997, compared with a more robust growth rate of 4.5% in
1996. The slowdown in growth was caused mainly by the addition of
refining capacity in Asia. While this additional refining
capacity benefits the intra-regional trade of petroleum products
in the Pacific Rim, it reduces the need for long-haul imports
into the region and consequently limits overall ton-mile demand
for product carriers.
TANKER ORDERBOOK GROWS WHILE SCRAPPING REMAINS LOW
In 1997, the world tanker fleet grew by nearly 2 million dwt to
280 million dwt, reflecting modest newbuilding deliveries of 8
million dwt, offset by total deletions from the fleet of
approximately 6 million dwt. With scrap sales at their lowest
level since 1991 (approximately 3.5 million dwt), deletions were
boosted by conversions of tankers to floating production and
storage units.
The strength of the freight market also propelled newbuilding
contracting to 32 million dwt, with an emphasis on larger
tankers. While the VLCC orderbook more than doubled in 1997,
orders for Suezmax (120,000 to 200,000 dwt) and Aframax tonnage
also rose sharply. Although the current orderbook represents
about 16% of the VLCC fleet and 18% of Suezmaxes, this is not
excessive given that over 50% of the vessels in these segments
are at least 15 years old. However, in the Aframax segment, the
orderbook represents 19% of the fleet and the existing fleet is
newer. At year-end, the world tanker orderbook for delivery over
the next three years stood at 46 million dwt, with 15 million dwt
scheduled for delivery in 1998.
REGULATORY ENVIRONMENT
Since 1990, the tanker industry has experienced a more rigorous
regulatory environment. Safety and pollution concerns have led to
a greater emphasis on quality and to the strengthening of the
inspection programs of classification societies, governmental
authorities and charterers. Charterers in Japan and South Korea,
the two largest VLCC charterers in 1997, have demonstrated a
clear preference for modern tonnage, encouraged by various
governmental policies in both countries.
In 1997, the tanker industry continued to be affected by the
requirements of the U.S. Oil Pollution Act of 1990 (OPA 90) and
the International Maritime OrganizationOs (IMO) MARPOL Regulation
13G. Between 1995 and 2015, OPA 90 is phasing in the requirement
that all tankers entering U.S. waters have double hulls. OPA 90
also significantly expands the potential oil spill liability of
tanker owners for environmental accidents in U.S. waters.
In addition, IMO regulations stipulate double hulls or equivalent
tanker designs for newbuildings ordered after 1993 and mandate
double hulls for existing tankers at 30 years of age. Under
Regulation 13G, existing tankers, upon reaching 25 years of age,
are required to either have protectively located segregated
ballast tanks or double bottom spaces not used for cargo carriage
covering at least 30% of the cargo tank area, or they must
utilize hydrostatically balanced loading. These tanker
modifications will reduce the carrying capacity of the affected
vessels. Given the large number of existing VLCCs that were
delivered in the mid-1970s, these pollution protection measures
should lead to an increase in scrapping.
INTERNATIONAL DRY BULK MARKETS
- ------------------------------
In 1997, rates in the international dry bulk markets remained
unsatisfactory, despite some recovery from the low levels of the
second half of 1996. Most of the improvement was confined to the
Capesize sector, where increased seaborne trade of iron ore and
coking coal offset the significant volume of new ships delivered
during the year. Demand for iron ore and coking coal was boosted
by a rebound in steel production in Western Europe and Japan and
by the continuing increase in Chinese steel production.
The Panamax market, faced with substantial newbuilding deliveries
and exposed to the uncertainties of the grain markets, remained
under pressure throughout 1997. Although seaborne grain trade
increased 5% in 1997 due to sharply higher grain supplies from
most of the major exporting countries, a reduction in U.S.
exports resulted in a decline in long-haul shipments. However,
the Panamax sector gained some support from an active seaborne
steam coal trade, which rose 5% for the second consecutive year,
with much of the incremental demand coming from coal-fired power
stations in Asia.
FLEET EXPANSION CONTINUES UNABATED
The international dry bulk fleet rose by nearly 5% in 1997 to a
new peak of 264 million dwt. Although scrap sales were a sizable
8 million dwt, the highest level since 1986, they were still
outpaced by a record 18 million dwt of newbuilding deliveries.
Capesize vessels accounted for approximately 40% of this new
tonnage. Scrap sales of Capesize vessels were relatively strong
in 1996 and 1997. With 30% of the Capesize fleet 15 years old or
more, lower freight rates are likely to result in further
scrapping of this older tonnage. This should benefit more modern
Capesize vessels including OSG's two new 160,000 dwt Capesize
bulkers.
Despite the market's difficulty in absorbing the significant
amount of new tonnage during the year, contracting for new
vessels in 1997 reached 18 million dwt, the same high level as in
the prior year. Nevertheless, cancellations helped to reduce the
orderbook to 27 million dwt at year-end 1997, as it continued to
trend down from a record peak of nearly 35 million dwt in 1993.
Expectations for moderating new orders, possible cancellations
and a fairly sizable slate of deliveries should result in further
declines in the orderbook in 1998. Newbuildings totaling 13
million dwt, predominantly in the Panamax and Handymax (35,000 to
50,000 dwt) sectors, are scheduled for delivery in 1998.
U.S. MARKETS
- ------------
Under the Jones Act, shipping between U.S. coastal ports,
including the movement of Alaskan oil, is reserved primarily to
U.S. flag vessels, owned by U.S. citizens, crewed by U.S.
seafarers, built in the United States and operated without
operating differential subsidies. U.S. flag vessels also receive
preference in carrying U.S. military and government-sponsored
shipments (preference trades) around the world. With a fleet that
includes eight crude carriers and three product carriers, OSG is
the largest independent owner of unsubsidized U.S. flag tankers.
Also included in the Company's U.S. flag fleet are two dry bulk
carriers that participate in the preference trades and one car
carrier that is on long-term charter transporting vehicles from
Japan.
U.S. FLAG CRUDE CARRIERS
The principal source of employment for U.S. flag crude carriers
is the transportation of ANS crude oil to ports on the U.S. West
Coast. Since 1996, small volumes of ANS crude have been exported
to Far Eastern destinations. In 1997, ANS crude oil shipments
declined for the sixth consecutive year as production dropped 6%
to 1.39 million barrels per day. Over the next several years,
enhanced recovery techniques and additional exploration are
expected to slow the rate at which production declines.
<PAGE>
[From pages 15 through 18 of the 1997 Annual Report]
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overseas Shipholding Group, Inc. and Subsidiaries
SIGNIFICANT EVENTS
There were two events in 1997 that had a significant impact on
the Company's results for the year and the Company's future
operations.
In July 1997, the Company sold its 49% ownership interest in
Celebrity Cruise Lines Inc. ("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 recognized a
gain on the sale of $21,576,000 ($12,100,000 after tax). The cash
portion of the proceeds was used to repay indebtedness. The
Company has accounted for its ownership of RCCL common stock as
an investment in a corporate joint venture, using the equity
method of accounting. The Company recognized a further gain of
$7,842,000 ($5,100,000 after tax), representing an increase in
the carrying amount of its investment in RCCL by reason of the
increase in its share of RCCL's shareholders' equity after RCCL's
public offering of additional common stock. The realization of
interest savings resulting from the aforementioned repayment of
indebtedness commenced in the third quarter of 1997. The Company
now anticipates that it will sell the aforementioned 3,650,000
shares in an underwritten public offering currently in process.
The Company intends to use the proceeds of this sale to further
reduce indebtedness.
The Company announced a program for the disposal of its ten older
and less competitive dry cargo vessels. At the end of the third
quarter of 1997, the Company established a reserve of $26,536,000
($17,200,000 after tax) for the reduction of the carrying amount
(approximately $163,000,000) of the ten vessels held for disposal
to their estimated fair value (less disposal costs) and for costs
in connection with the elimination of related overhead. The
vessel disposal program is scheduled for completion during 1998.
The vessels held for disposal incurred a pretax loss of
$12,800,000 for the nine months ended September 30, 1997,
including a charge for allocated interest of $6,600,000 based on
the estimated fair value of the vessels. The Company intends to
use the net proceeds from the disposal program, estimated at
approximately $140,000,000, to reduce outstanding debt. To date,
two vessels have been sold and a third is under contract of sale,
with aggregate proceeds anticipated to be approximately
$30,000,000.
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 1997 than rates prevailing in 1996, particularly for
VLCCs (over 200,000 dwt) and for Aframaxes (80,000 to 120,000
dwt) in the Caribbean market (the Company's primary Aframax
trading area). VLCC rates continued to rise throughout most of
1997 and reached levels above $50,000 per day for modern double-
hulled tonnage by early November 1997. Thereafter, VLCC rates
plunged to around $22,000 per day at year-end before beginning a
slow improvement to above $30,000 per day by mid-February 1998.
In the middle of 1997, Caribbean Aframax spot rates declined
Significantly to below $20,000 per day from their earlier highs
of approximately $40,000 per day. Thereafter, Aframax spot rates
remained comparatively low until early in the fourth quarter when
such rates began rising, reaching approximately $30,000 per day,
before declining to the $22,000 to $24,000 per day range as the
fourth quarter progressed. Late in 1997 and early in 1998,
Caribbean Aframax rates were as low as $10,000 to $15,000 per day
but have recently averaged about $18,000 per day. Rates for
Suexmaxes (120,000 to 200,000 dwt) in 1997 were not Significantly
different from 1996. Rates for product tankers for 1997 were
comparable with 1996, but were substantially lower early in 1998
for certain sizes. Dry bulk rates remained at low levels
throughout 1997, although somewhat improved from late 1996,
particularly for new Capesize (150,000 to 170,000 dwt) vessels.
The financial crisis in several Asian countries that developed
toward the end of 1997 has led to some weakening in demand for
bulk tonnage in the past few months. The extent and duration of
this crisis and its effect on the seaborne movement of oil and
dry bulk commodities are still to be determined.
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 as a
result of enhanced opportunities for backhaul cargoes and reduced
idle time. The pool has entered into a number of significant
contracts of affreightment, which further improve the earnings of
pool vessels.
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 both 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 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 either year.
TANKERS 1997* 1996*
- ------------------------------------------------------------
Modern VLCCs $35,700 $27,200
Suezmaxes (W. Africa - U.S.) 23,200 20,700
Aframaxes (Caribbean market) 23,000 17,800
Products carriers 13,300 12,900
- ------------------------------------------------------------
DRY BULK CARRIERS
- ------------------------------------------------------------
Capesize (over 100,000 dwt) 14,800 11,800
Panamaxes (50-80,000 dwt) 8,300 7,900
- ------------------------------------------------------------
*Average market rates as reported by industry sources.
Income from vessel operations for 1997 increased by approximately
$19,000,000 from the results for 1996. This increase was
attributable to an improvement of approximately $14,500,000 in
income from foreign flag vessel operations. Vessels delivered in
late 1996 and the First quarter of 1997 (which completed the
Company's most recent newbuilding program) contributed positive
operating results for approximately 1,700 more operating days in
1997 than in 1996; this contribution reflected high charter rates
obtained for the Company's new VLCCs, particularly in the fourth
quarter of 1997 (but see Interest Expense below). Rates obtained
for the Company's Aframax tonnage were higher in 1997 compared
with 1996, although there were more than twice as many drydock
days for this class in 1997 (219 days) compared with 1996 (101
days). Notwithstanding some improvement in dry bulk rates in 1997
compared with 1996, the generally low level of dry bulk rates for
the First nine months of 1997 (see above regarding dry cargo
disposal program) negatively affected results for the Company's
dry bulk fleet. Excluding operating days for new deliveries (see
above) and the effect of vessels sold, the total number of
operating days for the international flag tanker fleet was
approximately the same in both years. U.S. flag fleet vessel
operations improved by $4,500,000 in 1997 compared with 1996.
This increase resulted from increased rates on certain tonnage
and increased utilization of the Company's U.S. flag tanker
fleet, following 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
approximately 2,600 days in 1997 from approximately 2,400 days in
1996. The effects of an increase of approximately 100 days for
time lost for drydockings in 1997, the lay-up (beginning in the
fourth quarter of 1997) of a small crude carrier upon redelivery
from a long-term charter and lower rates obtained in 1997 for
certain petroleum products carrier tonnage are also reflected.
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. Voyage expenses, such as fuel and
port costs, are paid by the vessel owner under a voyage charter
and by the charterer under a time charter. Revenues and expenses
in both the international flag and U.S. flag fleets for 1997
reflect a decrease in the proportion of voyage charters to time
charters.
The Company's income from vessel operations for 1996 increased by
approximately $16,200,000 from the results for 1995. Operations
of the U.S. flag fleet improved by approximately $29,600,000 in
1996 from 1995, primarily as a result of substantially increased
employment of the Company's U.S. flag tankers in 1996, as
discussed above. Operating days for the entire U.S. flag tanker
fleet increased to approximately 4,000 (including 2,400 for crude
tankers) in 1996 from approximately 3,000 in 1995. This reflects
a reduction of 130 days in time off-hire for U.S. flag tanker
fleet drydockings. Income from foreign flag vessel operations
declined $13,400,000 in 1996 from 1995, primarily as a result of
the substantial decline in rates earned by the Company's dry
cargo fleet. A decline in rates earned by certain tanker tonnage
in late 1996 compared with 1995 also negatively impacted the
international flag results. These 1996 decreases were net of the
positive effect on 1996 vessel operating results of two VLCCs
delivered in early 1996. In addition, foreign flag results for
1996 reflect the positive effect on operations of the inclusion
for the entire year of two modern Aframaxes purchased near the
end of the first quarter of 1995 and the effect of vessels sold
in 1996 and 1995. The total number of operating days for the
international flag fleet was approximately the same in both
years. Revenues and expenses reflect the higher proportion of
voyage charters to time charters in the U.S. flag fleet in 1996
as compared with 1995. The Company's share ($1,200,000) of a
provision for loss on sale of a 50%-owned vessel subsequent to
year-end is reflected in the 1996 results of bulk shipping joint
ventures.
EQUITY IN RESULTS OF CRUISE BUSINESS
The Company's Equity in Results of Cruise Business reflects its
share of the results of CCLI through June 30, 1997 and of RCCL
thereafter. These results were income of $3,712,000 in 1997
(consisting of a loss from CCLI of $179,000 in the first half and
a profit from RCCL of $3,891,000 in the second half),
approximately a breakeven in 1996 and a loss of $1,208,000 in
1995. The excess (approximately $75,000,000) of the cost of the
Company's investment over the Company's proportionate share of
the underlying net assets of RCCL at the date of acquisition is
being amortized over 40 years using the straight-line method. The
1997 and 1996 results of CCLI reflect the additions to its fleet
of a 1,750-passenger vessel in November 1995 and a 1,870-
passenger vessel in December 1996. CCLI's results in the first
half of 1997 and in 1996 reflect higher per diems achieved
compared with the respective corresponding periods of the
preceding years, notwithstanding ongoing competitive pressures,
particularly in the Caribbean market.
The Company's equity in the results of cruise business for each
of the years is before interest expense of approximately
$12,700,000 (1997), $15,800,000 (1996) and $16,900,000 (1995),
estimated to have been incurred by the Company in connection with
the funding of its investment in the cruise business.
OTHER INCOME (NET)
The details of other income for the three-year period are shown
in Note K on page 28 of this report. Aggregate interest and
dividends did not materially change in 1997 compared with 1996.
Aggregate interest and dividends decreased in 1996 compared with
1995 because of lower rates of return on interest-bearing
deposits and investments and decreased amounts utilized for such
deposits and investments. Gain on sale of securities was
approximately $31,500,000 in 1997 compared with approximately
$20,100,000 in 1996 and $11,100,000 in 1995. The 1997 results
reflect losses on other investments of approximately $700,000 in
1997 compared with losses of approximately $11,200,000 in 1996
(including a provision for loss of $6,500,000 in the fourth
quarter) and $2,600,000 in 1995.
Disposal of vessels (other than those referred to in Significant
Events above) resulted in a loss of approximately $600,000 in
1997 and gains of approximately $7,000,000 in 1996 and $2,700,000
(net of a provision of $3,000,000 for loss on a vessel disposed
of subsequent to year-end) in 1995.
INTEREST EXPENSE
Interest expense increased in 1997 from 1996 as a result of an
increase in the average amount of debt outstanding in 1997
compared with 1996 (net of debt reductions from the use of the
cash proceeds from the sale of the Company's investment in CCLI),
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 increased in 1996 from
1995 as a result of decreased amounts of interest capitalized in
1996 in connection with vessel construction and an increase in
the average amount of debt outstanding in 1996 compared with 1995
(including debt incurred in connection with vessels entering the
operating fleet). The increase is net of decreased rates on
floating rate debt in 1996. Interest expense in 1997, 1996 and
1995 reflects $4,300,000, $7,000,000 and $5,300,000,
respectively, of net benefits from the interest rate swaps
referred to below in Liquidity and Sources of Capital.
PROVISION FOR FEDERAL INCOME TAXES
The income tax provisions of $12,150,000 in 1997 and $885,000 in
1996 and the tax credit of $5,260,000 in 1995 were based on
pretax income or loss, adjusted to reflect items that are not
subject to tax and the dividends received deduction. The
provision for federal income taxes in 1997 includes approximately
$2,000,000 of tax on previously untaxed CCLI earnings.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," is
effective for financial statements issued for fiscal years
beginning after December 15, 1997. The Company is presently
reviewing various approaches to complying with this standard for
its year-end 1998 financial report. The adoption of this standard
will not affect results of operations or financial position but
may affect certain disclosures.
LIQUIDITY AND SOURCES OF CAPITAL
Working capital at December 31, 1997 was approximately
$99,000,000 compared with $102,000,000 at year-end 1996 and
$152,000,000 at year-end 1995. 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 the Capital Construction Fund, with a market value of
approximately $27,000,000 at December 31, 1997. Net cash provided
by operating activities approximated $60,000,000 in 1997,
$50,000,000 in 1996 and $27,000,000 in 1995. 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 1998.
The Company has an unsecured long-term credit facility of
$600,000,000, of which $342,000,000 was used at December 31,
1997, and an unsecured short-term credit facility of $30,000,000,
of which $25,000,000 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
from the sale of CCLI referred to under Significant Events above
was used to reduce amounts outstanding under the long-term credit
facility. The Company finances vessel additions primarily with
cash provided by operating activities, long-term borrowings and
capital lease obligations. Long-term borrowings in 1997, 1996 and
1995 aggregated approximately $38,000,000, $76,000,000 and
$217,000,000, respectively.
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 December 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 (5.8% as of
December 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
$86,000,000, 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 $104,000,000 for such foreign
currency from 1998 through 2004.
In 1997, 1996 and 1995, cash used for vessel additions
approximated $91,000,000, $151,000,000 and $196,000,000,
respectively.
EFFECTS OF INFLATION AND ENVIRONMENTAL MATTERS
Additions to the costs of operating the fleet due to wage
increases and price level increases in certain other expense
categories were experienced over the three-year period. In some
cases, these increases were offset by rates available to tonnage
open for chartering and to some extent by charter escalation
provisions.
See "Regulatory Environment" on page 7 hereof for a discussion
regarding OPA 90 and certain regulations of the IMO.
IMPACT OF YEAR 2000
In connection with computer processing of its financial records,
the Company uses recently implemented software that is year 2000
compliant. The Company is in the process of reviewing its various
computer-supported operational activities, the substantial
portion of which do not relate to recordkeeping, to ensure that
year 2000 issues, if any, are resolved in a timely manner. The
Company does not presently expect to incur material costs in
relation to year 2000 issues.
February 23, 1998
<PAGE>
[From pages 19 through 31 of the 1997 Annual Report]
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Overseas Shipholding Group, Inc. and Subsidiaries
<CAPTION>
In thousands, except per share amounts,
for the year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
SHIPPING REVENUES:
Revenues from voyages - Note B $477,950 $452,263 $407,834
Income attributable to bulk
shipping joint ventures - Note E 3,109 3,605 6,083
- ----------------------------------------------------------------------
481,059 455,868 413,917
- ----------------------------------------------------------------------
SHIPPING EXPENSES:
Vessel and voyage - Note H 292,564 297,209 272,778
Depreciation of vessels and
amortization of capital leases 77,940 71,003 66,134
Agency fees - Note H 33,690 32,552 34,105
General and administrative 11,254 8,488 10,515
- ----------------------------------------------------------------------
415,448 409,252 383,532
- ----------------------------------------------------------------------
Income from Vessel Operations 65,611 46,616 30,385
Equity in Results of Cruise Business -
Note D 3,712 21 (1,208)
Other Income (Net) - Note K 41,945 26,208 23,371
- ----------------------------------------------------------------------
111,268 72,845 52,548
Interest Expense 82,983 69,458 66,440
- ----------------------------------------------------------------------
28,285 3,387 (13,892)
Gain on Sale of Investment in
Celebrity Cruise Lines Inc. - Note D 21,576 - -
Gain Resulting from Public Offering
of Shares by Royal Caribbean Cruises
Ltd. - Note D 7,842 - -
Provision for Loss on Vessel Disposal
Program - Note L1 (26,536) - -
- ----------------------------------------------------------------------
Income/(Loss) before Federal
Income Taxes 31,167 3,387 (13,892)
Provision/(Credit) for Federal
Income Taxes - Note J 12,150 885 (5,260)
- ----------------------------------------------------------------------
Net Income/(Loss) $ 19,017 $ 2,502 $ (8,632)
======================================================================
Per Share Amounts - Note N:
Basic and diluted net income/(loss) $ .52 $ .07 $ (.24)
Cash dividends declared and paid $ .60 $ .60 $ .60
======================================================================
<FN>
See notes to financial statements.
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Overseas Shipholding Group, Inc. and Subsidiaries
<CAPTION>
In thousands at December 31, 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including interest-bearing deposits
of $109,835 and $103,338 $ 113,195 $ 109,120
Voyage receivables 16,187 15,257
Other receivables 14,619 15,940
Prepaid expenses 26,379 28,227
- -------------------------------------------------------------------------
Total Current Assets 170,380 168,544
Investments in Marketable Securities - Note F 26,792 15,337
Capital Construction Fund - Notes F and J 174,892 145,350
Vessels, at cost, less accumulated
depreciation - Notes A3, G and M1 1,106,790 1,214,401
Vessels Under Capital Leases, less
accumulated amortization - Notes A4 and M1 65,475 79,416
Vessels Included in Disposal Program, at
estimated fair value - Note L1 135,860 -
Investment in Cruise Business - Note D 160,269 239,255
Investments in Bulk Shipping Joint
Ventures - Note E 95,542 91,399
Other Assets 87,224 83,599
- -------------------------------------------------------------------------
$2,023,224 $2,037,301
=========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,099 $ 4,878
Sundry liabilities and accrued expenses -
Note L2 29,249 28,073
Federal income taxes, including deferred
income taxes of $7,400 and $7,100 - Note J 7,400 7,300
- -------------------------------------------------------------------------
42,748 40,251
Current installments of long-term debt -
Note G 22,430 18,723
Current obligations under capital leases -
Note M1 5,867 7,236
- -------------------------------------------------------------------------
Total Current Liabilities 71,045 66,210
Advance Time Charter Revenues 7,433 7,694
Long-term Debt - Notes G and M1 966,212 985,032
Obligations Under Capital Leases - Note M1 90,094 108,443
Deferred Federal Income Taxes ($102,514
and $94,803) and Deferred Credits -
Notes A1 and J 108,643 100,484
Shareholders' Equity - Notes G, J and N:
Common stock 39,591 39,591
Paid-in additional capital 96,149 93,725
Retained earnings 685,128 687,981
- -------------------------------------------------------------------------
820,868 821,297
Cost of treasury stock 41,719 49,210
- -------------------------------------------------------------------------
779,149 772,087
Net unrealized gain/(loss) on marketable
securities 648 (2,649)
- -------------------------------------------------------------------------
Total Shareholders' Equity 779,797 769,438
Leases and Other Comments - Notes L and M
- -------------------------------------------------------------------------
$2,023,224 $2,037,301
=========================================================================
<FN>
See notes to financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Overseas Shipholding Group, Inc. and Subsidiaries
<CAPTION>
In thousands for the year ended
December 31, 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 19,017 $ 2,502 $ (8,632)
Items included in net income/(loss)
not affecting cash flows:
Depreciation and amortization 77,940 71,003 66,134
Provision for loss on vessel disposal
program 26,536 - -
(Gain) resulting from public
offering of shares by
Royal Caribbean Cruises Ltd. (7,842) - -
Provision/(credit) for deferred
federal income taxes 10,550 685 (5,260)
Equity in results of cruise business (3,712) (21) 1,208
Equity in net income of bulk shipping
joint ventures (3,143) (3,605) (6,416)
Other - net (4,779) 6,528 917
Items included in net income/(loss)
related to investing activities:
(Gain) on sale of investment in
Celebrity Cruise Lines Inc. (21,576) - -
(Gain) on sale of securities - net (31,493) (20,066) (11,130)
(Gain)/loss on disposal of vessels 588 (6,983) (5,700)
Changes in operating assets and
liabilities:
Decrease/(increase) in receivables 324 (272) 813
Net change in prepaid items, accounts
payable and sundry
liabilities and accrued expenses (2,295) 796 (8,175)
Increase/(decrease) in advance time
charter revenues (261) (387) 3,253
- -------------------------------------------------------------------------
Net cash provided by operating
activities 59,854 50,180 27,012
- -------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment in
Celebrity Cruise Lines Inc. 120,050 - -
Purchases of marketable securities (110,615) (4,672) (13,456)
Proceeds from sales of marketable
securities 104,458 11,600 34,344
Purchases of vessels under capital
leases* (4,719) (20,213) -
Additions to vessels (86,688)** (130,953) (196,127)
Proceeds from disposal of vessels 12,300 59,426 33,786
Investment in Celebrity Cruise
Lines Inc. - (4,900) (4,900)
Purchase of minority interest (5,102) - -
Purchases of other investments (7,490) (7,083) (3,640)
Proceeds from dispositions of other
investments 2,686 6,744 15,933
Other - net 133 119 (2,003)
- -------------------------------------------------------------------------
Net cash provided by/(used in)
investing activities 25,013 (89,932) (136,063)
- --------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -** 75,754 217,000
Payments on long-term debt and
obligations under capital leases (68,623) (68,419) (26,140)
Cash dividends paid (21,870) (21,741) (21,731)
Issuance of common stock upon exercise
of stock options 8,449 - -
Other - net 1,252 2,700 466
- -------------------------------------------------------------------------
Net cash provided by/(used in)
financing activities (80,792) (11,706) 169,595
- -------------------------------------------------------------------------
Net increase/(decrease) in cash 4,075 (51,458) 60,544
Cash, including interest-bearing
deposits, at beginning of year 109,120 160,578 100,034
- -------------------------------------------------------------------------
Cash, including interest-bearing
deposits, at end of year $113,195 $ 109,120 $ 160,578
=========================================================================
<FN>
* Excludes $9,052 (1997) and $20,090 (1996), representing the
outstanding principal balance of debt assumed in connection with
the purchases of vessels under capital leases.
**Excludes $38,000 in connection with the delivery of a vessel.
See notes to financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Overseas Shipholding Group, Inc. and Subsidiaries
<CAPTION>
Treasury Net Unrealized
Paid-in Stock Gain/(Loss) on
Common Additional Retained ----------------- Marketable
Dollars in thousands Stock* Capital Earnings Shares Amount Securities Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1994 $39,591 $93,599 $737,583 3,380,838 $(49,491) $(11,503) $809,779
Net Loss (8,632) (8,632)
Cash Dividends Declared
and Paid (21,731) (21,731)
Options Exercised 88 (17,595) 194 282
Unrealized Gain on
Available-for-Sale
Securities 5,083 5,083
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1995 39,591 93,687 707,220 3,363,243 (49,297) (6,420) 784,781
Net Income 2,502 2,502
Cash Dividends Declared
and Paid (21,741) (21,741)
Options Exercised 38 (7,853) 87 125
Unrealized Gain on
Available-for-Sale
Securities 3,771 3,771
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1996 39,591 93,725 687,981 3,355,390 (49,210) (2,649) 769,438
Net Income 19,017 19,017
Cash Dividends Declared
and Paid (21,870) (21,870)
Options Exercised 959 (557,194) 7,491 8,450
Tax Benefit Related to
Options Exercised 1,465 1,465
Unrealized Gain on
Available-for-Sale
Securities 3,297 3,297
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1997 $39,591 $96,149 $685,128 2,798,196 $(41,719) $ 648 $779,797
====================================================================================================
<FN>
* Par value $1 per share; 60,000,000 shares authorized and 39,590,759 shares issued.
See notes to financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Overseas Shipholding Group, Inc. and Subsidiaries
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. The consolidated financial statements include the accounts of the
Company and its subsidiaries ("Company" or "OSG"). All subsidiaries
are wholly owned. In February 1997, the Company purchased the 20%
minority interest in four previously 80%-owned subsidiaries for cash
of approximately $5,000,000. The excess of such purchase price over
the carrying amount of the minority interest at December 31, 1996 is
being amortized over the remaining useful lives of the respective
subsidiaries' vessels. Significant intercompany items and transactions
have been eliminated in consolidation. Investments in the cruise
business (see Note D) and the bulk shipping joint ventures (which are
50%-owned, except one small venture which is 49%-owned) are stated at
the Company's cost thereof adjusted for its proportionate share of the
undistributed operating results of such companies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
2. As required by Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," only interest-bearing deposits that are
highly liquid investments and have a maturity of three months or less
when purchased are included in cash.
3. Depreciation of vessels is computed for financial reporting
purposes based on cost, less estimated salvage value, by the straight-
line method primarily using a vessel life of 25 years. Accumulated
depreciation was $459,965,000 and $555,846,000 at December 31, 1997
and 1996, respectively.
4. Certain subsidiaries have bareboat charters-in on vessels that are
accounted for as capital leases. Amortization of capital leases is
computed by the straight-line method over 22 or 25 years, representing
the terms of the leases (see Note M1). Accumulated amortization was
$87,392,000 and $104,963,000 at December 31, 1997 and 1996,
respectively.
5. Time charters and a bareboat charter that are operating leases are
reported on the accrual basis. Voyage charters are reported on the
completed voyage basis.
6. Interest costs incurred during the construction of vessels (until
the vessel is substantially complete and ready for its intended use)
are capitalized. Interest capitalized aggregated $1,326,000 (1997),
$9,378,000 (1996) and $14,811,000 (1995). Interest paid amounted to
$82,898,000 (1997), $70,971,000 (1996) and $67,877,000 (1995),
excluding capitalized interest.
7. The Company's investments in marketable securities are classified
as available-for-sale and are carried at market value. Net unrealized
gains or losses are reported as a separate component of shareholders'
equity.
8. Amounts receivable or payable under interest rate swaps (designated
as hedges against certain existing debt and capital lease obligations
D see Note G) are accrued and reflected as adjustments of interest
expense. Such receivables or payables are included in other
receivables or sundry liabilities and accrued expenses, respectively.
Any gain or loss realized upon the early termination of an interest
rate swap is recognized as an adjustment of interest expense over the
remaining term of the hedged debt.
Changes in the value of currency swaps (designated as hedges against
contracted future charter revenues receivable in a foreign currency)
are deferred and are offset against corresponding changes in the value
of the charter hire, over the related charter periods (see Note M2).
Any gain or loss realized upon the termination of foreign currency
swaps would be recognized as an adjustment of voyage revenues over the
remaining term of the related charter.
The Company uses derivative financial instruments for trading purposes
from time to time. Realized and unrealized changes in fair values are
recognized in income in the period in which the changes occur (see
foreign currency exchange gains/(losses) in the table in Note K).
9. In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("FAS 128"). FAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is
very similar to fully diluted earnings per share. All earnings per
share amounts for all periods have been presented in conformity with
FAS 128 requirements.
NOTE B - BUSINESS - DOMESTIC AND FOREIGN OPERATIONS:
The Company is principally engaged in the ocean transportation of
liquid and dry bulk cargoes in both the worldwide markets and the self-
contained U.S. markets through the ownership and operation of a
diversified fleet of bulk cargo vessels. The Company's subsidiaries
charter their vessels to commercial shippers and U.S. and foreign
governmental agencies primarily on time and voyage charters and
occasionally on bareboat charters (see Note M2). The Company also has
an equity investment in the cruise business (see Note D).
<TABLE>
Information about the Company's operations for the three years ended
December 31, 1997 follows:
<CAPTION>
In thousands Consolidated U.S. Flag Foreign Flag*
- ----------------------------------------------------------------------
<S> <C> <C> <C>
1997
Shipping Revenues $ 481,059 $152,727 $ 328,332
- ----------------------------------------------------------------------
Net Income/(Loss) $ 19,017 $(10,064) $ 29,081
- ----------------------------------------------------------------------
Identifiable Assets
at December 31, 1997 $2,023,224 $577,381 $1,445,843
- ----------------------------------------------------------------------
1996
Shipping Revenues $ 455,868 $160,921 $ 294,947
- ----------------------------------------------------------------------
Net Income/(Loss) $ 2,502 $(22,438) $ 24,940
- ----------------------------------------------------------------------
Identifiable Assets
at December 31, 1996 $2,037,301 $525,641 $1,511,660
- ----------------------------------------------------------------------
1995
Shipping Revenues $ 413,917 $113,778 $ 300,139
- ----------------------------------------------------------------------
Net Income/(Loss) $ (8,632) $(42,562) $ 33,930
Identifiable Assets
at December 31, 1995 $2,064,826 $547,011 $1,517,815
- ----------------------------------------------------------------------
<FN>
*Principally Marshall Islands as of December 31, 1997.
</TABLE>
The Company's interest expense is reflected predominantly in U.S. flag
results.
See Note J for information relating to taxation of income and
undistributed earnings of foreign companies.
The Company had one charterer (a U.S. oil company) during the above
periods from which revenues exceeded 10% of revenues from voyages.
Revenues from such charterer amounted to $118,012,000 in 1997,
$98,321,000 in 1996 and $49,541,000 in 1995.
NOTE C - ASSETS AND LIABILITIES OF FOREIGN SUBSIDIARIES:
<TABLE>
A condensed summary of the combined assets and liabilities of the
Company's foreign (incorporated outside the United States)
subsidiaries, whose operations are principally conducted in U.S.
dollars, follows:
<CAPTION>
In thousands at December 31, 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Current assets $ 27,004 $ 35,237
Vessels, net and vessels
included in disposal program 1,048,945 1,013,415
Investment in cruise business 160,269 239,255
Other assets 121,976 113,798
- -----------------------------------------------------------------
1,358,194 1,401,705
- -----------------------------------------------------------------
Current installments of
long-term debt, including
intercompany of $35,800 in
1997 and 1996 46,086 41,882
Other current liabilities 19,613 12,842
- -----------------------------------------------------------------
Total current liabilities 65,699 54,724
Long-term debt (including inter-
company of $107,400 and $143,200)
and deferred credits, etc. 350,177 334,467
- -----------------------------------------------------------------
415,876 389,191
- -----------------------------------------------------------------
Net assets $ 942,318 $1,012,514
=================================================================
</TABLE>
NOTE D - INVESTMENT IN CRUISE BUSINESS:
In July 1997, the Company sold its 49% ownership interest in Celebrity
Cruise Lines Inc. ("CCLI"), a joint venture that owned and operated
cruise vessels, for $120,050,000 in cash (which was used to reduce the
Company's then outstanding total long-term indebtedness of
approximately $1,170,000,000) and approximately 3,650,000 shares of
Royal Caribbean Cruises Ltd. ("RCCL") common stock, representing
approximately 5% of RCCL's then outstanding common shares. The Company
recognized a gain on the sale of $21,576,000 (approximately
$12,100,000 after tax, including $2,000,000 of tax on previously
untaxed CCLI earnings).
The Company has accounted for its ownership of RCCL common stock
(which includes approximately 131,000 shares held as available-for-
sale securities prior to the aforementioned transaction) as an
investment in a corporate joint venture, using the equity method of
accounting. The excess ($75,029,000) of the cost of such investment
over the Company's proportionate share of the underlying net assets of
RCCL as of the transaction date is being amortized over 40 years using
the straight-line method. Accumulated amortization as of December 31,
1997 amounted to $938,000.
The market value of the investment in RCCL was $201,577,000 as of
December 31, 1997 and $198,742,000 as of February 23, 1998, based on
quoted market prices.
In September 1997, RCCL sold approximately 9,354,000 shares in a
public offering at a net price per share that was substantially above
RCCL's book value per share after giving effect to the offering.
Accordingly, the Company recognized a gain of $7,842,000 ($5,100,000
after tax), representing an increase in its share of RCCL's
shareholders' equity.
The Company's equity in the results of cruise business reflects its
share of the results of CCLI through June 30, 1997 and of RCCL
thereafter.
<TABLE>
A condensed summary of the assets and liabilities of RCCL and the
results of its operations follows:
<CAPTION>
In thousands at December 31, 1997
- -----------------------------------------------------------------
<S> <C>
Current assets $ 211,145
Vessels, net 4,785,291
Goodwill and other assets 343,312
- -----------------------------------------------------------------
5,339,748
- -----------------------------------------------------------------
Current installments of long-term debt 141,013
Other current liabilities 748,331
- -----------------------------------------------------------------
Total current liabilities 889,344
Long-term debt 2,431,683
- -----------------------------------------------------------------
3,321,027
- -----------------------------------------------------------------
Net assets (including retained earnings of $660,655) $2,018,721
=================================================================
In thousands for the period from July 1 to December 31,1997
- -----------------------------------------------------------------
Revenue $1,140,950
Costs and expenses 1,042,665
- -----------------------------------------------------------------
Net income $ 98,285
=================================================================
</TABLE>
<TABLE>
The results of CCLI's operations were as follows:
<CAPTION>
January 1 to Year ended December 31,
In thousands June 30, 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Revenue $265,921 $ 411,891 $ 272,564
Costs and expenses 266,264 411,769 274,951
- -----------------------------------------------------------------
Net income/(loss) $ (343) $ 122 $ (2,387)
=================================================================
</TABLE>
The Company's equity in the results of cruise business for each of the
years is before interest expense of approximately $12,700,000 (1997),
$15,800,000 (1996) and $16,900,000 (1995), estimated to have been
incurred by the Company in connection with the funding of its
investment in cruise business. These amounts were calculated based on
the Company's average interest rates during the respective years.
NOTE E - BULK SHIPPING JOINT VENTURES:
<TABLE>
Certain subsidiaries have investments in bulk shipping joint ventures
(see Note A1). A condensed summary of the combined assets and
liabilities and results of operations of the bulk shipping joint
ventures follows:
<CAPTION>
In thousands at December 31, 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash ($38,432 and $20,337) and other
current assets (including $2,640 and
$8,196 due from owners) $ 47,003 $ 35,690
Vessels, net 205,770 150,108
Other assets (including $557 and 2,257
due from owners) 3,486 4,411
- ---------------------------------------------------------------------------
256,259 190,209
- ---------------------------------------------------------------------------
Current installments of long-term debt 7,500 -
Other current liabilities 6,176 4,535
- ---------------------------------------------------------------------------
Total current liabilities 13,676 4,535
Long-term debt 48,750 -
- ---------------------------------------------------------------------------
62,426 4,535
- ---------------------------------------------------------------------------
Net assets (principally undistributed
net earnings) $193,833 $185,674
===========================================================================
<CAPTION>
In thousands for the year
ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue, primarily from voyages
(including $35,304, $29,435 and
$30,598 from vessels chartered
to owners) $ 49,892 $ 41,998 $ 45,032
Costs and expenses 43,733 35,205* 32,030
- ---------------------------------------------------------------------------
Net income $ 6,159 $ 6,793 $ 13,002
===========================================================================
<FN>
*Includes a provision of approximately $2,300 for loss on a vessel
disposed of subsequent to year-end.
</TABLE>
NOTE F - INVESTMENTS IN MARKETABLE SECURITIES:
<TABLE>
Certain information concerning the Company's marketable securities
(including securities in the Capital Construction Fund), which
consist of available-for-sale securities, follows:
<CAPTION>
Approximate
Gross Unrealized Market and
---------------- Carrying
In thousands at December 31, Cost Gains Losses Amount
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Equity securities $121,947 $6,322 $5,815 $122,454
U.S. Treasury securities and
obligations of
U.S. government agencies 23,005 90 10 23,085
Mortgage-backed securities 6,851 35 - 6,886
Other debt securities 3,976 26 - 4,002
- ---------------------------------------------------------------------------
$155,779 $6,473 $5,825 $156,427
===========================================================================
1996
Equity securities $ 97,750 $2,816 $5,374 $ 95,192
U.S. Treasury securities and
obligations of
U.S. government agencies 12,490 2 93 12,399
- ---------------------------------------------------------------------------
$110,240 $2,818 $5,467 $107,591
===========================================================================
</TABLE>
At February 23, 1998, the aggregate market quotation of the above
marketable securities was approximately $157,000,000.
<TABLE>
The cost and approximate market value of debt securities held by the
Company as of December 31, 1997, by contractual maturity, follow:
<CAPTION>
Approximate
In thousands Cost Market
- -----------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 2,993 $ 2,993
Due after one year through five years 2,013 2,007
Due after five years through ten years 10,086 10,112
Due after ten years 11,889 11,975
- -----------------------------------------------------------------------
26,981 27,087
Mortgage-backed securities 6,851 6,886
- -----------------------------------------------------------------------
$33,832 $33,973
=======================================================================
NOTE G - DEBT:
</TABLE>
<TABLE>
Long-term debt exclusive of current installments follows:
<CAPTION>
In thousands at December 31, 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Unsecured Senior Notes, due from 2000
through 2013, interest from
7.77% to 9.57% $310,000 $310,000
Unsecured Revolving Credit Agreement
with banks 367,000 384,000
8.75% Debentures due 2013, net of
unamortized discount of $256 and $272 99,744 99,728
8% Notes due 2003, net of unamortized
discount of $143 and $167 99,857 99,833
Floating rate secured Term Loans, due
through 2003 40,315 49,697
Floating rate unsecured Promissory Note,
due through 2005 32,150 -
8% to 10.58% unsecured Promissory Notes
and Term Loans, due through 2001 12,201 26,577
Other 4,945 15,197
- -----------------------------------------------------------------------
$966,212 $985,032
=======================================================================
</TABLE>
The Revolving Credit Agreement, as amended, provides for borrowings of
up to $600,000,000 on a revolving credit basis through August 2002, at
which time any outstanding balance is due. As of December 31, 1997,
interest was at the rate of .50% above the London interbank offered
rate ("LIBOR"). The Company also has an interest rate option related
to the money market or prime rates.
Agreements related to long-term debt provide for prepayment privileges
(in certain instances with penalties), a limitation on the amount of
total borrowings, and acceleration of payment under certain
circumstances, including if any of the consolidated financial
covenants contained in certain of such agreements are not met. The
most restrictive of these covenants require the Company to maintain
positive consolidated working capital, consolidated net worth as of
December 31, 1997 of approximately $610,000,000 (increasing quarterly
by an amount related to net income) and a ratio of total debt to net
worth of not more than 1.75:1. The amount that the Company can use for
Restricted Payments, as defined, including dividends and purchases of
its capital stock, is limited as of December 31, 1997 to $25,600,000.
The Company has used interest rate swaps to effectively convert a
portion of its debt, including capital lease obligations, 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
December 31, 1997, the Company is a party to fixed to floating
interest rate swaps with various major financial institutions covering
notional amounts aggregating $600,000,000, pursuant to which it pays
LIBOR (5.8% as of December 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 $86,000,000, 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 12% of the net book amount of the Company's vessels and
vessels under capital leases, representing three foreign flag and
seven U.S. flag vessels, is pledged as collateral for certain long-
term debt.
The aggregate annual principal payments required to be made on long-
term debt for the five years subsequent to December 31, 1997 are
$22,430,000 (1998), $23,355,000 (1999), $42,250,000 (2000),
$53,710,000 (2001) and $416,131,000 (2002).
The Company also has a $30,000,000 committed short-term line of credit
facility with a bank, of which $25,000,000 was used as of December 31,
1997. Such amount has been classified as long-term and is included in
the $367,000,000 in the above table since it is expected to be
refinanced under the Revolving Credit Agreement.
NOTE H - 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 its subsidiaries to
render services related to the chartering and operation of the vessels
and certain general and administrative services for which Maritime and
its subsidiaries receive specified compensation. Vessel and voyage
expenses include $6,012,000 (1997), $5,798,000 (1996) and $5,601,000
(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 $1,110,000(1997), $1,009,000 (1996)
and $917,000 (1995)). 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 I - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND INTEREST-BEARING DEPOSITS - The carrying amount reported in
the balance sheet for interest-bearing deposits approximates its fair
value.
INVESTMENT SECURITIES - The fair value for marketable securities is
based on quoted market prices or dealer quotes.
DEBT, INCLUDING CAPITAL LEASE OBLIGATIONS - The carrying amounts of
the borrowings under the Revolving Credit Agreement and the other
floating rate loans approximate their fair value. The fair values of
the Company's fixed rate debt are estimated using discounted cash flow
analyses, based on the rates currently available for debt with similar
terms and remaining maturities.
INTEREST RATE SWAPS - The fair value of interest rate swaps (used for
hedging purposes) is the estimated amount that the Company would
receive or pay to terminate the swaps at the reporting date.
FOREIGN CURRENCY SWAPS AND FORWARD CONTRACTS - The fair value of
foreign currency swaps (used for hedging purposes) is the estimated
amount that the Company would receive or pay to terminate the swaps at
the reporting date. The average fair values of foreign currency
forward contracts held for trading during 1997, 1996 and 1995 were
not material.
<TABLE>
Estimated fair value of the Company's financial instruments follows:
<CAPTION>
Carrying Fair Carrying Fair
In thousands at Amount Value Amount Value
December 31, 1997 1997 1996 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
(LIABILITIES)
Cash and interest-bearing
deposits $ 113,195 $ 113,195 $ 109,120 $ 109,120
Interest-bearing deposits
in Capital
Construction Fund 45,257 45,257 53,096 53,096
Investments in marketable
securities 156,427 156,427 107,591 107,591
Debt, including capital
lease obligations (1,084,603) (1,134,323) (1,119,434) (1,167,748)
Interest rate swaps - 12,834 - 4,151
Foreign currency swaps - 9,197 - (705)
- ---------------------------------------------------------------------------
</TABLE>
NOTE J - TAXES:
Effective from January 1, 1987, earnings of the foreign shipping
companies (exclusive of the unrepatriated equity in the earnings of
RCCL) are subject to U.S. income taxation currently; post-1986 taxable
income may be distributed to the U.S. parent without further tax. The
foreign companies' shipping income earned from January 1, 1976 through
December 31, 1986 ("Deferred Income") is excluded from U.S. income
taxation to the extent that such income is reinvested in foreign
shipping operations, and the foreign shipping income earned before
1976 is not subject to tax unless distributed to the U.S. parent. A
determination of the amount of qualified investments in foreign
shipping operations, as defined, is made at the end of each year and
such amount is compared with the corresponding amount at December 31,
1986. If during any determination period there is a reduction of
qualified investments in foreign shipping operations, Deferred Income,
limited to the amount of such reduction, would become subject to tax.
Treasury Department regulations regarding the foregoing have not been
revised to reflect law changes effective for post-1986 years. The
Company believes that it will be reinvesting sufficient amounts in
foreign shipping operations so that any significant U.S. income taxes
on the undistributed income of its foreign companies accumulated
through December 31, 1986 will be postponed indefinitely. U.S. income
taxes on the income of its foreign companies accumulated through
December 31, 1986 will be provided at such time as it becomes probable
that a liability for such taxes will be incurred and the amount
thereof can reasonably be estimated. No provision for U.S. income
taxes on the income of the foreign shipping companies accumulated
through December 31, 1986 was required at December 31, 1997 since
undistributed earnings of foreign shipping companies have been
reinvested or are intended to be reinvested in foreign shipping
operations. As of December 31, 1997, such undistributed earnings
aggregated approximately $475,000,000, including $114,000,000 earned
prior to 1976; the unrecognized deferred U.S. income tax attributable
to such undistributed earnings approximated $165,000,000. Further, as
of December 31,1997, no provision for U.S. income taxes on the
Company's share of the undistributed earnings of RCCL was required,
since it was intended that such undistributed earnings (Company's
share - $3,700,000 at December 31, 1997) be indefinitely reinvested;
the unrecognized deferred U.S. income tax attributable thereto approx-
imated $1,295,000.
Pursuant to the Merchant Marine Act of 1936, as amended, the Company
is a party to an agreement that permits annual deposits, related to
taxable income of certain of its domestic subsidiaries, into a Capital
Construction Fund. Payments of federal income taxes on such deposits
and earnings thereon are deferred until, and if, such funds are
withdrawn for nonqualified purposes or termination of the agreement;
however, if withdrawn for qualified purposes (acquisition of vessels
or retirement of debt on vessels), such funds remain tax-deferred and
the federal income tax basis of any such vessel is reduced by the
amount of such withdrawals. Under the agreement, the general objective
is (by use of assets accumulated in the fund) for three vessels to be
constructed or acquired by the end of 2004. Monies can remain tax-
deferred in the fund for a maximum of 25 years (commencing January 1,
1987 for deposits prior thereto).
<TABLE>
The significant components of the Company's deferred tax liabilities
and assets follow:
<CAPTION>
In thousands at December 31, 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
- ----------------------------------------------------------------------
Excess of tax over statement depreciation - net $ 62,701 $ 71,783
Tax benefits related to the Capital
Construction Fund 52,250 41,910
Costs capitalized and amortized for statement,
expensed for tax 12,448 9,959
Other - net 20,952 19,695
- ----------------------------------------------------------------------
Total deferred tax liabilities 148,351 143,347
- ----------------------------------------------------------------------
Deferred tax assets:
- ----------------------------------------------------------------------
Capital leases 4,237 6,093
Excess of tax over statement basis of investment
in securities - 924
Alternative minimum tax credit carryforwards,
which can be carried forward indefinitely 17,120 16,257
Net operating loss carryforwards, expiring
in 2010 and 2011 17,080 18,170
- ----------------------------------------------------------------------
Total deferred tax assets 38,437 41,444
- ----------------------------------------------------------------------
Net deferred tax liabilities $109,914 $101,903
======================================================================
</TABLE>
Federal income taxes paid amounted to $1,913,000 in 1997 ($263,000 of
which related to 1996) and $600,000 in 1995. A federal income tax
refund of $5,307,000 was received in 1995.
<TABLE>
The components of income/(loss) before federal income taxes follow:
<CAPTION>
In thousands for the year
ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(19,147) $(23,720) $(45,486)
Foreign 50,314 27,107 31,594
- ----------------------------------------------------------------------
$ 31,167 $ 3,387 $(13,892)
======================================================================
</TABLE>
Substantially all of the above foreign income was earned by companies
that were not subject to income taxes in their countries of
incorporation.
<TABLE>
The components of the provision/(credit) for federal income taxes
follow:
<CAPTION>
In thousands for the year
ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 1,600 $ 200 -
Deferred 10,550 685 $(5,260)
- ----------------------------------------------------------------------
$12,150 $ 885 $(5,260)
=======================================================================
</TABLE>
<TABLE>
Reconciliations of the actual federal income tax rate and the U.S.
statutory income tax rate follow:
<CAPTION>
For the year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Actual federal income tax provision/
(credit) rate 39.0% 26.1% (37.9)%
Adjustment due to:
Dividends received deduction 1.4% 13.8% 3.1%
Prior years' undistributed
earnings of CCLI - see Note D (6.3)% - -
Income not subject to U.S. income
taxes 3.3% 2.0% (.2)%
Other (2.4)% (6.9)% -
- ----------------------------------------------------------------------
U.S. statutory income tax provision/
(credit) rate 35.0% 35.0% (35.0)%
=======================================================================
</TABLE>
NOTE K - OTHER INCOME (NET):
<TABLE>
Other income (net) consists of:
<CAPTION>
In thousands for the year
ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Interest $ 7,077 $ 7,500 $ 9,545
Dividends 1,832 1,990 1,803
Gain on sale of securities - net
(based on first-in, first-out
method) 31,493 20,066 11,130
Provision for loss on investments (714) (11,190) (2,616)
- -----------------------------------------------------------------------
39,688 18,366 19,862
Gain/(loss) on disposal of
vessels - net (588) 6,983 2,693*
Foreign currency exchange gains/
(losses) - 119 (2,559)
Minority interest - 356 1,990
Miscellaneous - net 2,845 384 1,385
- -----------------------------------------------------------------------
$41,945 $26,208 $23,371
=======================================================================
<FN>
* Reflects a provision of approximately $3,000 for loss on a vessel
disposed of subsequent to year-end.
</TABLE>
Gross realized gains on sales of securities were $35,808,000(1997),
$23,579,000 (1996) and $14,625,000 (1995), and gross realized losses
were $4,315,000 (1997), $3,513,000 (1996) and $3,495,000 (1995).
NOTE L - OTHER COMMENTS:
1. The Company announced a program for the disposal of its ten older
and less competitive dry cargo vessels. At the end of the third
quarter of 1997, the Company established a reserve of $26,536,000
($17,200,000 after tax) for the reduction of the carrying amount
(approximately $163,000,000) of the ten vessels held for disposal to
their estimated fair value (less disposal costs) and for costs in
connection with the elimination of related overhead. The vessel
disposal program is scheduled for completion during 1998. The vessels
held for disposal incurred a pretax loss of approximately $12,800,000
in the nine months ended September 30,1997, including a charge for
allocated interest of $6,600,000 based on the estimated fair value of
the vessels. The Company intends to use the net proceeds from the
disposal program, estimated at approximately $140,000,000, to reduce
outstanding debt. To date, two vessels have been sold and a third is
under contract of sale, with aggregate proceeds anticipated to be
approximately $30,000,000.
<TABLE>
2. Sundry liabilities and accrued expenses consist of:
<CAPTION>
In thousands at December 31, 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Payroll and benefits $ 2,524 $ 3,219
Interest 10,236 10,408
Insurance 6,928 5,774
Other 9,561 8,672
- -----------------------------------------------------------------
$29,249 $28,073
=================================================================
</TABLE>
3. Certain subsidiaries make contributions to union-sponsored multi-
employer pension plans covering seagoing personnel. The Employee
Retirement Income Security Act requires employers who are contributors
to domestic multi-employer plans to continue funding their allocable
share of each plan's unfunded vested benefits in the event of
withdrawal from or termination of such plans. The Company has been
advised by the trustees of such plans that it has no withdrawal
liability as of December 31, 1997. Certain other seagoing personnel of
U.S. flag vessels are covered under a subsidiary's defined
contribution plan, the cost of which is funded as accrued. The costs
of these plans were not material during the three years ended December
31,1997.
NOTE M - LEASES:
<TABLE>
1. Charters-in:
The approximate minimum commitments under capital leases for five U.S.
flag vessels were:
<CAPTION>
In thousands at December 31, 1997
- ------------------------------------------------------------
<S> <C>
1998 $ 15,256
1999 15,386
2000 15,765
2001 15,765
2002 14,258
Beyond 2002 87,509
- ------------------------------------------------------------
Net minimum lease payments 163,939
Less amount representing interest 67,978
- ------------------------------------------------------------
Present value of net minimum lease payments $ 95,961
============================================================
</TABLE>
During 1997 and 1996, subsidiaries of the Company purchased three
vessels that were under capital leases. These vessels had net carrying
amounts of $6,242,000 (for the one vessel purchased in 1997) and
$19,012,000 (for the two vessels purchased in 1996). The purchase
prices were $17,169,000 (1997) and $40,912,000 (1996), including the
assumption of $9,052,000 (1997) and $20,090,000 (1996) of debt to
which the vessels were subject. The excesses, $3,300,000 (1997) and
$3,427,000 (1996), of the purchase prices over the carrying amounts,
$13,869,000 (1997) and $37,485,000 (1996), of the lease obligations
(which were removed from the balance sheets) were recorded as
adjustments to the carrying amounts of the vessels.
In January 1997, the Company chartered-in a newbuilding foreign flag
VLCC (Very Large Crude Carrier) from a 50%-owned joint venture for a
period of eight years, under an operating lease, at an annual time
charter rental of approximately $9,500,000. OSG, in turn, time
chartered the vessel for the same period to the joint venture partner
at an annual rental of approximately $13,500,000 (see Note M2).
The Company has a time charter (which is an operating lease) for a
1992-built foreign flag Aframax tanker, which charter has a remaining
term of approximately one year, at an annual time charter rental of
approximately $8,800,000, assuming a full year's operations. Under the
charter, the Company has renewal and purchase options.
The total rental expense for charters accounted for as operating
leases amounted to $20,752,000 in 1997, $8,613,000 in 1996 and
$9,767,000 in 1995.
2. Charters-out:
Revenues from vessels on time charter are dependent upon the ability
to deliver and operate vessels in accordance with charter terms.
Revenues from a time charter are not received when a vessel is off-
hire, including time required for normal periodic maintenance of the
vessel. The minimum future revenues expected to be received subsequent
to December 31, 1997 on noncancelable time charters and a bareboat
charter are $153,493,000 (1998), $113,580,000 (1999), $116,438,000
(2000), $107,471,000 (2001) and $82,792,000 (2002); the aggregate for
2003 and later years is $69,906,000.
The foregoing amounts do not include escalations and do not purport to
be an estimate of aggregate voyage revenues for any of the years. In
arriving at the minimum future charter revenues, an estimated time off-
hire to perform periodic maintenance on each vessel has been deducted,
although there is no assurance that such estimate will be reflective
of the actual off-hire in the future.
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
$104,000,000 for such foreign currency from 1998 through 2004.
NOTE N - STOCK OPTIONS AND PER SHARE AMOUNTS:
The Company's 1989 nonqualified stock option plan, as amended, covered
570,000 treasury shares. Options were granted to certain officers of
the Company and a subsidiary for the purchase of all the shares
covered by the amended plan, at $14.00 per share, which was in excess
of the market price at the date of grant. During 1997, options for
343,000 shares were exercised. Options for 217,000 shares are
outstanding and exercisable at December 31, 1997. These options remain
exercisable until October 2000.
At December 31, 1997, the Company has reserved 467,592 treasury shares
for issuance pursuant to an agreement, as amended, to make such shares
available for purchase by Maritime (see Note H) for the purpose of
fulfilling its obligations under its 1990 nonqualified stock option
plan, as amended. The prices for any shares Maritime purchases from
the Company range from $16.00 to $19.63 per share (the market prices
at dates of grant). The options granted have a term of approximately
ten years and become exercisable in annual increments of 20% upon the
option holder's completion of five years of service. Certain details
of activity in the Company's nonqualified 1990 plan, which covered
options granted to employees (except senior officers), and Maritime's
plan are summarized as follows:
Company's Maritime's
1990 Plan Plan
- ----------------------------------------------------------------------
Options Outstanding at December 31, 1994 3,515 493,156
Granted - -
Canceled (345) (14,433)
Exercised ($16.00 per share) (1,068) (16,527)
Options Outstanding at December 31, 1995 2,102 462,196
Granted - -
Canceled - (9,713)
Exercised ($16.00 per share) (890) (6,963)
- ----------------------------------------------------------------------
Options Outstanding at December 31, 1996 1,212 445,520
Granted - -
Canceled - (5,594)
Exercised ($16.00 to $19.63 per share) (1,212) (212,982)
Options Outstanding at December 31, 1997 - 226,944
- ----------------------------------------------------------------------
Options Exercisable at December 31, 1997 - 203,136
- ----------------------------------------------------------------------
Basic net income/(loss) per share is based on the following weighted
average number of common shares outstanding during each year:
36,468,284 shares (1997), 36,233,791 shares (1996) and 36,220,401
shares (1995). Diluted net income/(loss) per share, which gives effect
to the aforementioned stock options in 1997 and 1996, is based on the
following weighted average number of shares during each year:
36,569,160 shares (1997), 36,333,205 shares (1996) and 36,220,401
shares (1995). Such stock options have not been included in the
computation of diluted net (loss) per share in 1995 since their effect
thereon would be antidilutive.
<TABLE>
NOTE O - 1997 AND 1996 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<CAPTION>
Results of Operations for Quarter Ended
(in thousands, except per share amounts)
March 31, June 30, Sept. 30, Dec. 31,
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Shipping revenues $127,793 $122,801 $121,652 $108,813
Income from vessel
operations 17,604 18,319 12,240 17,448
Gain/(loss) on disposal
of vessels - net - 145 (733) -
Net income $ 2,047 $ 7,090 $ 5,183 $ 4,697
- ----------------------------------------------------------------------
Basic and diluted net
income per share* $ .06 $ .19 $ .14 $ .13
======================================================================
1996
Shipping revenues $125,865 $115,825 $105,106 $109,072
Income from vessel
operations 18,478 13,617 5,634 8,887
Gain/(loss) on disposal
of vessels - net 7,523 (628) - 88
Net income/(loss) $ 5,344 $ 3,101 $ (767) $ (5,176)**
- ----------------------------------------------------------------------
Basic and diluted net
income/(loss) per share* $ .15 $ .08 $ (.02) $ (.14)
======================================================================
<FN>
* The 1996 and first three quarters of 1997 per share amounts have
been presented to comply with FAS 128 requirements. The adoption
of FAS 128 had no impact on such per share amounts, as previously
reported.
** Reflects a provision for loss on investments of $6,533.
</TABLE>
<PAGE>
Report of Independent Auditors
To the Shareholders
Overseas Shipholding Group, Inc.
We have audited the accompanying consolidated balance sheets of
Overseas Shipholding Group, Inc. and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
cash flows and changes in shareholders' equity for each of the three
years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Overseas Shipholding Group, Inc. and subsidiaries at December 31,
1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
February 23, 1998
<PAGE>
[From pages 32 and 33 of the 1997 Annual Report]
<TABLE>
ELEVEN-YEAR STATISTICAL REVIEW
(unaudited)
<CAPTION>
In thousands, except per share amounts 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues(a) $ 526,716 $ 482,097 $ 436,080 $ 390,841
- ----------------------------------------------------------------------------------------------------
Income from vessel operations 65,611 46,616 30,385 20,333
- ----------------------------------------------------------------------------------------------------
Income/(loss) before federal income taxes 31,167 3,387 (13,892) (9,950)
- ----------------------------------------------------------------------------------------------------
Net income/(loss) 19,017 2,502 (8,632) (6,200)
- ----------------------------------------------------------------------------------------------------
Depreciation of vessels and amortization of
capital leases 77,940 71,003 66,134 59,992
- ----------------------------------------------------------------------------------------------------
Vessels, capital leases and direct 1,308,125(c) 1,293,817 1,281,601 1,183,241
financing leases, at net book amount
- ----------------------------------------------------------------------------------------------------
Total assets 2,023,224 2,037,301 2,064,826 1,905,409
- ----------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations
(exclusive of current portions) 1,056,306 1,093,475 1,101,758 910,056
- ----------------------------------------------------------------------------------------------------
Reserve for deferred federal income
taxes-noncurrent 102,514 94,803 93,218 102,170
- ----------------------------------------------------------------------------------------------------
Shareholders' equity $ 779,797 $ 769,438 $ 784,781 $ 809,779
- ----------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS(b):
Basic and diluted net income/(loss) $ .52 $ .07 $ (.24) $ (.17)
- ----------------------------------------------------------------------------------------------------
Shareholders' equity $ 21.19 $ 21.23 $ 21.66 $ 22.36
- ----------------------------------------------------------------------------------------------------
Cash dividends paid $ .60 $ .60 $ .60 $ .60
- ----------------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING FOR BASIC
EARNINGS PER SHARE 36,468 36,234 36,220 35,588
- ----------------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING FOR DILUTED 36,569 36,333 36,220 35,588
EARNINGS PER SHARE
- ----------------------------------------------------------------------------------------------------
<FN>
(a) Represents shipping revenues and other income.
(b) Gives effect to a 7-for-5 stock split declared in February 1989.
(c) Includes vessels included in disposal program, at estimated fair
value.
(d) Includes $16,000 ($.49 per share) from the cumulative effect of the
change in accounting for income taxes in accordance with FAS 109,
and a provision of $13,100 ($.40 per share) for loss on investment
in GPA Group plc.
(e) Diluted net income per share is $1.66.
<PAGE>
</TABLE>
<TABLE>
In thousands, except 1993 1992 1991 1990 1989 1988 1987
per share amounts
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues(a) $ 420,095 $ 383,222 $ 452,459 $ 429,040 $ 349,885 $ 333,246 $ 331,270
- ----------------------------------------------------------------------------------------------------
Income from vessel 32,642 29,614 102,046 112,894 76,172 74,475 50,080
operations
- ----------------------------------------------------------------------------------------------------
Income/(loss) before 26,846 (2,829) 79,826 80,757 74,177 62,704 46,931
federal income taxes
- ----------------------------------------------------------------------------------------------------
Net income/(loss) 17,946 16,071(d) 55,076 55,857 51,976 46,404 35,531
- ----------------------------------------------------------------------------------------------------
Depreciation of
vessels and
amortization of
capital leases 58,734 56,472 56,214 55,567 51,136 48,934 49,319
- ----------------------------------------------------------------------------------------------------
Financing leases, at 1,130,124 1,067,122 1,026,817 1,046,103 1,093,109 882,559 835,087
net book amount
- ----------------------------------------------------------------------------------------------------
Total assets 1,823,737 1,714,548 1,545,675 1,498,277 1,540,621 1,318,178 1,258,826
- ----------------------------------------------------------------------------------------------------
Long-term debt and
capital lease obliga-
tions (exclusive of
current portions) 876,274 784,452 576,321 612,819 673,143 477,852 462,273
- ----------------------------------------------------------------------------------------------------
Reserve for deferred
federal income taxes-
noncurrent 100,161 94,247 114,589 102,575 88,470 79,341 76,699
- ----------------------------------------------------------------------------------------------------
Shareholders' equity $ 768,437 $ 762,425 $ 760,322 $ 707,128 $ 700,784 $ 695,684 $ 662,205
- ----------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS(B):
Basic and diluted
net income/(loss) $ .55 $ .49(d) $ 1.67(e) $ 1.63 $ 1.46 $ 1.29 $ .98
- ----------------------------------------------------------------------------------------------------
Shareholders' equity $ 23.50 $ 23.33 $ 23.05 $ 21.40 $ 20.09 $ 19.32 $ 18.39
- ----------------------------------------------------------------------------------------------------
Cash dividends paid $ .60 $ .60 $ .55 $ .50 $ .50 $ .36 $ .36
- ----------------------------------------------------------------------------------------------------
AVERAGE SHARES
OUTSTANDING FOR BASIC
EARNINGS PER SHARE 32,678 32,806 33,012 34,317 35,698 36,008 36,126
- ----------------------------------------------------------------------------------------------------
AVERAGE SHARES OUT-
STANDING FOR DILUTED
EARNINGS PER SHARE 32,820 32,870 33,158 34,334 35,708 36,008 36,126
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[From page 35 of the 1997 Annual Report]
SHAREHOLDER INFORMATION
The Company's stock is listed for trading on the New York Stock
Exchange and the Pacific Exchange, Inc.
Stock Symbol: OSG
Shareholders of Record February 23, 1998: 987
<PAGE>
<TABLE>
STOCK PRICE AND DIVIDEND DATA
<CAPTION>
1997 Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
High 19 1/8 20 3/8 26 7/16 26 3/16
- ------------------------------------------------------------------
Low 16 1/4 16 7/8 19 5/8 20 11/16
- ------------------------------------------------------------------
Dividend $.15 $.15 $.15* $.15
- ------------------------------------------------------------------
<CAPTION>
1996 Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
High 19 7/8 20 5/8 19 1/4 17 5/8
- ------------------------------------------------------------------
Low 17 1/8 17 5/8 16 1/8 15 3/4
- ------------------------------------------------------------------
Dividend $.15 $.15 $.15* $.15
- ------------------------------------------------------------------
<FN>
*Declared in second quarter of the respective year.
</TABLE>
<PAGE>
EXHIBIT 21
----------
as of 3/20/98
SUBSIDIARIES OF OVERSEAS SHIPHOLDING GROUP, INC.
The following table lists all subsidiaries of the
registrant and all companies in which the registrant directly
or indirectly owns at least a 49% interest, except for
certain companies which, if considered in the aggregate as a
single entity, would not constitute a significant entity.
All the entities named below are corporations, unless
otherwise noted.
Where Incorporated
Name or Organized
---- ------------------
Alice Tankships Corporation New York
Ambrit Holdings, Inc. Delaware
American Shipholding Group, Inc. New York
Amerikanis Company Limited Liberia
Amity Products Carriers, Inc. Delaware
Ania Tanker Corporation Marshall Islands
Antilles Bulk Holdings N.V. Netherlands Antilles
Atlantia Tanker Corporation Marshall Islands
Baywatch Marine Inc. Liberia
Britamer Holding Company Limited Liberia
Britanis Company Limited Liberia
Cambridge Tankers, Inc. New York
Canopus Tankers, Inc. Marshall Islands
Caribbean Tanker Corporation Marshall Islands
Chrismir Shipping Corporation Liberia
Commonwealth Shipping Company Limited Bermuda
Community Ocean Services, Inc. New York
Concert Tanker Corporation Liberia
Concord Tanker S.A. Panama
Delphina Tanker Corporation Delaware
Diane Tanker Corporation Marshall Islands
Edinburgh Bulk Carriers Limited Bermuda
Enterprise Shipping Company Limited Bermuda
ERN Holdings Inc. Panama
Excelsior Bulk Carriers Limited Bermuda
Exemplar Bulk Carriers Limited Bermuda
Explorer Bulk Carriers, Inc. Liberia
First Pacific Corporation Marshall Islands
First Products Tankers, Inc. Marshall Islands
First Shipco Inc. Liberia
First Shipmor Associates (partnership) Delaware
First Union Tanker Corporation Marshall Islands
First United Shipping Corporation Liberia
400 Equity Corporation Delaware
401 Equity Corporation Delaware
Fourth Aframax Tanker Corporation Marshall Islands
Fourth Products Tankers, Inc. Marshall Islands
Fourth Spirit Holding N.V. Netherlands Antilles
Friendship Marine Inc. Liberia
General Guaranty Corporation Delaware
General Ship Services, Inc. Delaware
Glasgow Bulk Carriers Limited Bermuda
Hyperion Shipping Corporation Liberia
Imperial Tankers Corporation Liberia
Intercontinental Bulktank Corporation New York
Intercontinental Coal Transport Inc. Delaware
Intercontinental Coal Transport Limited Bermuda
International Seaways, Inc. Liberia
Interocean Tanker Corporation Marshall Islands
Island Tanker S.A. Panama
ITI Shipping S.A. Panama
Jostelle Shipping Company Limited Bermuda
Juneau Tanker Corporation New York
Lake Michigan Bulk Carriers, Inc. New York
Lake Ontario Bulk Carriers, Inc. New York
Lion Shipping Ltd. Liberia
Majestic Tankers Corporation Marshall Islands
Mansfield Marine Corporation Marshall Islands
Marina Tanker Corporation Marshall Islands
Matilde Tanker Corporation Liberia
Moran Maritime Associates (partnership) Delaware
New Orleans Tanker Corporation Delaware
North American Ship Agencies, Inc. New York
Northanger Shipping Corporation Marshall Islands
Northwestern Tanker Corporation Marshall Islands
Ocean Bulk Ships, Inc. Delaware
Oleron Tanker S.A. Panama
Olympia Tanker Corporation Marshall Islands
OSG Bulk Ships, Inc. New York
OSG Car Carriers, Inc. New York
OSG Financial Corp. Delaware
OSG Foundation New York
OSG International Partners (partnership) Liberia
OSG International, Inc. Liberia
Overseas Airship Corporation Delaware
Overseas Bulktank Corporation New York
Overseas Coal Transport Inc. Delaware
Overseas Coal Transport Limited Bermuda
Overseas Cruiseship Inc. Cayman Islands
Overseas Petroleum Carriers, Inc. Delaware
Philadelphia Tanker Corporation Delaware
Regency Tankers Corporation Marshall Islands
Reliance Shipping B.V. Netherlands
Rex Shipholdings Inc. Liberia
Rio Grande Bulk Carriers, Inc. Marshall Islands
Royal Tankers Corporation Liberia
Ruby Tanker Corporation Marshall Islands
San Diego Tankers, Inc. Delaware
San Jose Tankers, Inc. Delaware
San Pedro Tankers, Inc. Delaware
Santa Clara Tankers, Inc. Delaware
Sapphire Tanker Corporation Marshall Islands
Sargasso Tanker Corporation Marshall Islands
Saturn Bulk Carriers, Inc. Liberia
Second Pacific Corporation Marshall Islands
Second Products Tankers, Inc. Marshall Islands
Second Shipmor Associates (partnership) Delaware
Second Union Tanker Corporation Marshall Islands
Second United Shipping Corporation Marshall Islands
Ship Paying Corporation No. 1 Delaware
Ship Paying Corporation No. 2 Delaware
Ship Paying Corporation No. 3 Liberia
Spirit Shipping B.V. Netherlands
Taunton Shipping Co. Ltd. Cyprus
Third Aframax Tanker Corporation Marshall Islands
Third Products Tankers, Inc. Marshall Islands
Third Shipco Inc. Delaware
Third United Shipping Corporation Liberia
398 Equity Corporation Delaware
399 Equity Corporation Delaware
Timor Navigation Ltd. Marshall Islands
Trader Shipping Corporation Liberia
Transbulk Carriers, Inc. Delaware
Tropical United Shipping Corporation Liberia
Tubarao Bulk Carriers, Inc. Marshall Islands
U.S. Shipholding Group, Inc. New York
United Partners (partnership) Liberia
United Steamship Corporation Panama
Valdez Tankships Corporation New York
Vega Tanker Corporation Delaware
Venus Tanker Corporation Marshall Islands
Vivian Tankships Corporation New York
Western Ship Agencies Limited England
Wolcon Corp. Delaware
EXHIBIT 23
----------
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Overseas Shipholding Group, Inc. of
our report dated February 23, 1998, included in the 1997
Annual Report to Shareholders of Overseas Shipholding Group,
Inc.
We also consent to the incorporation by reference in the
Registration Statement, Form S-8 (No. 33-44013) pertaining
to the Overseas Shipholding Group, Inc. 1989 Stock Option
Plan, the Overseas Shipholding Group, Inc. 1990 Stock Option
Plan, and the Maritime Overseas Corporation 1990 Stock
Option Plan, of our report dated February 23, 1998, with
respect to the consolidated financial statements of Overseas
Shipholding Group, Inc., incorporated herein by reference.
ERNST & YOUNG LLP
New York, New York
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 113,195
<SECURITIES> 0
<RECEIVABLES> 30,806
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 170,380
<PP&E> 1,855,482
<DEPRECIATION> 547,357
<TOTAL-ASSETS> 2,023,224
<CURRENT-LIABILITIES> 71,045
<BONDS> 1,056,306
<COMMON> 39,591
0
0
<OTHER-SE> 740,206
<TOTAL-LIABILITY-AND-EQUITY> 2,023,224
<SALES> 0
<TOTAL-REVENUES> 556,134
<CGS> 0
<TOTAL-COSTS> 441,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,983
<INCOME-PRETAX> 31,167
<INCOME-TAX> 12,150
<INCOME-CONTINUING> 19,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,017
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
