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Previous: OTTER TAIL POWER CO, 10-Q, 1999-11-12 |
Next: OVERSEAS SHIPHOLDING GROUP INC, 10-Q, 1999-11-12 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
SEPTEMBER 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO.
1-6479-1
OVERSEAS SHIPHOLDING GROUP, INC.
(Exact name of registrant as specified in its charter)
|
DELAWARE |
13-2637623 |
|
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
511 Fifth Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
|
Registrant's telephone number, including area code |
(212) 953-4100 |
No Change
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Common Shares outstanding as of November 9 , 1999 - 33,672,297
|
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES |
||||
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||
|
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 |
||||
|
SEPTEMBER 30, 1999 |
DECEMBER 31, 1998 (A) |
|||
|
(UNAUDITED) |
||||
|
ASSETS |
||||
|
Current Assets: |
||||
|
Cash, including interest-bearing deposits of |
||||
|
$46,174,000 and $46,494,000 |
$ 48,256,000 |
$ 51,005,000 |
||
|
Receivables |
29,311,000 |
33,785,000 |
||
|
Prepaid expenses |
20,240,000 |
19,868,000 |
||
|
Total Current Assets |
97,807,000 |
104,658,000 |
||
|
Investments in Marketable Securities |
33,120,000 |
10,684,000 |
||
|
Capital Construction Fund |
179,297,000 |
176,154,000 |
||
|
Vessels, at cost, less accumulated depreciation |
||||
|
of $304,330,000 and $340,617,000 - Note G |
1,165,430,000 |
1,130,397,000 |
||
|
Vessels Under Capital Leases, less accumulated |
||||
|
amortization of $71,580,000 and $67,547,000 |
50,509,000 |
54,543,000 |
||
|
Vessels Held for Disposal, at estimated fair value - Note J2 |
8,313,000 |
44,170,000 |
||
|
Investments in Bulk Shipping Joint Ventures - Note D |
80,999,000 |
91,942,000 |
||
|
Other Assets |
90,534,000 |
82,967,000 |
||
|
$ 1,706,009,000 |
$ 1,695,515,000 |
|||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||
|
Current Liabilities: |
||||
|
Accounts payable |
$ 6,255,000 |
$ 5,800,000 |
||
|
Sundry liabilities and accrued expenses |
33,763,000 |
31,546,000 |
||
|
40,018,000 |
37,346,000 |
|||
|
Current installments of long-term debt - Note H |
7,644,000 |
20,194,000 |
||
|
Current obligations under capital leases |
4,886,000 |
4,244,000 |
||
|
Total Current Liabilities |
52,548,000 |
61,784,000 |
||
|
Advance Time Charter Revenues |
957,000 |
6,412,000 |
||
|
Long-term Debt - Notes G and H |
721,488,000 |
757,126,000 |
||
|
Obligations Under Capital Leases |
73,475,000 |
76,767,000 |
||
|
Deferred Federal Income Taxes ($72,660,000 and |
|
|||
|
$64,584,000) and Deferred Credits - Notes F and H |
183,709,000 |
85,804,000 |
||
|
Shareholders' Equity - Notes F and J3 |
673,832,000 |
707,622,000 |
||
|
Commitments and Other Comments - Note J |
|
|
||
|
$ 1,706,009,000 |
$ 1,695,515,000 |
|||
(A) The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date. |
||||
(See Accompanying Notes)
|
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES |
|||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
|||||||
|
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 |
|||||||
|
(UNAUDITED) |
|||||||
|
THREE MONTHS ENDED |
NINE MONTHS ENDED |
||||||
|
SEPTEMBER 30, 1999 |
SEPTEMBER 30, 1998 |
SEPTEMBER 30, 1999 |
SEPTEMBER 30, 1998 |
||||
|
Shipping Revenues: |
|||||||
|
Revenue from voyages |
$ 84,770,000 |
$ 104,885,000 |
$ 272,595,000 |
$ 314,057,000 |
|||
|
Income attributable to bulk shipping |
|||||||
|
joint ventures - Note D |
834,000 |
604,000 |
3,520,000 |
1,674,000 |
|||
|
85,604,000 |
105,489,000 |
276,115,000 |
315,731,000 |
||||
|
Shipping Expenses: |
|||||||
|
Vessel and voyage - Notes E and H |
56,300,000 |
64,315,000 |
166,903,000 |
191,189,000 |
|||
|
Depreciation of vessels and |
|||||||
|
amortization of capital leases |
15,112,000 |
18,347,000 |
45,917,000 |
53,412,000 |
|||
|
General and administrative - |
|||||||
|
Note E |
9,830,000 |
10,568,000 |
30,536,000 |
32,601,000 |
|||
|
81,242,000 |
93,230,000 |
243,356,000 |
277,202,000 |
||||
|
Income from Vessel Operations |
4,362,000 |
12,259,000 |
32,759,000 |
38,529,000 |
|||
|
Other Income (net) - Note I |
5,766,000 |
10,551,000 |
10,726,000 |
31,281,000 |
|||
|
10,128,000 |
22,810,000 |
43,485,000 |
69,810,000 |
||||
|
Interest Expense |
10,696,000 |
14,991,000 |
35,412,000 |
49,787,000 |
|||
|
(568,000) |
7,819,000 |
8,073,000 |
20,023,000 |
||||
|
Gain on Sale of Investment in Cruise |
|||||||
|
Business - Note C |
|
42,288,000 |
|||||
|
Gain/(Provision for Loss) on Planned |
|||||||
|
Vessel Dispositions - Note J2 |
3,404,000 |
|
12,404,000 |
(5,100,000) |
|||
|
Income before Federal Income Taxes |
|||||||
|
and Extraordinary Gain |
2,836,000 |
7,819,000 |
20,477,000 |
57,211,000 |
|||
|
Provision for Federal Income Taxes, reflecting deferred provision/ (credit) of $843,000, $(325,000), $6,993,000 and $7,850,000 |
|
|
|||||
|
- Note F |
843,000 |
2,625,000 |
6,993,000 |
20,700,000 |
|||
|
Net Income before Extraordinary Gain |
1,993,000 |
5,194,000 |
13,484,000 |
36,511,000 |
|||
|
Extraordinary Gain on Early Extinguishment of Debt, net of income taxes of $557,000 - |
|||||||
|
Note G |
1,033,000 |
|
1,033,000 |
|
|||
|
Net Income |
$ 3,026,000 |
$ 5,194,000 |
$ 14,517,000 |
$ 36,511,000 |
|||
|
Per Share Amounts - Note J3: |
|||||||
|
Basic and diluted net income before |
|||||||
|
extraordinary gain |
$.06 |
$.14 |
$.37 |
$.99 |
|||
|
Extraordinary gain |
$.03 |
$.03 |
|||||
|
Basic and diluted net income |
$.09 |
$.14 |
$.40 |
$.99 |
|||
|
Cash dividends declared |
$.45 |
$.45 |
|||||
(See Accompanying Notes)
|
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES |
||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||
|
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 |
||||||
|
(UNAUDITED) |
||||||
|
|
||||||
|
SEPTEMBER 30, 1999 |
SEPTEMBER 30, 1998 |
|||||
|
Net cash provided by Operating Activities |
$ 34,536,000 |
$ 43,471,000 |
||||
|
Cash Flows from Investing Activities: |
||||||
|
Proceeds from sale of investment in cruise business |
|
198,474,000 |
||||
|
Purchases of marketable securities |
(23,303,000) |
(753,000) |
(a) |
|||
|
Proceeds from sales of marketable securities |
1,645,000 |
29,490,000 |
||||
|
Purchase of vessel under capital lease |
(7,700,000) |
(b) |
||||
|
Additions to vessels, substantially foreign flag crude tankers |
(145,440,000) |
(112,619,000) |
||||
|
Proceeds from sale and leaseback |
169,949,000 |
|||||
|
Proceeds from sale of vessels held for disposal |
48,400,000 |
47,306,000 |
||||
|
Distributions from bulk shipping ventures |
14,500,000 |
|
||||
|
Other - net |
(7,432,000) |
(398,000) |
||||
|
Net cash provided by investing activities |
58,319,000 |
153,800,000 |
||||
|
Cash Flows from Financing Activities: |
||||||
|
Purchases of treasury stock |
(29,965,000) |
|||||
|
Issuance of long-term debt |
14,000,000 |
|||||
|
Payments on long-term debt and |
|
|||||
|
obligations under capital leases |
(63,276,000) |
(229,382,000) |
||||
|
Cash dividends paid |
(16,391,000) |
(16,557,000) |
||||
|
Other - net |
28,000 |
955,000 |
||||
|
Net cash (used in) financing activities |
(95,604,000) |
(244,984,000) |
||||
|
Net (Decrease) in cash |
(2,749,000) |
(47,713,000) |
||||
|
Cash, including interest-bearing |
||||||
|
deposits, at beginning of period |
51,005,000 |
113,195,000 |
||||
|
Cash, including interest-bearing |
||||||
|
deposits, at end of period |
$ 48,256,000 |
$ 65,482,000 |
||||
|
(a) Excludes $4,083,000, representing the carrying amount of 131,400 |
||||||
|
shares of Royal Caribbean Cruises Ltd. ("RCCL") retained and |
||||||
|
reclassified upon sale of 3,650,000 shares of RCCL. |
||||||
|
(b) Excludes $7,906,000, representing the outstanding principal balance of |
||||||
|
debt assumed in connection with the purchase of a vessel under capital lease. |
||||||
(See Accompanying Notes)
|
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES |
|||||||||||||||||||||||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY |
|||||||||||||||||||||||||||
|
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 |
|||||||||||||||||||||||||||
|
(UNAUDITED) |
|||||||||||||||||||||||||||
|
Accumulated |
|||||||||||||||||||||||||||
|
Paid-in |
Other |
||||||||||||||||||||||||||
|
Common |
Additional |
Retained |
Treasury Stock |
Comprehensive |
|||||||||||||||||||||||
|
Stock* |
Capital |
Earnings |
Shares |
Amount |
Income/(Loss)** |
Total |
|||||||||||||||||||||
|
Balance at |
|||||||||||||||||||||||||||
|
January 1, 1999 |
$ 39,591,000 |
$ 96,156,000 |
$ 625,132,000 |
2,809,062 |
$(41,869,000) |
$(11,388,000) |
$ 707,622,000 |
||||||||||||||||||||
|
Net Income |
14,517,000 |
14,517,000 |
|||||||||||||||||||||||||
|
Unrealized (Loss) |
|||||||||||||||||||||||||||
|
on Available- |
|||||||||||||||||||||||||||
|
For-Sale Securities |
(1,951,000) |
(1,951,000) |
|||||||||||||||||||||||||
|
Comprehensive Income |
12,566,000 |
*** |
|||||||||||||||||||||||||
|
Cash Dividends Declared |
(16,391,000) |
(16,391,000) |
|||||||||||||||||||||||||
|
Common Stock Acquired |
|
|
|
2,370,300 |
(29,965,000) |
|
(29,965,000) |
||||||||||||||||||||
|
Balance at |
|||||||||||||||||||||||||||
|
September 30, 1999 |
$ 39,591,000 |
$ 96,156,000 |
$ 623,258,000 |
5,179,362 |
$(71,834,000) |
$ (13,339,000) |
$ 673,832,000 |
||||||||||||||||||||
|
Balance at |
|||||||||||||||||||||||||||
|
January 1, 1998 |
$ 39,591,000 |
$ 96,149,000 |
$ 685,128,000 |
2,798,196 |
$(41,719,000) |
$ 648,000 |
$ 779,797,000 |
||||||||||||||||||||
|
Net Income |
36,511,000 |
36,511,000 |
|||||||||||||||||||||||||
|
Unrealized (Loss) on |
|||||||||||||||||||||||||||
|
Available-For- |
(16,641,000) |
(16,641,000) |
|||||||||||||||||||||||||
|
Sale Securities |
|||||||||||||||||||||||||||
|
Comprehensive Income |
19,870,000 |
*** |
|||||||||||||||||||||||||
|
Cash Dividends Declared |
(16,557,000) |
(16,557,000) |
|||||||||||||||||||||||||
|
Options Exercised |
|
4,000 |
|
(1,714) |
23,000 |
27,000 |
|||||||||||||||||||||
|
Balance at |
|||||||||||||||||||||||||||
|
September 30,1998 |
$ 39,591,000 |
$ 96,153,000 |
$ 705,082,000 |
2,796,482 |
$(41,696,000) |
$ (15,993,000) |
$ 783,137,000 |
||||||||||||||||||||
|
*Par value $1 per share; 60,000,000 shares authorized and 39,590,759 shares issued. |
|||||||||||||||||||||||||||
|
**Represents unrealized gains/(losses) on available-for-sale securities, net of tax. |
|||||||||||||||||||||||||||
|
***Comprehensive income/(loss) was $(2,222,000) for the three months ended September 30, 1999 and $8,142,000 for the three months ended September 30, 1998. |
|||||||||||||||||||||||||||
|
(See Accompanying Notes) |
|||||||||||||||||||||||||||
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
General - As contemplated by the Securities and Exchange Commission, the accompanying financial statements and footnotes, which have been rounded to the nearest thousand dollars, have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. Reference should be made to the Company's Annual Report to Shareholders for the year ended December 31, 1998.
The statements as of September 30, 1999 and for the three month and nine month periods ended September 30, 1999 and September 30, 1998 are unaudited. In the opinion of the Company, all adjustments (which were of a normal recurring nature) have been made to present fairly the results for such unaudited interim periods.
The results of operations for the three month and nine month periods ended September 30, 1999 are not necessarily indicative of those for a full fiscal year.
(See Notes on Following Pages)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note A - Segment Reporting:
The Company has four reportable segments: foreign flag crude tankers, products carriers and dry bulk carriers and U. S. flag tankers, including products carriers. Information about the Company's reportable segments as of and for the three month and nine month periods ended September 30, 1999 and 1998 follows:
|
U. S. Flag |
||||||||||||||||||||||
|
Tankers, |
||||||||||||||||||||||
|
Foreign |
including |
|||||||||||||||||||||
|
Crude |
Products |
Dry Bulk |
Products |
|||||||||||||||||||
|
Dollars in thousands |
Tankers |
Carriers |
Carriers |
Carriers |
All Other |
** |
Totals |
|||||||||||||||
|
Three months ended September 30, 1999: |
||||||||||||||||||||||
|
Shipping revenues |
$ 41,554 |
$ 10,264 |
$ 2,228 |
$ 25,968 |
$5,590 |
$85,604 |
||||||||||||||||
|
Income/(loss) from vessel operations |
(268) |
(303) |
(1,526) |
7,255 |
1,264 |
6,422 |
* |
|||||||||||||||
|
Total assets at September 30, 1999 |
1,043,219 |
117,027 |
101,269 |
75,422 |
*** |
29,366 |
1,366,303 |
|||||||||||||||
|
Nine months ended September 30, 1999: |
||||||||||||||||||||||
|
Shipping revenues |
134,958 |
35,539 |
7,759 |
73,010 |
24,849 |
276,115 |
||||||||||||||||
|
Income/(loss) from vessel operations |
18,487 |
1,901 |
(4,491) |
17,802 |
6,829 |
40,528 |
* |
|||||||||||||||
|
Three months ended September 30, 1998: |
||||||||||||||||||||||
|
Shipping revenues |
53,199 |
14,716 |
2,706 |
27,539 |
7,329 |
105,489 |
||||||||||||||||
|
Income/(loss) from vessel operations |
10,716 |
1,752 |
(2,284) |
3,978 |
72 |
14,234 |
* |
|||||||||||||||
|
Total assets at September 30, 1998 |
958,608 |
136,262 |
183,220 |
167,366 |
33,337 |
1,478,793 |
||||||||||||||||
|
Nine months ended September 30, 1998: |
||||||||||||||||||||||
|
Shipping revenues |
161,720 |
42,831 |
7,881 |
87,653 |
15,646 |
315,731 |
||||||||||||||||
|
Income/(loss) from vessel operations |
31,734 |
4,515 |
(4,781) |
13,980 |
(51) |
45,397 |
* |
|||||||||||||||
* Segment totals are before corporate general and administrative expenses, investment income and interest expense, but after allocation of vessel related overhead ($7,767 for the three months and $22,764 for the nine months ended September 30, 1999), which has been calculated in a consistent manner in all periods.
** Consists principally of U. S. flag non-tanker tonnage.
*** The decrease from December 31, 1998 reflects the sale and leaseback under operating leases of five U. S. flag tankers
(see Note H).
Reconciliations of total assets of the segments to amounts included in the condensed consolidated financial statements follow:
|
AS OF |
||||
|
In thousands |
SEPTEMBER 30, 1999 |
SEPTEMBER 30, 1998 |
||
|
Total assets of all segments, which exclude |
||||
|
intercompany receivables |
$ 1,366,303 |
$ 1,478,793 |
||
|
Corporate cash and securities, including capital construction fund |
260,274 |
242,818 |
||
|
Other unallocated amounts |
79,432 |
73,615 |
||
|
Consolidated total assets |
1,706,009 |
$ 1,795,226 |
||
(See Notes on Following Pages)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note B - Foreign Subsidiaries:
A condensed summary of the combined assets and liabilities of the Company's foreign (incorporated outside the U.S.) subsidiaries, whose operations are principally conducted in U.S. Dollars, follows:
AS OF |
||||
|
SEPTEMBER 30, |
DECEMBER 31, |
|||
1999 |
1998 |
|||
Current assets |
$ 20,343,000 |
$ 25,518,000 |
||
Vessels, net and vessels held for disposal |
1,117,957,000 |
1,023,139,000 |
||
Other assets |
104,451,000 |
114,343,000 |
||
1,242,751,000 |
1,163,000,000 |
|||
Current installments of |
||||
long-term debt, including intercompany |
||||
of $59,800,000 and $33,400,000 |
65,639,000 |
44,024,000 |
||
Other current liabilities |
13,687,000 |
13,697,000 |
||
Total current liabilities |
79,326,000 |
57,721,000 |
||
Long-term debt (including |
||||
intercompany of $150,300,000 and |
||||
$200,400,000) and deferred credits, etc. |
415,523,000 |
356,373,000 |
||
494,849,000 |
414,094,000 |
|||
Net assets |
$ 747,902,000 |
$ 748,906,000 |
||
Note C - Investment in Cruise Business:
In March 1998, the Company recognized a gain of $42,288,000 ($26,500,000 after tax, including $1,000,000 of tax on previously untaxed RCCL earnings) from the sale of 3,650,000 shares of RCCL common stock that it had acquired in July 1997 in connection with the disposal of its joint venture interest in Celebrity Cruise Lines Inc. The Company applied the net proceeds from this sale, approximately $180,000,000, to reduce amounts outstanding under its long-term credit facility.
(See Notes on Following Pages)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note D - Bulk Shipping Joint Ventures:
Certain subsidiaries have investments in bulk shipping joint ventures. A condensed summary of the combined assets and liabilities and results of operations of the bulk shipping joint ventures follows:
|
AS OF |
||||
|
SEPTEMBER 30, 1999 |
DECEMBER 31, 1998 |
|||
|
Cash ($34,176,000 and $49,678,000) and other current |
||||
|
assets |
$ 38,375,000 |
$ 55,171,000 |
||
|
Vessels, net |
166,633,000 |
178,592,000 |
||
|
Other assets (including $877,000 and $1,197,000 due |
||||
|
from owners) |
1,959,000 |
3,571,000 |
||
|
|
206,967,000 |
237,334,000 |
||
|
Current installments of long-term debt |
7,500,000 |
7,500,000 |
||
|
Other current liabilities |
3,486,000 |
4,396,000 |
||
|
Total current liabilities |
10,986,000 |
11,896,000 |
||
|
Long-term debt |
33,750,000 |
41,250,000 |
||
|
44,736,000 |
53,146,000 |
|||
|
Net assets (principally undistributed net earnings) |
$ 162,231,000 |
$ 184,188,000 |
||
|
THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|||||||
|
1999 |
1998 |
1999 |
1998 |
|||||
|
Revenue, primarily from voyages (including $4,517,000, $5,168,000, $13,815,000 and |
||||||||
|
$18,586,000 from vessels chartered to owners) |
$ 10,160,000 |
$ 13,008,000 |
$ 33,146,000 |
$ 40,892,000 |
||||
|
Costs and expenses |
8,488,000 |
11,815,000 |
26,103,000 |
37,600,000 |
||||
|
Net income |
$ 1,672,000 |
$ 1,193,000 |
$ 7,043,000 |
$ 3,292,000 |
||||
(See Notes on Following Pages)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note E - Agency Fees and Brokerage Commissions:
On October 30, 1998, the Company assumed direct management and operation of its bulk shipping fleet, terminating its arrangements, by mutual consent, with Maritime Overseas Corporation ("Maritime"). All subsidiaries with vessels and certain joint ventures were parties to agreements with Maritime that provided, among other matters, for Maritime and subsidiaries to render services related to the chartering and operation of the vessels and certain general and administrative services for which Maritime and subsidiaries received specified compensation. General and administrative expenses include $8,593,000 (three months ended September 30, 1998) and $25,733,000 (nine months ended September 30, 1998) of agency fees and vessel and voyage expenses include $1,296,000 (three months ended September 30, 1998) and $3,891,000 (nine months ended September 30, 1998) of brokerage commissions to Maritime. By agreement, Maritime's compensation for any year was limited to the extent Maritime's consolidated net income from shipping operations would exceed a specified amount. Maritime was owned by a director of the Company; directors or officers of the Company constituted all four of the directors and the majority of the principal officers of Maritime until October 1998, at which time the owner of Maritime became its sole director, and officers of the Company resigned as officers of Maritime in connection with the termination of the arrangements referred to above.
Note F - Taxes:
Effective from January 1, 1987, earnings of the foreign shipping companies are subject to U.S. income taxation currently; post-1986 taxable income may be distributed to the U.S. parent without further tax. Prior thereto, tax on such earnings was deferred as long as the earnings were reinvested in foreign shipping operations. Foreign income/(loss), substantially all of which resulted from the operations of companies that are not subject to income taxes in their country of incorporation, aggregated $(4,735,000) (three months ended September 30, 1999), $5,508,000 (three months ended September 30, 1998), $7,895,000 (nine months ended September 30, 1999) and $57,662,000, including $42,288,000 from the sale of 3,650,000 shares of RCCL (nine months ended September 30, 1998), before any U.S. income tax effect. No provision for U.S. income taxes on the undistributed income of the foreign shipping companies accumulated through December 31, 1986 was required, since such undistributed earnings have been reinvested or are intended to be reinvested in foreign shipping operations so that the qualified investment therein is not expected to be reduced below the corresponding amount at December 31, 1986.
Federal income taxes paid in the nine months ended September 30, 1998 amounted to $17,500,000 ($7,000,000 of which related to a prior period). No payments were required or made during the nine month period ended September 30, 1999.
(See Notes on Following Pages)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note G - Long-term Debt:
During the third quarter of 1999, the Company repurchased fixed rate debt with an aggregate principal amount of $14,275,000 at a $1,590,000 discount. Such discount has been reported in the Company's statement of income as an extraordinary gain.
Agreements relating 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 financial covenants contained in certain of such agreements are not met.
As of September 30, 1999, the Company is a party to fixed to floating interest rate swaps with various major financial institutions covering notional amounts aggregating $240,000,000, pursuant to which it pays LIBOR (6.0% to 6.1% as of September 30, 1999, for a term equal to the swaps' reset frequency) and receives fixed rates ranging from 5.9% to 6.4% 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 $299,000,000, pursuant to which it pays fixed rates ranging from 5.1% to 7.1% and receives LIBOR. These agreements contain no leverage features and have various maturity dates from late 2000 to 2008.
Approximately 16% of the net book amount of the Company's vessels, including vessels under construction, and vessels under capital leases, representing four foreign flag and four U.S. flag vessels, is pledged as collateral for certain long-term debt.
Interest paid approximated $31,433,000 (nine months ended September 30, 1999) and $48,169,000 (nine months ended September 30, 1998), excluding capitalized interest.
Note H - Leases:
In August 1999, the Company completed the sale and leaseback of five U. S. flag crude carriers that are bareboat chartered-out through their expiry dates as established by the U. S. Oil Pollution Act of 1990 ("OPA 90"). The net proceeds received, approximately $170,000,000, were applied to reduce amounts then outstanding under its long-term credit facility. The gains on the sale and leaseback of these vessels, under operating leases, are deferred and amortized over the remaining periods of the respective leases as a reduction in lease expense. The unamortized balance of the deferred gain as of September 30, 1999 was $98,454,000. The payments required to be made under the above operating leases as of September 30, 1999 are $10,198,000 (October 1 to December 31, 1999), $39,295,000 (2000), $37,034,000 (2001), $34,345,000 (2002 and 2003), $25,008,000 (2004) and $20,843,000 thereafter; such payment obligations are satisfied through the assignments of the hire receivable under the bareboat charters-out of such vessels.
(See Notes on Following Pages)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note I - Other Income - net:
Other income - net consists of the following:
|
THREE MONTHS ENDED |
NINE MONTHS ENDED |
|||||||
|
SEPTEMBER 30, |
SEPTEMBER 30, |
|||||||
|
1999 |
1998 |
1999 |
1998 |
|||||
|
Investment income: |
||||||||
|
Interest and dividends |
$ 2,489,000 |
$ 2,423,000 |
$ 7,435,000 |
$ 7,770,000 |
||||
|
Gain on sale of securities |
702,000 |
8,569,000 |
396,000 |
22,417,000 |
||||
|
3,191,000 |
10,992,000 |
7,831,000 |
30,187,000 |
|||||
|
Gain on early termination of interest rate |
||||||||
|
swaps |
2,804,000 |
2,804,000 |
||||||
|
Gain/(loss) on disposal of vessels - net |
(950,000) |
258,000 |
(950,000) |
|||||
|
Miscellaneous - net |
(229,000) |
509,000 |
(167,000) |
2,044,000 |
||||
|
$ 5,766,000 |
$10,551,000 |
$10,726,000 |
$ 31,281,000 |
|||||
Note J - Commitments and Other Comments:
(See Note on Following Page)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note J - Commitments and Other Comments (continued):
In June 1999, options covering 560,000 shares were granted under the 1998 nonqualified stock option plan to senior officers of the Company at exercise prices equal to the market price at the date of grant. In addition, the Board extended the expiration
date for certain options granted under the Company's 1989 and 1990 nonqualified stock option plans for three years, until October 2003 and December 2002, respectively. No compensation expense was recognizable in connection therewith.
In October 1999, the Company announced its authorization to repurchase up to an additional 3,000,000 shares of its common stock from time-to-time in the open market. Such purchases will be made at the Company's discretion, and will take into account such factors as price and prevailing market conditions.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
Significant Events
In the first quarter of 1999, the Company, BP Amoco p.l.c. ("BP Amoco") and Keystone Shipping Company ("Keystone") successfully completed the formation of Alaska Tanker Company ("ATC"). ATC, which is owned 37.5% by the Company, 37.5% by Keystone and 25% by BP Amoco, provides marine transportation services in the environmentally sensitive Alaskan crude oil trade. ATC currently manages the vessels carrying BP Amoco's Alaskan crude oil, including five of the Company's vessels. These five vessels which had previously been on long-term time charters to BP Amoco were converted in the second quarter to bareboat charters to ATC, with BP Amoco guarantees, through their OPA 90 expiry dates in 2005/2006.
In August 1999, the Company completed the sale and leaseback of the vessels referred to in the preceding paragraph, receiving net proceeds aggregating approximately $170,000,000. This off-balance sheet financing has a seven-year final maturity and bears interest at approximately 7%. The lease expense, net of amortization of the deferred gain, will increase vessel and voyage expenses; such increase is partially offset by a reduction in depreciation resulting from the removal of these five vessels from the balance sheet. However, because it is estimated that interest expense will be reduced by an amount approximately equal to the net reduction in results from vessel operations, the impact on net income in the fourth quarter of 1999 and 2000 will not be significant.
Planned Vessel Dispositions
During 1999, the Company successfully completed its dry bulk disposal program and recognized a gain of $12,404,000 with respect to the vessels sold. Year-to-date, the Company has also sold five of its oldest tankers and contracted for the sale of two others, all of which were held for disposal at year-end 1998. The gross proceeds from the sale of all such vessels are expected to aggregate $65,300,000 in 1999.
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 the 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 number of
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income From Vessel Operations (continued)
newbuilding deliveries and removal of existing tonnage from service. Results in particular periods are also affected by such factors as the mix between voyage and time charters, the timing of the completion of voyage
charters, the time and prevailing rates when charters that are currently being performed were negotiated, the levels of applicable rates and the business available as particular vessels come off existing charters, and the timing of drydocking of vessels.
In the world tanker markets, VLCC rates (Middle East - West) in the first nine months of 1999 averaged 41% below the same period of 1998, with each successive quarter lower than the previous one. From a first quarter high of around $35,000 per day in late February, rates declined sharply to below $12,000 per day in late April as oil production cuts by the major producers began to stifle exports, especially those sourced from the Middle East. Following a recovery to around $24,000 per day by mid-June, the downtrend resumed, with rates sinking to just under their spring lows by late July/early August, pressured by increasing OPEC compliance with production cutbacks and rising bunker prices. Rates have moved moderately higher since then, trading as high as $15,000 per day in October.
During the first nine months of 1999, rates for Aframax tankers in the Caribbean market (the Company's primary Aframax trading area) which have been at depressed levels for more than a year, averaged 16% below the same year ago period, and, like VLCC rates, deteriorated in each successive quarter. After rising to a seasonal high of $22,000 per day at the start of the second quarter from a seasonal low of $12,000 per day in early March, rates proceeded to a new 1999 low of less than $9,000 per day in mid-September. Rates then remained in a fairly narrow range through October, reaching only as high as $11,000 per day. The Aframax sector was adversely affected not only by strict compliance with OPEC's third round of production cuts, but also by a heavy newbuilding delivery schedule. The Company's Aframax tanker pool with PDV Marina continues to complement its base of Venezuelan cargoes with backhauls and contracts of affreightment, resulting in increased operating efficiencies and reduced idle time for OSG's pool vessels. The Company recently concluded two, one-year contracts to transport North Sea and Canadian crude oil.
Rates for Suezmaxes on the West Africa to U.S. route averaged 39% below those prevailing in the first nine months of 1998 and, like rates in the other large crude carrier sectors, grew progressively worse in each successive quarter. Rates peaked around $17,500 per day in late February, tumbled to $7,500 per day by mid-to-late May, then settled into a trading range between $8,000 and $10,500 per day from June through late July. Lack of demand for tonnage due to stringent OPEC adherence to oil production cutbacks was exacerbated by production problems in West Africa and intense competition from VLCCs seeking employment in the West African market. The temporary closure of a Black Sea oil export terminal caused rates in late August to drop to a new low of close to $4,000 per day before bouncing back to a range of between $8,000 and $9,000 per day. Rates generally held at this level through October.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income From Vessel Operations (continued)
Freight rates for product carriers operating in the Caribbean averaged 9% higher in the first three quarters of 1999 relative to a year ago. Nevertheless, all of the improvement came in the first quarter, after which rates weakened, although not significantly. Supply disruptions on the U.S. West Coast, which drew tonnage away from the Caribbean, provided support to the product trades during much of the earlier part of the year. After peaking at $14,000 per day in mid-January, freight rates for product tankers in the Caribbean declined [for 39s]to a low of $8,500 per day by mid-May in response to seasonal factors. Rates then rallied back to $12,500 per day towards the end of June, ultimately climbing to $13,500 per day by late July. This higher rate attracted a sizable amount of tonnage into the Caribbean, and, as fixture activity waned, rates dropped to $6,000 per day by the end of October.
Relative to the first three-quarters of 1998, rates for larger product carriers trading to the Far East were off an average 28%. Unlike the other tanker segments, however, average rates consistently improved from the first quarter, due to rising oil consumption in Asia, which is evidencing signs of recovery from its economic crisis of last year. From a peak of over $15,000 per day in January, rates slumped to a low of $7,500 per day by early March. In addition to rising Asian oil consumption, the knock-on effect of oil supply disruptions on the U.S. West Coast helped stop the seasonal winter decline and eventually bolstered rates back up to $14,000 per day by mid-June. However, rates could not be sustained at this level, falling back to an $11,000 to $12,000 per day range by late August and remaining there through late October.
After remaining near their lowest levels ever during the first two quarters of the year, freight rates for large modern Capesize vessels (about 160,000 dwt) began a rally at mid-summer, which has carried over into late October. Increasing economic activity in Asia provided a major lift to rates on the Capesize iron ore and coal routes. [The Drewry Monthly, Sep99, p16 & Gibson Dry Cargo Market Report, Sep 99, p2] Rates in both the Atlantic and Pacific ranged from a high of $10,000 per day (in early January) to a low of $5,500 per day (reached in late June/early July). Rates broke out of this range in the third quarter, reaching the $11,000 to $12,000 per day level as of the end of September; the uptrend accelerated in October as rates ran up to $19,000 per day late in the month.
The U. S. Department of Agriculture ("USDA") expanded its PL-480 export program substantially in the past year. The majority of this surplus was shipped to Russia, Indonesia, Pakistan, North Korea and China. Over the past year, OSG has employed in the grain trade four U. S. flag tankers, including two older tankers, which have been rendered eligible for the grain trade.
As one indication of recent trends in various charter markets, set forth below are selected average daily spot market rates for various types and sizes of vessels in the third quarter and first nine months of both 1999 and 1998 based on the published reports of Clarkson Research Studies, a 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 any of the periods.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income From Vessel Operations (continued)
Average Market Rates by Vessel Type
|
1999 |
1998 |
||||
|
Tankers |
Third Quarter |
Nine Months |
Third Quarter |
Nine Months |
|
|
Modern VLCCs |
$ 17,700 |
$22,700 |
$33,400 |
$35,400 |
|
|
Suezmaxes (W. Africa - |
|||||
|
U.S.)* |
12,000 |
15,000 |
18,600 |
21,400 |
|
Aframaxes |
|||||
(Caribbean market) |
10,500 |
13,200 |
14,300 |
15,900 |
|
Products carriers |
|||||
(Worldwide) |
7,700 |
8,700 |
9,800 |
10,000 |
|
|
Dry Bulk Carriers |
|||||
|
Capesize |
9,500 |
8,100 |
8,500 |
10,300 |
|
|
* Based on an early-1990's built, double-hulled vessel; OSG's Suezmaxes trading spot are mid-1970's built, single-hulled vessels. |
|||||
Income from vessel operations for the third quarter and first nine months of 1999 decreased by approximately $7,900,000 and $5,800,000, respectively, from the results for the corresponding 1998 periods. Results from vessel operations for the 1999 periods benefited from reductions in general and administrative expenses of approximately $700,000 and $2,000,000, respectively, and a fleet-wide reduction in vessel operating expenses in excess of $600 per day, per vessel, achieved through the Company's continuing process improvement and efficiency programs.
Income from foreign flag vessel operations decreased by approximately $11,500,000 and $13,900,000 for the same periods, reflecting significant declines in rates affecting all classes of tankers, except smaller products carriers, which showed only a marginal improvement. Time-charter equivalent ("TCE" - defined as voyage revenues less voyage expenses divided by round-trip voyage days) rates for the Company's foreign flag tankers, including product carriers, declined by an average of approximately $4,500 and $3,000 per day for the third quarter and first nine months of 1999, respectively, from the comparable 1998 periods. VLCCs continued to be particularly hard hit with average declines in excess of $13,000 per day for the third quarter and $8,000 per day for the first nine months of 1999. VLCCs represented the substantial portion of the decline in income from foreign flag vessel operations in both 1999 periods. The results for the nine months of 1999 were also negatively impacted by a decline of approximately 400 operating days, substantially in the third quarter, attributable to the sale of two older tankers in the first quarter of 1999 and a significant increase in the number of days in drydock. Results from vessel operations for both 1999 periods benefited from reductions in depreciation of $1,000,000 and $3,400,000, respectively, attributable to the adjustment in carrying value of certain older and less efficient tankers scheduled for disposal.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income From Vessel Operations (continued)
Income from operations of the Company's U. S. flag fleet for the third quarter and first nine months of 1999 improved by approximately $3,600,000 and $8,100,000, respectively, from the comparable 1998 periods. This was attributable to improved results of two small dry cargo ships that had been laid up for substantial portions of the 1998 periods and third quarter 1999 increases in the TCEs achieved of approximately $5,000 per day for the two modern products carriers. Such increases reflected their participation in the U. S. PL-480 preference trades. The second quarter conversion of long-term time charters on five U. S. flag crude carriers to bareboat charters, with BP Amoco guarantees, resulted in reductions in revenue from voyages of $6,800,000 and $11,300,000 in the third quarter and nine month period ended September 1999, respectively. However, vessel and voyage expenses (before the impact of the sale and leaseback referred to above under Significant Events) attributable to these five vessels decreased by approximately the same amount since under bareboat charters vessel operating expenses are the responsibility of the charterer. Accordingly, this reduction in revenue had no material effect on income from vessel operations. Results from vessel operations for both 1999 periods benefited from reduced depreciation of approximately $2,200,000 and $4,600,000, respectively, principally resulting from both the extension of the depreciable lives of four of these U. S. flag crude carriers whose underlying charters were extended to their OPA 90 expiry dates in 2005/2006 and the sale and leaseback transaction referred to above under Significant Events.
Interest Expense
Interest expense decreased in the third quarter and first nine months of 1999 as a result of a substantial decrease in the average amount of debt outstanding in the 1999 periods compared with the corresponding periods of 1998. Such reduction reflects the application of the proceeds of approximately $170,000,000 from the sale and leaseback transaction referred to above under Significant Events, and $180,000,000, net of taxes, from the sale of 3,650,000 shares of Royal Caribbean Cruises Ltd. (" RCCL") common stock in the first quarter of 1998 and gross proceeds of $113,000,000 from the sale of vessels included in the aforementioned disposal program. In addition, in the fourth quarter of 1998, the Company refinanced $310,000,000 of Unsecured Senior Notes with coupons averaging 8.7% by borrowing under its revolving credit agreement. This reduced interest costs for the third quarter and first nine months of 1999 by approximately $1,100,000 and $3,700,000, respectively, which reflect the impact of related interest rate swaps included below. The reduced benefit in the third quarter reflects the use of the proceeds received from the above sale and leaseback transaction to reduce amounts outstanding under the revolving credit facility. Interest expense is net of interest capitalized in connection with vessel construction of $2,600,000 (third quarter of 1999) and $6,400,000 (first nine months of 1999). Interest expense also reflects $500,000 (third quarter of 1999), $1,100,000 (first nine months of 1999), $1,200,000 (third quarter of 1998) and $3,300,000 (first nine months of 1998) of net benefits from the interest rate swaps referred to below in Liquidity and Sources of Capital.
Provision for Federal Income Taxes
The provision for federal income taxes in the first nine months of 1999 decreased from the comparable period of 1998 because of the decrease in pretax income (reflecting in the 1998 period a pretax gain of $42,288,000 on the sale of shares of RCCL) adjusted to reflect items that are not subject to tax and the dividends received deduction in both periods. The 1998 provision includes approximately $1,000,000 of tax on previously untaxed RCCL earnings.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), which is required to be adopted in years beginning after June 15, 2000, as amended by Statement of Financial Accounting Standards No. 137. The Company expects to adopt the new statement effective January 1, 2001. FAS 133 will require the Company to recognize all derivatives on the balance sheet at fair value. The portion of a derivative's change in fair value that is deemed not to constitute a hedge will be immediately recognized in earnings. For derivatives that are hedges, depending on the nature of the hedges, changes in the fair value of derivatives will either be offset against changes in fair value of the hedged items or firm commitments through earnings or be recognized in other comprehensive income until the hedged item is recognized in earnings.
The Company believes that the adoption of FAS 133 will not have a material effect on its earnings and financial position.
Liquidity and Sources of Capital
Working capital at September 30, 1999 was approximately $45,000,000. Current financial resources, together with cash anticipated to be generated from operations, are expected to be adequate to meet requirements in the next year. 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 $33,000,000 at September 30, 1999. In addition, the Company maintains a Capital Construction Fund with a market value of approximately $179,000,000 at September 30, 1999. Net cash provided by operating activities in the first nine months of 1999 approximated $34,500,000 (which is not necessarily indicative of the cash to be provided by operating activities for a full fiscal year).
The Company has an unsecured long-term credit facility of $600,000,000, of which $382,000,000 was used at September 30, 1999, 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 and leaseback transaction referred to above under Significant Events was used to reduce amounts outstanding under the long-term revolving credit facility. The payments required under the operating leases will reduce net cash provided by operating activities (see Note H).
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. These agreements contain no leverage features. 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
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Liquidity and Sources of Capital (continued)
Company receiving approximately $77,000,000 for such foreign currency from October 1, 1999 through 2004.
As of September 30, 1999, the Company has commitments for the construction of eight double-hulled foreign flag tankers scheduled for delivery between early 2000 and early 2002, with an aggregate unpaid cost of approximately $152,000,000. Unpaid costs are net of progress payments and prepayments and of discounts resulting from such prepayments. In December 1998, the Company financed its prepayment and provided for substantially all of the remaining unpaid costs (approximately $25,000,000) of two of these vessels.
Risk Management
The Company is exposed to market risk from changes in interest rates, which could impact its results of operations and financial condition. The Company manages this exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix that reflects management's interest rate outlook at various times. To manage this mix in a cost-effective manner, the Company, from time to time, enters into interest rate swap agreements, in which it agrees to exchange various combinations of fixed and variable interest rates based on agreed upon notional amounts. The Company uses derivative financial instruments as risk management tools and not for speculative or trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage exposure to nonperformance on such instruments by the counterparties.
In August 1999, the Company used the net proceeds received from the sale and leaseback transaction to reduce variable rate debt maturing in 2002 by approximately $170,000,000. The floating-to-fixed interest rate swaps that were designated as hedges against such debt, also maturing in 2002, had been previously terminated in May 1999.
Update on Impact of Year 2000
The Company is continuing its review of all phases of its activities that could be affected by Year 2000 issues. Year 2000 issues relate to the inability of computer programs or microchips to distinguish between the year 1900 and the year 2000. In connection with computer processing of its financial records, the Company uses hardware and software that is Year 2000 compliant, with a few known exceptions, which it has addressed. The Company has completed its review and testing of its computer supported operational activities (most of which do not relate to recordkeeping), which include computer operated machinery or processes or computer based backup systems on board its vessels. The Company has also completed the inventory phase and testing of its shore-based hardware and applications, and where necessary has installed Year 2000 compliant versions or vendor repairs, with the exception of two tested Year 2000 compliant applications that are currently being installed. The Company has simulated Year 2000 compliance related
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Update on Impact of Year 2000 (continued)
critical dates in an isolated network and has successfully tested all Company applications in that environment. Overall, the Company expects to complete all Year 2000 compliance related testing, upgrade and correction work by late November.
The Company continues to communicate with service providers, manufacturers and others whose Year 2000 compliance is critical to the Company and is following up with them concerning their plans and progress in addressing Year 2000 issues. The Company is not aware of any Year 2000 problems as a result of these communications.
The costs associated with the Company's Year 2000 compliance activities are not material to the Company's financial position and such costs are being expensed as incurred.
The failure to correct a Year 2000 problem could result in an interruption of certain normal business activities or operations. However, the combination of statements of compliance received and the Company's thorough testing of computer operated machinery and processes and shore-based hardware and software, should minimize the risk of disruption in all critical areas.
Completion of the Company's Year 2000 project is based on management's best estimates, which were derived utilizing numerous assumptions regarding future events. There can, however, be no assurance that there will not be a delay in, or unanticipated costs associated with, the Year 2000 project. Although only residual testing remains, specific factors that might cause differences between the estimates and actual results include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. A contingency plan for the Company's vessels, including vessel operation strategies, has been completed and sent to the vessels. The Company is currently developing a limited office-related contingency plan that is scheduled for completion in late November.
November 8, 1999
Independent Accountants' Report on Review of Interim Financial Information
The accompanying condensed consolidated financial statements as of September 30, 1999 and for the three and nine months ended September 30, 1999 and 1998 are unaudited; however, such financial statements have been reviewed by the Company's independent accountants.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
PART II
Item 6(a). Exhibits
See Exhibit Index on page 25.
Item 6(b). Reports on Form 8-K
The Registrant was not required to file any report on Form 8-K during the quarter ended September 30, 1999.
|
Ernst & Young LLP |
787 Seventh Avenue |
Phone: 212 773 3000 |
|
New York, New York 10019 |
INDEPENDENT ACCOUNTANTS' REPORT ON REVIEW OF INTERIM
FINANCIAL INFORMATION
To the Shareholders
Overseas Shipholding Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Overseas Shipholding Group, Inc. and subsidiaries as of September 30, 1999 and the related condensed consolidated statements of income for the three month and nine month periods ended September 30, 1999 and 1998 and the related condensed consolidated statements of cash flows and changes in shareholders' equity for the nine month periods ended September 30, 1999 and 1998. These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Overseas Shipholding Group, Inc. and subsidiaries as of December 31, 1998, and the related consolidated statements of operations, cash flows and changes in shareholders' equity for the year then ended, not presented herein, and in our report dated February 23, 1999 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
November 8, 1999
OVERSEAS SHIPHOLDING GROUP, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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OVERSEAS SHIPHOLDING GROUP, INC. |
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(Registrant) |
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Date: November 11, 1999 |
S/MORTON P. HYMAN |
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Morton P. Hyman |
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President and Chief Executive Officer |
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Date: November 11, 1999 |
S/MYLES R. ITKIN |
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Myles R. Itkin |
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Senior Vice President, Chief |
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Financial Officer and Treasurer |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
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10. |
Participation Agreement dated as of August 20, 1999 by and among 398 Equity Corporation, 399 Equity Corporation, 400 Equity Corporation, 401 Equity Corporation, and Cambridge Tankers, Inc., as owners; Alaska Tanker Company, LLC, as bareboat charterer; Alaskan Equity Trust, as owner trust and borrower; Wilmington Trust Company, as owner trustee; National Australia Bank Limited, as arranger, lender, agent for the Lenders, collateral trustee and swap counterparty; Alaskan Equity Investors LLC, as investor participant; American Marine Advisors, Inc., as arranger; and Overseas Shipholding Group, Inc., as parent of the owners. |
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15. |
Letter from Ernst & Young LLP. |
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27. |
Financial Data Schedule. |
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NOTE: |
Instruments authorizing long-term debt of the |
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Registrant and subsidiaries, where the amounts |
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authorized thereunder do not exceed 10% of |
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total assets on a consolidated basis, |
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are not being filed herewith. The Registrant |
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agrees to furnish a copy of each such instrument |
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to the Commission upon request. |
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