-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q1xWTW6KTsjr9U3/VId1kcWh1buhT6PGe/g1Ze1ePlvhmoEf7wEv3b/APHBFmtam IJoPYSr824FEq66vhrreUA== 0000075208-96-000003.txt : 19960401 0000075208-96-000003.hdr.sgml : 19960401 ACCESSION NUMBER: 0000075208-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OVERSEAS SHIPHOLDING GROUP INC CENTRAL INDEX KEY: 0000075208 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 132637623 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06479 FILM NUMBER: 96540976 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2128691222 10-K405 1 OSG 1995 10K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 ----------------- [ ] 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 - ------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1114 Avenue of the Americas, New York, New York 10036 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 212-869-1222 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 Stock Exchange 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 , 1996: $442,022,805. (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 , 1996: 36,232,976. Documents incorporated by reference: portions of the registrant's Annual Report to Shareholders for 1995 (incorporated in Parts I and II); portions of the definitive proxy statement to be filed by the registrant in connection with its 1996 Annual Meeting of Shareholders (incorporated in Part III). 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 and dry bulk carriers). The Company's operating bulk fleet consists of 61 vessels having an aggregate carrying capacity of approximately 6,050,650 deadweight tons ("DWT"), including ten ships aggregating approximately 1,536,300 DWT which the Company owns jointly with others and in which the Company has at least a 49% interest.* Sixteen vessels in the Company's operating bulk fleet, which total approximately 993,350 DWT and represent about 30% of the Company's investment in bulk cargo vessels at cost, are registered under the U.S. flag; the balance are registered under foreign flags. Forty-five tankers account for 78% of the total tonnage, and 15 dry bulk carriers 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 bulk fleet of the registrant's majority-owned subsidiaries and certain of its bulk shipping joint ventures. - ---------------------------- * Except as otherwise noted, references herein to the Company's "operating bulk fleet" are as of February 14, 1996. Such fleet includes eight vessels that are leased from financial institutions under bareboat charters having remaining terms of from 6 to 16 years, but does not include a 254,000 DWT single-hulled tanker which the Company sold in late February 1996, or a 29,300 DWT petroleum barge which is owned by a partnership in which the Company has a 50% interest, or the six newbuildings currently on order which are more fully described under "Bulk Fleet Renewal Program" below. Celebrity Cruise Lines Inc. (together with its subsidiaries collectively "CCLI"), the passenger cruise business joint venture which the Company entered into in late 1992, owns and operates cruise ships marketed primarily under the trade name Celebrity Cruises in the premium segment of the industry. The Celebrity Cruises fleet currently consists of four cruise ships with a total passenger-carrying capacity of 5,584 berths. In addition, CCLI has a budget-priced Fantasy Cruises division, which consists of two vessels. In late November, Celebrity Cruises took delivery of the 70,600 gross ton vessel, CENTURY. The 1,750-passenger CENTURY will be followed by two 1,870- passenger sisterships, the GALAXY and the MERCURY, scheduled for delivery in late 1996 and 1997, respectively, which will increase the Celebrity Cruises total passenger-carrying capacity to over 9,300 berths. See "Investment in Cruise Business" below. The Company's operating bulk fleet, aggregating approximately 6,050,650 DWT, represents approximately 1% of the total world tonnage of oceangoing bulk cargo vessels. As of February 14, 1996, the Company had on order six vessels, aggregating 1,459,800 DWT, for delivery to its international bulk fleet. See "Bulk Fleet Renewal Program" below. 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. For information regarding the types of vessels in the Company's bulk fleet and the major routes for each type of vessel, see the "OSG International and U.S. Flag Vessel Types" section (page 20) of the registrant's Annual Report to Shareholders for 1995, which section is incorporated herein by reference. The Company does not employ any container or similar vessels in its operation. Revenues from carriage of petroleum and its derivatives represented approximately 77% of the voyage revenues of the Company in 1995, 78% in 1994 and 75% in 1993. 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 may vary 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. As of February 14, 1996, with the exception of two U.S.- flag crude oil carriers, all of the vessels in the Company's operating bulk fleet were employed. Forty-nine of these vessels were chartered to non-governmental commercial shippers. These 49 ships include eleven U.S.-flag ships and 38 foreign-flag ships, which together represent approximately 81% of the combined carrying capacity of the Company's operating bulk fleet. Of the remaining ships in the Company's operating bulk fleet, three U.S.- flag ships and seven foreign-flag ships were under charter to foreign or U.S. governmental agencies. U.S.-FLAG AND FOREIGN-FLAG OPERATIONS - ------------------------------------- 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, 1995 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, 1995, see Note E to the Company's financial statements incorporated by reference in Item 8 below. In each of the years 1995, 1994 and 1993 the Company had one charterer (BP Oil Company, USA) from which it had revenues in excess of 10% of revenues from voyages, amounting in 1995 to approximately $49.5 million, in 1994 to approximately $63.7 million, and in 1993 to approximately $73.7 million. U.S. DOMESTIC AND PREFERENCE TRADES - ----------------------------------- 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, and built in the United States without construction subsidies and operated without operating differential subsidies. With eight crude carriers and five product carriers, the Company is the largest independent owner of unsubsidized U.S.-flag tankers and is a major participant in the Alaskan oil trade. 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. Significantly more tonnage is required for long-haul shipments of Alaskan crude to the U.S. Gulf and East Coasts than for movements to the West Coast. In recent years, the amount of crude shipped on the long-haul route to the Gulf of Mexico, via the Panama Pipeline, has fallen sharply, and this development has reduced tonnage requirements. Shipments of Alaskan crude oil from Valdez are the main source of employment for U.S.-flag crude carriers and are carried mostly on unsubsidized U.S.-flag crude carriers of over 60,000 DWT. In November of 1995, President Clinton signed into law legislation that would permit the export of Alaskan North Slope crude oil on U.S.-flag vessels once certain findings have been made by the President and appropriate licensing regulations are promulgated. Under this legislation, it is expected that exports could begin as early as the second quarter of 1996. The Company has entered into an agreement which provides long term employment for five of its U.S.-flag crude carriers. This agreement will go into effect after exports are permitted. As noted, vessels built with construction differential subsidies and operated with operating differential subsidies ("ODS") are not permitted in the Jones Act trade. However, the Maritime Administration has deemed tankers built with subsidies to be eligible for full coastwise privileges when they reach 20 years of age and their ODS contracts have expired. In recent years there have been increased 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. 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. Vessels in the Company's operating bulk 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. EMPLOYMENT OF VESSELS - --------------------- The bulk shipping industry is highly fragmented and competitive. 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 1987, the oil majors owned 20% of the world tanker fleet compared with only 7% in 1995. Independent shipowners now control approximately 73% of the world tanker fleet, up from 58% in 1987. They also control the most modern fleets, with an average vessel age of 13 years. State-owned companies (17%) and independent oil companies(3%) make up the balance of international tanker owners. 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 recent years has been relatively limited, and, when available, rates of return have generally been unattractive. For additional information as of February 14, 1996 regarding the 61 vessels in the Company's operating bulk fleet, including information as to the employment of such vessels, see the table in the "To Our Shareholders" section (page 3), and the "International Bulk Fleet" and "U.S. Bulk Fleet" tables (pages 18 and 19), of the registrant's Annual Report to Shareholders for 1995, which tables are incorporated herein by reference. ENVIRONMENTAL MATTERS RELATING TO BULK SHIPPING - ----------------------------------------------- Since 1990, the bulk shipping industry has experienced a more stringent regulatory environment. Classification societies, governmental authorities and charterers have strengthened their inspection programs, and there has been an increasing reluctance among charterers to accept older vessels due to safety and pollution concerns. 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 applies to newly constructed tankers contracted for after June 30, 1990, or delivered after January 1, 1994. Beginning on January 1, 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 January 1, 2015. Tankers discharging at a deepwater port or lightering more than 60 miles offshore will not be required to have double hulls until January 1, 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 United States 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 tankers entering U.S. waters since the end of 1994 were required to obtain Certificates of Financial Responsibility ("COFRs") from the Coast Guard demonstrating financial capability to meet potential spill liabilities. All the vessels in the Company's U.S.-flag and international flag tanker fleets have obtained COFRs. INTERNATIONAL REQUIREMENTS. In addition to the OPA 90 requirements, International Maritime Organization (IMO) regulations require double hulls or equivalent tanker designs for newbuilding orders and mandate double hulls for existing tankers by their 30th anniversary. These regulations also require modifications to existing tankers by their 25th anniversary to provide side or bottom protection covering at least 30% of the cargo tank area. Such modifications can be costly and would reduce a ship's carrying capacity by an estimated 20%. Over the next five years, OPA 90 and IMO regulations are expected to accelerate the scrapping of older tankers. Since the Company maintains a modern fleet, these double-hull requirements will not apply to most of the Company's existing tanker fleet until after the year 2000, at which time the affected ships will have operated for substantially all of their economic lives. 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 6, 9, 10 and 13) of the registrant's Annual Report to Shareholders for 1995, which information is incorporated herein by reference. BULK FLEET RENEWAL PROGRAM - -------------------------- 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. After giving effect to the deliveries of two newbuildings in January 1996, the Company's newbuilding program totals six ships aggregating 1,459,800 DWT. NEWBUILDING ORDERS. In January 1996, the Company took delivery for its international fleet of two double-hulled very large crude carriers ("VLCCs"), each approximately 296,000 DWT, ordered in 1993. Over the next twelve months, four VLCCs, ranging from 269,650 to 302,150 DWT and two large Capesize bulk carriers (each 158,100 DWT) are scheduled to join the fleet. Two of these VLCCs were ordered with a joint venture partner and will commence eight-year charters to the partner when delivered in December 1996 and February 1997. The other two VLCCs are scheduled for delivery in late 1996 and early 1997. On the dry bulk side, the Company in 1995 placed orders for two 158,100 DWT Capesize ships for delivery in late 1996. All of these six ships are being built by major shipbuilders (four in South Korea and two in Japan) for delivery to the Company's international fleet. The commitments for these six vessels are in U.S. Dollars; for additional information as of February 14, 1996 about the commitments, see Notes E and L(1) to the Company's financial statements incorporated by reference in Item 8 below. PURCHASES. In March 1995, the Company purchased two 94,000 DWT double-hulled Aframax tankers built in 1994, which were delivered to the Company for its international fleet. SALES. In December 1995, the Company sold a single- hulled 133,000 DWT foreign- flag tanker and in February 1996 sold a single-hulled 254,000 DWT foreign- flag VLCC; both vessels were built in 1989. The Company's 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 current 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. Upon delivery of all the tanker newbuildings, over half of the Company's tanker tonnage will be either totally double-hulled or protected by double sides or double bottoms. 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. EMPLOYEES - --------- At February 14, 1996, 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, 1996 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 - -------------- 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 two vessels to be constructed or acquired by the end of 1999. 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 twenty-five 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. The Company does not receive any operating differential subsidies or any construction differential subsidies under the Merchant Marine Act, 1936, as amended. INVESTMENT IN CRUISE BUSINESS - ----------------------------- The Company owns a 49% equity investment in Celebrity Cruise Lines Inc. (together with its subsidiaries collectively "CCLI"), a joint venture formed in late 1992 that owns and operates cruise vessels. CCLI functions as an equal joint venture and the approval of both shareholders is required for all substantive policy matters. All debt of the joint venture is nonrecourse to the joint venture partners. It is anticipated that CCLI's earnings will be reinvested in the cruise business, and accordingly the Company has made no provision for U.S. income taxation with respect to its share of CCLI's earnings. CCLI markets its ships primarily under the brand name Celebrity Cruises, which is a leading provider of cruises in the premium segment of the North American cruise market. The Celebrity Cruises fleet consists of four ships -- CENTURY, ZENITH, HORIZON and MERIDIAN -- having a total of 5,584 berths and sailing mainly in the Caribbean and to Bermuda. Cruises to Alaska and the West Coast, and increased Panama Canal routes, will be added to the itineraries during 1996. Two vessels operated in 1995 as part of CCLI's budget- priced Fantasy Cruises division. One of these ships, BRITANIS, was chartered during part of 1995 to the U.S. Military Sealift Command, while the division's other ship, AMERIKANIS, sailed on European itineraries. The Company's results for 1995 include a net loss of $1,208,000 from CCLI. This is before the Company's estimated interest expense, after-tax, of approximately $11,000,000 incurred to fund the CCLI investment. In 1995, strong competitive pressures in the North American cruise market caused significant discounting throughout the industry, which is reflected in the results of CCLI. In late November, CCLI took delivery of the 70,600-ton CENTURY, designed to be among the most elegant and innovative cruise ships afloat. The 1,750-passenger CENTURY will be followed by two 1,870-passenger sisterships, the GALAXY in late 1996 and the MERCURY in late 1997, which will expand the Celebrity Cruises fleet passenger-carrying capacity to over 9,300 berths, providing significant economies of scale and strengthening its position in the premium segment of the cruise market. The contracts for the GALAXY and MERCURY are with the same European shipyard that built the CENTURY, ZENITH and HORIZON. Long-term financing arrangements exist for substantially all of the unpaid cost of these ships. For additional information about CCLI and its fleets and the CCLI commitments as of February 14, 1996, see the text of the "CCLI" section (pages 13 and 14), including the CCLI fleet table (page 19), of the registrant's Annual Report to Shareholders for 1995, which information is incorporated herein by reference, and Note D to the Company's financial statements incorporated by reference in Item 8 below. COMPETITION. CCLI operates its vessels primarily in the North American cruise market, which accounts for approximately 80% of total cruise passengers carried worldwide. The North American cruise industry is characterized by large and generally well-capitalized companies and is highly competitive. According to the Cruise Lines International Association (CLIA), the five largest companies, including CCLI, have almost 70% of total capacity. Over the past decade, growth in demand (measured by the number of passengers carried) averaged 7% per year for the North American cruise market. More recently, however, beginning in the second half of 1994, demand growth has abated. Preliminary CLIA statistics indicate a 3% decline in passengers carried in 1995 from a year earlier. Capacity growth in the North American cruise market averaged 6% per year during the past decade versus the 7% demand growth noted above. In 1995, capacity rose less than 1% as 13,100 berths were added and 12,500 berths were removed through retirements, redeployments and shutdowns. At year-end 1995, North American cruise capacity was estimated to be 104,700 berths. The industry is in the midst of its largest newbuilding program ever, with a trend toward increasingly larger ships. On the basis of the newbuilding orderbook, CLIA forecasts that capacity will rise 11% in 1996. Before taking into consideration any retirements and deletions from the existing fleet, CLIA expects capacity to grow 10% in 1997 and 12% in 1998. Cruise lines compete with other vacation alternatives such as land-based resort hotels and sightseeing destinations for consumers' discretionary income. The amount of discretionary income spent on vacations is influenced by general economic conditions. Within the cruise industry, competition is primarily based on product quality, itinerary and price. Product quality is a function of ship design, onboard facilities, amenities, service and cuisine. REGULATORY MATTERS. Each cruise ship is subject to regulations of its country of registry, including regulations issued pursuant to international treaties governing the safety of the ship and its passengers. Each country of registry conducts periodic inspections to verify compliance with these regulations. In addition, ships operating from U.S. ports are subject to inspection by the U.S. Coast Guard for compliance with international treaties and by the U.S. Public Health Service for sanitary conditions. With respect to passengers to and from U.S. ports, CCLI is required to obtain certificates from the U.S. Federal Maritime Commission and the U.S. Coast Guard relating to its ability to satisfy liabilities arising out of nonperformance of obligations to passengers, casualty or personal injury and water pollution. The Company believes CCLI is in compliance with all material regulations applicable to its ships and has all licenses necessary for the conduct of its business. The International Maritime Organization's SOLAS 1974 convention, which became effective in 1980 and was last amended in 1992, established minimum safety, fire prevention and fire protection standards (the "SOLAS '74 standards"). Under the amended SOLAS requirements, all existing passenger ships must have upgraded fire detection and fire protection systems by October 1997. The schedule for compliance with certain other aspects of the amended requirements for passenger vessels currently meeting SOLAS '74 standards extends until 2005 or 15 years after construction, whichever is later. A significant number of berths are on ships that are expected to need SOLAS upgrades. The actual number of deletions will depend on shipowners' willingness to incur the potentially significant capital expenditures needed to bring older vessels into compliance with these requirements. Three of Celebrity Cruises' vessels were delivered between 1990 and 1995 and a fourth was rebuilt in 1990. Because Celebrity maintains a modern fleet, the work necessary for its ships to meet 1997 SOLAS requirements can be done without material capital expenditures. ITEM 2. PROPERTIES - ------ ---------- See Item 1. ITEM 3. LEGAL PROCEEDINGS - ------ ----------------- The Company and CCLI are parties, 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 and CCLI 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, 1995, 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 60 President October 1971 Robert N. Cowen 47 Senior Vice February 1993 President, Secretary, June 1982 Myles R. Itkin 48 Senior Vice June 1995 President, Chief Financial Officer and Treasurer Alan Carus 57 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 1996, 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 he 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 1995: Item Incorporated from: ---- ----------------- ITEM 5.Market for Registrant's Last three paragraphs under - ------ Common Equity and Related "Shareholder Information" on Stockholder Matters inside back cover (page 41); ------------------------- "Stock Price and Dividend Data" table on last page (page 24) of "Management's Discussion and Analysis" section. ITEM 6.Selected Financial Data The information for the years - ------ ----------------------- 1991 through 1995 under "Eleven- Year Statistical Review" section (pages 38 and 39). 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 21 through 24). ------------------------- ITEM 8.Financial Statements and "Consolidated Statements of - ------ Supplementary Data Operations and Retained ------------------------ Earnings", "Consolidated Balance Sheets", "Consolidated Statements of Cash Flows", "Notes to Consolidated Financial Statements" and "Report of Independent Auditors" sections (pages 25 through 37). Additional Supplementary Data - Ratio of Earnings to Fixed Charges ---------------------------------- There was a deficiency of earnings to fixed charges for 1995 of $31,967,000. This has been computed by subtracting the sum of loss before Federal income taxes and fixed charges from fixed charges. Fixed charges consist of interest expense, including the proportionate share of interest of joint venture companies, capitalized interest and an estimate of the interest component of an operating lease. 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 1996 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, 1995. 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 26, 1996 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 Date: March 26, 1996 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, 1995 are incorporated by reference in Item 8: Consolidated Balance Sheets--December 31, 1995 and 1994 Consolidated Statements of Operations and Retained Earnings-- Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows-- Years Ended December 31, 1995, 1994 and 1993 Notes to Financial Statements --December 31, 1995 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. 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) Amended and Restated Credit Agreement dated as of February 9, 1990, as 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(a) to the registrant's Form 10-K for 1994 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 Management Agreement dated as of January 1, 1985 between Lion Insurance Company Ltd. and Maritime Overseas Corporation (previously filed more than 10 years ago and refiled herewith). 10(c)(2) Form of Amendment No. 1 dated as of April 1, 1986 to the Management Agreement between Lion Insurance Company Ltd. and Maritime Overseas Corporation (filed as Exhibit 10(c)(2) to the registrant's Form 10-K for 1986 and incorporated herein by reference). 10(d)(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(d)(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(d)(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(d)(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(d)(5) Form of Amendment dated as of October 1, 1987 to General Services Agreement between the registrant and Maritime Overseas Corporation (filed as Exhibit 10(d)(5) to the registrant's Form 10-K for 1987 and incorporated herein by reference). 10(d)(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(e)(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(e)(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(e)(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(e)(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(f)(1) Form of Service Agreements between Maritime Overseas Corporation and each of the partnerships First Shipmor Associates, Second Shipmor Associates, Third Shipmor Associates and Fourth Shipmor Associates and related letter agreements between the registrant and each of said partnerships (refiled as Exhibit 10(f)(1) to the registrant's Form 10-K for 1987 and incorporated herein by reference). 10(f)(2) 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(f)(3) 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(f)(2) hereto except as to the parties, the vessels and the dates). 10(g)(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(g)(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 (previously filed more than 10 years ago and refiled herewith). 10(g)(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(g)(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(h)(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(h)(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(i) 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(j)(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(j)(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(k)(1) Supplemental Executive Retirement Plan of the registrant, as amended and restated as of January 1, 1995 (filed via EDGAR as Exhibit 10(k) to registrant's Form 10-K for 1994 and incorporated herein by reference). 10(k)(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(k)(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(l)(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(l)(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(m) 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(n)(1) Joint Venture Agreement dated September 23, 1992 among Archinav Holdings Ltd. ("Archinav"), Overseas Cruiseship Inc. ("Overseas"), 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, Overseas 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(n)(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(n)(3) Supplemental Agreement dated November 21, 1995 to the Shareholders Agreement referred to in Exhibit 10(n)(1) above. *12 Computation of Ratio of Earnings to Fixed Charges. *13 Such portions of the Annual Report to security holders for 1995 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(k)(1),(2) and (3), 10(l)(1) and (2), and 10(m) above. EX-10 2 FORM OF MANAGEMENT AGREEMENT EXHIBIT 10(c)(1) ---------------- MANAGEMENT AGREEMENT made and entered into as of the 1st day of January, 1985, by and between LION INSURANCE COMPANY LTD., a Bermuda corporation ("Lion"), and MARITIME OVERSEAS CORPORATION, a New York corporation ("MOC"). W I T N E S S E T H: WHEREAS, MOC is a corporation engaged in rendering management and administrative services; and WHEREAS, Lion desires to employ MOC to perform certain management and administration services for Lion and MOC is willing to perform such services, on the terms herein provided. NOW THEREFORE, in consideration of the mutual covenants herein contained, it is agreed as follows: 1. Appointment of MOC - Lion appoints MOC as its agent to perform the duties and provide the services described in this Agreement, in accordance with such directions and instructions as Lion may issue from time to time, and upon the terms and conditions herein provided. 2. Acceptance of Appointment - MOC accepts such appointment and undertakes to perform the duties and provide the services described in this Agreement in accordance with such reasonable directions and instructions as Lion may issue from time to time, and upon the terms and conditions herein provided. MOC shall exercise reasonable care in the performance of its duties under this Agreement. Nothing in this Agreement shall be deemed to grant to MOC any interest in the profits resulting from its operation or as creating any relationship other than that of principal and agent. 3. Duties of MOC - For the account of Lion, in accordance with such directions, orders, forms and methods of supervision and inspection as Lion may from time to time issue, in an economical and efficient manner, and exercising due diligence to protect and safeguard the interests of Lion, in connection with the duties prescribed in this Agreement, MOC shall: (a) Supervise the performance of all underwriting functions in connection with risks submitted to Lion including, but not limited to, such functions as the handling of policy terms and conditions, premium rates and loss settlements. (b) Supervise the preparation, audit and processing as necessary of all insurance documentation to be issued by Lion such as policies, reinsurance contracts, binders and endorsements. (c) Supervise the preparation of all experience statistics required by Lion. (d) Supervise the preparation of all quarterly and annual insurance statements required by Lion. (e) Supervise the complete insurance accounting service, including but not limited to the establishment of all necessary reserves such as those for unearned premiums, loss reserves and reserves for expenses. (f) Supervise the preparation of all tax statements and returns required of Lion with respect to premiums and all other taxes. (g) Supervise the preparation and maintenance of complete books and records with respect to all aspects of Lion's operations, including books and records necessary for the annual financial statements and audit of Lion and quarterly financial statements; such financial statements shall include figures showing the earned premium rates to incurred claims ratio for Lion. (h) Advise Lion periodically, at such intervals and with such frequency as Lion may specify, as to the amount of reserves and other funds available for investment from time to time by Lion, and advise Lion with respect to investments. (i) Assist in obtaining and maintaining in force, except for the percentage of risk retained by Lion, reinsurance with financially responsible reinsurers, of all risks insured by Lion. In connection with the performance of its duties under this Agreement, MOC shall, from time to time, consult with members of its legal department, and, upon instructions of Lion, shall retain independent counsel for the account of Lion. Nothing in this Agreement shall be deemed to obligate MOC to expend its own funds in the payment of any amounts to be disbursed for the account of Lion, it being understood that all such funds shall be provided by Lion as herein set forth. 4. Office and Staff - MOC shall at all times maintain appropriate offices, facilities and staff in order to perform properly the duties and services set forth in this Agreement. 5. Compensation - (a) For the duties and services to be performed hereunder MOC shall receive a fee for each year in an amount to equal to eight percent (8%) of Lion's Gross Revenues for that year. Anything herein to the contrary notwithstanding, the total fee payable hereunder to MOC for any year may not exceed ninety percent (90%) of Lion's Net Income for that year before deductions for the fee. Lion's Gross Revenues and Net Income for any year shall be determined on an accrual basis in accordance with generally accepted accounting principles applied on a consistent basis from year to year. (b) The parties shall agree upon an estimated fee for each calendar year or portion thereof that this Agreement is in effect, during the ninety days immediately preceding the commencement of that year. MOC shall be entitled to receive advances during the year based on the estimated fee. Promptly after the final determination of Lion's Gross Revenues and Net Income for the year, the fee shall be finally fixed, based on Lion's Gross Revenues and Net Income for that year, and the amount by which the fee as finally determined exceeds or is less than the amounts advanced to MOC shall be paid by Lion or refunded by MOC, as the case may be. 6. Expenses - The fees set forth in Section 5 of this Agreement shall not include, and Lion shall promptly reimburse MOC for, all amounts incurred, expended or disbursed by MOC for the account of Lion pursuant to this Agreement or otherwise. 7. Indemnification of MOC - Lion shall indemnify, hold harmless and defend MOC against any and all claims and demands (including costs and reasonable lawyers' fees in defending such claims and demands), whether or not any such claims or demands be found to be valid, of whatsoever kind or nature and by whomsoever asserted, and whether or not such claim or damage is caused by MOC's negligence (but not arising out of MOC's gross negligence or wilful misconduct), arising out of or in any way connected with the performance of MOC's services in good faith hereunder. MOC shall be under no responsibility or liability for loss of profits, or otherwise, to Lion, arising out of any act or omission involving any error of judgement or any negligence (other than gross negligence or wilful misconduct) on the part of its officers or employees, selected with due care, or otherwise in connection with the performance of MOC's duties under this Agreement. MOC shall promptly notify Lion of any claim or demand in respect of which MOC may be indemnified hereunder and shall co- operate with Lion in the defense thereof. 8. Force Majeure - MOC shall be under no liability of any kind or nature whatsoever in the event that it should fail to perform any services hereunder if such failure is directly or indirectly caused by war, war-like activities, government order, supervening illegality, or any labor shortage, labor trouble, strike or lock-out, or any shortage of material or Act of God or any other cause whatsoever beyond MOC's control, whether or not of the same or similar nature. 9. Dealings with Affiliates - If MOC shall utilize any related or affiliated company to render any services or to furnish any facilities in connection with the performance of its duties under this Agreement, it shall disclose such relationship to Lion. 10. Directions and Approvals - In acting under this Agreement, MOC may accept and rely upon directions or approvals made or given on behalf of Lion by any officer of Lion or by any other person designated by Lion to give such directions and approvals, unless and until MOC shall have received written notice from Lion of the revocation or limitation of the authority of such persons to act on behalf of Lion. 11. Term of Agreement - (a) This Agreement shall continue to and including December 31, 1986. This Agreement shall be automatically renewed for successive terms of one (1) year each, unless, at least thirty (30) days prior to the expiration of the initial term or the then current renewal term, either party shall give written notice to the other electing to terminate this Agreement at the expiration of the then current term. (b) The termination of this Agreement shall not relieve either party of liability for the performance of obligations incurred by said party during the effective period of the Agreement which have not been performed at the time of its termination. 12. Assignment - This Agreement shall not be assigned by either party without the consent in writing of the other. 13. Notices - All notices, demands, requests, approvals and other communications ("Notices") which are given or required to be given under, or with respect to, this Agreement, shall be sent by registered or certified mail, postage prepaid, (except in case of emergency or urgency when they shall be sent by telex, cable or telegram and confirmed by such registered or certified mail), addressed to the party for whom intended at its address specified below or to such other address as such party shall hereafter specify by like Notice. Notices to Lion shall be addressed, until further notice, as follows: c/o Overseas Shipholding Group, Inc. 1114 Avenue of the Americas New York, New York 10036 Notices to MOC shall be addressed, until further notice, as follows: 511 Fifth Avenue New York, New York 10017 14. Entire Agreement and Amendments - This Agreement sets forth the entire understanding of the parties relating to the subject matter hereof and supersedes all other proposals and agreements, oral or written, between the parties concerning the subject matter hereof. None of the terms or provisions hereof shall be modified, and this Agreement may not be amended, except by a written instrument signed by the party against which such modification or amendment is to be enforced. 15. Waiver - No waiver of any provision of this Agreement shall be effective unless in writing signed by the waiving party and no waiver of any breach or default hereunder shall constitute a waiver of any other subsequent breach or default, whether of the same or different nature. 16. Governing Law - This Agreement shall be governed and construed in accordance with the laws of the State of New York. 17. Parties in Interest - This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. LION INSURANCE COMPANY LTD. By: ------------------------- MARITIME OVERSEAS CORPORATION By: ------------------------- EX-10 3 AMENDMENT NO. 1 AND 2 EXHIBIT 10(g)(2) ---------------- AMENDMENT NO. 1 DATED TO MANAGEMENT AGREEMENT DATED AS OF BETWEEN (THE "OWNER") AND MARITIME OVERSEAS CORPORATION ("MOC") W I T N E S S E T H : IT IS HEREBY MUTUALLY AGREED as follows: 1. Section 5(b) of the Management Agreement, which provides for the escalation of the fees payable to MOC in the circumstances set forth therein, is hereby amended, effective the date hereof, by suspending the application of the provisions of said Section 5(b) during such period as the Owner's vessel (formerly Hull No. ) is chartered under Time Charter Party dated , as amended from time to time, including the Renewal Period referred to therein (the "Charter"). Upon termination of the Charter, the provisions of said Section 5(b) shall once again become effective. 2. Except as amended hereby, all of the terms and conditions of the Management Agreement shall remain unaltered and continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Management Agreement the day and year first above written. By: -------------------------- MARITIME OVERSEAS CORPORATION By: --------------------------- EXHIBIT 10(g)(2) ---------------- AMENDMENT NO. 2 DATED AS OF TO MANAGEMENT AGREEMENT DATED AS OF BETWEEN (THE "OWNER") AND MARITIME OVERSEAS CORPORATION ("MOC") W I T N E S S E T H : IT IS HEREBY MUTUALLY AGREED as follows: 1. Section 5(a) of the Management Agreement is hereby amended, commencing on the Effective Date, as defined in Addendum No. dated as of to the Time Charter Party dated covering the Owner's vessel (formerly Hull No. ), to read as follows: "(a) For the duties and services to be performed hereunder, MOC shall receive in respect of the Vessel listed on Schedule "A" hereto, during such period as said Vessel is chartered under Time Charter Party dated , as amended from time to time, the sum of $24,240 per month, payable in advance on the first business day of each month." 2. Except as amended hereby, all of the terms and conditions of the Management Agreement, as amended by Amendment No. 1, shall remain unaltered and continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 to the Management Agreement the day and year first above written. By: -------------------------- MARITIME OVERSEAS CORPORATION By: -------------------------- EX-10 4 SUPPLEMENTAL AGREEMENT EXHIBIT 10(n)(3) ---------------- AGREEMENT SUPPLEMENTAL TO SHAREHOLDERS' AGREEMENT ARCHINAV HOLDINGS LTD. (1) OVERSEAS CRUISESHIP INC. (2) - and - CELEBRITY CRUISE LINES INC. (3) relating to CELEBRITY CRUISE LINES INC. THIS AGREEMENT made the 21st day of November, 1995 BETWEEN (1) ARCHINAV HOLDINGS LTD incorporated in the Republic of Liberia and having its registered office at 80 Broad Street, Monrovia, Liberia (the "C Shareholder"); (2) OVERSEAS CRUISESHIP INC. incorporated in the Cayman Islands and having its registered office at P.O. Box 309, George Town, Cayman Islands (the "O Shareholder"); and (3) CELEBRITY CRUISE LINES INC. incorporated in the Cayman Islands and having its registered office at P.O. Box 1350, George Town, Cayman Islands (the "Company"). IS SUPPLEMENTAL TO the shareholders agreement (the "Original Shareholders Agreement") dated 21st October, 1992 made between the parties hereto and the agreement supplemental thereto dated 29th January 1993 made between the same parties (the "First Supplemental Agreement" and together with the Original Shareholders Agreement, the "Shareholders Agreement"). WHEREAS (A) The parties are desirous to arrange the issue of (i) a further 51,000 C Ordinary Shares in the Company (the "New C Shares") to the C Shareholder in addition to the 2,550,000 C Ordinary Shares (the "Existing C Shares") currently recorded in the name of the C Shareholder and (ii) a further 49,000 Ordinary Shares in the Company (the "New O Shares") to the O Shareholder in addition to the 2,450,000 O Ordinary Shares (the "Existing O Shares") currently recorded in the name of the O Shareholder. (B) This Supplemental Agreement sets out the agreement of the parties in respect of such issue. NOW IT IS HEREBY MUTUALLY AGREED by and between the parties hereto as follows: 1. (i) On 30th November, 1995 the C Shareholder shall subscribe and pay for 51,000 of the New C Shares at US$100 per share (amounting to an aggregate subscription of US$5,100,000); and (ii) On 30th November, 1995 the O Shareholder shall subscribe and pay for 49,000 of the new O Shares at US$100 per share (amounting to an aggregate subscription of US$4,900,000). 2. Upon the subscription, payment for and issue of the New C Shares all references to the Existing C Shares contained in the Shareholders Agreement shall be read and construed as if they were references to both the Existing C Shares and the New C Shares and accordingly the definition of "Shares" in the Shareholders Agreement shall include all such shares and the share certificate(s) for such New C Shares shall be deposited in the same manner as the share certificate(s) for the Existing C Shares have been deposited pursuant to terms of the Shareholders Agreement; 3. Upon the subscription, payment for and issue of the New O Shares all references to the Existing O Shares contained in the Shareholders Agreement shall be read and construed as if they were references to both the Existing O Shares and the New O Shares and accordingly the definition of "Shares" in the Shareholders Agreement shall include all such shares and the share certificate(s) for such New O Shares shall be deposited in the same manner as the share certificates for the Existing O Shares have been deposited pursuant to the terms of the Shareholders Agreement. 4. The provisions of Clauses 13, 18 and 20 of the Original Shareholders Agreement shall apply to this Supplemental Agreement mutatis mutandis. 5. This Agreement may be executed in one or more counterparts each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. IN WITNESS whereof this Agreement has been executed by the parties hereto the day and year first above written. SIGNED by ) ) for and on behalf of ) ARCHINAV HOLDINGS LTD ) in the presence of: ) SIGNED by ) ) for and on behalf of ) OVERSEAS CRUISESHIP INC. ) in the presence of: ) SIGNED by ) ) for and on behalf of ) CELEBRITY CRUISE LINES INC. ) in the presence of: ) EX-12 5 COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 ---------- OVERSEAS SHIPHOLDING GROUP, INC. RATIO OF EARNINGS TO FIXED CHARGES For the year ended December 31, 1995 (In thousands) Presented in connection with Amendment No. 1 filed on November 9, 1993 to Registration Statement No. 33-50441 Loss before Federal income taxes $(13,892) Adjustments of income related to companies owned less than 100% (592) Interest expense 66,440 Proportionate share of interest of 50% - owned companies 7,691 Interest component of an operating lease 2,484 Amortization of capitalized interest 2,697 --------- Earnings $ 64,828 ========= Interest expense $ 66,440 Proportionate share of fixed charges of 50% - owned companies 13,060 Capitalized interest 14,811 Interest component of an operating lease 2,484 --------- Fixed charges $ 96,795 ========= Deficiency of earnings available to cover fixed charges $(31,967) ========= EX-13 6 PORTIONS OF OSG 1995 ANNUAL REPORT EXHIBIT 13 ---------- [From page 3 of the 1995 Annual Report] TWO-YEAR CHARTER POSITION OF OSG FLEET (Including Scheduled Deliveries)
Through Year-End 1996 1997 Total Fleet dwt 6,938,650 7,510,450 % of Total Fleet on Charter 22 19 U.S. Fleet dwt 993,350 993,350 % of U.S. Fleet on Charter 2 0 Intl. Fleet dwt 5,945,300 6,517,100 % of Intl. Fleet on Charter 25 22
[From Page 18 and 19 of the 1995 Annual Report] THE FLEET February 14, 1996 Operating Bulk Fleet: 61 vessels, 6,050,650 dwt On Order: 6 vessels, 1,459,800 dwt Total Bulk Tonnage: 67 vessels, 7,510,450 dwt INTERNATIONAL BULK FLEET - ------------------------
Year Deadweight Charter Type of Ship Built Tonnage Expiration Date - ----------------------------------------------------------------------------- Tankers 1996 295,800 Voyage Charter 1996 295,750 Voyage Charter 1973 50%-owned 264,900 November 1996 1975 50%-owned 264,850 September 1998 1974 50%-owned 264,850 December 1997 1974 50%-owned 264,850 July 1997 1990 254,000 March 2002 1989 133,000 June 2005 1976 128,450 Voyage Charter 1975 128,250 Voyage Charter 1975 128,200 Voyage Charter 1980 96,050 Voyage Charter 1981 96,000 Voyage Charter 1979 95,600 Voyage Charter 1994 94,850 Voyage Charter 1994 94,650 Voyage Charter 1994 93,350 July 1996 1994 93,350 July 1996 1994 93,300 Voyage Charter 1994 93,300 Voyage Charter - ----------------------------------------------------------------------------- Petroleum Products Carriers 1986 65,150 August 1996 1986 65,150 Voyage Charter 1986 63,200 September 1996 1987 63,150 September 1996 1989 39,450 March 1997 1988 39,450 Voyage Charter 1989 39,100 September 1996 1989 39,050 July 1996 1979 31,600 April 1996 1981 30,800 Voyage Charter 1981 30,800 Voyage Charter 1982 29,500 Voyage Charter - ----------------------------------------------------------------------------- Bulk Carriers 1982 138,800 May 1996 1982 138,800 Voyage Charter 1975 121,050 May 1996 1975 121,000 May 1996 1990 120,900 Voyage Charter 1990 120,800 Voyage Charter 1973 116,100 Voyage Charter 1981 64,550 March 1996 1983 64,200 March 1996 1989 63,350 Voyage Charter 1989 63,250 Voyage Charter 1977 49%-owned 60,300 March 1996 1973 49%-owned 54,450 March 1996 - ----------------------------------------------------------------------------- Operating International Bulk Fleet Total(a) 45 vessels 5,057,300 dwt =============================================================================
ON ORDER BULK FLEET - -------------------
Delivery Deadweight Charter Type of Ship Date Tonnage Expiration Date - ----------------------------------------------------------------------------- Tankers December 1996 50%-owned 269,650 2004 Quarter 4 1996 302,150 February 1997 50%-owned 269,650 2005 Quarter 1 1997 302,150 - ------------------------------------------------------------------------------ Bulk Carriers October 1996 158,100 December 1996 158,100 - ------------------------------------------------------------------------------ 6 vessels 1,459,800 dwt - ------------------------------------------------------------------------------ International Bulk Fleet Total 51 vessels 6,517,100 dwt ==============================================================================
U.S. BULK FLEET - ---------------
Year Deadweight Charter Type of Ship Built Tonnage Expiration Date - ----------------------------------------------------------------------------- Tankers 1974 120,800 August 1996 1973 120,500 June 1996 1977 (b) 80%-owned 90,650 Idle 1977 (b) 80%-owned 90,550 April 1996 1978 (b) 80%-owned 90,500 February 1996 1977 (b) 80%-owned 90,400 Idle 1971 62,000 March 1996 1970 62,000 May 1996 - ----------------------------------------------------------------------------- Petroleum Products Carriers 1983 (c) 42,950 Voyage Charter 1982 (c) 42,600 Voyage Charter 1969 37,800 Voyage Charter 1968 37,800 Voyage Charter 1968 37,800 Voyage Charter - ----------------------------------------------------------------------------- Geared Bulk Carriers 1978 (b) 25,550 Voyage Charter 1978 (b) 25,550 Voyage Charter - ----------------------------------------------------------------------------- Pure Car Carrier (5,000 cars) 1987 15,900 August 1997 - ----------------------------------------------------------------------------- Operating U.S. Bulk Fleet Total(d) 16 vessels 993,350 dwt ============================================================================= (a) Does not include a 254,000 dwt tanker under contract of sale for delivery during the first quarter of 1996. (b) 25-year capital leases, commencing in year built. (c) 22-year capital leases, commencing in 1989. (d) Does not include a 29,300 dwt petroleum barge, 50%-owned by OSG.
CELEBRITY CRUISE LINES INC. - --------------------------
Gross Year Registered Name of Ship Built/Rebuilt Berths Tonnage - ----------------------------------------------------------------------------- CENTURY 1995 1,750 70,600 ZENITH 1992 1,374 47,250 HORIZON 1990 1,354 46,800 MERIDIAN 1990 1,106 30,450 - ----------------------------------------------------------------------------- Operating Cruise Fleet Total* 4 ships 5,584 berths ============================================================================= *The fleet of CCLI's Fantasy Cruises division consists of BRITANIS (926 berths) and AMERIKANIS (617 berths).
ON ORDER CRUISE FLEET - ---------------------
Gross Delivery Registered Name of Ship Date Berths Tonnage - ----------------------------------------------------------------------------- GALAXY December 1996 1,870 73,000 MERCURY October 1997 1,870 74,000 - ----------------------------------------------------------------------------- On Order Cruise Fleet Total 2 ships 3,740 berths =============================================================================
[From pages 6, 9, 10 and 13 of the 1995 Annual Report] GLOBAL BULK SHIPPING MARKETS The bulk shipping industry is highly competitive and fragmented, with no one organization owning more than 2% of the world fleet. With 61 ships totaling 6.1 million dwt, OSG ranks among the world's ten largest bulk shipowners. The Company is the second largest tanker owner in terms of the number of vessels and eighth largest in carrying capacity. Approximately 77% of the Company's voyage revenues in 1995, 78% in 1994 and 75% in 1993 came from carrying petroleum and its derivatives. These liquid cargoes also accounted for the majority of the voyage revenues of OSG's bulk shipping joint ventures. INTERNATIONAL TANKER MARKETS - ---------------------------- In 1995, rates for international crude carriers were, on average, significantly higher than in 1994. During the first half of the year, rates remained low, but by midyear strong scrapping and modest newbuilding deliveries helped reduce surplus tonnage, bringing about an improved supply/demand balance. Beginning in mid 1995 and continuing into 1996, rates for Very Large Crude Carriers (VLCCs - 200,000 dwt and greater) in particular have strengthened, but are still low relative to the capital costs of newbuildings. International product tanker rates also increased in 1995. Tonnage demand for shipments to the United States, which is the largest market for refined petroleum products such as gasoline, fuel oil and diesel fuel, decreased last year. Greater requirements in the Far East, however, more than offset the decline. WORLD OIL DEMAND DEVELOPMENTS Oil demand in the major oil-importing regions rose 2% in 1995. Increased demand for transport fuels slightly offset reduced use of oil resulting from unusually mild weather and the substitution of natural gas for fuel oil in electric power generation in the United States and Western Europe. Oil consumption in developing Asia expanded by 8% and accounted for most of the demand growth in the major oil-importing regions of the world. Developing Asia's share of world oil demand has been steadily increasing and reached 16% last year. It is expected to rise further in 1996. NON-MIDDLE EAST SUPPLIES CONTINUE TO GROW In 1995, as in the prior year, the average length of a voyage between oil- producing and -consuming nations declined, reflecting greater short-haul shipments from the North Sea and the Caribbean at the expense of long-haul Middle Eastern shipments. This decreased tanker tonnage requirements. Over the next few years, production from sources outside the Middle East is expected to grow, increasing short-haul shipments. In addition, should Iraqi production return, a significant portion would likely be exported via pipeline from the Mediterranean on short-haul routes. Aframax crude carriers (80,000 to 110,000 dwt) are the size most likely to benefit from increased short-haul movements from the North Sea and the Caribbean. With its fleet of seven Aframax crude carriers, OSG is a major supplier of tonnage in the Caribbean crude market, the largest source of imported crude oil for the United States. WORLD TANKER FLEET DECLINES The world tanker fleet declined for the second consecutive year, falling a modest 1 million dwt to 261 million dwt by year-end 1995. Nearly all of the sales for scrap occurred in the first half of the year, before stronger freight rates discouraged shipowners from selling older tonnage. Most of the tonnage scrapped was in the VLCC segment, where 57% of the fleet is at least 15 years old. The advanced age of the fleet combined with mandated deletions due to U.S. and international environmental regulations is expected to keep scrapping at relatively high levels in the coming years. International tankers in lay-up at year-end 1995 fell to 3 million dwt, the lowest since 1991. Newbuilding prices stabilized and prices for secondhand vessels continued to firm in 1995 as freight rates improved. Newbuilding deliveries of approximately 11 million dwt were slightly greater than a year ago, while contracting for new ships fell sharply to 7 million dwt from 12 million dwt in 1994. As a result, the newbuilding orderbook for delivery over the next three years declined 4 million dwt to 20 million dwt, its lowest year-end level since 1988. Of this total, 11 million dwt are scheduled for delivery in 1996. TANKER SAFETY REGULATIONS Since 1990, the shipping industry has experienced a more stringent regulatory environment. Classification societies, governmental authorities and charterers have strengthened their inspection programs, and there has been an increasing reluctance among charterers to accept older vessels due to safety and pollution concerns. These trends persisted in 1995. The shipping industry continued to be affected by requirements of the Oil Pollution Act of 1990 (OPA 90) as well as heightened safety and environmental concerns worldwide. Between 1995 and 2015, OPA 90 phases in a requirement that all tankers entering U.S. waters have double hulls. OPA 90 also significantly expands the potential liability of tanker owners for environmental accidents in U.S. waters. In addition, International Maritime Organization (IMO) regulations require double hulls or equivalent tanker designs for newbuilding orders and mandate double hulls for existing tankers by their 30th anniversary. These regulations also require modifications to existing tankers by their 25th anniversary to provide side or bottom protection covering at least 30% of the cargo tank area. Such modifications can be costly and would reduce a ship's carrying capacity by an estimated 20%. Over the next five years, OPA 90 and IMO regulations are expected to accelerate the scrapping of older tankers. Since OSG maintains a modern fleet, these double-hull requirements will not apply to most of the Company's existing tanker fleet until after the year 2000, at which time the affected ships will have operated for substantially all of their economic lives. INTERNATIONAL DRY BULK MARKETS - ------------------------------ Rates in the international dry bulk market in 1995 averaged well above those of recent years as seaborne trade in all the major dry bulk commodities - iron ore, coal and grain - rose. Yet, after peaking in the spring, rates for dry bulk carriers came under pressure as the size of the dry bulk fleet increased and economic growth slowed in the OECD countries. Rates for Capesize ships (100,000 to 170,000 dwt) dropped sharply toward year-end as a significant number of new vessels entered the market. Rates for Panamax vessels (50,000 to 80,000 dwt) also declined. SEABORNE TRADE IN IRON ORE, COAL AND GRAIN RISES In 1995, seaborne shipments of iron ore and coking coal, used for steel production, showed moderate growth. Although world steel production grew 3% last year, an increased proportion came from electric arc furnaces, which utilize scrap steel in lieu of iron ore and coking coal. This dampened the growth in demand for these two commodities. In contrast, seaborne movements of steam coal, used primarily for power generation, rose substantially in 1995; much of the incremental demand came from new coal-fired power stations in Asia. Seaborne grain shipments grew 8% in 1995 spurred by increased supplies from major exporters such as the United States and sharply higher demand in Asia, particularly China. A reduction in Australian wheat exports, due to drought, provided additional opportunities for long-haul shipments from the United States and Canada to Asia. PACE OF FLEET EXPANSION QUICKENS The international dry bulk fleet grew by 6% in 1995 to an all-time high of 242 million dwt. Capesize vessels accounted for a significant share of this new tonnage, with 6 million dwt being added to the fleet. Scrap sales fell to their lowest level since 1991 as high freight rates tended to discourage owners from discarding older vessels. At year-end, the amount of tonnage in lay-up remained low at about 1 million dwt. Contracting for new orders stayed at a very high level, resulting in a steady rise in the orderbook, which ended the year at a record 32 million dwt for delivery over the next three years. While the orderbook is high, scrapping of bulk carriers is expected to increase in 1996, driven in part by lower freight rates and new regulations requiring more stringent ship surveys. 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, and built in the United States without construction subsidies 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 eight crude carriers and five product carriers, OSG is the largest independent owner of unsubsidized U.S. flag tankers. The Company also has two dry bulk carriers that participate in the preference trades and one car carrier, which is on a long-term charter transporting vehicles to and from Japan. Shipments of Alaskan crude oil from Valdez are the main source of employment for U.S. flag crude carriers, including the eight owned by OSG. In 1995, Alaskan crude shipments declined as production decreased 4% to 1.57 million barrels per day. Significantly more tonnage is required for long-haul shipments of Alaskan crude to the U.S. Gulf and East Coasts than for movements to the West Coast. With the decrease in Alaskan production, the volume moving on long-haul routes fell by a third from its already low level in 1994, further exacerbating the drop in Alaskan crude oil shipments. As a result, six of OSG's U.S. flag crude carriers were unemployed for significant portions of the year. FAVORABLE DEVELOPMENTS FOR U.S. FLAG CRUDE CARRIERS Certain developments in late 1995 have significantly improved the outlook for OSG's U.S. flag crude carrier fleet. In November, President Clinton signed into law legislation that would permit the export of Alaskan North Slope crude oil on U.S. flag vessels beginning as early as the second quarter of 1996. This creates significant new employment opportunities for OSG's U.S. flag crude carrier fleet. In addition, in late 1995 four large U.S. flag crude carriers were withdrawn from service, eliminating substantial excess tonnage from the market. All but two of OSG's U.S. flag crude carriers are now employed. DEMAND FOR U.S. FLAG PRODUCT CARRIERS DECLINES U.S. flag product tankers, ranging in size up to 50,000 dwt, carry gasoline, diesel fuel, jet fuel and other refined petroleum products. These ships compete with pipelines and oceangoing barges and are affected by the level of imports on foreign flag product carriers. OSG has five ships that participate in the U.S. flag product market. Tonnage demand in the clean products trade declined during 1995, primarily because high heating oil inventories in the first quarter, coupled with mild winter weather, reduced the need for additional shipments. Freight rates averaged close to the low levels prevailing in 1994. Primary Data Sources: Fearnleys Review 1995, Clarkson Research Studies, Drewry Shipping Consultants, International Energy Agency, Maritime Administration, State of Alaska and U.S. Department of Energy [From pages 13 and 14 of the 1995 Annual Report] CELEBRITY CRUISE LINES INC. - --------------------------- Celebrity Cruise Lines Inc., OSG's joint venture in the cruise industry, is a leading provider of premium cruises in the North American cruise market. The award-winning Celebrity fleet totals 5,584 berths and currently consists of four ships - CENTURY, ZENITH, HORIZON and MERIDIAN. CELEBRITY NEWBUILDING PROGRAM In late November, Celebrity took delivery of the luxurious 1,750-passenger vessel CENTURY. Built with state-of-the-art technology, spacious public areas and many innovative design features, the CENTURY has received critical acclaim from travel writers and passengers alike. The CENTURY is the first of three sisterships to be added to the Celebrity fleet by year-end 1997. These new ships will expand Celebrity's fleet from 3,800 to over 9,300 berths, providing significant economies of scale and strengthening its position in the premium segment of the cruise market. In early 1996, Celebrity began its first television advertising campaign. EXPANDED ITINERARIES The introduction of the CENTURY to the Caribbean market has allowed Celebrity to reposition its other vessels and to increase the number of destinations it offers, while maintaining its leading position in the lucrative Bermuda market. Beginning in 1996, the HORIZON will sail to Alaska, a particularly attractive market, which had a record number of passengers last year. West Coast cruises and increased Panama Canal routes will also be added to this year's itineraries. The Celebrity fleet will be traveling on 31 itineraries to 54 ports of call during 1996, serving the largest cruise markets and most popular destinations. NORTH AMERICAN CRUISE MARKET Celebrity operates its vessels primarily in the North American cruise market, which accounts for approximately 80% of total cruise passengers carried worldwide. The North American cruise industry is characterized by large and generally well-capitalized companies and is highly competitive. According to the Cruise Lines International Association (CLIA), the five largest companies, including Celebrity, have almost 70% of total capacity. GROWTH IN CRUISE DEMAND Over the past decade, growth in demand (measured by the number of passengers carried) averaged 7% per year for the North American cruise market. More recently, however, beginning in the second half of 1994, demand growth has abated. Preliminary CLIA statistics indicate a 3% decline in passengers carried in 1995 from a year earlier. According to industry estimates, cruise vacations currently represent less than 5% of the overall leisure travel market. Based upon this and past growth in the cruise industry, we believe that the North American cruise market holds significant growth potential. Many industry analysts believe that demand will resume its growth over the next few years, stimulated by the introduction of additional capacity in the form of exciting new luxury vessels such as the CENTURY and its sisterships. Favorable demographics are also likely to enhance passenger growth during the next decade. According to the U.S. Department of Commerce, between 1995 and 2005, the number of people aged 45-64 years is forecast to grow 36% versus 9% for the U.S. population as a whole. This age category is the fastest growing segment of the U.S. population and represents the most significant group of vacationers who take cruises. SUPPLY OUTLOOK Capacity growth in the North American cruise market averaged 6% per year during the past decade versus the 7% demand growth noted above. In 1995, capacity rose less than 1% as 13,100 berths were added and 12,500 berths were removed through retirements, redeployments and shutdowns. At year-end 1995, North American cruise capacity was estimated to be 104,700 berths. The industry is in the midst of its largest newbuilding program ever, with a trend toward increasingly larger ships. On the basis of the newbuilding orderbook, CLIA forecasts that capacity will rise 11% in 1996. Before taking into consideration any retirements and deletions from the existing fleet, CLIA expects capacity to grow 10% in 1997 and 12% in 1998. An important factor influencing supply in the next several years is the International Maritime Organization's Safety of Life at Sea (SOLAS) convention, which establishes minimum safety, fire prevention and fire protection standards. Under SOLAS requirements, all passenger ships must have upgraded fire detection and fire protection systems by October 1997. A significant number of berths are on ships that are expected to need SOLAS upgrades. The actual number of deletions will depend on shipowners' willingness to incur the potentially significant capital expenditures needed to bring older vessels into compliance with these requirements. Three of Celebrity's vessels were delivered between 1990 and 1995 and a fourth was rebuilt in 1990. Because Celebrity maintains a modern fleet, the work necessary for its ships to meet 1997 SOLAS requirements can be done without material capital expenditures. [From page 20 of the 1995 Annual Report] OSG INTERNATIONAL AND U.S. FLAG VESSEL TYPES INTERNATIONAL FLAG TANKER TYPES DESCRIPTION AND MAJOR ROUTES - ---------------------------------- ------------------------------------ VLCC Very large crude carriers can 200,000 dwt and greater generally transport 2 million 7 in OSG International Fleet* barrels or more of crude oil. They 4 on order are used mainly on oil routes from the Arabian Gulf to Asia, Europe and the United States. SUEZMAX Suezmaxes can carry about 1 million 120,000 to 160,000 dwt barrels of crude oil. They are used 4 in OSG International Fleet mainly on oil routes from the Eastern Mediterranean, West Africa and North Sea load ports to Europe and the United States. AFRAMAX Because of their size, Aframax 80,000 to 110,000 dwt tankers are able to operate on many 9 in OSG International Fleet different routes including Latin (7 carry crude oil, 2 transport America and the North Sea to the refined petroleum products) U.S. and Europe, and are used in Asian intra-regional trade. Aframaxes generally carry crude oil but a small number carry refined products. They are also used in lightering - transfer of cargo from a VLCC or Suezmax to a smaller vessel - and transshipments - shipping on a larger vessel to an onshore storage facility and then reloading onto an Aframax. PETROLEUM PRODUCTS CARRIER Petroleum products carriers Two classes: 30,000 to 50,000 dwt transport refined products in a (medium-range) and large number of long- and short-haul 50,000 to 80,000 dwt (long-range) trades, between and within the 12 in OSG International Fleet various continents. Demand for these tankers is influenced both by product demand and by changes in refinery runs and in the location of refining capacity. INTERNATIONAL FLAG DRY BULK DESCRIPTION AND MAJOR ROUTES CARRIER TYPES - ---------------------------------- ------------------------------------ CAPESIZE Capesize ships mainly transport iron 100,000 to 170,000 dwt ore and coal but sometimes carry 7 in OSG International Fleet grain as well. Their major routes 2 on order are Australia to Japan and other Asian nations (coal and iron ore), South Africa to Europe (coal) and Latin America to Europe and Asia (iron ore). PANAMAX Panamaxes are used primarily to 50,000 to 80,000 dwt transport coal and grain but 6 in OSG International Fleet sometimes carry iron ore. Major routes for Panamax vessels are North America to Europe (coal) and North America to the Far East and Europe (grain). U.S. FLAG TANKER TYPES DESCRIPTION AND MAJOR ROUTES - ---------------------------------- ------------------------------------ CRUDE CARRIER U.S. flag crude carriers primarily 60,000 dwt and greater transport crude oil from Valdez, 8 in OSG U.S. Fleet Alaska to the U.S. West Coast and occasionally to the Panama Pipeline for delivery to the U.S. Gulf and East Coasts. Under recently enacted legislation, exports of Alaskan North Slope crude oil on U.S. flag vessels could begin as early as the second quarter of 1996. OSG is the largest independent owner of unsubsidized U.S. flag crude carriers. PETROLEUM PRODUCTS CARRIER These ships carry refined products 30,000 to 50,000 dwt such as gasoline, heating oil and 5 in OSG U.S. Fleet diesel fuel between U.S. ports. Their major routes are from the U.S. Gulf to the East Coast and along the U.S. Gulf, East and West Coasts. U.S. FLAG DRY BULK CARRIER TYPES DESCRIPTION AND MAJOR ROUTES - ---------------------------------- ------------------------------------ BULK CARRIER U.S. flag bulk carriers transport 16,000 dwt and greater government-sponsored cargoes of 2 in OSG U.S. Fleet grain and other agricultural commodities under various federal aid programs. The majority of their cargo is dependent upon allocations made under these programs. PURE CAR CARRIER U.S. flag car carriers transport 11,900 to 15,900 dwt cars to and from Japan and the 1 in OSG U.S. Fleet United States. In 1995, OSG's vessel carried more than 35,000 cars. This ship is the largest of four U.S. flag pure car carriers. *Does not include a 254,000 dwt tanker under contract of sale for delivery during the first quarter of 1996. [From pages 21 through 24 of the 1995 Annual Report] MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION Overseas Shipholding Group, Inc. and Subsidiaries OPERATIONS INCOME FROM VESSEL OPERATIONS Revenues and results of vessel operations of the Company are highly sensitive to patterns of supply and demand for vessels of the types and sizes owned and operated by the Company and the markets in which those vessels operate. Freight rates for major bulk commodities are determined by market forces including local and worldwide demand for such commodities, volumes of trade, distances between sources and destinations of cargoes and amount of available tonnage both at the time such tonnage is required and over periods of projected requirements. Available tonnage is affected, over time, by the amount of newbuilding deliveries and removal of existing tonnage from service. Results in particular periods are also affected by such factors as the mix between voyage and time charters, the timing of the completion of voyage charters, the time and prevailing rates when charters that are currently being performed were negotiated, the levels of applicable rates and the business available as particular vessels come off existing charters, and the timing of drydocking of vessels. In 1995, rates in the international tanker markets, on average, improved significantly from the unsatisfactory levels of the preceding year. In particular, during the second half of 1995, rates for VLCCs (over 200,000 dwt) and Aframaxes (80,000 to 110,000 dwt) increased markedly. In early 1996, rates for VLCCs strengthened and remained above the rates prevailing during late 1995. Aframax rates continued strong in January 1996 and declined somewhat thereafter. While Suezmax (120,000 to 160,000 dwt) rates remained at about the same levels as in late 1995, products tanker rates trended downward in early 1996. Dry bulk rates rose in the second half of 1994 and during the first half of 1995, reaching levels in 1995 nearly double those of the prior year. Dry bulk rates declined significantly during the latter half of 1995 and have remained at low levels in early 1996. Demand for U.S. flag tankers decreased during most of 1995 from the unsatisfactory 1994 levels. Six of OSG's U.S. flag tankers were unemployed for substantial portions of 1995. All but two of OSG's U.S. flag crude carriers were employed at February 14, 1996. In November 1995, legislation was signed by the President that would permit the export of Alaskan North Slope crude oil on U.S. flag vessels as early as the second quarter of 1996. This creates significant new employment opportunities for the U.S. flag crude carrier fleet. Income from vessel operations for 1995 increased by approximately $10,100,000 from the results for 1994. This increase was attributable to improved income of approximately $26,400,000 from foreign flag vessel operations, reflecting the favorable impact of four newly built Aframax vessels delivered during 1994 and two modern Aframaxes purchased in 1995 and improved rates earned by certain crude carriers and petroleum products carriers in 1995 compared with 1994. Dry bulk vessels also obtained higher rates in 1995 compared with 1994. Results from vessel operations of the U.S. flag fleet declined approximately $16,300,000 in 1995 from 1994. As previously mentioned, six of the Company's U.S. flag crude carriers were without employment for substantial portions of 1995. This was partially offset by improved results for certain U.S. flag products carriers. 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. The effect on revenues and expenses of a higher proportion of voyage charters to time charters in both the U.S. flag and the international fleets in 1995 compared with 1994 is also reflected. Income from vessel operations for 1994 decreased by approximately $12,300,000 compared with the results for 1993. This decrease occurred due to a decline in the results of operations of the U.S. flag fleet. In the second quarter of 1994, there was an unusually sharp decline in demand for OSG's tonnage in the U.S. crude market that persisted throughout the second half of 1994. Three of the Company's U.S. flag crude carriers and an older U.S. flag products carrier were idle for substantial portions of the second half of 1994. Results from two U.S. flag dry bulk carriers were less favorable in 1994 compared with 1993. The effect on revenues of increased drydockings in 1994 compared with 1993 is also included. The U.S. flag decline was partially mitigated by increased rates in 1994 for a U.S. flag crude carrier and certain modern U.S. flag petroleum products carrier tonnage and increased employment for a U.S. flag crude carrier in 1994 compared with 1993. Income from foreign flag vessel operations was approximately the same in 1994 as it was in 1993. This reflected lower rates obtained for foreign flag crude carrier tonnage, primarily Suezmaxes and Aframaxes. This was offset by higher rates obtained in 1994 than in 1993 for a VLCC that commenced a long-term charter in early 1994 and improved rates earned by certain dry cargo vessels in the second half of 1994 compared with 1993. The effect of vessels delivered in 1994 and vessels sold in 1994 and 1993 is also reflected. EQUITY IN RESULTS OF CELEBRITY CRUISE LINES INC. ("CCLI") OSG's share of CCLI's results was a loss of $1,208,000 in 1995 compared with income of $797,000 and $6,841,000 in 1994 and 1993, respectively. The decrease in such results reflects strong competitive pressures in the North American cruise market that began in late 1994 and have persisted during 1995 and early 1996, causing significant discounting throughout the industry. The 1994 results also reflect the 11-day withdrawal of a vessel from service during the third quarter of 1994, normally CCLI's most profitable quarter of the year. The Company's equity in the results of CCLI is before interest expense (pretax) of approximately $16,900,000 (1995), $12,800,000 (1994) and $12,500,000 (1993) estimated to have been incurred in connection with the funding of its investment in CCLI. OTHER INCOME (NET) The details of other income for the three-year period are shown in Note K on page 35 of this report. Interest and dividends increased in 1995 compared with 1994 and in 1994 compared with 1993 because of higher rates of return on interest-bearing deposits and investments and increased amounts utilized for such deposits and investments. The 1995 increase was net of a decrease in dividend income resulting from a change in the Company's investment portfolio mix from equity securities to interest-bearing deposits. The 1994 increase reflected the sale or redemption of certain preferred stocks during and subsequent to 1993 that were replaced with lower yielding investments. Disposal of vessels resulted in gains of approximately $2,700,000 in 1995 (net of a provision of $3,000,000 for loss on a vessel to be disposed of subsequent to year-end), $6,800,000 in 1994 and $12,100,000 in 1993. Gain on sale of securities was approximately $11,100,000 in 1995 compared with approximately $8,000,000 in 1994 and $9,100,000 in 1993. Other income also reflects the results of foreign currency transactions and minority interest in all three years and income/losses from other investments (included in miscellaneous - net) including, in 1995, losses of approximately $2,600,000 on an investment. INTEREST EXPENSE Interest expense increased in 1995 and 1994 from the respective preceding years as a result of increases in the average amount of debt outstanding and increased rates on floating rate debt, including debt incurred in connection with vessels entering the operating fleet. The increases are net of increased interest costs capitalized in connection with vessel construction. Interest expense in 1995, 1994 and 1993 reflects $5,300,000, $6,500,000 and $13,300,000, respectively, of net benefits from the interest rate swaps referred to below in Liquidity and Sources of Capital. PROVISION FOR FEDERAL INCOME TAXES There were income tax credits of $5,260,000 and $3,750,000 in 1995 and 1994, respectively, as a result of the pretax loss incurred in each of the years and a provision of $8,900,000 in 1993; the tax credits and the provision reflect items that are not subject to tax and the dividends received deduction. The 1993 provision includes $2,900,000, or $.09 per share, of additional deferred taxes resulting from the increase in the Federal statutory rate from 34% to 35% enacted in August 1993. LIQUIDITY AND SOURCES OF CAPITAL Working capital at December 31, 1995 was approximately $152,000,000 compared with $90,000,000 at year-end 1994 and $99,000,000 at year-end 1993. Current assets are highly liquid, consisting principally of cash, interest-bearing deposits and receivables. The Company also has investments in marketable securities carried as noncurrent assets, other than securities included in restricted funds, with a market value of approximately $18,000,000 at December 31, 1995. Net cash provided by operating activities approximated $27,000,000 in 1995, $10,000,000 in 1994 and $69,000,000 in 1993. 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 1996. The Company has an unsecured long-term credit facility of $500,000,000 of which $369,000,000 was used at December 31, 1995, and an unsecured short-term credit facility of $30,000,000, which was unused at that date. The Company finances vessel additions primarily with cash provided by operating activities, long-term borrowings and capital lease obligations. Long-term borrowings in 1995, 1994 and 1993 aggregated approximately $217,000,000, $60,000,000 and $310,000,000, respectively. The Company has used interest rate swaps to effectively convert a portion of its fixed rate debt to a floating rate basis, reflecting management's interest rate outlook. As of December 31, 1995, the Company is a party to fixed to floating interest rate swaps (designated as hedges against certain debt) with various banks covering notional amounts aggregating $600,000,000, pursuant to which it pays LIBOR (5.5% as of December 31, 1995) and receives fixed rates ranging from 5.8% to 8.1% calculated on the notional amounts. 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 $130,000,000 for such foreign currency from 1996 through 2004. In 1995, 1994 and 1993, cash used for vessel additions approximated $196,000,000, $146,000,000 and $164,000,000, respectively. At February 14, 1996, the Company has commitments with an aggregate unpaid cost of approximately $200,000,000 for the construction of four foreign flag bulk vessels, of which three are scheduled for delivery in late 1996 and one in 1997. Long-term shipyard financing arrangements exist for approximately $38,000,000 of the unpaid cost of one of the vessels. EFFECTS OF INFLATION 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. ENVIRONMENTAL MATTERS See "Tanker Safety Regulations" on page 9 hereof for a discussion regarding OPA 90 and certain regulations of the IMO. [From page 24 of the 1995 Annual Report] STOCK PRICE AND DIVIDEND DATA
1995 Quarter 1st 2nd 3rd 4th - ------------------------------------------------------------------ High 23-7/8 21-1/2 23 20-7/8 Low 19-1/4 18-1/2 19-7/8 17 Dividend 15 cents 15 cents 15 cents(a) 15 cents(b) - ------------------------------------------------------------------ 1994 Quarter 1st 2nd 3rd 4th - ------------------------------------------------------------------ High 26-3/4 21-5/8 21-7/8 24-3/8 Low 19-7/8 17-7/8 17-1/4 19-1/2 Dividend 15 cents 15 cents 15 cents(a) 15 cents - ------------------------------------------------------------------ (a) Declared in second quarter of the respective year. (b) Declared in third quarter.
[From pages 25 through 37 of the 1995 Annual Report] CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Overseas Shipholding Group, Inc. and Subsidiaries
In thousands, except per share amounts, for the year ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- SHIPPING REVENUES: Revenues from voyages - Note B $407,834 $358,537 $376,885 Income attributable to bulk shipping joint ventures - Note E 6,083 5,599 5,695 - --------------------------------------------------------------------------- 413,917 364,136 382,580 - --------------------------------------------------------------------------- SHIPPING EXPENSES: Vessel and voyage - Note H 272,778 243,684 252,153 Depreciation of vessels and amortization of capital leases 66,134 59,992 58,734 Agency fees - Note H 34,105 30,302 30,225 General and administrative 10,515 9,825 8,826 - --------------------------------------------------------------------------- 383,532 343,803 349,938 - --------------------------------------------------------------------------- Income from Vessel Operations 30,385 20,333 32,642 Equity in Results of Celebrity Cruise Lines Inc. - Note D (1,208) 797 6,841 Other Income (Net) - Note K 23,371 25,908 30,674 - --------------------------------------------------------------------------- 52,548 47,038 70,157 Interest Expense 66,440 56,988 43,311 - --------------------------------------------------------------------------- Income/(Loss) before Federal Income Taxes (13,892) (9,950) 26,846 Provision/(Credit) for Federal Income Taxes - Note J (5,260) (3,750) 8,900 - --------------------------------------------------------------------------- Net Income/(Loss) (8,632) (6,200) 17,946 Retained Earnings at Beginning of Year 737,583 764,987 766,647 - --------------------------------------------------------------------------- 728,951 758,787 784,593 Cash Dividends Declared and Paid 21,731 21,204 19,606 - --------------------------------------------------------------------------- Retained Earnings at End of Year $707,220 $737,583 $764,987 =========================================================================== PER SHARE AMOUNTS - NOTE N: Net income/(loss) $ (.24) $ (.17) $ .55 Cash dividends declared and paid $ .60 $ .60 $ .60 =========================================================================== See notes to financial statements.
CONSOLIDATED BALANCE SHEETS Overseas Shipholding Group, Inc. and Subsidiaries
Dollars in thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash, including interest-bearing deposits of $155,864 and $88,490 $ 160,578 $ 100,034 Receivables: Voyages 18,158 11,699 Refundable Federal income taxes - 5,200 Other 13,379 16,905 Prepaid expenses 31,218 26,868 - --------------------------------------------------------------------------- Total Current Assets 223,333 160,706 Investments in Marketable Securities - Note F 18,482 36,052 Capital Construction and Restricted Funds - Notes F, J and M1 124,258 105,570 Vessels, at cost, less accumulated depreciation of $551,752 and $500,477 - Notes G and L1 1,173,029 1,063,784 Vessels Under Capital Leases, less accumulated amortization of $150,906 and $140,020 - Note M1 108,572 119,457 Investment in Celebrity Cruise Lines Inc. - Note D 234,334 230,642 Investments in Bulk Shipping Joint Ventures - Note E 87,794 82,894 Other Assets 95,024 106,304 - --------------------------------------------------------------------------- $2,064,826 $1,905,409 =========================================================================== Dollars in thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 5,047 $ 4,563 Sundry liabilities and accrued expenses - Note L2 31,706 33,042 Federal income taxes (all deferred) - Note J 8,000 6,200 - --------------------------------------------------------------------------- 44,753 43,805 Current installments of long-term debt - Note G 15,943 17,638 Current obligations under capital leases - Note M1 10,630 9,737 - --------------------------------------------------------------------------- Total Current Liabilities 71,326 71,180 Advance Time Charter Revenues 8,081 4,828 Long-term Debt - Note G 951,638 749,185 Obligations Under Capital Leases - Note M1 150,120 160,871 Minority Interest 1,813 3,803 Deferred Federal Income Taxes ($93,218 and $102,170) and Deferred Credits - Note J 97,067 105,763 SHAREHOLDERS' EQUITY - NOTES F, G, J AND N: Common Stock, par value $1 per share: Authorized - 60,000,000 shares Issued - 39,590,759 shares 39,591 39,591 Paid-in Additional Capital 93,687 93,599 Retained Earnings 707,220 737,583 - --------------------------------------------------------------------------- 840,498 870,773 Less-cost of Treasury Stock - 3,363,243 and 3,380,838 shares 49,297 49,491 - --------------------------------------------------------------------------- 791,201 821,282 Less-net unrealized loss on marketable securities 6,420 11,503 - --------------------------------------------------------------------------- Total Shareholders' Equity 784,781 809,779 Commitments, Leases and Other Comments - Notes L and M - --------------------------------------------------------------------------- $2,064,826 $1,905,409 =========================================================================== See notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Overseas Shipholding Group, Inc. and Subsidiaries
In thousands for the year ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) $ (8,632) $ (6,200) $ 17,946 Items included in net income/(loss) not affecting cash flows: Depreciation and amortization 66,134 59,992 58,734 Provision/(credit) for deferred Federal income taxes (5,260) 1,909 5,315 Equity in results of Celebrity Cruise Lines Inc. 1,208 (797) (6,841) Equity in net income of bulk shipping joint ventures (6,416) (6,360) (5,796) Other - net 917 (6,243) (7,036) Items included in net income/(loss) related to investing activities: (Gain) on sale of securities - net (11,130) (7,986) (9,128) (Gain) on disposal of vessels (5,700) (6,815) (12,088) Changes in operating assets and liabilities: Decrease/(increase) in receivables 813 (12,147) 12,420 Net change in prepaid items, accounts payable and sundry liabilities and accrued expenses (8,175) (2,596) 15,078 Increase/(decrease) in advance time charter revenues 3,253 (2,894) 492 - --------------------------------------------------------------------------- Net cash provided by operating activities 27,012 9,863 69,096 - --------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (13,456) (34,811) (42,529) Proceeds from sales of marketable securities 34,344 21,022 44,509 Additions to vessels (196,127) (146,133) (163,538) Proceeds from disposal of vessels 33,786 40,780 48,994 Investment in Celebrity Cruise Lines Inc. (4,900) - (2,733) Purchases of other investments (3,640) (667) (16,996) Proceeds from dispositions of other investments 15,933 4,406 13,939 Other - net (2,003) 1,078 (1,001) - --------------------------------------------------------------------------- Net cash (used in) investing activities (136,063) (114,325) (119,355) - --------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock - 76,004 - Purchases of treasury stock - - (237) Issuance of long-term debt 217,000 60,000 309,439 Payments on long-term debt and obligations under capital leases (26,140) (22,442) (215,542) Cash dividends paid (21,731) (21,204) (19,606) Other - net 466 1,971 673 - --------------------------------------------------------------------------- Net cash provided by financing activities 169,595 94,329 74,727 - --------------------------------------------------------------------------- Net increase/(decrease) in cash 60,544 (10,133) 24,468 Cash, including interest-bearing deposits, at beginning of year 100,034 110,167 85,699 - --------------------------------------------------------------------------- Cash, including interest-bearing deposits, at end of year $ 160,578 $ 100,034 $ 110,167 =========================================================================== See notes to financial statements.
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, except four which are 80%-owned. Significant intercompany items and transactions have been eliminated in consolidation. Investments in Celebrity Cruise Lines Inc. (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. 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 M). 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 $14,811,000 (1995), $14,157,000 (1994) and $7,416,000 (1993). Interest paid amounted to $67,877,000 (1995), $53,182,000 (1994) and $42,093,000 (1993), excluding capitalized interest. 7. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"), as of December 31, 1993. Adoption of this standard had no significant effect on the Company's financial statements. Under FAS 115, 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. Prior thereto, the Company's investments in marketable equity securities were carried at the lower of aggregate cost or market, and the amount of the allowance for net unrealized loss on the noncurrent marketable equity securities was shown as a reduction of shareholders' equity. 8. Amounts receivable or payable under interest rate swaps (designated as hedges against certain existing debt and capital lease obligations-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 Note K). 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 (principally tankers and dry bulk carriers). 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 owns an equity investment in Celebrity Cruise Lines Inc. (see Note D), an owner and operator of cruise ships. Information about the Company's operations for the three years ended December 31, 1995 follows:
Foreign Flag (principally In thousands Consolidated U.S. Flag Liberian) - --------------------------------------------------------------------------- 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 =========================================================================== 1994 Shipping Revenues $ 364,136 $ 130,832 $ 233,304 =========================================================================== Net Income/(Loss) $ (6,200) $ (30,505) $ 24,305 =========================================================================== Identifiable Assets at December 31, 1994 $1,905,409 $ 538,596 $1,366,813 =========================================================================== 1993 Shipping Revenues $ 382,580 $ 154,652 $ 227,928 =========================================================================== Net Income/(Loss) $ 17,946 $ (12,842) $ 30,788 =========================================================================== Identifiable Assets at December 31, 1993 $1,823,737 $ 551,341 $1,272,396 =========================================================================== 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 $49,541,000 in 1995, $63,668,000 in 1994 and $73,656,000 in 1993.
NOTE C - ASSETS AND LIABILITIES OF 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:
In thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- Current assets $ 78,635 $ 41,515 Vessels, net 981,053 859,939 Investment in Celebrity Cruise Lines Inc. 234,334 230,642 Other assets 111,119 119,065 - --------------------------------------------------------------------------- 1,405,141 1,251,161 - --------------------------------------------------------------------------- Current installments of long-term debt 9,821 11,958 Other current liabilities 15,581 17,212 - --------------------------------------------------------------------------- Total current liabilities 25,402 29,170 Long-term debt (including intercompany) and deferred credits, etc. 399,537 276,477 - --------------------------------------------------------------------------- 424,939 305,647 - --------------------------------------------------------------------------- Net assets $ 980,202 $ 945,514 ===========================================================================
NOTE D - INVESTMENT IN CELEBRITY CRUISE LINES INC.: The Company owns a 49% equity investment in Celebrity Cruise Lines Inc. ("CCLI"), a joint venture that owns and operates cruise vessels. Pursuant to related agreements, CCLI functions as an equal joint venture and the approval of both shareholders is required for all substantive policy matters. A condensed summary of the assets and liabilities of CCLI and the results of its operations follows:
In thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- Current assets $ 97,319 $ 101,149 Vessels, net 1,042,928 696,126 Other assets 32,548 51,084 - --------------------------------------------------------------------------- 1,172,795 848,359 - --------------------------------------------------------------------------- Short-term debt and current installments of long-term debt 83,002 54,676 Other current liabilities 96,565 65,289 - --------------------------------------------------------------------------- Total current liabilities 179,567 119,965 Long-term debt 517,864 260,643 - --------------------------------------------------------------------------- 697,431 380,608 - --------------------------------------------------------------------------- Net assets (principally capital contributions) $ 475,364 $ 467,751 =========================================================================== In thousands for the year ended December 31, 1995 1994 1993 Revenue $ 272,564 $ 307,565 $ 315,700 Costs and expenses (274,951) (305,860) (301,642) - --------------------------------------------------------------------------- Net income/(loss) $ (2,387) $ 1,705 $ 14,058 ===========================================================================
CCLI's results of operations include net gains on foreign currency transactions of $7,543,000 in 1995 and net losses of $1,094,000 in 1994 and $363,000 in 1993. The Company's equity in the results of CCLI for each of the years is before interest expense of approximately $16,900,000 (1995), $12,800,000 (1994) and $12,500,000 (1993), estimated to have been incurred by the Company in connection with the funding of its investment in CCLI. These amounts were calculated based on the Company's average interest rates during the respective years. As of February 14, 1996, CCLI has commitments (which are nonrecourse to OSG) with an aggregate unpaid cost of approximately $647,000,000 for the construction of two cruise ships scheduled for delivery in late 1996 and late 1997. Unpaid costs are net of $66,000,000 of progress payments (all paid prior to January 1, 1996). Long-term financing arrangements exist for substantially all of the unpaid cost of these ships. Approximately 47% of the unpaid cost is denominated in German marks, substantially all of which is covered by option contracts that terminate in the event that the exchange rate of the German mark to the dollar falls below certain levels. NOTE E - BULK SHIPPING JOINT VENTURES: 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:
In thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- Cash ($20,950 and $62,486) and other current assets (including $9,569 and $8,265 due from owners) $ 36,464 $ 78,412 Vessels, net 134,601 73,286 Other assets (including $9,178 and $26,279 due from owners) 11,384 29,573 - --------------------------------------------------------------------------- 182,449 181,271 Current liabilities 3,568 4,214 - --------------------------------------------------------------------------- Net assets (principally undistributed net earnings) $178,881 $177,057 =========================================================================== In thousands for the year ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Revenue, primarily from voyages (including $30,598, $28,627 and $36,008 from vessels chartered to other owners) $45,032 $ 42,825 $ 42,083 Costs and expenses 32,030 30,105 30,495 - --------------------------------------------------------------------------- Net income $13,002 $ 12,720 $ 11,588 ===========================================================================
As of February 14, 1996, certain 50%-owned companies have commitments (which are nonrecourse to OSG) with an aggregate unpaid cost of approximately $90,000,000 for the construction of two foreign flag VLCCs (very large crude carriers) scheduled for delivery in late 1996 and early 1997. Unpaid costs are net of $90,000,000 of progress payments and prepayments (all paid prior to January 1, 1996) and of discounts resulting from such prepayments. The joint venture companies expect to pay the unpaid costs from their available cash resources and to utilize existing long-term shipyard financing arrangements as needed. Upon delivery, these vessels will commence eight-year charters to the joint venture partner. NOTE F - INVESTMENTS IN MARKETABLE SECURITIES: Certain information concerning the Company's marketable securities (including securities in Capital Construction and Restricted Funds), which consist of available-for-sale securities, follows:
Approximate Market and In thousands at Gross Unrealized Carrying December 31, Cost Gains Losses Amount - --------------------------------------------------------------------------- 1995 Equity securities $ 79,551 $1,291 $ 7,705 $ 73,137 U.S. Treasury securities and obligations of U.S. government agencies (due after five years through ten years) 2,512 - 6 2,506 - --------------------------------------------------------------------------- $ 82,063 $1,291 $ 7,711 $ 75,643 =========================================================================== 1994 Equity securities $ 80,638 $1,350 $10,589 $ 71,399 U.S. Treasury securities and obligations of U.S. government agencies 50,788 - 2,264 48,524 - --------------------------------------------------------------------------- $131,426 $1,350 $12,853 $119,923 ===========================================================================
The unrealized loss on marketable securities included as a separate component of shareholders' equity decreased $5,083,000 (1995) and $7,261,000 (1993) and increased $7,913,000 (1994). At February 14, 1996, the aggregate market quotation of the above marketable securities was approximately $79,300,000 and the net unrealized loss was reduced to approximately $2,760,000. NOTE G - DEBT: Long-term debt exclusive of current installments follows:
In thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- 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 369,000 152,000 8.75% Debentures due 2013, net of unamortized discount of $288 and $305 99,712 99,695 8% Notes due 2003, net of unamortized discount of $191 and $215 99,809 99,785 8% to 10.58% unsecured Promissory Notes and Term Loans, due through 2001 40,267 49,661 10.5% and 10.58% secured Promissory Notes and Term Loans, due through 2001 23,090 27,254 8.45% United States Government Guaranteed Merchant Marine Bonds, due through 2006 9,760 10,790 - --------------------------------------------------------------------------- $951,638 $749,185 ===========================================================================
The Revolving Credit Agreement, as amended, provides for borrowings of up to $500,000,000 on a revolving credit basis through November 1999, at which time any outstanding balance is due. As of December 31, 1995, interest was at the rate of .475% above the London interbank offered rate ("LIBOR"). The Company also has interest rate options related to the certificate of deposit, money market or prime rates. Agreements related to long-term debt provide for prepayment privileges (in certain instances with penalties), limitations on the amount of secured debt and total borrowings, and acceleration of payment under certain circumstances, including if any of the minimum consolidated financial covenants contained in certain of such agreements are not met. The most restrictive of these covenants require the Company to maintain positive consolidated working capital, consolidated net worth as of December 31, 1995 of approximately $581,000,000 (increasing quarterly by an amount related to net income), a ratio of total debt to net worth of not more than 1.75:1, and a liquid cash flow coverage ratio of at least 2.00:1. 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, 1995, to $49,900,000. The Company has used interest rate swaps to effectively convert a portion of its fixed rate debt to a floating rate basis, reflecting management's interest rate outlook. As of December 31, 1995, the Company is a party to fixed to floating interest rate swaps with various banks covering notional amounts aggregating $600,000,000, pursuant to which it pays LIBOR (5.5% as of December 31, 1995) and receives fixed rates ranging from 5.8% to 8.1% calculated on the notional amounts. These agreements contain no leverage features and have various maturity dates from 1998 to 2008. Approximately 20% of the net book amount of the Company's vessels, representing three foreign flag and nine U.S. flag vessels, is pledged as collateral for certain long-term debt. In some instances, debt is collateralized by revenues from certain charters. The aggregate annual principal payments required to be made on long-term debt for the five years subsequent to December 31, 1995 are $15,943,000 (1996), $19,336,000 (1997), $13,774,000 (1998), $390,835,000 (1999) and $34,429,000 (2000). The Company also has a $30,000,000 committed short-term line of credit facility with a bank, under which there were no outstanding borrowings as of December 31, 1995. 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 $5,601,000 (1995), $5,118,000 (1994) and $6,009,000 (1993) 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 $917,000 (1995), $834,000 (1994) and $758,000 (1993)). 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 The carrying amounts of the borrowings under the Revolving Credit Agreement approximate their fair value. The fair values of the Company's other 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 1995, 1994 and 1993 were not material. The estimated fair value of the Company's financial instruments follows:
Carrying Fair Carrying Fair In thousands at Amount Value Amount Value December 31, 1995 1995 1994 1994 - --------------------------------------------------------------------------- FINANCIAL ASSETS (LIABILITIES) Cash and interest- bearing deposits $ 160,578 $ 160,578 $ 100,034 $ 100,034 Interest-bearing deposits in restricted funds 68,128 68,128 20,544 20,544 Investments in marketable securities 75,643 75,643 119,923 119,923 Debt (1,128,331) (1,186,499) (937,431) (913,238) Interest rate swaps - 33,442 - (51,869) Foreign currency swaps - (9,556) - (16,267) ===========================================================================
NOTE J - TAXES: Effective from January 1, 1987, earnings of the foreign shipping companies (exclusive of CCLI) 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 to 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, 1995 since undistributed earnings of foreign shipping companies have been reinvested or are intended to be reinvested in foreign shipping operations. As of December 31, 1995, 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, no provision for U.S. income taxes on the Company's share of the undistributed earnings of CCLI was required, since it is intended that such undistributed earnings ($6,300,000 at December 31, 1995) will be indefinitely reinvested; the unrecognized deferred U.S. income tax attributable thereto approximated $2,200,000. 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 two vessels to be constructed or acquired by the end of 1999. Monies can remain tax-deferred in the fund for a maximum of 25 years (commencing January 1, 1987 for deposits prior thereto). The significant components of the Company's deferred tax liabilities and assets follow:
In thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: - --------------------------------------------------------------------------- Excess of tax over statement depreciation-net $ 74,330 $ 73,369 Tax benefits of the Merchant Marine Act of 1936, as amended, on amounts accumulated in the Capital Construction Fund 35,122 30,503 Costs capitalized and amortized for statement, expensed for tax 13,114 9,678 Other-net 22,782 24,640 - --------------------------------------------------------------------------- Total deferred tax liabilities 145,348 138,190 - --------------------------------------------------------------------------- DEFERRED TAX ASSETS: - --------------------------------------------------------------------------- Capital leases 11,229 11,760 Excess of tax over statement basis of investment in securities 1,353 2,188 Alternative minimum tax credit carryforwards, which can be carried forward indefinitely 16,057 15,872 Net operating loss carryforward, expiring in 2010 15,491 - - --------------------------------------------------------------------------- Total deferred tax assets 44,130 29,820 - --------------------------------------------------------------------------- Net deferred tax liabilities $101,218 $108,370 ===========================================================================
Federal income taxes paid amounted to $600,000 in 1995 and $4,200,000 in 1994. Federal income tax refunds received amounted to $5,307,000 in 1995 and $6,221,000 in 1993. The components of income/(loss) before Federal income taxes follow: In thousands for the year ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Domestic $(45,486) $(31,456) $(15,980) Foreign 31,594 21,506 42,826 - --------------------------------------------------------------------------- $(13,892) $ (9,950) $ 26,846 =========================================================================== Substantially all of the above foreign income was earned by companies that were not subject to income taxes in their countries of incorporation. The components of the provision/(credit) for Federal income taxes follow:
In thousands for the year ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Current - $ (5,659) $ 3,585 Deferred $ (5,260) 1,909 2,415 Adjustment of net deferred tax liabilities to reflect increase in tax rates - - 2,900 - --------------------------------------------------------------------------- $ (5,260) $ (3,750) $ 8,900 ===========================================================================
Reconciliations of the actual Federal income tax rate and the U.S. statutory income tax rate follow:
For the year ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Actual Federal income tax provision/(credit) rate (37.9%) (37.7%) 33.1% Adjustment of net deferred tax liabilities to reflect increase in tax rates - - (10.8%) Adjustment due to: Dividends received deduction 3.1% 4.9% 3.2% Income not subject to U.S. income taxes (.2%) 2.2% 9.7% Other - (4.4%) (.2%) - --------------------------------------------------------------------------- U.S. statutory income tax provision/(credit) rate (35.0%) (35.0%) 35.0% ===========================================================================
NOTE K - OTHER INCOME (NET): Other income (net) consists of:
In thousands for the year ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Interest $ 9,545 $ 6,116 $ 4,017 Dividends 1,803 2,072 3,473 Gain on sales of securities-net (based on first-in, first-out method) 11,130 7,986 9,128 Gain on disposal of vessels-net 2,693* 6,815 12,088 Foreign currency exchange gains/(losses) (2,559) 490 (1,647) Minority interest 1,990 285 (116) Miscellaneous-net (1,231) 2,144 3,731 - --------------------------------------------------------------------------- $ 23,371 $25,908 $30,674 =========================================================================== *Reflects a provision of approximately $3,000,000 for loss on a vessel to be disposed of subsequent to year-end.
Gross realized gains on sales of securities were $14,625,000 (1995), $10,199,000 (1994) and $10,802,000 (1993), and gross realized losses were $3,495,000 (1995), $2,213,000 (1994) and $1,674,000 (1993). NOTE L - COMMITMENTS AND OTHER COMMENTS: 1. As of February 14, 1996, the Company has commitments with an aggregate unpaid cost of approximately $200,000,000 for the construction of four foreign flag bulk vessels, of which three are scheduled for delivery in late 1996 and one in 1997. Unpaid costs are net of $74,000,000 of progress payments and prepayments (all paid prior to January 1, 1996) and of discounts resulting from such prepayments. Long-term shipyard financing arrangements exist for approximately $38,000,000 of the unpaid cost of one of the vessels. In addition, two foreign flag VLCCs with an aggregate unpaid cost of approximately $9,000,000 as of December 31,1995 were delivered in January 1996. 2. Sundry liabilities and accrued expenses consist of:
In thousands at December 31, 1995 1994 - --------------------------------------------------------------------------- Payroll and benefits $ 4,331 $ 2,501 Interest 12,094 12,697 Insurance 2,613 10,778 Other 12,668 7,066 - --------------------------------------------------------------------------- $31,706 $33,042 ===========================================================================
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, 1995. 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. NOTE M - LEASES: 1. Charters-in: The approximate minimum commitments under capital leases for eight U.S. flag vessels were:
In thousands at December 31, 1995 - --------------------------------------------------------------------------- 1996 $ 25,528 1997 25,528 1998 25,528 1999 25,660 2000 26,038 Beyond 2000 139,919 - --------------------------------------------------------------------------- Net minimum lease payments 268,201 Less amount representing interest 107,451 - --------------------------------------------------------------------------- Present value of net minimum lease payments $160,750 ===========================================================================
Certain of the capital leases provide for deposits in restricted funds under certain circumstances. Such deposits aggregated approximately $4,677,000 at December 31, 1995 and are held as collateral for the related obligations. The Company has a time charter (which is an operating lease) for a 1992-built foreign flag tanker, which charter has a remaining term of approximately three years, 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. Time charter rental expense is not payable when the vessel is off-hire. The total rental expense for charters accounted for as operating leases, including the one referred to above, amounted to $9,767,000 in 1995, $12,150,000 in 1994 and $8,842,000 in 1993. 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, 1995 on noncancelable time charters and a bareboat charter are $98,252,000 (1996), $32,238,000 (1997), $19,535,000 (1998), $18,288,000 (1999) and $19,547,000 (2000); the aggregate for 2001 and later years is $80,176,000. 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 $130,000,000 for such foreign currency from 1996 through 2004. NOTE N - CAPITAL STOCK 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 1993, options for 10,000 shares were exercised. Options for 560,000 shares are outstanding and exercisable at December 31, 1995. These options remain exercisable until October 2000. At December 31, 1995, the Company has reserved 689,639 treasury shares for issuance pursuant to (i) its 1990 nonqualified stock option plan, which covered options for 2,102 shares granted by the Company to employees (except senior officers), and (ii) an agreement, as amended, to make available for purchase by Maritime (see Note H) 687,537 shares (including an increase of 200,000 shares in 1993). Maritime can acquire the shares reserved for it only for the purpose of fulfilling its obligations under its 1990 nonqualified stock option plan, as amended. The exercise price of the options granted by the Company to its employees is $16.00 per share, and 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 1990 plan and Maritime's plan are summarized as follows:
Company's Maritime's 1990 Plan Plan - --------------------------------------------------------------------------- Options Outstanding at January 1, 1993 6,392 458,221 Granted - 190,000 Canceled - (23,899) Exercised ($16.00 per share) (872) (20,409) - --------------------------------------------------------------------------- Options Outstanding at December 31, 1993 5,520 603,913 Granted - 24,600 Canceled (1,005) (80,430) Exercised ($16.00 per share) (1,000) (54,927) - --------------------------------------------------------------------------- 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 =========================================================================== Options Exercisable at December 31, 1995 1,646 331,202 ===========================================================================
Net income/(loss) per share is based on the following weighted average number of common shares outstanding during each year: 36,220,401 shares (1995), 35,587,856 shares (1994) and 32,678,031 shares (1993). The aforementioned stock options have not been included in the computation of net income/(loss) per share since their effect thereon would either be antidilutive or not be material. In March 1994, the Company sold 3,450,000 shares of its common stock in a public offering. Net proceeds were $76,004,000, which were credited to common stock ($3,450,000) and paid-in additional capital ($72,554,000). The effect on net loss per share assuming that the aforementioned sale of shares and the use of a portion of the proceeds to reduce amounts outstanding under the Revolving Credit Agreement had occurred at the beginning of 1994 was not material. NOTE O - 1995 AND 1994 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Results of Operations for Quarter Ended (in thousands, except per share amounts) March 31, June 30, Sept. 30, Dec. 31, - --------------------------------------------------------------------------- 1995 Shipping revenues $106,945 $ 92,520 $ 99,569 $114,883 Income from vessel operations 13,907 1,472 3,710 11,296 Gain on disposal of vessels-net - - - 2,693* Net income/(loss) $ (3,306) $ (5,984) $ (746) $ 1,404 - --------------------------------------------------------------------------- Net income/(loss) per share $ (.09) $ (.17) $ (.02) $ .04 =========================================================================== 1994 Shipping revenues $100,498 $ 78,316 $ 89,563 $ 95,759 Income/(loss) from vessel operations 10,759 (2,827) 4,037 8,364 Gain on disposal of vessels 2,512 - 4,303 - Net income/(loss) $ 5,016 $ (4,599) $ (2,313) $ (4,304) - --------------------------------------------------------------------------- Net income/(loss) per share $ .15 $ (.14) $ (.06) $ (.12) =========================================================================== *Reflects a provision of approximately $3,000,000 for loss on a vessel to be disposed of subsequent to year-end.
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, 1995 and 1994, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. S/ERNST & YOUNG LLP New York, New York February 14, 1996 [From pages 38 and 39 of the 1995 Annual Report] ELEVEN-YEAR STATISTICAL REVIEW (UNAUDITED)
In thousands, except per share amounts 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------ Total revenues(a) $ 436,080 $ 390,841 $ 420,095 $ 383,222 $ 452,459 - ------------------------------------------------------------------------------ Income from vessel operations 30,385 20,333 32,642 29,614 102,046 - ------------------------------------------------------------------------------ Income/(loss) before Federal income taxes (13,892) (9,950) 26,846 (2,829) 79,826 - ------------------------------------------------------------------------------ Net income/(loss) (8,632) (6,200) 17,946 16,071(c) 55,076 - ------------------------------------------------------------------------------ Depreciation of vessels and amortization of capital leases 66,134 59,992 58,734 56,472 56,214 - ------------------------------------------------------------------------------ Vessels, capital leases and direct financing leases, at net book amount 1,281,601 1,183,241 1,130,124 1,067,122 1,026,817 - ------------------------------------------------------------------------------ Total assets 2,064,826 1,905,409 1,823,737 1,714,548 1,545,675 - ------------------------------------------------------------------------------ Long-term debt and lease obligations (exclusive of current portions) 1,101,758 910,056 876,274 784,452 576,321 - ------------------------------------------------------------------------------ Reserve for deferred Federal income taxes - noncurrent 93,218 102,170 100,161 94,247 114,589 - ------------------------------------------------------------------------------ Shareholders' equity $ 784,781 $ 809,779 $ 768,437 $ 762,425 $ 760,322 - ------------------------------------------------------------------------------ PER SHARE AMOUNTS (b): Net income/(loss) $ (.24) $ (.17) $ .55 $ .49(c) $ 1.67 - ------------------------------------------------------------------------------ Shareholders' equity $ 21.66 $ 22.36 $ 23.50 $ 23.33 $ 23.05 - ------------------------------------------------------------------------------ Cash dividends paid $ .60 $ .60 $ .60 $ .60 $ .55 - ------------------------------------------------------------------------------ AVERAGE SHARES OUTSTANDING 36,220 35,588 32,678 32,806 33,012 - ------------------------------------------------------------------------------ (a) Represents shipping revenues and other income. (b) Gives effect to a 7-for-5 stock split declared in February 1989. (c) Includes $16,000,000 ($.49 per share) from the cumulative effect of the change in accounting for income taxes in accordance with FAS 109, and a provision of $13,100,000 ($.40 per share) for loss on investment in GPA Group plc.
[From page 41 of the 1995 Annual Report] The Company's stock is listed for trading on the New York Stock Exchange and the Pacific Stock Exchange. Stock Symbol: OSG Shareholders of Record February 14, 1996: 1,094 EX-21 7 LIST OF SUBSIDIARIES OF OSG EXHIBIT 21 ---------- as of 3/20/96 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 Ajax Navigation Corporation Liberia Alice Tankships Corporation New York American Shipholding Group, Inc. New York Amity Products Carriers, Inc. Delaware Ania Tanker Corporation Liberia Antilles Bulk Holdings N.V. Netherlands Antilles Atlantia Tanker Corporation Liberia Baywatch Marine Inc. Liberia Blue Sapphire Marine Inc. Liberia Cambridge Tankers, Inc. New York Canopus Tankers, Inc. Liberia Caribbean Tanker Corporation Liberia Celebrity Cruise Lines Inc. Cayman Islands Celebrity Cruises (Management) Inc. Liberia Celebrity Cruises Inc. Liberia Chrismir Shipping Corporation Liberia Columbia Tanker Corporation Liberia Commonwealth Shipping Company Limited Bermuda Community Ocean Services, Inc. New York Concert Tanker Corporation Liberia Concord Tanker S.A. Panama Corolla Shipping S.A. Panama Cruise Mar Investment Inc. Liberia Cruise Mar Shipping Holdings Ltd. Liberia Delphina Tanker Corporation Delaware Diane Tanker Corporation Liberia Edinburgh Bulk Carriers Limited Bermuda Enterprise Shipping Company Limited Bermuda ERN Holdings Inc. Panama Esker Marine Shipping Inc. Liberia Excelsior Bulk Carriers Limited Bermuda Exemplar Bulk Carriers Limited Bermuda Explorer Bulk Carriers, Inc. Liberia Fantasia Cruising Inc. Liberia Fifth Transoceanic Shipping Company Limited Liberia First Pacific Corporation Liberia First Products Tankers, Inc. Liberia First Shipco Inc. Liberia First Shipmor Associates (partnership) Delaware First Union Tanker Corporation Liberia First United Shipping Corporation Liberia Fourth Aframax Tanker Corporation Liberia Fourth Products Tankers, Inc. Liberia Fourth Shipmor Associates (partnership) Delaware Fourth Spirit Holding N.V. Netherlands Antilles Fourth Transoceanic Shipping Company Limited Liberia Friendship Marine Inc. Liberia General Guaranty Corporation Delaware General Ship Services, Inc. Delaware Glasgow Bulk Carriers Limited Bermuda Global Bulk Oil S.A. Panama Global Tankers S.A. Panama Hyperion Shipping Corporation Liberia Hyperion Transportation S.A. Panama 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 Liberia Island Tanker S.A. Panama ITI Shipping S.A. Panama Jostelle Shipping Company Limited Bermuda Juneau Tanker Corporation New York Kaigai Shipping Corporation Liberia Lake Michigan Bulk Carriers, Inc. New York Lake Ontario Bulk Carriers, Inc. New York Lion Insurance Company Ltd. Bermuda Lion Shipping Ltd. Liberia Majestic Tankers Corporation Liberia Mansfield Marine Corporation Liberia Marina Tanker Corporation Liberia Matilde Tanker Corporation Liberia Mediteranean Blue Sea Holdings Ltd. Liberia Mercury Bulkcarriers S.A. Panama Mermi Shipping Holdings Ltd. Liberia Monarch Tanker S.A. Panama Moran Maritime Associates (partnership) Delaware New Orleans Tanker Corporation Delaware North American Ship Agencies, Inc. New York Northanger Shipping Corporation Liberia Northwestern Tanker Corporation Liberia Ocean Bulk Ships, Inc. Delaware Oleron Tanker S.A. Panama Olympia Tanker Corporation Liberia Ore-Oil Carriers S.A. Panama 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 Phaidon Navegacion S.A. Panama Philadelphia Tanker Corporation Delaware Pluto Tankers, Inc. Liberia Polycon Investment Inc. Liberia Regency Tankers Corporation Liberia Reliance Shipping B.V. Netherlands Rex Shipholdings Inc. Liberia Rio Grande Bulk Carriers, Inc. Liberia Royal Tankers Corporation Liberia Ruby Tanker Corporation Liberia San Diego Tankers, Inc. Delaware San Jose Tankers, Inc. Delaware Santa Barbara Tankers, Inc. Delaware Santa Monica Tankers, Inc. Delaware Sapphire Tanker Corporation Liberia Sargasso Tanker Corporation Liberia Saturn Bulk Carriers, Inc. Liberia Seabrook Maritime Inc. Liberia Second Pacific Corporation Liberia Second Products Tankers, Inc. Liberia Second Shipmor Associates (partnership) Delaware Second Union Tanker Corporation Liberia Second United Shipping Corporation Liberia Ship Paying Corporation No. 1 Delaware Ship Paying Corporation No. 2 Delaware Ship Paying Corporation No. 3 Liberia Spirit Shipping B.V. Netherlands Third Aframax Tanker Corporation Liberia Third Products Tankers, Inc. Liberia Third Shipco Inc. Delaware Third Shipmor Associates (partnership) Delaware Third United Shipping Corporation Liberia Timor Navigation Ltd. Liberia TRA Shipping S.A. Panama Trader Shipping Corporation Liberia Tranquility Maritime Ltd. Liberia Transbulk Carriers, Inc. Delaware Tropical United Shipping Corporation Liberia TSC Shipping S.A. Panama Tubarao Bulk Carriers, Inc. Liberia U.S. Shipholding Group, Inc. New York United Partners (partnership) Liberia United Steamship Corporation Panama Universal Cruise Holdings Limited British Virgin Islands Upperway Investments Ltd. Liberia Valdez Tankships Corporation New York Vega Tanker Corporation Delaware Venus Tanker Corporation Liberia Vivian Tankships Corporation New York Western Ship Agencies Limited England Wolcon Corp. Delaware Zenith Shipping Corporation Liberia EX-23 8 CONSENT OF INDEPENDENT AUDITORS 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 14, 1996, included in the 1995 Annual Report to Shareholders of Overseas Shipholding Group, Inc. We also consent to the incorporation by reference in the Registration Statements, 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, and Form S-3 (No. 33-50441) pertaining to the registration of $500,000,000 of Overseas Shipholding Group, Inc. debt securities, of our report dated February 14, 1996, with respect to the consolidated financial statements of Overseas Shipholding Group, Inc., incorporated herein by reference. ERNST & YOUNG LLP New York, New York March 26, 1996 EX-27 9 FINANCIAL DATA SCHEDULE EXHIBIT 27
5 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1995 DEC-31-1995 160,578 0 31,537 0 0 223,333 1,984,259 702,658 2,064,826 71,326 1,101,758 39,591 0 0 745,190 2,064,826 0 436,080 0 383,532 0 0 66,440 ( 13,892 ) ( 5,260 ) ( 8,632 ) 0 0 0 ( 8,632 ) ( 0.24 ) ( 0.24 )
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