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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________________ to ________________.
Commission File Number 1-6479-1
OVERSEAS SHIPHOLDING GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2637623
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
511 Fifth Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-935-4100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------------------- ----------------------------
Common Stock (par value $1.00 per share) New York Stock Exchange
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the Common Stock held by non-affiliates of
the registrant on March 16, 2001 was $704,740,000, based on the closing price of
$25.32 per share on the New York Stock Exchange on that date. (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.)
As of March 16, 2001, 34,080,424 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for 2000 are
incorporated by reference in Part I and portions of the registrant's definitive
proxy statement to be filed by the registrant in connection with its 2001 Annual
Meeting of Shareholders are incorporated by reference in Part III.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business................................................. 1
Overview................................................. 1
Operations............................................... 3
Fleet................................................. 5
International Fleet Operations........................ 5
Domestic Fleet Operations............................. 6
Competition.............................................. 7
Environmental Matters Relating to Bulk Shipping.......... 8
OPA 90................................................ 8
International Requirements............................ 9
Insurance............................................. 9
Global Bulk Shipping Markets............................. 9
Demand Increases as Oil Prices and Production Rise.... 9
VLCC Scrapping Declines; Orderbook Grows.............. 10
Aframaxes and Products Carriers....................... 10
Forward-Looking Statements............................... 11
Item 2. Properties............................................... 11
Item 3. Legal Proceedings........................................ 11
Item 4. Submission of Matters to a Vote of Security Holders...... 11
Executive Officers of the Registrant..................... 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 13
Item 6. Selected Consolidated Financial Data..................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 15
Significant Events....................................... 15
Operations............................................... 15
Income from Vessel Operations......................... 15
Equity in Results of Bulk Shipping Joint Ventures..... 18
Other Income.......................................... 19
Interest Expense...................................... 19
Provision for Federal Income Taxes.................... 19
Cumulative Effect of Accounting Change................... 20
New Accounting Standard.................................. 20
Liquidity and Sources of Capital......................... 20
Risk Management.......................................... 21
Interest Rate Sensitivity................................ 22
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk..................................................... 22
Item 8. Financial Statements and Supplementary Data.............. 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 48
PART III
Item 10. Directors and Executive Officers of the Registrant....... 48
Item 11. Executive Compensation................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 48
Item 13. Certain Relationships and Related Transactions........... 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.............................................. 48
Signatures.................................................................. 52
PART I
ITEM 1. BUSINESS
Overview
Overseas Shipholding Group, Inc. (together with its subsidiaries, "OSG" or
the "Company") constitutes one of the largest independent bulk shipping
companies in the world. As of January 1, 2001, the Company was the ninth largest
tanker owner in terms of carrying capacity. OSG owns and operates a modern fleet
of 43 vessels that transport primarily crude oil and petroleum products. As of
March 2, 2001, the Company's operating bulk fleet had an aggregate carrying
capacity of approximately 5.6 million deadweight tons ("dwt"), including four
ships aggregating approximately 1.0 million dwt that the Company owns jointly
with others and in which the Company owns interests approximating 50%. Eleven
vessels in the Company's operating bulk fleet, totaling 703,300 dwt, are
registered under the U.S. flag; the balance is registered under foreign flags.
The Company's fleet includes four vessels that are leased from financial
institutions under bareboat charters having remaining terms of three to eleven
years. A total of 36 tankers account for 90% of the aggregate tonnage, and six
dry bulk carriers (including two tankers that carry grain) and a pure car
carrier account for the remainder. The Company has on order four double-hulled
Very Large Crude Carriers ("VLCCs") totaling 1.24 million dwt, and four
wide-bodied, shallow-draft, double-hulled Aframax tankers ("Aframaxes")
aggregating 444,000 dwt, for delivery in August 2001 through early-January 2004.
The Company charters its ships to commercial customers and U.S. and
foreign governmental agencies (including organizations associated with
governmental agencies or government-sponsored programs) for the carriage of bulk
commodities, primarily crude oil and petroleum products, and also grain, coal
and iron ore. The Company seeks to foster valuable long-term relationships with
international oil companies and other charterers by emphasizing innovation,
service, safety and reliability.
Generally, each ship is chartered for a specific voyage or voyages
("voyage charter") or for a specific period of time ("time charter"). Under the
terms of voyage and time charters covering the Company's vessels, the ships are
operated and manned by the Company. The Company has also chartered out five of
its vessels on bareboat charters. 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. In addition, the
Company has from time to time chartered in tonnage under arrangements where the
vessels are owned and operated by third parties.
The Company's shipping revenues reflect the supply of and demand for
vessels of the types and sizes owned and operated by the Company in the markets
in which those vessels operate. The rates the Company is able to obtain for its
vessels are determined by market forces such as local and worldwide demand for
the commodities carried, volumes of trade, distances that the commodities must
be transported and the amount of available carrying capacity both at the time
such tonnage is required and over periods of projected requirements. Available
tonnage is affected, over time, by the volume of newbulding deliveries and the
level of scrapping of existing tonnage. Revenues for particular periods are also
affected by such factors as the mix between voyage and time charters, the
prevailing rates at the time 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.
A majority of the Company's net shipping revenues is derived from voyage
charters. Voyage charters constituted 76% of the Company's net shipping revenues
in 2000, compared with 62% in 1999 and 53% in 1998. Accordingly, the Company's
net shipping revenues are significantly affected by the prevailing spot market
rates. Time charter revenues represented 13% of the Company's net shipping
revenues in 2000, compared with 26% in 1999 and 46% in 1998. Bareboat charter
revenues constituted 11% of the Company's net shipping revenues in 2000,
compared with 12% in 1999 and 1% in 1998. The increase in the proportion of net
shipping revenues from bareboat charters in 2000 and 1999 compared with 1998 is
principally attributable to the Company's bareboat charter of five U.S. flag
vessels to Alaska Tanker Company, LLC in the second quarter of 1999. These
vessels were previously time chartered to BP Amoco p.l.c. ("BP"), discussed
later under "Operations - Domestic Fleet Operations" on page 7. The conversion
from time charters to bareboat charters of these five vessels allowed the
Company to lock in core U.S. flag tanker earnings averaging $15 million per year
through 2005 (subsequently reduced to $12 million per year after the sale of one
of these five vessels in October 2000). The conversion to bareboat charters
reduced both net shipping revenues and vessel operating expenses by
approximately the same amount and had no material effect on income from vessel
operations.
Net shipping revenues from carriage of crude oil and petroleum products
represented approximately 86% of the net shipping revenues of the Company in
both 2000 and 1999 and 93% in 1998. The decrease in the proportion of net
shipping revenues derived from the carriage of crude oil in 2000 and 1999
compared with 1998 is principally attributable to the Company's sale of nine
older, less efficient tankers (including three held in joint ventures) during
1999 and 2000, and the participation in the U.S. grain trades of two older U.S.
flag tankers that are no longer permitted to carry oil.
As of March 2, 2001, all of the vessels in the Company's fleet were
employed. A total of 36 of these vessels were chartered to non-governmental
commercial customers. These 36 ships include eight U.S. flag ships and 28
foreign flag ships, which together represent approximately 91% of the combined
carrying capacity of the Company's fleet. Of the remaining ships in the
Company's fleet, three U.S. flag ships and four foreign flag ships were under
charter to foreign or U.S. governmental agencies. The Company's foreign flag
VLCCs, Aframaxes and bulk carriers are commercially operated through vessel
pools in which the Company is a founding member.
During 2000, the Company continued to pursue opportunities to benefit from
the trend toward consolidation in the tanker business through participation in
major commercial alliances. In December 1999, the Company and five other leading
tanker companies formed Tankers International LLC to pool the commercial
operation of their modern VLCC fleets. Tankers currently manages 50 VLCCs. The
Company also has an Aframax pooling arrangement with PDV Marina, the marine
transportation subsidiary of the Venezuelan state oil company. This pool
currently manages 21 Aframaxes in the Atlantic Basin. The size and scope of
these pools enables them to enhance vessel revenues through combination voyages
which generate higher vessel utilization rates and higher effective time charter
equivalent rates than are otherwise attainable in the spot market. For
additional information concerning these pools, see "Operations - International
Fleet Operations" on pages 5 and 6.
Along with such revenue-enhancement initiatives realized through the
commercial consolidation of tonnage, the Company has materially reduced overhead
and operating costs. The Company has reduced organizational layers to streamline
decision making, transferred functions from high cost labor areas to lower cost
areas, outsourced functions where appropriate and renegotiated service and
supply contracts. Through fully integrated shoreside and shipboard automation,
the Company has been able to improve the speed and quality of information
provided to its customers and other user groups, while simultaneously reducing
the number of shore staff by one-third. All aspects of vessel operations are
continuously reviewed to ensure that the Company's vessels conform with best
industry practices. Third parties provide technical management for certain of
the Company's vessels held in joint ventures, thus affording the Company the
opportunity for continuous comparison of its operations with those of other
parties. To date, the Company's cost reduction initiatives have generated
aggregate annualized savings of $40 million.
The Company has undertaken a $750 million, 16-vessel fleet renewal
program. The program will position OSG with one of the industry's most modern
fleets, at the same time as major charterers are demonstrating a preference for
modern tonnage based on concerns about the environmental risks
2
associated with older vessels. Upon completion of the program, 93% of OSG's
foreign flag tanker fleet will be double-hulled, double-sided or
double-bottomed. The acquisition of these vessels at prices well below those
prevailing today will afford the Company significant competitive advantage. The
program consists of 12 newbuildings, of which four have been delivered (two in
2000 and two in February 2001), and the acquisition of four modern second-hand
vessels, three of which had been delivered by March 2, 2001 (two in 2000 and one
in late-February 2001). The eight remaining newbuildings on order consist of
four double-hulled VLCCs and four wide-bodied, shallow-draft, double-hulled
Aframaxes. All of these vessels are being built to exacting specifications that
are designed to ensure that the vessels operate safely and reliably, consistent
with the Company's commitment to the protection of the environment. The
Company's newbuilding program positions it with one of the most modern VLCC and
Aframax fleets in the industry.
For information about the world tanker fleet in 2000, see "Global Bulk
Shipping Markets" on pages 9 through 11.
During the past three years, the Company has been able to modernize its
fleet and prepay 65% of its $750 million capital commitment for its fleet
renewal program, while it has reduced its liquidity adjusted debt-to-capital
ratio to 45.5%, the lowest ratio in the last five years. (For this purpose, the
Company's liquidity adjusted debt is defined as the Company's debt reduced by
the Company's cash, marketable securities and the tax adjusted balance in the
Capital Construction Fund.) Since the beginning of 1997, the Company has reduced
its liquidity adjusted indebtedness by $250 million through the sale of its
cruise investment, the completion of its dry bulk disposal program, a $170
million, off-balance sheet financing relating to its U.S. flag Alaskan tanker
fleet, the sale of nine of its oldest tankers and funds generated from
operations. This decrease in liquidity adjusted indebtedness positions the
Company to take advantage of market opportunities as they present themselves.
As of December 31, 2000, the Company had approximately 1,570 employees,
including 1,350 seagoing personnel and 220 shore staff. The Company has
collective bargaining agreements with three different maritime unions, covering
seagoing personnel employed on the Company's U.S. flag vessels. These agreements
are in effect through June 15, 2001 with two of the unions and through June 15,
2005 with one 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.
Operations
The Company engages in the ocean transportation of bulk cargoes in
worldwide markets and self-contained U.S. markets through the ownership and
operation of a diversified fleet of bulk cargo vessels. The bulk shipping
industry has many markets that have distinct characteristics and are subject to
different market forces. The primary markets for individual vessels are
determined to a large degree by their types, sizes and flags (the country in
which the vessel is registered.) Unlike container or liner ships, which the
Company does not own, bulk vessels are not bound to specific ports or schedules
and therefore can respond to market opportunities by moving between trades and
geographical areas.
3
The Company's five reportable segments consist of foreign flag VLCCs,
Aframaxes, and products carriers, and U.S. flag tankers and dry bulk carriers.
The following chart reflects net shipping revenues by segment category for each
year in the three year period ended December 31, 2000:
Percentage of Net Shipping Revenues
--------------------------------------------
2000 1999 1998
---- ---- ----
Foreign Flag 69.9 51.3 53.7
VLCCs 31.9 21.3 23.3
Aframaxes 22.6 16.4 17.4
Products Carriers 15.4 13.6 13.0
U.S. Flag 16.7 28.8 29.1
Tankers 10.0 20.0 26.4
Dry Bulk Carriers 6.7 8.8 2.7
Other 13.4 19.9 17.2
The increase in the relative contribution to net shipping revenues from
the foreign flag tankers segments in 2000 resulted primarily from significant
increases in time charter equivalent rates (defined as voyage revenues less
voyage expenses divided by round-trip voyage days) for foreign flag tankers
during 2000. In addition, revenue generating days for VLCCs increased in 2000,
reflecting two newbuildings delivered in the first half of 2000. The decrease in
the relative contribution from U.S. flag tankers resulted from the conversion of
long-term time charters to bareboat charters discussed earlier and the
significant increase in the rates for foreign flag tankers during 2000.
The following chart reflects income from vessel operations (before general
and administrative expenses, investment income and interest expense) by
reportable segment for each year in the three year period ended December 31,
2000. The increase in contribution from foreign flag tankers in 2000 compared
with 1999 reflects the substantially higher freight rates prevailing in 2000
which benefited the Company's foreign flag tankers that primarily trade in the
spot market whereas the U.S. flag tankers operated under either long-term time
or bareboat charters during 2000 and 1999. The decrease in contribution from
foreign flag tankers in 1999 compared with 1998 reflects the lower freight rates
in 1999.
Percentage of Income from Vessel Operations
-------------------------------------------
2000 1999 1998
---- ---- ----
Foreign Flag 84.0 37.2 60.4
VLCCs 42.0 24.4 41.0
Aframaxes 27.9 4.8 7.9
Products Carriers 14.1 8.0 11.5
U.S. Flag 9.0 44.8 26.9
Tankers 7.3 35.2 28.9
Dry Bulk Carriers 1.7 9.6 (2.0)
Other 7.0 18.0 12.7
For additional information regarding the Company's five reportable
segments for the three years ended December 31, 2000, please see Note C to the
Company's consolidated financial statements for 2000 set forth in Item 8.
The carriage of crude oil and petroleum products accounted for in excess
of 85% of revenues from voyages and all of the operating earnings of the
Company's bulk shipping joint ventures in each of 2000, 1999 and 1998. The
carriage of dry cargo accounted for the balance of such revenues for each of
those years.
4
Fleet
As of March 2, 2001, the Company's international and domestic fleets
consisted of 43 vessels currently operating and eight newbuildings on order
(four VLCCs and four Aframaxes). The following chart includes a 1993-built VLCC
(302,400 dwt) that was acquired in late-February 2001 by a joint venture in
which the Company has an interest approximating 50%, but does not include a
sister ship expected to be acquired in the middle of March 2001 by such joint
venture.
March 2, 2001 December 31, 1999 December 31, 1998
--------------------- ------------------ -------------------
Vessel Type Vessels DWT Vessels DWT Vessels DWT
------- --- ------- --- ------- ---
Foreign Flag
VLCC* 10 2,975,750 7 2,047,050 9 2,576,800
Suezmax 1 145,150 1 145,150 4 530,050
Aframax 11 1,072,300 9 850,450 9 850,450
Products Carrier (65,000 dwt) 4 256,650 4 256,650 4 256,650
Products Carrier (30,000/39,000 dwt) 4 157,050 4 157,050 5 188,650
Capesize Bulk Carrier 2 314,800 2 314,800 4 592,400
Panamax Bulk Carrier 4 255,350
--------------------------------------------------------------------
Foreign Flag Vessels 32 4,921,700 27 3,771,150 39 5,250,350
U.S. Flag
Tanker 4 392,350 5 482,950 6 603,400
Products Carrier 2 85,650 2 85,650 3 123,450
Bulk Carrier 4 209,350 4 209,350 2 51,100
Car Carrier 1 15,900 1 15,900 1 15,900
--------------------------------------------------------------------
U.S. Flag Vessels 11 703,250 12 793,850 12 793,850
--------------------------------------------------------------------
Foreign and U.S. Flag Vessels 43 5,624,950 39 4,565,000 51 6,044,200
Foreign Flag Newbuildings
VLCC 4 1,235,550 4 1,234,800 2 617,400
Aframax 4 443,700 4 452,000
--------------------------------------------------------------------
Total Vessels, including Newbuildings 51 7,304,200 47 6,251,800 53 6,661,600
* In addition, the Company has a 30% interest in a 1993-built VLCC (260,000
dwt) acquired in March 2000.
The Company's operating fleet and total tonnage decreased from 51 vessels
(6,044,200 dwt) at the end of 1998 to 43 vessels (5,624,950 dwt) at March 2,
2001, a 16% reduction in the number of vessels and a 7% reduction in total
tonnage. This reduction resulted from the Company's fleet renewal program
pursuant to which the Company disposed of six dry bulk carriers and nine older,
less efficient tankers during 1999 and 2000. The reduction will be more than
offset by the eight newbuildings on order for delivery starting in August 2001
through early-January 2004, aggregating approximately 1.68 million dwt. The
fleet renewal program will ensure that the Company will continue to have one of
the most modern VLCC and Aframax fleets in the industry.
For additional information as of March 2, 2001 regarding the 43 vessels in
the Company's operating fleets, see the tables on page 13 of the Company's
Annual Report to Shareholders for 2000, which tables are incorporated herein by
reference.
International Fleet Operations
During the past several years, the Company has increased its focus on the
VLCC and Aframax sectors. By emphasizing the commercial control of tonnage
through strategic alliances, the Company has been able to enhance vessel
utilization and returns.
5
Tankers International LLC ("Tankers")
In December 1999, the Company and five other leading tanker companies
formed Tankers to pool the commercial operation of the participating companies'
modern VLCC fleets. Tankers, which began operations in February 2000, currently
manages a fleet of 50 modern VLCCs (of which the Company has contributed seven
vessels, including one ship owned by a joint venture in which the Company has an
interest approximating 50%). Tankers' fleet currently constitutes 11.5% of the
world VLCC fleet. By the end of 2003, as the participants take delivery of
newbuildings and vessels are redelivered from time charters, Tankers' fleet is
expected to exceed 60 vessels. The Company's four VLCC newbuildings are
scheduled to enter the pool upon delivery.
Though a subsidiary, Tankers arranges for the commercial chartering of its
participants' vessels. Tankers collects the revenues from such charters on
behalf of its participant owners, and distributes the net revenues to them --
deducting voyage expenses and administrative fees and providing for appropriate
reserves -- on the basis of an agreed upon formula. The formula is based upon
the relative carrying capacity, speed and fuel consumption of each of its
participants' vessels.
The critical mass of vessels managed by Tankers has afforded it the
opportunity to enhance returns through combination voyages. With higher
requirements for imported crude oil by China, India and other Asian countries,
the crude oil shipments from West Africa to the Far East expanded in 2000,
increasing triangulation opportunities. Tankers' multi-year contract of
affreightment with a Chinese charterer has enabled it to generate significantly
higher utilization rates. Tankers is also exploring opportunities to increase
its proportion of period business, thereby reducing reliance on spot market
activity.
By consolidating the commercial operation of its substantial VLCC fleet
into a unified transportation system, Tankers offers its customers "one stop
shopping" for high quality modern VLCC tonnage. The size of the fleet enables
Tankers to become the logistics partner of major customers, providing new and
improved tools to manage shipping programs, inventories and risk. Tankers also
seeks to reduce vessel operating costs by facilitating joint purchasing of goods
and services by pool participants.
Aframax Pool (the "OSG/PDVM pool")
Since 1996, the Company and PDV Marina, the marine transportation
subsidiary of the Venezuelan state oil company, have pooled the commercial
operation of their Aframax fleets. With a critical mass of 21 vessels in the
Atlantic Basin, the OSG/PDVM pool has been able to supplement baseload cargoes
with backhauls and contracts of affreightment. As a result, the pool has
enhanced vessel utilization, generating higher effective time charter rates than
are otherwise attainable in the spot market. The Company's four Aframax
newbuildings are also scheduled to enter the pool upon delivery, further
increasing the pool's size and presence in the Atlantic Basin.
Domestic Fleet Operations
Under the Jones Act, shipping between United States coastal ports,
including the movement of Alaskan oil, is reserved by law to U.S. flag vessels,
owned by U.S. citizens, crewed by U.S. seafarers, and built in the U.S.
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. The continuing participation in the U.S. Department of Agriculture's
PL-480 export program of two older tankers that are no longer eligible to carry
oil under the Oil Pollution Act of 1990 has extended their economic lives and
generated a positive contribution to income from vessel operations in each of
2000 and 1999.
6
Vessels in the Company's fleet have been chartered from time to time to
the Military Sealift Command of the United States Navy ("MSC"). 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. Revenues from charters to MSC were
not significant during the three years ended December 31, 2000.
Since late 1996, the Company's U.S. flag car carrier, which is under
long-term charter, has participated in the U.S. Maritime Security Program, which
ensures that militarily-useful U.S. flag ships are available to the Department
of Defense in the event of war or national emergency. Under the program, the
Company receives approximately $2.1 million per year through 2005, subject to
annual Congressional appropriations.
To encourage private investment in U.S. flag ships, the Merchant Marine
Act of 1970 permits deferral of taxes on earnings deposited into a Capital
Construction Fund 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 Company is a party to an agreement under the act. Under
the agreement, the general objective is (by use of assets accumulated in the
fund) for three vessels to be constructed or acquired by the end of 2004. If the
agreement is terminated or amounts are withdrawn from the Capital Construction
Fund for non-qualified purposes, such amounts will then be subject to federal
income taxes. Monies can remain tax-deferred in the fund for a maximum period of
25 years (commencing January 1, 1987 for deposits prior thereto). The Company
had approximately $213 million in its Capital Construction Fund as of December
31, 2000. The Company has provided deferred taxes on the fund deposits and
earnings thereon.
Alaska Tanker Company, LLC ("ATC")
Building on a 30-year relationship between the Company and BP Amoco p.l.c.
("BP"), in early 1999, the Company and BP, along with Keystone Shipping Company
("Keystone"), formed ATC, which is the leading provider of marine transportation
services in the environmentally sensitive Alaskan crude oil trade. ATC, which is
owned 37.5% by the Company, 37.5% by Keystone and 25% by BP, currently manages
the vessels carrying BP's Alaskan crude oil, including four of the Company's
vessels. The formation of ATC resulted in the conversion of the Company's
long-term time charters of five vessels to BP into bareboat charters of such
vessels to ATC, with BP guarantees. During the fourth quarter of 2000, the
Company sold one of these vessels for an after-tax gain of approximately $12.8
million. Each charter expires shortly before the date that the Oil Pollution Act
of 1990 precludes such single-hulled tanker from calling on U.S. ports; the last
charter expires in 2006. These four remaining bareboat charters will generate
core U.S. flag operating earnings averaging approximately $12 million per year
for the Company through 2005. In addition, the Company's participation in ATC
provides the Company with the ability to earn additional fee income based upon
ATC's meeting certain predetermined performance standards.
Competition
The bulk shipping industry is highly competitive and fragmented, with no
one shipping group owning as much as 4% of the world fleet. 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.
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, although charterers have become more selective with respect
to the quality of vessels they hire, with particular emphasis on such factors as
age, double hulls, and the reliability and quality of operations. Increasingly,
major charterers are demonstrating a preference for modern vessels based on
concerns about the environmental risks associated with older vessels.
7
In both the VLCC and Aframax sectors, the Company competes against a large
number of companies that own or operate vessels in these segments. Competitors
include other independent shipowners, oil companies and state-owned entities
with fleets ranging from one to more than 50 vessels in a particular segment.
While some companies operate worldwide, others focus on one or more geographical
areas such as the Pacific, the Mediterranean or the Caribbean. In the VLCC
sector, the Company has more than 100 competitors. The ones with the largest
VLCC carrying capacity include World-Wide Shipping Agency (S) Pte. Ltd. (25
ships, 7.1 million dwt), Mitsui OSK Lines Ltd. (25 ships, 6.7 million dwt), VELA
International Marine Ltd., the shipping arm of the Saudi Arabian oil company (21
ships, 6.6 million dwt), Nippon Yusen Kabushiki Kaisha (24 ships, 6.3 million
dwt) and Bergesen d.y. AS (19 ships, 5.9 million dwt). As noted earlier,
Tankers, the VLCC pool in which the Company participates, currently has 50
VLCCs, aggregating approximately 14.8 million dwt, constituting some 11.5% of
the world VLCC fleet. More than 160 individual companies operate Aframax
tankers. The Company's key competitors in this segment include Teekay Shipping
Corporation (54 ships, 5.4 million dwt), Neptune Orient Lines Ltd. (21 ships,
2.1 million dwt), Tanker Pacific Management (Singapore) Pte. Ltd. (13 ships, 1.2
million dwt) and General Maritime Corp. (13 ships, 1.2 million dwt). The
OSG/PDVM pool, with 21 Aframaxes aggregating approximately 2.0 million dwt, is
one of the largest Aframax fleets operating in the Atlantic Basin. Through its
participation in the Tankers and the OSG/PDVM pools, the Company has further
enhanced its ability to compete in the VLCC and Aframax sectors.
In chartering vessels in the United States cabotage trade, the Company
competes primarily with other owners of U.S. flag vessels. Demand for U.S. flag
products 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 products
carriers.
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-term and long-term charter
business avoids, to some extent, the sharp rate fluctuations characteristic of
the spot or voyage markets, the availability of such business in international
markets at attractive rates of return has been limited in recent years.
Environmental Matters Relating to Bulk Shipping
Since 1990, the tanker industry has experienced a more rigorous regulatory
environment. Safety and pollution concerns have led to a greater emphasis on
quality and to the strengthening of the inspection programs of classification
societies, governmental authorities and charterers.
OPA 90. The Oil Pollution Act of 1990 ("OPA 90") affects all vessel owners
shipping oil or hazardous material to, from or within the United States.
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, of 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.
OPA 90 phases out the use of tankers having single hulls. OPA 90 requires
that tankers over 5,000 gross tons calling at U.S. ports have double hulls if
contracted after June 30, 1990, or delivered after January 1, 1994. Furthermore,
OPA 90 calls for the elimination of all single hull vessels by the year 2010 on
a phase-out schedule that is based on size and age, unless the tankers are
retrofitted with double hulls. The law permits existing single hull tankers to
operate until the year 2015 if they discharge at deep water ports, or lighter
(offload cargo) more than 60 miles offshore.
8
OPA 90 also requires owners and operators of vessels calling at U.S. ports
to adopt contingency plans for responding to a worst case oil spill under
adverse weather conditions. The plans must include contractual commitments with
clean-up response contractors in order to ensure an immediate response to an oil
spill. Furthermore, training programs and drills for vessel, shore and response
personnel are required. The Company has developed and timely filed its vessel
response plans with the U.S. Coast Guard and has received approval of such
plans.
Under U.S. Coast Guard financial responsibility regulations issued
pursuant to OPA 90, all vessels entering U.S. waters are required to obtain
Certificates of Financial Responsibility ("COFRs") from the Coast Guard
demonstrating financial capability to meet potential oil spill liabilities. All
the vessels in the Company's U.S. and foreign flag fleets have requisite COFRs.
International Requirements. The Company's ships undergo regular and
rigorous in-house safety reviews. They are also routinely inspected by port
authorities, classification societies and major oil companies. All of the
Company's vessels are now certified under the new standards reflected in
International Standards Organization's 9002 quality assurance program, and
International Safety Management's safety and pollution prevention protocols.
In addition to the OPA 90 requirements, in worldwide trade MARPOL
regulations of the International Maritime Organization ("IMO") require double
hulls or equivalent tanker designs for newbuildings ordered after 1993 and
mandate double hulls for existing tankers at 30 years of age. Under MARPOL
Regulation 13G, existing tankers, upon reaching 25 years of age, are required to
either have protectively located segregated ballast tanks or double bottom
spaces not used for cargo carriage covering at least 30% of the cargo tank area,
or they must utilize hydrostatically balanced loading. These modifications
reduce the carrying capacity of the affected vessel.
In late 2000, the IMO, in collaboration with the European Commission,
proposed a new set of regulations that would accelerate the mandatory retirement
of older, single-skin tankers. The main impetus behind these proposed
regulations was the breakup and sinking of the 1975-built, 37,000 dwt
single-skin oil tanker Erika off the coast of France in late 1999, which caused
a significant amount of environmental and commercial damage. If adopted by the
IMO in their present form at a meeting scheduled for April 2001, these new
regulations would supersede the existing MARPOL Regulation 13G beginning in
2003. The proposed rules do not allow the use of hydrostatically balanced
loading to prolong the life of vessels after January 1, 2003. Mandated vessel
removals by the end of 2005 under the proposed rules are estimated to be as much
as 87 million dwt, 50 million dwt more than under existing MARPOL regulations.
The existing regulations do not, and the proposed regulations, if adopted, would
not, have a significant impact on the Company's foreign flag fleet for at least
ten years because of the young age of such fleet.
Insurance. Consistent with the currently prevailing practice in the
industry, the Company presently carries $1.0 billion of pollution coverage per
occurrence on every vessel in its fleet. While the Company has historically been
able to obtain pollution coverage at commercially reasonable rates, no
assurances can be given that such insurance will continue to be available in the
future.
Global Bulk Shipping Markets
Demand Increases as Oil Prices and Production Rise
Tanker markets were positively affected by coordinated increases in oil
production by member countries of the Organization of Petroleum Exporting
Countries ("OPEC") of nearly four million barrels per day ("b/d") in 2000. More
than 85% of this OPEC increase was transported from the Middle East, largely
benefiting VLCCs.
9
Although oil prices increased approximately 50% in 2000, world oil demand
still grew by 1%, largely supported by continued rising demand in Asia.
Additionally, high oil prices during 2000 encouraged refiners to reduce stocks,
resulting in the lowest oil stock levels in 20 years. The increase in demand for
oil, together with low oil stocks levels and the need to rebuild inventories,
generated greater demand for shipping, a crucial link in the oil distribution
chain, which led to significant increases in shipping rates. By late 2000, oil
stock levels were still below normal.
China doubled its imports of crude oil in 2000, from 700,000 b/d to 1.4
million b/d. India also significantly increased its imports of crude oil from
the Middle East and West Africa as a result of a major refinery capacity
expansion in 1999 and 2000. With higher requirements for imported crude oil from
China, India and other Asian countries, the crude oil shipments from West Africa
to the Far East expanded in 2000, increasing triangulation opportunities for
VLCCs and thereby providing enhanced utilization rates.
VLCC Scrapping Declines; Orderbook Grows
As of January 1, 2001, 49 VLCCs were 25 years or older, constituting 10.6%
of the world VLCC fleet, and another 43 VLCCs will turn 25 years in 2001.
Although older single-hulled VLCCs can be more costly to operate, the general
increase in charter rates during 2000 has made operation of these older ships
financially attractive for owners. While certain charterers have indicated a
policy not to employ older vessels, others have continued to do so when they can
be chartered at lower rates than modern, double-hulled vessels. As a result,
scrap sales of VLCCs declined sharply from March 2000, when rates began to rise.
Draft proposals of the IMO, which are scheduled for final discussion and
approval in April 2001, accelerate the mandated phasing out of single-hulled
vessels beginning in 2003. For additional information concerning these
proposals, see "Environmental Matters Relating to Bulk Shipping - International
Requirements" on page 9.
VLCC newbuilding deliveries increased to 12.2 million dwt in 2000, their
highest annual rate since the mid-1970s. The rise in charter rates during the
year led to newbuilding orders of 16.8 million dwt in 2000, the highest level
since the 1970s. The size of the world VLCC fleet increased by 4.4% to 128.7
million dwt at year end 2000 from 123.3 million dwt at the end of 1999. At the
beginning of 2001, the VLCC orderbook for delivery over the next three years
represented 21% of the existing VLCC fleet compared with 32% that is 20 years or
older.
Aframaxes and Products Carriers
Demand for short-haul transport of crude oil grew in 2000 in North Africa,
the Caribbean, the former Soviet Union and the North Sea, resulting in increased
demand for Aframaxes. Increased shipment of oil from the Middle East to the
United States also led to increased employment of Aframaxes to lighter VLCCs in
the U.S. Gulf. The greater demand for Aframaxes led to a substantial increase in
Aframax charter rates in 2000. In addition, the rate of Aframax newbuilding
deliveries slowed considerably as only 22 vessels entered the fleet in 2000
compared with 47 in 1999.
Higher charter rates resulted in the Aframax newbuilding orderbook
increasing from 37 vessels (3.8 million dwt) at the end of 1999, or 7.3% of the
Aframax fleet, to 68 vessels (7.2 million dwt) at the end of 2000, or 13.7% of
the Aframax fleet. The orderbook is still relatively modest considering that 21%
of the fleet is 20 years or older. The increase in freight rates during 2000
discouraged scrap sales which dropped to 18 vessels (1.7 million dwt) in 2000
compared with 29 vessels (2.6 million dwt) in 1999. Nevertheless, this was a
substantially higher level than the average for the past ten years, reflecting
the increased pressure to scrap older vessels.
Increasing oil product demand in the Asia/Pacific region buoyed demand for
products carriers, ultimately leading to a severe shortage of large products
carriers late in the year and, in early 2001, driving charter rates sharply
higher. Due to interruptions in the operation of several refineries located
10
on the U.S. West Coast, the U.S. West Coast required increased product imports,
drawing in supplies from the Caribbean as well as from Asia. West Africa
imported increasing amounts of middle distillates (such as diesel fuel) from the
Arabian Gulf in 2000. In addition, the number of large products carriers
carrying petroleum products declined as some of them switched to transporting
crude oil in early 2000 because of higher charter rates that were available at
that time.
The products carrier fleet of vessels from 30,000 - 50,000 dwt declined
slightly from 20.8 million dwt at the end of 1999 to 20.6 million dwt at the end
of 2000, with scrap sales of 1.1 million dwt exceeding newbuilding deliveries of
0.7 million dwt. The orderbook for products carriers was 1.5 million dwt at the
end of 2000, or 7.5% of the products carrier fleet. This percentage was
considerably less than the 23% of the products carrier fleet that was 25 years
or older.
Forward-Looking Statements
This Form 10-K, including portions of the Company's Annual Report to
Shareholders for 2000 incorporated herein by reference, contains forward-looking
statements regarding the outlook for tanker and dry cargo markets, and the
Company's prospects, including anticipated vessel acquisitions and fleet
renewal, vessel newbuildings and scrappings, prospects for certain strategic
alliances and the implementation of certain overhead and operating cost
reductions. There are a number of factors, risks and uncertainties that could
cause actual results to differ from the expectations reflected in these
forward-looking statements, including changes in production of or demand for oil
and petroleum products, and various dry bulk commodities, either generally or in
particular regions; greater than anticipated levels of newbuilding orders or
less than anticipated rates of scrapping; the availability of suitable vessels
for acquisition or chartering in on terms the Company deems favorable; changes
in the pooling arrangements in which the Company participates, including
withdrawal of participants or termination of such arrangements; changes in
trading patterns for particular commodities significantly impacting overall
tonnage requirements; changes in the rates of growth of the world and various
regional economies; risks incident to vessel operation, including pollution;
increases in costs of operation and unanticipated delays in implementing various
cost reduction measures; and unanticipated changes in laws and regulations.
Forward-looking statements in this Form 10-K and written and oral forward
looking statements attributable to the Company or its representatives after the
date of this Form 10-K are qualified in their entirety by the cautionary
statement contained in this paragraph and in other reports hereafter filed by
the Company with the Securities and Exchange Commission.
ITEM 2. PROPERTIES
See Item 1.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party, as plaintiff or defendant, to various suits in the
ordinary course of business for monetary relief arising principally from
personal injuries, collision or other casualty and to claims arising under
charter parties. All such personal injury, collision and casualty claims against
the Company are fully covered by insurance (subject to deductibles not material
in amount). Each of the other claims involves an amount which in the opinion of
management is not material in relation to the consolidated current assets of the
Company as shown in the Company's Consolidated Balance Sheet as at December 31,
2000, set forth in Item 8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
Executive Officers of the Registrant
Name Age Position Held Has Served as Such Since
- ---- --- ------------------------ ------------------------
Morton P. Hyman 65 Chairman of the Board, September 2000
President and October 1971
Chief Executive Officer
Robert N. Cowen 52 Senior Vice President, February 1993
Chief Operating Officer June 1999
and Secretary June 1982
Myles R. Itkin 53 Senior Vice President, June 1995
Chief Financial Officer
and Treasurer
Robert E. Johnston 53 Senior Vice President October 1998
and Chief Commercial June 1999
Officer
Ariel Recanati 37 Senior Vice President October 1998
and Chief Strategic and June 1999
Planning Officer
Peter J. Swift 57 Senior Vice President June 1999
and Head of Shipping
Operations
The term of office of each executive officer continues until the first
meeting of the Board of Directors of the Company immediately following the next
annual meeting of its shareholders, to be held in June 2001, and until the
election and qualification of his successor. There is no family relationship
between the executive officers.
Messrs. Morton P. Hyman and Robert N. Cowen have served as directors of
the Company since 1969 and 1993, respectively. Mr. Robert E. Johnston has served
as an officer and director of certain of the Company's subsidiaries during the
past five years; he also served for more than the five years ended in 1998 as a
senior officer of Maritime Overseas Corporation ("MOC"), the corporation that
managed the fleet from the Company's inception in 1969 to 1998. Mr. Ariel
Recanati has served as a director of the Company since October 1999 and as an
officer and director of certain of the Company's subsidiaries during the past
five years; he served as a senior officer of MOC for more than the five years
ended in 1998. Mr. Ariel Recanati is a first cousin of Mr. Oudi Recanati, a
director of the Company. Mr. Peter J. Swift was Vice President of the Company
from October 1998 until June 1999. He has served as an officer and director of
certain of the Company's subsidiaries since October 1998; he also served as an
officer of MOC and one of its subsidiaries for more than the five years ended in
1998.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's common stock is listed for trading on the New York Stock
Exchange and the Pacific Exchange, Inc. under the trading symbol OSG. The
range of high and low sales prices of the Company's common stock as
reported on the New York Stock Exchange for each of the fiscal quarters
during the last two fiscal years are set forth below.
2000 High Low
---- ---- ---
First Quarter 24 7/16 13 7/8
Second Quarter 26 3/16 21 1/2
Third Quarter 30 1/4 22 5/8
Fourth Quarter 27 9/16 20 1/4
1999 High Low
---- ---- ---
First Quarter 16 13/16 11 3/8
Second Quarter 13 7/8 10 13/16
Third Quarter 15 7/16 13
Fourth Quarter 15 1/16 12 1/8
On March 16, 2001, the closing price of the Company's common stock on the
New York Stock Exchange was $25.32 per share.
(b) On March 16, 2001, there were 1,009 shareholders of record of the
Company's common stock.
(c) The Company has paid a dividend of 15(cent) per share of common stock for
each of the fiscal quarters during the last two fiscal years. The payment
of cash dividends in the future will depend upon the Company's operating
results, cash flow, working capital requirements and other factors deemed
pertinent by the Company's Board of Directors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following unaudited selected consolidated financial data for the years
ended December 31, 2000, 1999 and 1998, and at December 31, 2000 and 1999, are
derived from the audited consolidated financial statements of the Company set
forth in Item 8, which have been audited by Ernst & Young LLP, independent
public accountants. The unaudited selected consolidated financial data for the
years ended December 31, 1997 and 1996, and at December 31, 1998, 1997 and 1996,
are derived from audited consolidated financial statements of the Company not
appearing in this Annual Report, which have also been audited by Ernst & Young
LLP.
13
In thousands, except per share amounts 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Revenues from voyages (a) $ 467,618 $ 350,545 $ 412,384 $ 477,950
Income from vessel operations 134,066 23,366 41,050 62,502
Income/(loss) before federal income taxes,
extraordinary gain/(loss) and cumulative
effect of change in accounting principle(b) 132,186 19,515 (35,222) 31,167
Net income/(loss)(c) 90,391 14,764 (37,920) 19,017
Depreciation of vessels and amortization of
capital leases 55,226 57,855 70,806 77,940
EBITDA(e) 234,882 110,223 140,568 189,208
Vessels and capital leases, at net book amount 1,293,958 1,237,513 1,229,110(d) 1,308,125(d)
Total assets 1,823,918 1,720,945 1,695,515 2,023,224
Debt - long-term debt and capital lease obligations
(exclusive of current portions) 836,497 827,372 833,893 1,056,306
Reserve for deferred federal income taxes -
noncurrent 117,749 77,877 69,384 108,814
Shareholders' equity $ 750,167 $ 661,058 $ 707,622 $ 779,797
Debt/total capitalization 52.7% 55.6% 54.1% 57.5%
Per share amounts:
Basic net income/(loss) $ 2.67(b) $ 0.41(b) $ (1.03)(b) $ 0.52
Diluted net income/(loss) $ 2.63(b) $ 0.41(b) $ (1.03)(b) $ 0.52
Shareholders' equity $ 22.07 $ 19.63 $ 19.24 $ 21.19
Cash dividends paid $ 0.60 $ 0.60 $ 0.60 $ 0.60
Average shares outstanding for basic earnings per share 33,870 35,712 36,794 36,468
Average shares outstanding for diluted earnings per share 34,315 35,725 36,794 36,569
In thousands, except per share amounts 1996
- --------------------------------------------------------------------------
Revenues from voyages (a) $ 452,263
Income from vessel operations 43,011
Income/(loss) before federal income taxes,
extraordinary gain/(loss) and cumulative
effect of change in accounting principle(b) 3,387
Net income/(loss)(c) 2,502
Depreciation of vessels and amortization of
capital leases 71,003
EBITDA(e) 143,848
Vessels and capital leases, at net book amount 1,293,817
Total assets 2,037,301
Debt - long-term debt and capital lease obligations
(exclusive of current portions) 1,093,475
Reserve for deferred federal income taxes -
noncurrent 101,003
Shareholders' equity $ 769,438
Debt/total capitalization 58.7%
Per share amounts:
Basic net income/(loss) $ 0.07
Diluted net income/(loss) $ 0.07
Shareholders' equity $ 21.23
Cash dividends paid $ 0.60
Average shares outstanding for basic earnings per share 36,234
Average shares outstanding for diluted earnings per share 36,333
(a) Includes net voyage revenues of vessels operating in certain pools.
(b) Results for 2000, 1999 and 1998 reflect extraordinary income/(loss) on
early extinguishment of debt of $573 ($.02 per share), $1,462 ($.04 per
share) and ($13,648) ($.37 per share), respectively.
(c) Results for 2000 also include income from the cumulative effect of a
change in accounting principle of $4,152 ($.12 per share). Income before
cumulative effect of change in accounting principle in 2000 was $86,239,
or $2.55 per basic share ($2.51 per diluted share). Assuming the
percentage of completion method had been applied retroactively, the pro
forma income/(loss) before cumulative effect of change in accounting
principle would have been income of $13,450, or $0.37 per share in 1999; a
loss of $40,780, or $1.11 per share in 1998; income of $21,655, or $0.59
per share in 1997; and income of $1,033, or $0.03 per share in 1996.
(d) Includes vessels held for disposal, at estimated fair value.
(e) EBITDA represents operating earnings, which is before net interest
expense, income taxes, extraordinary items and cumulative effect of change
in accounting principle, plus equity in results of cruise business, other
income and depreciation and amortization expense. EBITDA should not be
considered a substitute for net income, cash flows from other operating
activities and other operations or cash flow statement data prepared in
accordance with accounting principles generally accepted in the United
States or as a measure of profitability or liquidity. EBITDA is presented
to provide additional information with respect to the Company's ability to
satisfy debt service, capital expenditure and working capital
requirements. While EBITDA is frequently used as a measure of operations
and the ability to meet debt service requirements, it is not necessarily
comparable to other similarly titled captions of other companies due to
differences in methods of calculation.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Significant Events
All six of the Company's VLCCs operating in the spot market are trading in
the Tankers International ("TI") Pool. TI, which commenced operations in
February 2000, was established by the Company and five other leading tanker
companies to meet the global transportation requirements of international oil
companies and other major charterers. The TI pool of 50 modern VLCCs has been
able to improve vessel utilization through backhauls, contracts of affreightment
and other efficiencies facilitated by the size and quality of its modern VLCC
fleet. In addition to the six OSG VLCCs currently trading in the spot market
through the TI pool, OSG has four VLCC newbuildings scheduled for delivery
within the next two years, all of which will be operated in the TI pool. In the
first quarter of 2000, the Company's two foreign flag dry bulk carriers joined a
pool consisting of modern Capesize dry bulk carriers.
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, expressed as time charter equivalents ("TCE" - defined
as voyage revenues less voyage expenses divided by round-trip voyage days), for
major bulk commodities are determined by market forces such as local and
worldwide demand for the commodities carried, volumes of trade, distances that
the commodities must be transported, and the amount of available tonnage both at
the time such tonnage is required and over periods of projected requirements.
Available tonnage is affected, over time, by the volume of newbuilding
deliveries and removal of existing tonnage from service. Revenues for particular
periods are also affected by such factors as the mix between voyage and time
charters, the prevailing rates at the time 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.
During 2000, OPEC increased oil production by nearly four million barrels
per day in response to rising world oil demand, low oil stock levels and the
need of major oil consuming nations to replenish depleted oil stocks. The
resulting increases in demand for VLCCs were reflected in a substantial
improvement in VLCC rates. Time charter equivalent rates for modern VLCCs in
2000 for routes on which the Company's vessels typically trade averaged $46,100
per day, 163% above the 1999 average result. Rates showed substantial gains in
each of the four quarters. Beginning the year at $13,000 per day, rates on the
Middle East - West route rose to average close to $19,000 per day in the first
quarter, $40,000 per day in the second quarter, $51,000 per day in the third
quarter and $64,000 per day in the fourth quarter. Rates reached a peak on this
route of $71,000 per day in the first week in December, then trended lower as
Iraq substantially reduced crude exports and OPEC gave notice that it was
contemplating an oil production cut in early 2001 following four increases in
2000. Rates slipped to $57,000 per day as of late-January 2001, still well above
the average annual TCE rates that prevailed during the last 20 years. The Middle
East - West route, by combining voyages from the Middle East to western
destinations with voyages from West Africa to Far Eastern destinations, provides
opportunities for triangulation that substantially improve TCE returns. China
and India, in particular, recorded large increases in their crude oil imports.
As a member of TI, OSG benefited substantially from China's sizable increase in
crude oil purchases from such long-haul origins as the Middle East and West
Africa.
15
The VLCC market predominantly entails longer-haul voyages. Accordingly, in
a rising rate environment, such as that which prevailed in 2000, there is
typically a lag before an increase in rates is fully reflected in actual vessel
results.
Rates for Aframax tankers in the Caribbean climbed dramatically throughout
the year to average $30,600 per day, 130% higher than that achieved in 1999.
While average Aframax TCE rates moved successively higher in each quarter, they
were more volatile than VLCC rates. Aframax TCE rates began the year in a sharp
decline to almost $11,000 per day, followed by a strong rise through the end of
March to $30,000 per day, reflecting heavy spot liftings of North Sea output. As
seasonal refinery maintenance in Europe took effect in April and competing
supplies from the Middle East increased, rates declined to $19,000 per day.
Rates then rose to $44,000 per day by late July as large tanker utilization
rates approached historically high levels and Aframaxes were increasingly
employed to lighter VLCCs in the U.S. Gulf. An easing in tanker supply tightness
by mid August and renewed North Sea maintenance pushed rates down to $15,500 per
day by early September. A strong recovery ensued, however, fueled by an active
lightering program in the U.S. Gulf coinciding with rising production in key
Aframax load regions, lifting rates to approximately $50,000 per day by late
October. Changes in Mexican crude production contributed to volatility in rates
in the fourth quarter of 2000. Rates dropped in late December in anticipation of
seasonal refinery turnarounds in the U.S. Gulf and OPEC output reductions in
2001 and as of late-January 2001, rates dropped to $27,000 per day. The
Company's Aframax tanker pool with PDV Marina continues to complement its base
of Venezuelan cargoes with backhauls and contracts of affreightment, resulting
in increased operating efficiencies and reduced idle time for OSG's pool
vessels.
In 2000, TCEs for products carriers in the Caribbean averaged $16,000 per
day compared with $10,300 per day in 1999. TCE rates began to rise into the
second quarter, from a low of $7,000 per day in mid January to $16,000 per day
in April. This strengthening in rates was due to a lack of suitable clean
tonnage, much of which was drawn to the Middle East where loadings to the Far
East were heavy. Rates continued to rise into the third quarter, reaching
$25,600 per day by late September as consumers in the U.S. and Europe attempted
to secure heating oil supplies ahead of winter as inventories remained
historically low, particularly in the U.S. Northeast. The announcement of the
release of 30 million barrels of crude from the Strategic Petroleum Reserves in
late September contributed to a weakening in TCE rates to $16,400 per day by
early November. However, colder than normal temperatures in the U.S. and
continued lack of available suitable tonnage due to strong products demand in
the Far East lifted TCE rates to $28,000 by the end of the year. Rates were near
$30,000 in late-January 2001, little affected by OPEC's announcement of a
cutback in crude output.
The average rate for larger (Panamax) products carriers trading to the Far
East in 2000 was $22,100, twice as high as the previous year. Strong Asian oil
demand growth in the face of unscheduled refinery maintenance and startup
problems, supported a rise in TCE rates from $11,500 per day at the start of the
year to $18,500 per day by the end of the first quarter. Increases in products
carriers activity on the Middle East-to-Japan route and in the movement of
gasoline cargoes from Asia to the U.S. West Coast, where certain blends were in
scarce supply, supported a steady increase in rates to $33,000 per day by late
November. Continued rising oil product demand in the Far East led to an
increasing scarcity of large products carriers, pushing rates in December
through late-January 2001 to a high of $58,000 per day. The switching of clean
petroleum tankers into the dirty trades, to take advantage of strong crude
tanker demand, earlier in the year contributed to the shortage of products
carriers in the fourth quarter.
TCE rates for large modern Capesize vessels (about 160,000 dwt) averaged
$20,200 in 2000, double the level attained in 1999. A sharp year-over-year
pickup in iron and steel output in Asia and Europe stimulated a corresponding
increase in iron ore imports, providing a significant boost for Capesize
employment. An uptrend in TCE rates that began in the summer of 1999 sustained
itself well into the fourth quarter of 2000 when it became evident that steel
production growth was slowing down. Rates declined to $19,000 per day by
late-January 2001 from the November high of $25,000 per day.
16
The Company's two foreign flag bulk carriers participate in a pool consisting of
approximately 50 modern Capesize dry bulk carriers.
As one indication of recent trends in various charter markets, set forth
below are selected average daily spot market rates for various types and sizes
of vessels in both 2000 and 1999 based on the published reports of Clarkson
Research Studies, a well-known industry research organization. It is important
to note that rates tend to fluctuate significantly over the course of time, and
can vary widely based on factors such as the age, condition and position of a
particular vessel. Furthermore, the conversion of worldscale rates to
representative time charter equivalent rates per day requires the assumption of
certain parameters for brokerage commissions, waiting time, port costs, speed
and fuel consumption, all of which vary in actual usage. Accordingly, the rates
shown are not necessarily indicative of rates achieved by the Company's vessels
during either year.
Average Market TCE Rates by Vessel Type
Tankers 2000 1999
---- ----
Modern VLCCs * $50,100 $19,600
Aframaxes (Caribbean market) 31,200 12,900
Products carriers (Worldwide) 15,600 8,100
Dry Bulk Carriers
Capesize 20,000 10,100
* For routes on which the Company's modern VLCCs typically trade.
Income from vessel operations of approximately $134,050,000 in 2000
increased by $110,700,000 from the results for 1999. The improvement resulted
from significant increases in time charter equivalent rates achieved by all
classes of the Company's foreign flag tonnage. VLCCs and modern Aframaxes
accounted for $95,800,000, or 74% of the improvement in foreign flag vessel
operations, as TCEs improved by approximately $21,400 and $15,000 per day,
respectively, compared with 1999. Because six of its VLCCs and all of its
Aframaxes traded in the spot market, the Company benefited significantly from
the most attractive VLCC and Aframax rate environment in more than 25 years.
Foreign flag products carriers and the two Capesize bulk carriers contributed
$19,900,000 and $6,900,000 to the improvement in results, as TCEs rose by
approximately $5,800 and $8,400 per day, respectively. With TCE rates for such
products carriers improving dramatically, $12,000,000 of the $19,900,000
improvement for this vessel class was achieved in the fourth quarter of 2000.
Weaker results from the four U.S. flag vessels participating in the U.S. grain
trades reduced income from vessel operations by approximately $5,400,000 in 2000
compared with 1999. The impact of the conversion of long-term time charters on
five U.S. flag crude carriers to bareboat charters is discussed below. Operating
results for 2000 reflect a decline of approximately 300 revenue days from 1999.
Such decline, the substantial portion of which occurred in the first quarter of
2000, was attributable to the sale of the Company's three older Suezmaxes in
late 1999 and an increase in idle days for U.S. flag tonnage participating in
the U.S. grain trades, partially offset by the delivery of two VLCCs in the
first half of 2000.
The results for 2000 benefited from further fleet-wide reductions in
running expenses in excess of $500 per day, per vessel. Significantly higher
average bunker prices in 2000 partially offset the benefit of increases in
freight rates; average bunker prices paid in 2000 rose more than 50% from 1999.
This increase came on top of a 30% increase in average bunker prices in 1999
compared with 1998.
The conversion of long-term time charters on five U.S. flag crude carriers
in the second quarter of 1999 to bareboat charters, with BP Amoco guarantees,
resulted in reductions in TCE revenues in 2000 (all in the first half of 2000)
of approximately $10,500,000. Vessel running expenses, however, attributable to
these five vessels decreased by approximately the same amount as the reduction
in TCE
17
revenues since under the bareboat charters such expenses are the responsibility
of the charterer. Accordingly, these reductions in revenue had no material
effect on income from vessel operations.
The increased time charter hire expense in 2000 principally reflects the
August 1999 sale and leaseback of the five vessels referred to in the preceding
paragraph (one of which was sold in October 2000) and is net of amortization of
the related deferred gain. Such increase in shipping expenses is partially
offset by a reduction in depreciation in 2000 of $6,500,000, resulting from the
removal of these five vessels from the consolidated balance sheet. The net
reduction in results from vessel operations for 2000 of approximately $6,700,000
is offset by a decrease in interest expense resulting from the application of
the net proceeds received (from the sale and leaseback transaction) of
approximately $170,000,000 to reduce outstanding debt. The balance of the
increase in time charter hire expense in 2000 was attributable to the Company's
share (approximately $8,900,000) of the cost of short-term time charters-in
entered into by participants in the Capesize bulk carriers pool.
Income from vessel operations for 1999 of approximately $23,350,000
decreased by approximately $17,700,000 from the results for 1998. Results from
vessel operations for 1999 benefited from both reductions in corporate overhead
of approximately $11,700,000, and a fleet-wide reduction in running expenses in
excess of $900 per day, per vessel. The 1999 results, however, were adversely
affected by lower rates and significantly higher bunker prices; average bunker
prices of approximately $98 per ton in 1999 exceeded the average for 1998 by
over 30%.
Income from foreign flag vessel operations decreased by approximately
$28,600,000 from the results for 1998, reflecting a $3,600 per day average TCE
rate decline for the Company's foreign flag tankers. The decrease in VLCC rates
represented the majority of the 1999 reduction in income from foreign flag
vessel operations, with TCE rates for this vessel class averaging $12,000 per
day below those obtained in 1998. During the fourth quarter, VLCC rates declined
to their lowest level for the year. TCE rates for the Company's Aframaxes
averaged $2,900 per day below those obtained in 1998. Foreign flag operating
results for 1999 were also negatively affected by a decline of approximately 800
revenue days, attributable to the sale of two older tankers in the first quarter
of 1999 and a significant increase in the number of days in drydock. Results
from vessel operations for 1999 benefited from a reduction in depreciation of
$4,500,000 attributable to the sale of certain older and less efficient tankers
held for disposal at year-end 1998.
Income from operations of the Company's U.S. flag fleet for 1999 improved
by approximately $10,900,000 from 1998. This was partially attributable to
improved results of two small dry cargo ships that had been laid up for
substantial portions of 1998. The total number of revenue days for the U.S. flag
fleet in 1999 was not significantly different from 1998. The second quarter
conversion of long-term time charters on five U.S. flag crude carriers to
bareboat charters resulted in reductions in TCE revenue of $17,100,000 in 1999.
Vessel running expenses, however, attributable to these five vessels decreased
by approximately the same amount. Accordingly, this reduction in revenue had no
material effect on income from vessel operations. Results from vessel operations
in 1999 benefited from reduced depreciation of approximately $9,200,000,
principally resulting from both the extension of the depreciable lives of four
of these U.S. flag crude carriers whose underlying charters were extended to
their OPA 90 expiry dates in 2005/2006, and the sale and leaseback transaction.
Since late December 1996, the Company's U.S. flag car carrier has received
$2,100,000 per year under the U.S. Maritime Security Program, which continues
through 2005, subject to annual Congressional appropriations.
Equity in Results of Bulk Shipping Joint Ventures
The improvement in the results of bulk shipping joint ventures in 2000
compared with 1999 was attributable to the inclusion of the results of a 30%
interest in a 1993-built VLCC and a 50% interest in
18
a 1992-built Aframax tanker that were acquired during 2000, and an increase in
the Company's share of incentive hire earned by Alaska Tanker Company, LLC.
As part of the 1998 reserve taken in connection with planned vessel
dispositions, the Company recorded a provision of approximately $5,900,000
($3,800,000 after tax) to reduce to estimated realizable value its proportionate
share of the carrying amounts of certain vessels that were held in joint
ventures and scheduled for disposal in 1999; this provision was reflected in the
1998 results of bulk shipping joint ventures. All of these vessels were sold in
1999, resulting in an aggregate gain of approximately $3,200,000. The Company's
share of such gain, approximately $1,600,000 on a pre-tax basis, is reflected in
the 1999 results of bulk shipping joint ventures.
Other Income
Interest income in 1999 includes approximately $3,700,000 related to a
federal income tax refund, which covered open years through 1995.
Interest Expense
Interest expense increased by approximately $2,200,000 in 2000 compared
with 1999 principally as a result of an increase of 130 basis points in the
average rate paid on floating rate debt (approximately 7.2% for 2000). The
impact of such rate increase was substantially offset by increased amounts
capitalized in connection with vessel construction, $15,400,000 in 2000 compared
with $10,600,000 in 1999. The average amount of debt outstanding in 2000 was
relatively unchanged from 1999 despite payments in connection with the
construction of vessels exceeding $116,100,000 during 2000.
Interest expense decreased by approximately $16,900,000 in 1999 compared
with 1998. Approximately $2,800,000 of this decrease was attributable to a
reduction in the average amount of debt outstanding that was achieved despite
$161,000,000 of progress payments made in 1999 in connection with the Company's
vessel construction program. Such reduction reflects the application of the
proceeds of approximately $170,000,000 from a sale and leaseback transaction and
$180,000,000, net of taxes, from the sale of 3,650,000 shares of Royal Caribbean
Cruises Ltd. ("RCCL") common stock in the first quarter of 1998 and gross
proceeds of approximately $120,000,000 ($67,000,000 in 1999 and $53,000,000 in
1998) from the sale of eight older tankers held for disposal at year-end 1998
and the vessels included in the dry cargo disposal program. Interest expense is
net of amounts capitalized in connection with vessel construction of $10,600,000
in 1999 and $3,000,000 in 1998. In addition, during 1999, the Company
repurchased 8.75% Debentures and 8% Notes, with an aggregate principal amount of
$23,875,000 and, in the fourth quarter of 1998, refinanced $310,000,000 of
Unsecured Senior Notes with coupons averaging 8.7%, by borrowing under its
revolving credit agreement. Such refinancing and repurchases of Senior Notes
reduced annual interest costs by approximately $5,000,000 (based on amounts
outstanding and effective interest rates at the time of the respective
transactions), which accounted for the balance of the 1999 expense decrease.
Interest expense in 2000, 1999 and 1998 reflects $1,300,000, $1,500,000
and $4,000,000, respectively, of net benefits from the interest rate swaps
referred to in Liquidity and Sources of Capital.
Provision for Federal Income Taxes
The income tax provisions in 2000 and 1999 and the tax credit in 1998 were
based on pre-tax income or loss, adjusted to reflect items that are not subject
to tax and the dividends received deduction. The tax provision in 1999 reflects
the release of approximately $300,000 of reserves in connection with the
settlement of federal tax audits covering open years through 1996. The 1998
credit
19
for federal income taxes includes approximately $1,000,000 of tax on previously
untaxed cruise earnings.
Cumulative Effect of Accounting Change
The Company changed its accounting policy effective January 1, 2000 for
the recognition of net voyage revenues of vessels operating on voyage charters
to the percentage of completion method. Prior years' financial statements have
not been restated. Net income for 2000 includes $4,152,000, net of related
income taxes, from the cumulative effect of this change in accounting principle.
Assuming the above percentage of completion method had been applied
retroactively, the pro forma income before cumulative effect of change in
accounting principle for 1999 would have been reduced by $1,314,000 to
$13,450,000, or $.37 per basic and diluted share. The pro forma loss before
cumulative effect of change in accounting principle for 1998 would have been
increased by $2,860,000 to $40,780,000, or $1.11 per basic and diluted share.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), as amended, which is required to be adopted in years beginning after June
15, 2000. The Company will adopt the new statement effective January 1, 2001.
FAS 133 will require the Company to recognize all derivatives on the balance
sheet at fair value. The portion of a derivative's change in fair value that is
deemed not to constitute a hedge will be immediately recognized in earnings. For
derivatives that are hedges, depending on the nature of the hedges, changes in
the fair value of derivatives will either be offset against changes in fair
value of the hedged items and reflected in earnings, or be recognized in other
comprehensive income until the hedged item is reflected in earnings.
The Company believes that the adoption of FAS 133 will not have a material
effect on its earnings and financial position.
Liquidity and Sources of Capital
Working capital at December 31, 2000 was approximately $88,000,000
compared with $76,000,000 at year-end 1999 and $48,000,000 at year-end 1998.
Current assets are highly liquid, consisting principally of cash,
interest-bearing deposits, investments in marketable securities and receivables.
In addition, the Company maintains a Capital Construction Fund with a market
value of approximately $213,000,000 at December 31, 2000. Net cash provided by
operating activities approximated $100,000,000 in 2000, $37,000,000 in 1999 and
$56,000,000 in 1998. Current financial resources, together with cash anticipated
to be generated from operations, are expected to be adequate to meet financial
requirements in the next year.
In April 2000, the Company concluded an unsecured revolving credit
agreement that provides for borrowings of up to $350,000,000, on a revolving
credit basis, through April 2005. In connection therewith, the Company's
existing long-term credit facility was reduced from $600,000,000 to
$425,000,000. This resulted in a net increase in long-term credit availability
to $775,000,000, of which $493,000,000 was used at December 31, 2000. The
Company also has an unsecured short-term credit facility of $15,000,000, all of
which was unused at December 31, 2000. The Company finances vessel additions
primarily with cash provided by operating activities and long-term borrowings.
Long-term borrowings incurred in 2000, 1999 and 1998 aggregated approximately
$85,000,000, $64,000,000 and $105,000,000, respectively.
The Company has used interest rate swaps to effectively convert a portion
of its debt, including capital lease obligations, either from a fixed to
floating rate basis or from floating to fixed rate,
20
reflecting management's interest rate outlook at various times. These agreements
contain no leverage features and have various maturity dates from mid 2002 to
2008. 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 $60,000,000
for such foreign currency from 2001 through 2004.
In 2000, 1999 and 1998, cash used for vessel additions approximated
$107,000,000, $177,000,000 and $19,000,000, respectively, excluding additions
financed by long-term borrowings. As of February 14, 2001, the Company has
commitments for the construction of nine double-hulled foreign flag tankers for
delivery between late-February 2001 and early-January 2004, with an aggregate
unpaid cost of approximately $232,900,000. Unpaid costs are net of progress
payments and prepayments, which are covered by refundment guaranties,
principally from major U.S. insurance companies. A foreign flag Aframax tanker
with an unpaid cost of approximately $8,100,000 as of December 31, 2000 was
delivered in early-February 2001.
Risk Management
The Company is exposed to market risk from changes in interest rates,
which could impact its results of operations and financial condition. The
Company manages this exposure to market risk through its regular operating and
financing activities and, when deemed appropriate, through the use of derivative
financial instruments. The Company manages its ratio of fixed to floating rate
debt with the objective of achieving a mix that reflects management's interest
rate outlook at various times. To manage this mix in a cost-effective manner,
the Company, from time to time, enters into interest rate swap agreements, in
which it agrees to exchange various combinations of fixed and variable interest
rates based on agreed upon notional amounts. The Company uses derivative
financial instruments as risk management tools and not for speculative or
trading purposes. In addition, derivative financial instruments are entered into
with a diversified group of major financial institutions in order to manage
exposure to nonperformance on such instruments by the counterparties.
The following tables provide information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For investment securities and debt obligations, the
tables present principal cash flows and related weighted average interest rates
by expected maturity dates. Additionally, the Company has assumed that its fixed
income securities are similar enough to aggregate those securities for
presentation purposes. For interest rate swaps, the tables present notional
amounts and weighted average interest rates by contractual maturity dates.
Notional amounts are used to calculate the contractual cash flows to be
exchanged under the contracts.
21
Interest Rate Sensitivity
Principal (Notional) Amount (dollars in millions) by Expected Maturity and
Average Interest (Swap) Rate
=========================================================================================================================
Beyond Fair Value at
At December 31, 2000 2001 2002 2003 2004 2005 2005 Total Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
Assets
Fixed income securities $ 30.2 $ 2.4 $ 2.5 $ 8.2 $ 5.1 $ 43.1 $ 91.5 $ 91.5
Average interest rate 6.2% 7.0% 6.3% 6.6% 6.9% 6.5%
Liabilities
Long-term debt and capital lease
obligations, including current
portion:
Fixed rate $ 5.6 $ 6.4 $ 76.8 $ 4.3 $ 5.1 $ 127.5 $ 225.7 $ 222.0
Average interest rate 9.8% 9.8% 8.2% 10.0% 10.0% 9.2%
Variable rate $ 8.7 $ 431.6 $ 12.6 $ 12.6 $ 91.5 $ 68.1 $ 625.1 $ 625.1
Average spread over LIBOR 1.00% 0.71% 0.90% 0.90% 1.07% 1.00%
Interest Rate Swaps Related to
Debt
Pay variable*/receive fixed $ 60.0 $ 60.0 $ 0.2
Average receive rate 6.1%
Pay fixed/receive variable* $ 17.8 $ 150.8 $ 19.5 $ 11.8 $ 11.8 $ 66.5 $ 278.2 $ 3.2
Average pay rate 6.3% 5.2% 6.3% 5.9% 5.9% 5.5%
=========================================================================================================================
Beyond Fair Value at
At December 31, 1999 2000 2001 2002 2003 2004 2004 Total Dec. 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
Assets
Fixed income securities $ 0.8 $ 1.9 $ 2.8 $ 6.3 $ 5.4 $ 43.5 $ 60.7 $ 60.7
Average interest rate 6.2% 6.2% 6.2% 6.2% 6.7% 6.4%
Liabilities
Long-term debt and capital lease
obligations, including current
portion:
Fixed rate $ 8.8 $ 8.8 $ 6.6 $ 91.9 $ 3.9 $ 132.7 $ 252.7 $ 236.9
Average interest rate 10.1% 10.1% 9.8% 8.1% 10.0% 9.2%
Variable rate $ 6.1 $ 12.8 $ 468.8 $ 11.8 $ 11.8 $ 78.2 $ 589.5 $ 589.5
Average spread over LIBOR 0.82% 0.86% 0.70% 0.89% 0.89% 0.96%
Interest Rate Swaps Related to
Debt
Pay variable*/receive fixed $ 40.0 $ 150.0 $ 50.0 $ 240.0 $ (7.3)
Average receive rate 6.0% 6.1% 6.4%
Pay fixed/receive variable* $ 17.2 $ 19.5 $ 150.8 $ 19.5 $ 11.8 $ 78.3 $ 297.1 $ 13.4
Average pay rate 6.6% 6.3% 5.2% 6.3% 5.9% 5.6%
* LIBOR
In December 2000, the Company terminated fixed-to-floating interest rate swaps,
maturing in 2003 and 2008, with a notional amount of $140,000,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Years ended December 31, 2000, 1999 and 1998 Page
Consolidated Balance Sheets at December 31, 2000 and 1999.................. 24
Consolidated Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998..................................................... 25
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998..................................................... 26
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998.................................. 27
Notes to Consolidated Financial Statements................................. 28
Report of Independent Auditors............................................. 47
23
Consolidated Balance Sheets
Overseas Shipholding Group, Inc. and Subsidiaries
In thousands at December 31, 2000 1999
- ---------------------------------------------------------------------------------------
Assets
Current Assets:
Cash, including interest-bearing deposits
of $12,686 and $53,451 $ 15,781 $ 56,727
Investments in marketable securities -- Note F 54,985 32,266
Voyage receivables, including unbilled
of $37,378 and $4,034 51,805 12,492
Other receivables 5,149 5,964
Prepaid expenses 9,315 13,534
- ---------------------------------------------------------------------------------------
Total Current Assets 137,035 120,983
Capital Construction Fund -- Notes F and J 213,440 181,933
Vessels, at cost, less accumulated depreciation --
Notes A3, G and O1 1,250,171 1,188,348
Vessels Under Capital Leases, less accumulated
amortization -- Notes A4 and O1 43,787 49,165
Investments in Bulk Shipping Joint Ventures -- Note E 84,742 75,914
Other Assets -- Note A3 94,738 104,602
- ---------------------------------------------------------------------------------------
$ 1,823,913 $ 1,720,945
=======================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 3,451 $ 3,073
Sundry liabilities and accrued expenses -- Note N2 26,178 26,388
Federal income taxes, including deferred income taxes
of $300 in 2000 and 1999 -- Note J 4,905 800
- ---------------------------------------------------------------------------------------
34,534 30,261
Current installments of long-term debt -- Note G 8,700 9,870
Current obligations under capital leases -- Note O1 5,594 5,077
- ---------------------------------------------------------------------------------------
Total Current Liabilities 48,828 45,208
Long-term Debt -- Notes G and O1 770,869 755,904
Obligations Under Capital Leases -- Note O1 65,628 71,468
Deferred Federal Income Taxes ($117,749 and $77,877),
Deferred Credits and Other Liabilities -- Notes J and O1 188,421 187,307
Shareholders' Equity -- Notes G, J and P:
Common stock 39,591 39,591
Paid-in additional capital 99,009 96,156
Retained earnings 688,528 618,453
- ---------------------------------------------------------------------------------------
827,128 754,200
Cost of treasury stock 76,857 81,098
- ---------------------------------------------------------------------------------------
750,271 673,102
Accumulated other comprehensive income/(loss) (104) (12,044)
- ---------------------------------------------------------------------------------------
Total Shareholders' Equity 750,167 661,058
Commitments, Leases and Other Matters -- Notes N and O
- ---------------------------------------------------------------------------------------
$ 1,823,913 $ 1,720,945
=======================================================================================
See notes to consolidated financial statements.
24
Consolidated Statements of Operations
Overseas Shipholding Group, Inc. and Subsidiaries
In thousands, except per share amounts,
for the year ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------
Net Shipping Revenues:
Revenues from voyages -- Note C $ 359,045 $ 350,545 $ 412,384
Net voyage revenues of vessels operating in certain
pools -- Note E 108,573 -- --
Voyage expenses -- Note H (97,537) (97,328) (85,865)
- -------------------------------------------------------------------------------------------------
370,081 253,217 326,519
- -------------------------------------------------------------------------------------------------
Shipping Expenses:
Vessel expenses 96,841 110,400 150,194
Time and bareboat charter hire expenses -- Note E 41,326 22,288 18,289
Depreciation of vessels and amortization of capital leases 55,226 57,855 70,806
General and administrative -- Note H 42,622 39,308 46,180
- -------------------------------------------------------------------------------------------------
236,015 229,851 285,469
- -------------------------------------------------------------------------------------------------
Income from Vessel Operations 134,066 23,366 41,050
Equity in Results of Bulk Shipping Joint Ventures -- Note E 11,449 7,132 (3,600)
- -------------------------------------------------------------------------------------------------
Operating Income 145,515 30,498 37,450
Other Income (Net) -- Note K 34,141 21,870 32,312
- -------------------------------------------------------------------------------------------------
179,656 52,368 69,762
Interest Expense 47,470 45,257 62,200
- -------------------------------------------------------------------------------------------------
132,186 7,111 7,562
Gain on Sale of Investment in Cruise Business -- Note N3 -- -- 42,288
Gain/(Provision for Loss) on Planned Vessel
Dispositions -- Note M -- 12,404 (85,072)
- -------------------------------------------------------------------------------------------------
Income/(Loss) before Federal Income Taxes, Extraordinary
Gain/(Loss) and Cumulative Effect of Change in Accounting
Principle 132,186 19,515 (35,222)
Provision/(Credit) for Federal Income Taxes-- Note J 46,520 6,213 (10,950)
- -------------------------------------------------------------------------------------------------
Income/(Loss) before Extraordinary Gain/(Loss) and
Cumulative Effect of Change in Accounting Principle 85,666 13,302 (24,272)
Extraordinary Gain/(Loss) on Early Extinguishment of Debt,
net of (income taxes)/tax benefit of $(230), $(787) and
$7,350 -- Note G 573 1,462 (13,648)
Cumulative Effect of Change in Accounting Principle,
net of income taxes of $1,800-- Note B 4,152 -- --
- -------------------------------------------------------------------------------------------------
Net Income/(Loss) $ 90,391 $ 14,764 $ (37,920)
=================================================================================================
Per Share Amounts -- Note P:
Basic net income/(loss) before extraordinary gain/(loss)
and cumulative effect of change in accounting principle $ 2.53 $ 0.37 $ (0.66)
Diluted net income/(loss) before extraordinary gain/(loss)
and cumulative effect of change in accounting principle $ 2.49 $ 0.37 $ (0.66)
Extraordinary gain/(loss) $ 0.02 $ 0.04 $ (0.37)
Cumulative effect of change in accounting principle $ 0.12 -- --
Basic net income/(loss) $ 2.67 $ 0.41 $ (1.03)
Diluted net income/(loss) $ 2.63 $ 0.41 $ (1.03)
Cash dividends declared and paid $ 0.60 $ 0.60 $ 0.60
=================================================================================================
See notes to consolidated financial statements.
25
Consolidated Statements of Cash Flows
Overseas Shipholding Group, Inc. and Subsidiaries
In thousands for the year ended December 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income/(loss) $ 90,391 $ 14,764 $ (37,920)
Items included in net income/(loss) not affecting cash flows:
Cumulative effect of change in accounting principle (5,952) -- --
Depreciation of vessels and amortization of capital leases 55,226 57,855 70,806
Amortization of deferred gain on sale and leaseback (17,353) (6,674) --
Deferred compensation relating to stock option grants 1,282 -- --
(Gain)/provision for loss on planned vessel dispositions -- (12,404) 85,072
Provision/(credit) for deferred federal income taxes 35,040 7,668 (32,530)
Equity in results of bulk shipping joint ventures (10,807) (7,132) 3,600
Other -- net (10,851) (13,421) 1,897
Items included in net income/(loss) related to investing and financing
activities:
(Gain) on sale of investment in cruise business -- -- (42,288)
(Gain) on sale of securities -- net (3,513) (1,884) (21,789)
(Gain)/loss on disposal of other vessels (21,064) (1,824) 1,288
Extraordinary (gain)/loss on early extinguishment of debt (803) (2,249) 20,998
Changes in operating assets and liabilities:
Decrease/(increase) in receivables (23,695) 18,344 (360)
Net change in prepaid items, accounts payable and sundry liabilities
and accrued expenses 12,391 (16,010) 7,522
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 100,292 37,033 56,296
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from sale of investment in cruise business -- -- 198,474
Purchases of marketable securities (38,968) (23,309) (836)(b)
Proceeds from sales of marketable securities 15,148 3,847 29,490
Purchases of vessels under capital leases (a) -- -- (7,700)
Additions to vessels, including $105,037 (2000), $173,056 (1999) and
$3,811 (1998) related to vessels under construction (c) (106,858) (177,334) (11,376)
Proceeds from sale and leaseback -- 169,949 --
Proceeds from sale of vessels held for disposal -- 53,043 47,306
Proceeds from disposal of other vessels 8,148 -- 2,527
Investments in and advances to bulk shipping joint ventures (6,845) -- --
Distributions from bulk shipping joint ventures 8,824 23,222 --
Purchases of other investments (3,912) (1,849) (1,838)
Proceeds from dispositions of other investments 6,475 3,072 1,754
Other -- net (3,096) (7,517) (5,950)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) investing activities (121,084) 43,124 251,851
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Purchases of treasury stock -- (39,229) --
Issuance of long-term debt (c) 74,000 64,000 --
Payments on long-term debt and obligations under capital leases (75,885) (77,800) (349,101)
Cash dividends paid (20,316) (21,443) (22,076)
Issuance of common stock upon exercise of stock options 4,795 -- --
Other -- net (2,748) 37 840
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (20,154) (74,435) (370,337)
- ----------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash (40,946) 5,722 (62,190)
Cash, including interest-bearing deposits, at beginning of year 56,727 51,005 113,195
- ----------------------------------------------------------------------------------------------------------------
Cash, including interest-bearing deposits, at end of year $ 15,781 $ 56,727 $ 51,005
================================================================================================================
(a) Excludes $7,906 (1998), representing the outstanding principal balance of
debt assumed in connection with the purchase of vessel under capital
lease.
(b) Excludes $4,083, representing the carrying amount of 131,400 shares of
Royal Caribbean Cruises Ltd. ("RCCL") retained and reclassified upon sale
of 3,650,000 shares of RCCL.
(c) Net of $11,116 (2000) and $104,884 (1998) of secured debt in connection
with the construction of vessels.
See notes to consolidated financial statements.
26
Consolidated Statements of Changes in Shareholders' Equity
Overseas Shipholding Group, Inc. and Subsidiaries
Accumulated
Paid-in Treasury Stock Other
Common Additional Retained ----------------------- Comprehensive
Dollars in thousands Stock* Capital Earnings Shares Amount Income/(Loss) Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 39,591 $ 96,149 $685,128 2,798,196 $(41,719) $ 648 $779,797
Net (Loss) (37,920) (37,920)
Other Comprehensive (Loss),
net of tax:
Net unrealized losses on available-
for-sale securities** (12,036) (12,036)
-------------
Comprehensive (Loss) (49,956)
-------------
Cash Dividends Declared and Paid (22,076) (22,076)
Common Stock Acquired 13,700 (188) (188)
Options Exercised 7 (2,834) 38 45
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 39,591 96,156 625,132 2,809,062 (41,869) (11,388) 707,622
Net Income 14,764 14,764
Other Comprehensive (Loss),
net of tax:
Net unrealized losses on available-
for-sale securities** (656) (656)
-------------
Comprehensive Income 14,108
-------------
Cash Dividends Declared and Paid (21,443) (21,443)
Common Stock Acquired 3,109,400 (39,229) (39,229)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 39,591 96,156 618,453 5,918,462 (81,098) (12,044) 661,058
Net Income 90,391 90,391
Other Comprehensive Income,
net of tax:
Net unrealized gains on available-
for-sale securities** 11,940 11,940
-------------
Comprehensive Income 102,331
-------------
Cash Dividends Declared and Paid (20,316) (20,316)
Deferred Compensation Related to
Options Granted 1,282 1,282
Options Exercised and Employee
Stock Purchase Plan 554 (314,187) 4,241 4,795
Tax Benefit Related to Options
Exercised 1,017 1,017
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 39,591 $ 99,009 $688,528 5,604,275 $(76,857) $ (104) $750,167
- ------------------------------------------------------------------------------------------------------------------------------------
* Par value $1 per share; 60,000,000 shares authorized and 39,590,759 shares
issued.
** Net of realized gains included in net income/(loss) of $3,056 (2000),
$1,996 (1999) and $13,548 (1998).
See notes to consolidated financial statements.
27
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 Overseas
Shipholding Group, Inc. and its subsidiaries (the "Company" or "OSG"). All
subsidiaries are wholly owned. Significant intercompany items and
transactions have been eliminated in consolidation. Investments in joint
ventures 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 accounting
principles generally accepted in the United States 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. Vessels include vessels under construction aggregating $260,937,000 and
$281,751,000 at December 31, 2000 and 1999, respectively (see Note N1).
Depreciation of vessels is computed for financial reporting purposes based
on cost, less estimated salvage value, by the straight-line method
primarily using a vessel life of 25 years. Accumulated depreciation was
$397,373,000 and $368,745,000 at December 31, 2000 and 1999, respectively.
Expenditures for maintenance and repairs incurred during a drydocking are
deferred and amortized on a straight-line basis over the period until the
next scheduled drydocking. Such amortization, which is included in vessel
expenses in the consolidated statements of operations, amounted to
$14,912,000 (2000), $18,005,000 (1999) and $19,525,000 (1998). The
unamortized portion of deferred drydocking expenditures, which is included
in other assets in the consolidated balance sheets, was $13,706,000 and
$25,846,000 at December 31, 2000 and 1999, respectively.
4. Certain subsidiaries have bareboat charters-in on vessels that are
accounted for as capital leases. Amortization of capital leases is
computed by the straight-line method over 22 or 25 years, representing the
terms of the leases (see Note O1). Accumulated amortization was
$78,303,000 and $72,925,000 at December 31, 2000 and 1999, respectively.
5. Time charters and bareboat charters that are operating leases are reported
on the accrual basis. Effective January 1, 2000, voyage charters are
reported using the percentage of completion method (see Note B). For 1999
and earlier periods, voyage charters were reported on the completed voyage
basis.
6. Interest costs incurred during the construction of vessels (until the
vessel is complete and ready for its intended use) are capitalized.
Interest capitalized aggregated $15,411,000 (2000), $10,614,000 (1999) and
$3,035,000 (1998). Interest paid amounted to $47,387,000 (2000),
$45,858,000 (1999) and $66,451,000 (1998), excluding capitalized interest.
7. The Company's investments in marketable securities are classified as
available-for-sale and are carried at market value. Net unrealized gains
or losses are reported as a component of accumulated other comprehensive
income/(loss). The classification of investments in marketable securities
in the consolidated balance sheets reflects management's view with respect
to the portfolio's availability for use in current operations.
28
8. Amounts receivable or payable under interest rate swaps (designated as
hedges against certain existing debt -- 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 shorter of the remaining term of the swap or 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 O2). 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.
9. In accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), compensation cost for stock
options is recognized as an expense based on the excess, if any, of the
quoted market price of the stock at the grant date of the award or other
measurement date, over the amount an employee or non-employee director
must pay to acquire the stock.
Note B -- Change in Accounting for Voyage Revenue:
Prior to 2000, net voyage revenues for vessels operating on voyage
charters were accounted for using the completed voyage method, with voyages
being calculated on a load-to-load basis. Under that method, the net revenue of
a voyage was included in operating results in the period in which that voyage
was deemed completed, that is, its arrival at the subsequent voyage's initial
load port.
Effective January 1, 2000, the Company changed its accounting policy for
the recognition of net voyage revenues of vessels operating on voyage charters
to the percentage of completion method, with voyages being calculated on a
discharge-to-discharge basis. Under this method, net voyage revenue is
recognized evenly over the period from a vessel's departure from its last
discharge port to the projected departure from its next discharge port. The
change in revenue recognition policy eliminates fluctuations in income from
vessel operations attributable solely to the timing of completion of voyages.
Further, the discharge-to-discharge basis is deemed by management to be a more
reliable method of recognizing net voyage revenues under the percentage of
completion method, since it eliminates uncertainty associated with predicting
the actual location of the next load port. The cumulative effect of this change
is shown separately in the consolidated statement of operations for 2000, and
resulted in income, net of taxes, of $4,152,000 in the first quarter. The
cumulative effect of this change in accounting principle as of January 1, 2000
on the Company's consolidated balance sheet was to increase total assets by
$3,749,000, to reduce total liabilities by $403,000 and to increase
shareholders' equity by $4,152,000.
Assuming the above percentage of completion method had been applied
retroactively, the pro forma income before cumulative effect of change in
accounting principle for 1999 would have been reduced by $1,314,000 to
$13,450,000, or $.37 per basic and diluted share. The pro forma loss before
cumulative effect of change in accounting principle for 1998 would have been
increased by $2,860,000 to $40,780,000, or $1.11 per basic and diluted share.
29
Note C -- Business and Segment Reporting:
The Company is principally engaged in the ocean transportation of liquid
and dry bulk cargoes in both the worldwide markets and the self-contained U.S.
markets through the ownership and operation of a diversified fleet of bulk cargo
vessels. The bulk shipping industry has many markets that have distinct
characteristics and are subject to different market forces. The primary markets
for individual vessels are determined to a large degree by their types, sizes
and flags. Unlike container or liner ships, which the Company does not own, bulk
vessels are not bound to specific ports or schedules and, therefore, can respond
to market opportunities by moving between trades and geographical areas. 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 O2).
The Company has five reportable segments: foreign flag VLCCs (very large
crude carriers), Aframaxes and products carriers, and U.S. flag tankers and dry
bulk carriers. Following the disposal of certain older tonnage in 1999, the
Company revised its reportable segments in the first quarter of 2000. Segment
information as of December 31, 1999 and 1998 and for the years then ended has
been reclassified to conform to the revised presentation. Segment results are
evaluated based on income from vessel operations before general and
administrative expenses. The accounting policies followed by the reportable
segments are the same as those followed in the preparation of the Company's
consolidated financial statements.
30
Information about the Company's reportable segments for the three years
ended December 31, 2000 follows:
In thousands Foreign flag U.S. flag
----------------------------------- -----------------------
Products Dry bulk
2000 VLCCs Aframaxes carriers Tankers carriers All other Totals
- ----------------------------------------------------------------------------------------------------------------------------
Shipping revenues $120,549+ $132,006 $ 76,655 $ 37,486 $47,490*** $ 53,432 $ 467,618
Depreciation and amortization 19,799 15,655 7,244 -- 2,034 10,494 55,226
Income from vessel operations 74,229** 49,233 24,938 12,843 3,015 12,430 176,688*
Equity in results of bulk
shipping joint ventures 2,736 4,016 -- 5,248 -- (551) 11,449
Total assets at December 31,
2000 764,118 374,288 110,666 6,628 28,739 179,707 1,464,146
Investments in bulk shipping
joint ventures at December
31, 2000 72,703 5,879 -- 4,644 -- 1,516 84,742
Expenditures for vessels 86,126 31,317 174 -- 145 212 117,974
1999
- ----------------------------------------------------------------------------------------------------------------------------
Shipping revenues 66,772 77,977 47,506 51,078 37,475 69,737 350,545
Depreciation and amortization 15,686 15,826 7,200 6,472 2,057 10,614 57,855
Income from vessel operations 15,267** 3,016 5,032 22,080 5,986 11,293 62,674*
Gain on planned vessel
dispositions -- -- -- -- -- 12,404 12,404
Equity in results of bulk
shipping joint ventures 4,336 -- -- 1,750 -- 1,046 7,132
Total assets at December 31,
1999 685,386 355,565 117,255 10,013++ 17,705 198,984 1,384,908
Investments in bulk shipping
joint ventures at December
31, 1999 72,329 -- -- 1,787 -- 1,798 75,914
Expenditures for vessels 121,170 53,043 2,339 -- 262 520 177,334
1998
- ----------------------------------------------------------------------------------------------------------------------------
Shipping revenues 91,573 87,941 54,088 93,731 13,706 71,345 412,384
Depreciation and amortization 16,747 15,535 8,777 14,709 1,751 13,287 70,806
Income/(loss) from vessel
operations 35,708** 6,925 9,994 25,237 (1,739) 11,105 87,230*
Provision for loss on planned
vessel dispositions -- -- (6,908) (2,015) -- (76,149) (85,072)
Equity in results of bulk
shipping joint ventures (2,959) -- -- -- -- (641) (3,600)
Total assets at December 31,
1998 587,807 315,419 129,006 89,759 15,020 242,986 1,379,997
Investments in bulk shipping
joint ventures at December
31, 1998 81,968 -- -- -- -- 9,974 91,942
Expenditures for vessels,
including purchase of
vessels under capital
leases 108,532 -- 1,420 13,263 666 79 123,960
============================================================================================================================
* Segment totals are before general and administrative expenses, investment
income and interest expense. 1999 and 1998 have been restated to conform
with the 2000 presentation.
** Includes the net earnings from a vessel chartered-in until early 2005 and
chartered out for the same period.
*** Reflects the reclassification of an older products carrier that
participated in the U.S. grain trade program for all of 2000.
+ Year 2000 revenues are primarily reported on a time charter equivalent
basis, which is net of voyage expenses due to the participation of six
vessels in the Tankers International pool (see Note E); in 1999 and 1998,
revenues are reported before reduction for voyage expenses of $15,547
(1999) and $17,566 (1998).
++ The decrease from December 31, 1998 reflects the sale and leaseback under
operating leases of five U.S. flag tankers (see Note O1) and the
reclassification to U.S. flag dry bulk carriers of another older tanker
(held for disposal at year-end 1998) that participated in the U.S. grain
trade program for all of 1999.
31
Reconciliations of total assets of the segments to amounts included in the
consolidated balance sheets follow:
In thousands at December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Total assets of all segments $1,464,146 $1,384,908 $1,379,997
Corporate cash and securities,
including capital construction fund 283,774 270,526 237,520
Other unallocated amounts 75,993 65,511 77,998
- --------------------------------------------------------------------------------
Consolidated total assets $1,823,913 $1,720,945 $1,695,515
================================================================================
Certain additional information about the Company's operations for the
three years ended December 31, 2000 follows:
In thousands Consolidated Foreign flag* U.S. flag
- ------------------------------------------------------------------------------------------------------
2000
Shipping revenues $ 467,618 $ 355,397 $112,221
- ------------------------------------------------------------------------------------------------------
Vessels and vessels under capital leases
at December 31, 2000 1,293,958 1,224,004** 69,954
- ------------------------------------------------------------------------------------------------------
1999
Shipping revenues 350,545 223,468 127,077
- ------------------------------------------------------------------------------------------------------
Vessels and vessels under capital leases
at December 31, 1999 1,237,513 1,160,495** 77,018
- ------------------------------------------------------------------------------------------------------
1998
Shipping revenues 412,384 271,669 140,715
- ------------------------------------------------------------------------------------------------------
Vessels and vessels under capital leases
at December 31, 1998+ $1,229,110 $1,069,704** $159,406
- ------------------------------------------------------------------------------------------------------
* Principally Marshall Islands as of December 31, 2000.
** Includes vessels under construction of $260,937 (2000), $281,751 (1999)
and $108,695 (1998).
+ Includes vessels held for disposal.
The Company had one charterer (BP Amoco p.l.c. - "BP Amoco") during 1999
and 1998 from which revenues exceeded 10% of the sum of revenues from voyages
and net revenues of vessels operating in certain pools. Revenues from such
charterer amounted to $35,193,000 in 1999 and $98,625,000 in 1998. The decrease
in 1999 reflects the conversion of long-term time charters on five U.S. flag
tankers to bareboat charters to Alaska Tanker Company, LLC (see Note E) in the
second quarter.
See Note J for information relating to taxation of income and
undistributed earnings of foreign companies.
32
Note D -- Assets and Liabilities of Foreign Subsidiaries:
A condensed summary of the combined assets and liabilities of the
Company's foreign (incorporated outside the United States) subsidiaries, whose
operations are principally conducted in U.S. dollars, follows:
In thousands at December 31, 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Current assets $ 44,451 $ 26,179
Vessels, net 1,198,027 1,132,973
Other assets 108,499 105,759
- -----------------------------------------------------------------------------------------------------------------
1,350,977 1,264,911
- -----------------------------------------------------------------------------------------------------------------
Current installments of long-term debt, including intercompany 75,500 76,670
of $66,800 in 2000 and 1999
Other current liabilities 11,108 13,487
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 86,608 90,157
Long-term debt (including intercompany of $66,800
and $133,600), deferred credits and other liabilities 397,075 425,388
- -----------------------------------------------------------------------------------------------------------------
483,683 515,545
- -----------------------------------------------------------------------------------------------------------------
Net assets $ 867,294 $ 749,366
=================================================================================================================
Note E-- Bulk Shipping Joint Ventures and Certain Pooling Arrangements:
In the first quarter of 1999, the Company, BP Amoco and Keystone Shipping
Company ("Keystone") completed the formation of Alaska Tanker Company, LLC
("ATC"). ATC, which is owned 37.5% by the Company, 37.5% by Keystone and 25% by
BP Amoco, provides marine transportation services in the environmentally
sensitive Alaskan crude oil trade. Each member in ATC is entitled to receive its
respective share of any incentive charter hire payable, if certain conditions
are met, by BP Amoco to ATC. ATC currently manages the vessels carrying BP
Amoco's Alaskan crude oil, including five of the Company's vessels through
mid-October 2000 and four thereafter (reflecting the sale of the vessel
discussed in the following paragraph). The long-term charters to BP Amoco
covering these five vessels were converted in the second quarter of 1999 to
bareboat charters to ATC, with BP Amoco guarantees, through their expiry dates
(2005/2006 for four of these vessels and 2003 for the other) under the U.S. Oil
Pollution Act of 1990. Hire under the bareboat charters out is included in
revenue from voyages (payments required to be made by the Company in connection
with its related August 1999 sale and leaseback of these five vessels are
included in time and bareboat charter hire expenses) and the Company's share of
incentive hire earned by ATC is included in equity in results of bulk shipping
joint ventures in the consolidated statements of operations.
In October 2000, the Company disposed of one of its U.S. flag tankers
included in the August 1999 sale and leaseback transaction. This resulted in a
gain (representing the unamortized balance of the previously deferred gain, net
of the vessel's unamortized deferred drydocking expenditures) of approximately
$19,700,000 in the fourth quarter of 2000, which is included in other income in
the consolidated statement of operations.
In December 1999, the Company and five other leading tanker companies
established Tankers International LLC ("TI") to pool their VLCC fleets. TI,
which commenced operations in February 2000, commercially manages a fleet of
exclusively modern VLCCs. TI was formed to meet the global transportation
requirements of international oil companies and other major charterers. As of
December 31, 2000, six of the Company's VLCCs participate in the TI pool. The
Company's four VLCC newbuildings are scheduled to enter the pool upon their
delivery within the next two years.
In March 2000, the Company acquired a 30% interest in a single-purpose
company that purchased a 1993-built VLCC, which also participates in the TI
pool. The vessel acquisition was financed by the joint venture through long-term
bank financing and approximately $9,750,000 in subordinated
33
shareholder loans. In connection with the bank financing, the shareholders have
severally issued guarantees aggregating $6,000,000.
During the first quarter of 2000, the Company and two other major vessel
owners agreed to pool their modern Capesize dry bulk carriers. The pool
currently commercially manages a fleet of 50 vessels, including the Company's
two foreign flag dry bulk carriers. The Company and other pool members have
interests in a number of short-term time charters-in that participate in the
pool. OSG's share of the cost of such charters-in in 2000 was $8,868,000. The
Company's share of such charter-in obligations as of December 31, 2000 is
$19,657,000 (2001), or $18,600 per day, and $868,000 (2002), or $17,200 per day.
The earnings of VLCCs and Capesize dry bulk carriers, including the
Company's share of the results of the chartered-in vessels referred to in the
preceding paragraph, operating in pools are reported on a time charter
equivalent (voyage revenues less voyage expenses) basis. For periods prior to
the commencement of pool operations, revenues from voyages and voyage expenses
of these vessels are separately reflected.
In May 2000, a subsidiary of the Company invested $1,500,000 for a 50%
interest in a newly formed joint venture that bareboat chartered-in a 1992-built
Aframax tanker, which is being accounted for as a capital lease. Such subsidiary
has provided certain charter guarantees to the joint venture; daily time charter
equivalent earnings in excess of an agreed amount are for the Company's benefit.
Certain other subsidiaries have investments in other bulk shipping joint
ventures, which are also 50% owned.
In early 2001, the Company entered into a joint venture agreement, whereby
companies in which OSG holds an approximate 49% interest will acquire two
1993-built VLCCs that will participate in the TI pool. Such acquisitions, which
are expected to close in the first quarter of 2001, will be financed by the
joint ventures substantially through long-term bank financing.
Note F -- Investments in Marketable Securities:
Certain information concerning the Company's marketable securities
(including securities in the capital construction fund), which consist of
available-for-sale securities, follows:
Approximate
Gross unrealized market and
----------------------------- carrying
In thousands at December 31, Cost Gains Losses amount
- -----------------------------------------------------------------------------------------------------------------
2000
Equity securities $ 85,531 $6,352 $ 6,738 $ 85,145
U.S. Treasury securities and
obligations of U.S. government
agencies 14,772 640 13 15,399
Mortgage-backed securities 55,808 252 179 55,881
Other debt securities 20,731 165 659 20,237
- -----------------------------------------------------------------------------------------------------------------
$176,842 $7,409 $ 7,589 $176,662
=================================================================================================================
1999
Equity securities $111,588 $1,174 $16,993 $ 95,769
U.S. Treasury securities and
obligations of U.S. government
agencies 5,712 17 104 5,625
Mortgage-backed securities 30,771 -- 1,181 29,590
Other debt securities 26,779 -- 1,332 25,447
- -----------------------------------------------------------------------------------------------------------------
$174,850 $1,191 $19,610 $156,431
=================================================================================================================
34
At February 14, 2001, the aggregate market quotation of the above
marketable securities was approximately $181,000,000.
The cost and approximate market value of debt securities held by the
Company as of December 31, 2000, by contractual maturity, follow:
In thousands Approximate
Cost market
- --------------------------------------------------------------------------------
Due in one year or less $ 2,718 $ 2,704
Due after one year through five years 13,543 13,684
Due after five years through ten years 9,099 9,393
Due after ten years 10,143 9,855
- --------------------------------------------------------------------------------
35,503 35,636
Mortgage-backed securities 55,808 55,881
- --------------------------------------------------------------------------------
$91,311 $91,517
================================================================================
Note G -- Debt:
Long-term debt, exclusive of current installments, follows:
In thousands at December 31, 2000 1999
- --------------------------------------------------------------------------------------------
Unsecured revolving credit agreements with banks $493,000 $457,000
8.75% Debentures due 2013, net of unamortized discount of $177
and $191 84,798 84,784
8% Notes due 2003, net of unamortized discount of $49 and $80 69,671 84,820
Floating rate secured Term Loans, due
through 2008 102,950 102,046
Floating rate unsecured Promissory Note,
due through 2005 20,450 24,350
Other -- 2,904
- --------------------------------------------------------------------------------------------
$770,869 $755,904
============================================================================================
In April 2000, the Company concluded an unsecured revolving credit
agreement that provides for borrowings of up to $350,000,000, on a revolving
credit basis, through April 2005. In connection therewith, the Company's
existing long-term credit facility, which terminates in August 2002 and bears
interest at a spread (currently 70 basis points) above the London interbank
offered rate ("LIBOR"), was reduced from $600,000,000 to $425,000,000. Amounts
outstanding under this new facility bear interest at a spread (currently 112.5
basis points) above LIBOR. The financial covenants contained in this agreement
are substantially equivalent to those contained in existing debt agreements.
Agreements related to long-term debt provide for prepayment privileges (in
certain instances with penalties), a limitation on the amount of total
borrowings, and acceleration of payment under certain circumstances, including
failure to satisfy the financial covenants contained in certain of such
agreements. The most restrictive of these covenants requires the Company to
maintain net worth as of December 31, 2000 of approximately $680,000,000
(increasing quarterly by an amount related to net income).
The Company has used interest rate swaps to effectively convert a portion
of its debt either from a fixed to floating rate basis or from floating to fixed
rate, reflecting management's interest rate outlook at various times. As of
December 31, 2000, the Company is a party to fixed to floating interest rate
swaps with various major financial institutions covering notional amounts
aggregating $60,000,000, pursuant to which it pays LIBOR and receives fixed
rates of approximately 6.1% calculated on the notional amounts. The Company is
also a party to floating to fixed interest rate swaps with various major
financial institutions covering notional amounts aggregating approximately
$278,000,000,
35
pursuant to which it pays fixed rates ranging from 5.1% to 7.1% and receives
LIBOR (6.2% to 6.4% as of December 31, 2000, for a term equal to the swaps'
reset frequency). These agreements contain no leverage features and have various
maturity dates from mid 2002 to 2008. In December 2000, the Company terminated
fixed to floating interest rate swaps (which were designated as hedges against
certain debt) expiring in late 2003 and 2008, covering a notional amount of
$140,000,000.
In June 2000, the Company repurchased 8% Notes with an aggregate principal
amount of $15,180,000, at a discount of $803,000. During 1999, the Company
repurchased 8.75% Debentures and 8% Notes with an aggregate principal amount of
$23,875,000, at a $2,249,000 discount. Such discounts have been reported in the
Company's consolidated statements of operations as extraordinary gains.
During the fourth quarter of 1998, the Company repurchased Unsecured
Senior Notes, due from 2000 through 2013 with coupons averaging 8.7%, with an
aggregate principal amount of $310,000,000, at a $21,000,000 premium net of
gains from the termination of related interest rate swaps (fixed rate interest
on the Unsecured Senior Notes had been converted to a floating rate basis by
these interest rate swaps). The premium net of the swap termination gain has
been reported in the Company's consolidated statement of operations as an
extraordinary charge. The Company borrowed the amount needed for the purchase
under a long-term revolving credit agreement, effectively reducing interest by
approximately $5,000,000 per year, based on the interest rates and the amount of
notes outstanding at the time of the transaction.
Approximately 14% of the net book amount of the Company's vessels and
vessels under capital leases, representing two foreign flag and four U.S. flag
vessels, is pledged as collateral for certain long-term debt.
The aggregate annual principal payments required to be made on long-term
debt for the five years subsequent to December 31, 2000 are $8,700,000 (2001),
$431,600,000 (2002), $82,271,000 (2003), $12,600,000 (2004) and $91,450,000
(2005).
The Company also has a $15,000,000 committed short-term line of credit
facility with a bank, all of which was unused as of December 31, 2000.
Note H -- Agency Fees and Brokerage Commissions:
On October 30, 1998, the Company assumed direct management and operation
of its bulk shipping fleet, terminating its arrangements (see below), by mutual
consent, with Maritime Overseas Corporation ("Maritime"). The Company employed
the staff of Maritime, acquired certain employee benefit plan assets and assumed
related obligations of Maritime, and acquired certain of Maritime's other assets
for consideration that was not material.
All subsidiaries with vessels and certain joint ventures were parties to
agreements with Maritime that provided, 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 received specified compensation. General and administrative
expenses include $26,263,000 (January 1 to October 30, 1998) of such agency
fees. Voyage expenses include $4,859,000 (January 1 to October 30, 1998) of
brokerage commissions to Maritime. By agreement, Maritime's compensation for any
year was limited to the extent Maritime's consolidated net income from shipping
operations would exceed a specified amount (approximately $1,014,000 for January
1 to October 30, 1998). Maritime was owned by a director of the Company;
directors or officers of the Company constituted all four of the directors and
the majority of the principal officers of Maritime until October 1998, at which
time the owner of Maritime became its sole director, and officers of the Company
resigned as officers of Maritime in connection with the transaction referred to
in the preceding paragraph.
36
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 amounts reported in the
consolidated balance sheet for interest-bearing deposits approximate their fair
value.
Investment securities -- The fair value for marketable securities is based on
quoted market prices or dealer quotes.
Debt, including capital lease obligations -- The carrying amounts of the
borrowings under the revolving credit agreements and the other floating rate
loans approximate their fair value. The fair values of the Company's fixed rate
debt are estimated using discounted cash flow analyses, based on the rates
currently available for debt with similar terms and remaining maturities.
Interest rate swaps -- The fair value of interest rate swaps (used for hedging
purposes) is the estimated amount that the Company would receive or pay to
terminate the swaps at the reporting date.
Foreign currency swaps -- 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 estimated fair values of the Company's financial instruments follow:
Carrying Fair Carrying Fair
amount value amount value
In thousands at December 31, 2000 2000 1999 1999
- -----------------------------------------------------------------------------------------------------------------
Financial assets (liabilities)
Cash and interest bearing deposits $ 15,781 $ 15,781 $ 56,727 $ 56,727
Interest-bearing deposits in capital construction fund 91,763 91,763 57,768 57,768
Investments in marketable securities 176,662 176,662 156,431 156,431
Debt, including capital lease obligations (850,791) (847,074) (842,319) (826,404)
Interest rate swaps -- 3,411 -- 6,124
Foreign currency swaps -- 2,782 -- (6,740)
- -----------------------------------------------------------------------------------------------------------------
Note J -- Taxes:
Effective from January 1, 1987, earnings of the foreign shipping companies
are subject to U.S. income taxation currently; post-1986 taxable income may be
distributed to the U.S. parent without further tax. The foreign companies'
shipping income earned from January 1, 1976 through December 31, 1986 ("Deferred
Income") is excluded from U.S. income taxation to the extent that such income is
reinvested in foreign shipping operations, and the foreign shipping income
earned before 1976 is not subject to tax unless distributed to the U.S. parent.
A determination of the amount of qualified investments in foreign shipping
operations, as defined, is made at the end of each year and such amount is
compared with the corresponding amount at December 31, 1986. If, during any
determination period, there is a reduction of qualified investments in foreign
shipping operations, Deferred Income, limited to the amount of such reduction,
would become subject to tax. 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, 2000 since
undistributed earnings of foreign shipping companies have been reinvested or are
intended to be reinvested in foreign shipping operations. As of December 31,
2000, such undistributed
37
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.
Pursuant to the Merchant Marine Act of 1936, as amended, the Company is a
party to an agreement that permits annual deposits, related to taxable income of
certain of its domestic subsidiaries, into a capital construction fund. Payments
of federal income taxes on such deposits and earnings thereon are deferred
until, and if, such funds are withdrawn for nonqualified purposes or termination
of the agreement; however, if withdrawn for qualified purposes (acquisition of
vessels or retirement of debt on vessels), such funds remain tax-deferred and
the federal income tax basis of any such vessel is reduced by the amount of such
withdrawals. Under the agreement, the general objective is (by use of assets
accumulated in the fund) for three vessels to be constructed or acquired by the
end of 2004. Monies can remain tax-deferred in the fund for a maximum of 25
years (commencing January 1, 1987 for deposits prior thereto).
The significant components of the Company's deferred tax liabilities and
assets follow:
In thousands at December 31, 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
- -----------------------------------------------------------------------------------------------------------------
Excess of tax over statement depreciation -- net $ 69,739 $ 47,092
Tax benefits related to the capital construction fund 64,493 54,228
Costs capitalized and amortized for statement, expensed for tax 6,457 5,624
Other -- net 17,710 19,207
- -----------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 158,399 126,151
- -----------------------------------------------------------------------------------------------------------------
Deferred tax assets:
- -----------------------------------------------------------------------------------------------------------------
Capital leases 1,494 1,678
Alternative minimum tax credit carryforwards, which can be carried
forward indefinitely 38,856 29,774
Net operating loss carryforwards, expiring between 2010 and 2012 -- 16,522
- -----------------------------------------------------------------------------------------------------------------
Total deferred tax assets 40,350 47,974
- -----------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $118,049 $ 78,177
=================================================================================================================
Federal income taxes paid amounted to $9,850,000 in 2000 ($950,000 of
which related to 1999) and $17,500,000 in 1998 ($7,000,000 of which related to a
prior period). A federal income tax refund of approximately $7,900,000, all of
which related to prior years, was received in 1999.
The components of income/(loss) before federal income taxes, extraordinary
gain/(loss) and cumulative effect of change in accounting principle follow:
In thousands for the year ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------
Foreign $117,105 $ 9,528 $ 4,592
Domestic 15,081 9,987 (39,814)
- -----------------------------------------------------------------------------------------
$132,186 $19,515 $(35,222)
- -----------------------------------------------------------------------------------------
Substantially all of the above foreign income resulted from the operations
of companies that were not subject to income taxes in their countries of
incorporation.
38
The components of the provision/(credit) for federal income taxes follow:
In thousands for the year ended December 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------
Current $14,299 $(1,455) $ 21,580
Deferred 32,221 7,668 (32,530)
- ----------------------------------------------------------------------------------------------
$46,520 $ 6,213 $(10,950)
==============================================================================================
The income tax expense/(benefit) allocated to each component of other
comprehensive income/(loss) follows:
In thousands for the year ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------------------------
Unrealized gains on available-for-sale securities $ 7,945 $ 800 $ 1,194
Reclassification adjustment for (gains) included in
net income/(loss) (1,645) (1,075) (7,294)
- --------------------------------------------------------------------------------------------------
$ 6,300 $ (275) $(6,100)
- --------------------------------------------------------------------------------------------------
Reconciliations of the actual federal income tax rate attributable to
pretax income/(loss) before extraordinary gain/(loss) and cumulative effect of
change in accounting principle and the U.S. statutory income tax rate follow:
In thousands for the year ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Actual federal income tax provision/(credit) rate 35.2% 31.8% (31.1%)
Adjustments due to:
Dividends received deduction 0.1% 2.1% 1.2%
Prior years' undistributed earnings of cruise
business -- see Note N3 -- -- (2.7%)
Income not subject to U.S. income taxes 0.7% -- --
Other (1.0%) 1.1% (2.4%)
- --------------------------------------------------------------------------------
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 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
Investment Income:
Interest $ 9,766 $12,239 $ 7,761
Dividends 1,280 1,343 2,303
Gain on sale of securities -- net (based on first-in,
first-out method) 3,513 1,884 21,789
- --------------------------------------------------------------------------------------------------------------
14,559 15,466 31,853
Gain on early termination of interest rate swaps -- 2,804 --
Gain/(loss) on disposal of vessels -- net 21,064 1,824 (1,288)
Miscellaneous -- net (1,482) 1,776 1,747
- --------------------------------------------------------------------------------------------------------------
$34,141 $21,870 $32,312
==============================================================================================================
Gross realized gains on sales of securities were $22,318,000 (2000),
$9,597,000 (1999) and $25,895,000 (1998), and gross realized losses were
$18,805,000 (2000), $7,713,000 (1999) and $4,106,000 (1998).
39
Note L -- Pension and Other Postretirement Benefit Plans:
Since October 31, 1998 (see Note H), the Company is the sponsor of a
noncontributory defined benefit pension plan covering substantially all of its
domestic shore-based employees. Retirement benefits are based primarily on years
of service and final average compensation, as defined. The Company's policy is
to fund pension costs accrued, but not in excess of amounts allowable under
income tax regulations. The Company has an unfunded, nonqualified supplemental
pension plan covering certain employees, which provides for additional benefits
that would otherwise have been payable to such employees under the Company's
pension plan in the absence of limitations imposed by income tax regulations.
The accrued benefit liabilities for this supplemental plan were $7,983,000 and
$6,213,000 at December 31, 2000 and 1999, respectively, and have been reflected
in the accrued benefit costs shown in the table below.
Certain of the Company's foreign subsidiaries have pension plans that, in
the aggregate, are not significant to the Company's consolidated financial
position.
The Company also provides certain postretirement health care and life
insurance benefits to qualifying domestic retirees and their eligible
dependents. The health care plan is contributory; the life insurance plan is
noncontributory. In general, postretirement medical coverage is provided to
employees who retire and have met minimum age and service requirements, under a
formula related to total years of service. The Company does not currently fund
these benefit arrangements and has the right to amend or terminate the health
care benefits at any time.
Certain information as of December 31, 2000 and 1999 and for the three
years ended December 31, 2000 with respect to the above domestic plans follows
(amounts applicable to periods prior to October 31, 1998 were not material):
Pension benefits Other benefits
------------------------- -------------------------
In thousands at December 31, 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------
Change in benefit obligation:
- --------------------------------------------------------------------------------------------------------
Benefit obligation at beginning of year $33,234 $ 42,935 $ 4,636 $ 5,440
Cost of benefits earned (service cost) 908 1,150 135 164
Interest cost on benefit obligation 2,361 2,552 324 374
Plan participants' contributions -- -- 58 50
Amendments 356 448 -- --
Benefits paid (3,586) (10,467) (360) (351)
Curtailments and settlements -- (1,287) -- (285)
- --------------------------------------------------------------------------------------------------------
Benefit obligation at December 31 33,273 35,331 4,793 5,392
- --------------------------------------------------------------------------------------------------------
Change in plan assets:
- --------------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year 37,274 42,880 -- --
Actual return on plan assets 2,668 2,377 -- --
Benefits paid (2,966) (7,203) -- --
Curtailments and settlements -- (780) -- --
- --------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 36,976 37,274 -- --
- --------------------------------------------------------------------------------------------------------
Funded status at December 31 (unfunded) 3,703 1,943 (4,793) (5,392)
Unrecognized prior-service costs 1,080 305 -- --
Unrecognized net actuarial (gain)/loss (1,676) 974 (935) (231)
Unrecognized transition obligation -- (261) 2,562 2,745
Additional minimum liability (1,171) (457) -- --
- --------------------------------------------------------------------------------------------------------
Prepaid/(accrued) benefit cost
at December 31 $ 1,936 $ 2,504 $(3,166) $(2,878)
========================================================================================================
40
For the years ended December 31, 2000 Pension benefits Other benefits
and 1999 and for the period from October ------------------------------ ------------------------------
31 to December 31, 1998 2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Components of expense:
- ------------------------------------------------------------------------------------------------------------------
Cost of benefits earned $ 908 $ 1,150 $ 245 $135 $164 $ 52
Interest cost on benefit obligation 2,361 2,552 499 324 374 77
Expected return on plan assets (3,314) (3,540) (646) -- -- --
Amortization of prior-service costs 757 224 37 7 -- --
Amortization of transition obligation (261) (261) (43) 176 197 48
Recognized net actuarial loss/(gain) 23 190 24 (52) (6) (7)
- ------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost 474 315 116 590 729 170
(Gain)/loss on curtailments and
settlements -- (527) -- -- 247 --
- ------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost after
curtailments and settlements $ 474 $ (212) $ 116 $590 $976 $170
==================================================================================================================
The weighted average discount rate and assumed rate of future compensation
increases used in determining the benefit obligation at December 31, 2000 were
7% and 4%, respectively. The expected long-term return on plan assets was 9%.
The assumed health care cost trend rate for measuring the benefit obligation
included in Other Benefits above is 4%.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A 1% change in assumed health care
cost trend rates would have the following effects:
In thousands 1% increase 1% decrease
- ------------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components in 2000 $ 64 $ (52)
Effect on postretirement benefit obligation as of
December 31, 2000 $538 $(450)
The Company also has a 401(k) employee savings plan covering all eligible
employees, as defined. Contributions are limited to amounts allowable for income
tax purposes. Employer matching contributions to the plan are at the discretion
of the Company. Certain subsidiaries make contributions to union-sponsored
multi-employer pension plans covering seagoing personnel. The Employee
Retirement Income Security Act of 1974 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, 2000. Certain other
seagoing personnel of U.S. flag vessels are covered under a subsidiary's defined
contribution plan, the cost of which is funded as accrued. The costs of these
plans were not material during the three years ended December 31, 2000.
Note M -- Planned Vessel Dispositions:
At the end of the third quarter of 1997, the Company established a reserve
of $26,536,000 ($17,200,000 after tax) for the reduction of the carrying amount
(approximately $163,000,000) of its ten older and less competitive dry cargo
vessels held for disposal to their then estimated fair value (less disposal
costs) and for costs in connection with the elimination of related overhead. As
a result of continued weakness in world dry bulk markets, reflecting, in
particular, the Asian economic downturn, the Company, during 1998, decided to
extend the period over which it expected to dispose of such dry cargo vessels
and recorded a charge of $65,400,000 ($42,500,000 after tax), representing an
increase in the reserve. During 1999, the Company completed its dry bulk
disposal program and, in connection therewith, recognized a gain of $12,404,000.
41
In the fourth quarter of 1998, the Company established a reserve of
$19,700,000 ($12,800,000 after tax), which excluded the Company's share of the
provision with respect to vessels held by certain joint ventures, to reduce the
carrying amount (approximately $36,600,000) of certain older and less efficient
crude oil and products tonnage, which it expected to dispose of in 1999, to
their estimated fair value. During 1999, the Company sold eight of these
tankers, including the three held in joint ventures. The two remaining tankers
are now participating in the U.S. grain trade program and, accordingly, were
reclassified from vessels held for disposal to vessels as of December 31, 1999.
Note N -- Commitments and Other Matters:
1. As of February 14, 2001, the Company had commitments for the construction
of nine double-hulled foreign flag tankers, scheduled for delivery between
late-February 2001 and early-January 2004, with an aggregate unpaid cost
of approximately $232,900,000. Unpaid costs are net of $218,200,000 of
progress payments and prepayments (all paid prior to January 1, 2001). The
progress payments and prepayments are covered by refundment guaranties,
principally from major U.S. insurance companies. A foreign flag Aframax
tanker with an unpaid cost of approximately $8,100,000 as of December 31,
2000 was delivered in early-February 2001.
2. Sundry liabilities and accrued expenses consist of:
In thousands at December 31, 2000 1999
--------------------------------------------------------------------------
Payroll and benefits $ 7,266 $ 3,248
Interest 4,291 4,209
Insurance 2,999 5,978
Other 11,622 12,953
--------------------------------------------------------------------------
$26,178 $26,388
==========================================================================
3. In March 1998, the Company recognized a gain of $42,288,000 ($26,500,000
after tax, including $1,000,000 of tax on previously untaxed earnings of
Royal Caribbean Cruises Ltd. - "RCCL") from the sale of 3,650,000 shares
of RCCL common stock received in connection with the 1997 disposition of
its 49% ownership interest in Celebrity Cruise Lines Inc.
Note O -- Leases:
1. Charters-in:
The minimum commitments under capital leases for four U.S. flag vessels
were:
In thousands at December 31, 2000
--------------------------------------------------------------------------
2001 $ 12,751
2002 12,751
2003 12,751
2004 9,312
2005 9,691
Beyond 2005 55,754
--------------------------------------------------------------------------
Net minimum lease payments 113,010
Less amount representing interest 41,788
--------------------------------------------------------------------------
Present value of net minimum lease payments $ 71,222
==========================================================================
During 1998, a subsidiary of the Company purchased a vessel that was under
a capital lease. The excess, $5,044,000, of the purchase price, including
the assumption of debt to which the vessel was subject, over the carrying
amount of the lease obligation (which was removed from the consolidated
balance sheet) was recorded as an adjustment to the carrying amount of the
vessel.
42
In August 1999, the Company completed the sale and leaseback of certain
U.S. flag crude carriers that are bareboat chartered-out through their OPA
90 expiry dates. The net proceeds received, approximately $170,000,000,
were applied to reduce amounts then outstanding under its long-term credit
facility. The gains on the sale and leaseback of these vessels, under
operating leases, were deferred and are being amortized over the remaining
periods of the respective leases as a reduction in lease expense. The
unamortized balance of the deferred gain as of December 31, 2000 and 1999
was $55,578,000 and $93,893,000, respectively. The decrease in 2000
reflects scheduled amortization and the recognition of $22,330,000 in
connection with the sale of one of these vessels. Payments required to be
made under the above operating leases as of December 31, 2000 are
$28,052,000 (2001 to 2003), $18,715,000 (2004), $15,059,000 (2005) and
$1,064,000 (2006); such payment obligations are satisfied through the
assignments of the hire receivable under the bareboat charters-out of such
vessels (see Note O2).
The Company has chartered-in a foreign flag VLCC from a 50%-owned joint
venture with a remaining term of four years, under an operating lease, at
an annual time charter rental of approximately $8,000,000. OSG, in turn,
has time-chartered the vessel for the same period to the joint venture
partner at an annual rental of approximately $13,500,000 (see Note O2).
The total rental expense for charters accounted for as operating leases
amounted to $51,053,000 in 2000 (including the $8,868,000 referred to in
Note E), $25,908,000 in 1999 and $19,799,000 in 1998.
2. Charters-out:
Revenues from a time charter are not generally 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, 2000 on noncancelable time charters and bareboat charters are
$80,533,000 (2001), $63,434,000 (2002), $60,542,000 (2003), $51,008,000
(2004), $17,253,000 (2005) and $1,312,000 (2006). The foregoing amounts 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 $60,000,000 for such foreign currency from 2001 through
2004.
Note P -- Capital Stock and Per Share Amounts:
The Company's Board of Directors ("Board"), has authorized the repurchase
of up to 6,000,000 shares of the Company's common stock from time to time in the
open market. Such purchases will be made at the Company's discretion and take
into account such factors as price and prevailing market conditions. To date, a
total of 3,123,100 shares have been repurchased.
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. Outstanding options remain exercisable until October 2003.
43
The Company has granted options under its 1990 nonqualified stock option
plan, as amended, including options granted to employees of Maritime and assumed
by the Company (see Note H), at prices ranging from $14.00 to $19.50 per share
(the market prices at dates of grant). Outstanding options remain exercisable
until December 2002.
In February 2000, the Board amended the 1998 stock option plan, subject to
stockholder approval, to increase the number of shares available for grant
pursuant to options under such plan from 1,300,000 to 2,800,000. The
stockholders approved the amendment to the plan in June 2000. The 1998 plan
provides for options to be granted at exercise prices of at least market value
at the date of grant. Options granted vest and become exercisable over a
three-year period and expire ten years from the date of grant. Options covering
1,974,016 shares have been granted to employees (including senior officers) at
prices ranging from $12.50 to $16.00 per share (the market prices at dates of
grant).
In February 1999, the Board adopted the 1999 Non-Employee Director (as
defined) Stock Option Plan, making available up to 150,000 shares of the
Company's stock. The plan provides for the grant of an initial option for 7,500
shares and an annual option for 1,000 shares thereafter to each non-employee
director at an exercise price equal to market value at the date of the grant.
Initial options vest and become exercisable over a three-year period, annual
options vest and become exercisable one year from the date of the grant. All
options expire ten years from the date of grant. Options covering 87,000 shares
have been granted at prices ranging from $13.30 to $24.81 per share (the market
prices at dates of grant).
Stock option activity under all plans is summarized as follows:
Options Outstanding at December 31, 1997 443,944
Granted 730,700
Canceled (42,849)
Exercised ($16.00 per share) (2,834)
- -------------------------------------------------------------------------------
Options Outstanding at December 31, 1998 1,128,961
Granted 881,292
Canceled (214,167)
Exercised --
- -------------------------------------------------------------------------------
Options Outstanding at December 31, 1999 1,796,086
Granted 722,000
Canceled (25,236)
Exercised ($13.30 to $16.00 per share) (308,821)
- -------------------------------------------------------------------------------
Options Outstanding at December 31, 2000 2,184,029
- -------------------------------------------------------------------------------
Options Exercisable at December 31, 2000 706,507
===============================================================================
The weighted average remaining contractual life of the above stock options
at December 31, 2000 was 8 years.
The Company follows APB 25 and related interpretations in accounting for
its employee stock options. Compensation cost for the Company's stock option
plans determined using the fair value method of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"), for grants made subsequent to 1994, would have reduced net income for
2000 and 1999 by $1,382,000 ($.04 per share) and $1,437,000 ($.04 per share),
respectively, and increased the net loss for 1998 by $169,000 ($.01 per share).
For purposes of applying FAS 123, the fair values of the options granted were
estimated on the dates of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for 2000, 1999 and 1998: risk
free interest rates of 5.0%, 6.8% and 5.2%, dividend yields of 4.1%, 4.7% and
3.7%, expected stock price volatility factors of .37, .42 and .31, and expected
lives of 7.7, 7.8 and 7.7 years. The weighted average grant-date fair values of
options granted in 2000, 1999 and 1998 were $4.41, $4.17 and $4.48,
respectively.
44
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Basic net income/(loss) per share is based on the following weighted
average number of common shares outstanding during each year: 33,870,154 shares
(2000), 35,711,705 shares (1999) and 36,793,590 shares (1998). Diluted net
income/(loss) per share, which gives effect to the aforementioned stock options
in 2000 and 1999, is based on the following weighted average number of shares
during each year: 34,315,257 shares (2000), 35,724,725 shares (1999) and
36,793,590 shares (1998). Such stock options have not been included in the
computation of diluted net (loss) per share in 1998 since their effect thereon
would be antidilutive.
In October 1998, the Board adopted a Stockholder Rights Plan, and declared
a rights distribution under the plan of one common stock purchase right on each
outstanding share of common stock of the Company. The rights plan is designed to
guard against attempts to take over the Company for a price that does not
reflect the Company's full value, or that are conducted in a manner or on terms
not approved by the board as being in the best interests of the Company and the
stockholders. The rights are preventative in nature and were not distributed in
response to any known attempt to acquire control of the Company.
45
Note Q -- 2000 and 1999 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,
- -------------------------------------------------------------------------------------
2000
Revenues from voyages* $ 84,041 $ 103,203 $ 129,535 $ 150,839
Income from vessel operations 5,275 25,749 46,402 56,640
Gain on disposal of vessels -- net -- -- -- 21,064
Income before extraordinary gain 5,013** 10,406 26,765 47,634
Net income $ 5,013 $ 10,979 $ 26,765 $ 47,634
- -------------------------------------------------------------------------------------
Basic net income per share $ 0.15 $ 0.32 $ 0.79 $ 1.40
Diluted net income per share $ 0.15 $ 0.32 $ 0.78 $ 1.38
- -------------------------------------------------------------------------------------
1999
Revenues from voyages $ 96,616 $ 91,209 $ 84,770 $ 77,950
Income/(loss) from vessel
operations 12,655 13,056 3,528 (5,873)
Gain on disposal of vessels -- net 258 -- -- 1,566
Income/(loss) before
extraordinary gain 3,058 8,433 1,993 (182)
Net income $ 3,058 $ 8,433 $ 3,026 $ 247+
- -------------------------------------------------------------------------------------
Basic and diluted net income per
share $ 0.08 $ 0.23 $ 0.09 $ 0.01+
=====================================================================================
* Includes net voyage revenues of vessels operating in certain pools.
** Reflects the cumulative effect of change in accounting principle (net of
income taxes of $1,800) of $4,152, or $.12 per share.
+ Reflects an extraordinary gain on early extinguishment of debt (net of
income taxes of $230) of $429, or $.01 per share.
46
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, 2000 and 1999, and
the related consolidated statements of operations, cash flows, and changes in
shareholders' equity for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note B to the consolidated financial statements, in 2000 the
Company changed its method of accounting for net voyage revenues for vessels
operating on voyage charters.
/s/ Ernst & Young LLP
New York, New York
February 14, 2001
47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 13 below. Information with respect to executive officers of the
Company is included at the end of Part I.
ITEM 11. EXECUTIVE COMPENSATION
See Item 13 below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Item 13 below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for under Items 10, 11, 12 and 13 is incorporated
by reference from the definitive Proxy Statement to be filed by the Company in
connection with its 2001 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company
are filed in response to Item 8.
Consolidated Balance Sheets at December 31, 2000 and 1999.
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(a)(2) Schedules of the Company have been omitted since they are not
applicable or are not required.
48
(a)(3) The following exhibits are included in response to Item 14(c):
3(i) Certificate of Incorporation of the registrant, as amended to
date (filed as Exhibit 3(i) to the registrant's Annual Report
on Form 10-K for 1998 and incorporated herein by reference).
3(ii) By-Laws of the registrant, as amended to date (filed as
Exhibit 3(ii) to the registrant's Annual Report on Form 10-K
for 1993 and incorporated herein by reference).
4(a) Second Amended and Restated Credit Agreement dated as of
August 19, 1997 (previously amended and restated as of October
31, 1994), among the registrant, two subsidiaries of the
registrant and certain banks (filed as Exhibit 4 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference).
4(b) Rights Agreement dated as of October 20, 1998 between the
registrant and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, with the form of Right Certificate attached as
Exhibit A thereto and the Summary of Rights to Purchase Shares
attached as Exhibit B thereto (filed as Exhibit 4.1 to the
registrant's Registration Statement on Form 8-A filed November
9, 1998 and incorporated herein by reference).
4(c)(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 as Exhibit 4(d)(1) to the
registrant's Annual Report on Form 10-K for 1993 and
incorporated herein by reference).
4(c)(2) Resolutions dated December 2, 1993 fixing the terms of two
series of debt securities issued by the registrant under the
Indenture (filed as Exhibit 4(d)(2) to the registrant's Annual
Report on Form 10-K for 1993 and incorporated herein by
reference).
4(c)(3) Form of 8% Notes due December 1, 2003 of the registrant (filed
as Exhibit 4(d)(3) to the registrant's Annual Report on Form
10-K for 1993 and incorporated herein by reference).
4(c)(4) Form of 8-3/4% Debentures due December 1, 2013 of the
registrant (filed as Exhibit 4(d)(4) to the registrant's
Annual Report on Form 10-K for 1993 and incorporated herein by
reference).
4(d) Credit Agreement dated April 18, 2000, among the registrant,
two subsidiaries of the registrant and certain banks (filed as
Exhibit 4 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000 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, where the amounts authorized thereunder do
not exceed 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(i)(a) Exchange Agreement dated December 9, 1969 (including exhibits
thereto) between the registrant and various parties relating
to the formation of the registrant (the form
49
of which was filed as Exhibit 2(3) to Registration Statement
No. 2-34124 and incorporated herein by reference).
10(i)(b) Form of Additional Exchange Agreement referred to in Section
2.02 of Exhibit 10(i)(a) hereto (filed as Exhibit 2(4) to
Registration Statement No. 2-34124 and incorporated herein by
reference).
10(i)(c) Limited Liability Company Agreement of Alaska Tanker Company,
LLC dated as of March 30, 1999 (filed as Exhibit 10 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and incorporated herein by reference).
10(i)(d) Participation Agreement dated as of August 20, 1999 by and
among 398 Equity Corporation, 399 Equity Corporation, 400
Equity Corporation, 401 Equity Corporation, and Cambridge
Tankers, Inc., as owners; Alaska Tanker Company, LLC, as
bareboat charterer; Alaskan Equity Trust, as owner trust and
borrower; Wilmington Trust Company, as owner trustee; National
Australia Bank Limited, as arranger, lender, agent for the
Lenders, collateral trustee and swap counterparty; Alaskan
Equity Investors LLC, as investor participant; American Marine
Advisors, Inc., as arranger; and Overseas Shipholding Group,
Inc., as parent of the owners (filed as Exhibit 10 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated herein by
reference).
*10(iii)(a) Supplemental Executive Retirement Plans of the registrant, as
amended and restated as of January 1, 1999 (filed as Exhibit
10 (iii)(a) to the registrant's Annual Report on Form 10-K for
1999 and incorporated herein by reference).
*10(iii)(b) Supplemental Executive Retirement Plans of OSG Ship
Management, Inc., effective as of October 30, 1998 (filed as
Exhibit 10 (iii)(b) to the registrant's Annual Report on Form
10-K for 1999 and incorporated herein by reference).
*10(iii)(c) Agreement with an executive officer (filed as Exhibit 10(k)(4)
to the registrant's Annual Report on Form 10-K for 1996 and
incorporated herein by reference).
*10(iii)(d) Agreement with an executive officer (filed as Exhibit 10(k)(5)
to the registrant's Annual Report on Form 10-K for 1996 and
incorporated herein by reference).
*10(iii)(e) Agreement with an executive officer (filed as Exhibit 10 to
the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 and incorporated herein by
reference).
*10(iii)(f) Agreement with an executive officer (filed as Exhibit 10(d)(4)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
*10(iii)(g) Form of Amendment to the agreements listed as Exhibits
10(iii)(c), 10(iii)(d), 10(iii)(e) and 10(iii)(f) hereto
(filed as Exhibit 10(d)(5) to the registrant's Annual Report
on Form 10-K for 1998 and incorporated herein by reference).
*10(iii)(h) Agreement with an executive officer (filed as Exhibit 10(d)(6)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
*10(iii)(i) Agreement with an executive officer (filed as Exhibit 10(d)(7)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
*10(iii)(j) 1989 Stock Option Plan, as amended on October 9, 1990, adopted
for officers and key employees of the registrant or its
subsidiaries (filed as Exhibit 10 to the
50
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000 and incorporated herein by reference).
*10(iii)(k) 1998 Stock Option Plan adopted for employees of the registrant
and its affiliates (filed as Exhibit 10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and incorporated herein by reference).
*10(iii)(l) Amendment to the 1998 Stock Option Plan adopted for employees
of the registrant and its affiliates (filed as Exhibit 10 to
the registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 and incorporated herein by reference).
*10(iii)(m) 1999 Non-Employee Director Stock Option Plan of the registrant
(filed as Exhibit 10(e)(4) to the registrant's Annual Report
on Form 10-K for 1998 and incorporated herein by reference).
*10(iii)(n) Maritime Overseas Corporation 1990 Stock Option Plan, as
amended, assumed by the registrant (filed as Exhibit 10(e)(5)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
**13 Such portions of the Annual Report to shareholders for 2000 as
are expressly incorporated herein by reference.
**21 List of subsidiaries of the registrant.
**23 Consent of Independent Auditors of the registrant.
- ----------
(1) The Exhibits marked with one asterisk (*) are a management contract or a
compensatory plan or arrangement required to be filed as an exhibit.
(2) The Exhibits which have not previously been filed or listed or are being
refiled are marked with two asterisks (**).
51
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.
Date: March 22, 2001
OVERSEAS SHIPHOLDING GROUP, INC.
By /s/ Myles R. Itkin
-------------------------------------
Myles R. Itkin
Senior Vice President,
Chief Financial Officer and Treasurer
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 dates 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.
Name Date
/s/ Morton P. Hyman March 22, 2001
- --------------------------------------------
Morton P. Hyman, Principal
Executive Officer and Director
/s/ Myles R. Itkin March 22, 2001
- --------------------------------------------
Myles R. Itkin, Principal
Financial Officer and
Principal Accounting Officer
/s/ Alan R. Batkin March 22, 2001
- --------------------------------------------
Alan R. Batkin, Director
/s/ Robert N. Cowen March 22, 2001
- --------------------------------------------
Robert N. Cowen, Director
/s/ Charles Fribourg March 22, 2001
- --------------------------------------------
Charles Fribourg, Director
/s/ William L. Frost March 22, 2001
- --------------------------------------------
William L. Frost, Director
/s/ Ran Hettena March 22, 2001
- --------------------------------------------
Ran Hettena, Director
/s/ Stanley Komaroff March 22, 2001
- --------------------------------------------
Stanley Komaroff, Director
52
Name Date
/s/ Solomon N. Merkin March 22, 2001
- --------------------------------------------
Solomon N. Merkin, Director
/s/ Joel I. Picket March 22, 2001
- --------------------------------------------
Joel I. Picket, Director
/s/ Ariel Recanati March 22 , 2001
- --------------------------------------------
Ariel Recanati, Director
/s/ Oudi Recanati March 22 , 2001
- --------------------------------------------
Oudi Recanati, Director
/s/ Michael J. Zimmerman March 22 , 2001
- --------------------------------------------
Michael J. Zimmerman, Director
Exhibit Index
3(i) Certificate of Incorporation of the registrant, as amended to
date (filed as Exhibit 3(i) to the registrant's Annual Report
on Form 10-K for 1998 and incorporated herein by reference).
3(ii) By-Laws of the registrant, as amended to date (filed as
Exhibit 3(ii) to the registrant's Annual Report on Form 10-K
for 1993 and incorporated herein by reference).
4(a) Second Amended and Restated Credit Agreement dated as of
August 19, 1997 (previously amended and restated as of October
31, 1994), among the registrant, two subsidiaries of the
registrant and certain banks (filed as Exhibit 4 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference).
4(b) Rights Agreement dated as of October 20, 1998 between the
registrant and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, with the form of Right Certificate attached as
Exhibit A thereto and the Summary of Rights to Purchase Shares
attached as Exhibit B thereto (filed as Exhibit 4.1 to the
registrant's Registration Statement on Form 8-A filed November
9, 1998 and incorporated herein by reference).
4(c)(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 as Exhibit 4(d)(1) to the
registrant's Annual Report on Form 10-K for 1993 and
incorporated herein by reference).
4(c)(2) Resolutions dated December 2, 1993 fixing the terms of two
series of debt securities issued by the registrant under the
Indenture (filed as Exhibit 4(d)(2) to the registrant's Annual
Report on Form 10-K for 1993 and incorporated herein by
reference).
4(c)(3) Form of 8% Notes due December 1, 2003 of the registrant (filed
as Exhibit 4(d)(3) to the registrant's Annual Report on Form
10-K for 1993 and incorporated herein by reference).
53
4(c)(4) Form of 8-3/4% Debentures due December 1, 2013 of the
registrant (filed as Exhibit 4(d)(4) to the registrant's
Annual Report on Form 10-K for 1993 and incorporated herein by
reference).
4(d) Credit Agreement dated April 18, 2000, among the registrant,
two subsidiaries of the registrant and certain banks (filed as
Exhibit 4 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000 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, where the amounts authorized thereunder do
not exceed 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(i)(a) 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 incorporated herein by reference).
10(i)(b) Form of Additional Exchange Agreement referred to in Section
2.02 of Exhibit 10(i)(a) hereto (filed as Exhibit 2(4) to
Registration Statement No. 2-34124 and incorporated herein by
reference).
10(i)(c) Limited Liability Company Agreement of Alaska Tanker Company,
LLC dated as of March 30, 1999 (filed as Exhibit 10 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and incorporated herein by reference).
10(i)(d) Participation Agreement dated as of August 20, 1999 by and
among 398 Equity Corporation, 399 Equity Corporation, 400
Equity Corporation, 401 Equity Corporation, and Cambridge
Tankers, Inc., as owners; Alaska Tanker Company, LLC, as
bareboat charterer; Alaskan Equity Trust, as owner trust and
borrower; Wilmington Trust Company, as owner trustee; National
Australia Bank Limited, as arranger, lender, agent for the
Lenders, collateral trustee and swap counterparty; Alaskan
Equity Investors LLC, as investor participant; American Marine
Advisors, Inc., as arranger; and Overseas Shipholding Group,
Inc., as parent of the owners (filed as Exhibit 10 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated herein by
reference).
*10(iii)(a) Supplemental Executive Retirement Plans of the registrant, as
amended and restated as of January 1, 1999 (filed as Exhibit
10 (iii)(a) to the registrant's Annual Report on Form 10-K for
1999 and incorporated herein by reference).
*10(iii)(b) Supplemental Executive Retirement Plans of OSG Ship
Management, Inc., effective as of October 30, 1998 (filed as
Exhibit 10 (iii)(b) to the registrant's Annual Report on Form
10-K for 1999 and incorporated herein by reference).
*10(iii)(c) Agreement with an executive officer (filed as Exhibit 10(k)(4)
to the registrant's Annual Report on Form 10-K for 1996 and
incorporated herein by reference).
*10(iii)(d) Agreement with an executive officer (filed as Exhibit 10(k)(5)
to the registrant's Annual Report on Form 10-K for 1996 and
incorporated herein by reference).
54
*10(iii)(e) Agreement with an executive officer (filed as Exhibit 10 to
the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 and incorporated herein by
reference).
*10(iii)(f) Agreement with an executive officer (filed as Exhibit 10(d)(4)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
*10(iii)(g) Form of Amendment to the agreements listed as Exhibits
10(iii)(c), 10(iii)(d), 10(iii)(e) and 10(iii)(f) hereto
(filed as Exhibit 10(d)(5) to the registrant's Annual Report
on Form 10-K for 1998 and incorporated herein by reference).
*10(iii)(h) Agreement with an executive officer (filed as Exhibit 10(d)(6)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
*10(iii)(i) Agreement with an executive officer (filed as Exhibit 10(d)(7)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
*10(iii)(j) 1989 Stock Option Plan, as amended on October 9, 1990, adopted
for officers and key employees of the registrant or its
subsidiaries (filed as Exhibit 10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
2000 and incorporated herein by reference).
*10(iii)(k) 1998 Stock Option Plan adopted for employees of the registrant
and its affiliates (filed as Exhibit 10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and incorporated herein by reference).
*10(iii)(l) Amendment to the 1998 Stock Option Plan adopted for employees
of the registrant and its affiliates (filed as Exhibit 10 to
the registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 and incorporated herein by reference).
*10(iii)(m) 1999 Non-Employee Director Stock Option Plan of the registrant
(filed as Exhibit 10(e)(4) to the registrant's Annual Report
on Form 10-K for 1998 and incorporated herein by reference).
*10(iii)(n) Maritime Overseas Corporation 1990 Stock Option Plan, as
amended, assumed by the registrant (filed as Exhibit 10(e)(5)
to the registrant's Annual Report on Form 10-K for 1998 and
incorporated herein by reference).
**13 Such portions of the Annual Report to shareholders for 2000 as
are expressly incorporated herein by reference.
**21 List of subsidiaries of the registrant.
**23 Consent of Independent Auditors of the registrant.
- ----------
(1) The Exhibits marked with one asterisk (*) are a management contract or a
compensatory plan or arrangement required to be filed as an exhibit.
(2) The Exhibits which have not previously been filed or listed or are being
refiled are marked with two asterisks (**).
55