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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2002
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
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
511 Fifth Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
(212) 953-4100
Registrant's telephone number, including area code
No Change
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Shares outstanding as of November 11, 2002 - 34,432,251
Form 10-Q
Page 2
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
SEPTEMBER DECEMBER
30, 2002 31, 2001
---------- ----------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 13,067 $ 30,256
Investments in marketable securities - Note F 25,262 69,958
Receivables, including unbilled voyage receivables
of $25,910 and $18,221 36,640 38,054
Inventories and prepaid expenses 5,443 8,354
---------- ----------
Total Current Assets 80,412 146,622
Capital Construction Fund - Note F 227,815 232,971
Vessels, at cost, less accumulated depreciation
of $407,258 and $434,442 - Note H 1,381,923 1,307,311
Vessels under Capital Leases, less accumulated
amortization of $87,715 and $83,681 34,375 38,408
Investments in Joint Ventures - Note E 159,807 149,775
Other Assets 90,524 89,188
---------- ----------
Total Assets $1,974,856 $1,964,275
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,529 $ 3,132
Sundry liabilities and accrued expenses 25,553 34,880
Federal income taxes -- 23,756
Short-term debt and current installments of long-term debt 14,285 17,600
Current obligations under capital leases 6,553 6,164
---------- ----------
Total Current Liabilities 49,920 85,532
Long-term Debt - Note H 900,114 795,736
Obligations under Capital Leases 54,781 59,193
Deferred Federal Income Taxes ($122,437 and $132,170), Deferred
Credits and Other Liabilities - Notes G and I 208,697 210,388
Shareholders' Equity - Notes I and J 761,344 813,426
---------- ----------
Total Liabilities and Shareholders' Equity $1,974,856 $1,964,275
========== ==========
See notes to condensed consolidated financial statements.
Form 10-Q
Page 3
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ----------------------
SEPT. SEPT. SEPT. SEPT.
30, 2002 30, 2001 30, 2002 30, 2001
-------- --------- --------- ---------
Shipping Revenues - Note C:
Voyage charter revenues $ 18,424 $ 48,966 $ 54,243 $ 198,918
Time and bareboat charter revenues, including
vessels operating in certain pools 50,531 48,469 158,952 177,383
-------- --------- --------- ---------
68,955 97,435 213,195 376,301
Voyage expenses (6,761) (19,079) (23,801) (64,618)
-------- --------- --------- ---------
Time Charter Equivalent Revenues 62,194 78,356 189,394 311,683
-------- --------- --------- ---------
Ship Operating Expenses:
Vessel expenses 20,598 23,173 63,722 63,670
Time and bareboat charter hire expenses - Note K 6,130 10,859 18,474 36,754
Depreciation and amortization 20,106 17,453 58,724 51,637
General and administrative 7,272 9,589 22,717 28,681
Restructuring charge - Note L -- 382 -- 9,196
-------- --------- --------- ---------
Total Ship Operating Expenses 54,106 61,456 163,637 189,938
-------- --------- --------- ---------
Income from Vessel Operations 8,088 16,900 25,757 121,745
Equity in Income of Joint Ventures - Note E 1,475 3,556 4,762 13,198
-------- --------- --------- ---------
Operating Income 9,563 20,456 30,519 134,943
Write-down of Marketable Securities - Note F (31,976) -- (31,976) --
Other Income/(Expense) - net - Note M (491) 7,697 12,291 40,699
-------- --------- --------- ---------
(22,904) 28,153 10,834 175,642
Interest Expense 13,267 11,041 40,081 33,106
-------- --------- --------- ---------
Income/(Loss) before Federal Income Taxes (36,171) 17,112 (29,247) 142,536
Provision/(Credit) for Federal Income Taxes - Note I (6,510) 5,950 (4,000) 48,300
-------- --------- --------- ---------
Net Income/(Loss) $(29,661) $ 11,162 $ (25,247) $ 94,236
======== ========= ========= =========
Per Share Amounts - Note N2:
Basic net income/(loss) $ (0.86) $ 0.33 $ (0.73) $ 2.76
======== ========= ========= =========
Diluted net income/(loss) $ (0.86) $ 0.32 $ (0.73) $ 2.72
======== ========= ========= =========
Cash dividends declared $ 0.15 -- $ 0.60 $ 0.45
======== ========= ========= =========
See notes to condensed consolidated financial statements.
Form 10-Q
Page 4
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
NINE MONTHS ENDED
----------------------
SEPT. SEPT.
30, 2002 30, 2001
--------- ---------
Net cash provided by operating activities $ 2,686 $ 177,231
--------- ---------
Cash Flows from Investing Activities:
Purchases of marketable securities -- (116,969)
Proceeds from sales of marketable securities 32,164 96,402
Expenditures for vessels, including $101,504 and $72,235 related
to vessels under construction (134,733) (73,694)
Proceeds from disposal of vessels 12,729 1,142
Investments in and advances to joint ventures (17,844) (53,818)
Distributions from joint ventures 5,612 2,749
Other - net (81) 1,003
--------- ---------
Net cash (used in) investing activities (102,153) (143,185)
--------- ---------
Cash Flows from Financing Activities:
Issuance of debt 256,000 --
Payments on debt and obligations under capital leases (158,423) (16,999)
Cash dividends paid (15,470) (15,374)
Issuance of common stock upon exercise of stock options 2,311 4,076
Other - net (2,140) 22
--------- ---------
Net cash provided by/(used in) financing activities 82,278 (28,275)
--------- ---------
Net increase/(decrease) in cash and cash equivalents (17,189) 5,771
Cash and cash equivalents at beginning of period 30,256 15,781
--------- ---------
Cash and cash equivalents at end of period $ 13,067 $ 21,552
========= =========
See notes to condensed consolidated financial statements.
Form 10-Q
Page 5
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
DOLLARS IN THOUSANDS
(UNAUDITED)
Accumulated
Paid-in Treasury Stock Other
Common Additional Retained ---------------------- Comprehensive
Stock* Capital Earnings Shares Amount Income/(Loss)** Total
------- -------- --------- ---------- -------- -------------- ---------
Balance at January 1, 2002 $39,591 $103,529 $ 769,457 5,312,867 $(72,868) $(26,283) $ 813,426
---------
Net Loss (25,247) (25,247)
Net Unrealized Holding Gains on
Available-For-Sale Securities 2,404 2,404
Effect of Derivative Instruments (13,212) (13,212)
Minimum Pension Liability 279 279
---------
Comprehensive Loss (35,776)***
---------
Cash Dividends Declared (20,635) (20,635)
Deferred Compensation Related
to Options Granted 1,697 1,697
Options Exercised and Employee
Stock Purchase Plan 23 (152,492) 2,288 2,311
Tax Benefit Related to Options Exercised 321 321
------- -------- --------- ---------- -------- -------- ---------
Balance at September 30, 2002 $39,591 $105,570 $ 723,575 5,160,375 $(70,580) $(36,812) $ 761,344
======= ======== ========= ========== ======== ======== =========
Balance at January 1, 2001 $39,591 $ 99,009 $ 688,528 5,604,275 $(76,857) $ (104) $ 750,167
---------
Net Income 94,236 94,236
Cumulative Effect of Change in Accounting
Principle, net of taxes of $1,861 - Note B 3,455 3,455
Net Unrealized Holding Losses on
Available-For-Sale Securities (24,816) (24,816)
Effect of Derivative Instruments (13,560) (13,560)
---------
Comprehensive Income 59,315***
---------
Cash Dividends Declared (15,374) (15,374)
Deferred Compensation Related to
Options Granted 1,697 1,697
Options Exercised and Employee
Stock Purchase Plan 548 (261,309) 3,528 4,076
Tax Benefit Related to Options Exercised 1,253 1,253
------- -------- --------- ---------- -------- -------- ---------
Balance at September 30, 2001 $39,591 $102,507 $ 767,390 5,342,966 $(73,329) $(35,025) $ 801,134
======= ======== ========= ========== ======== ======== =========
* Par value $1 per share; 60,000,000 shares authorized and 39,590,759 shares
issued.
** Amounts are net of tax.
*** There were comprehensive losses of $36,726 and $26,364 for the three
months ended September 30, 2002 and 2001, respectively.
See notes to condensed consolidated financial statements.
Form 10-Q
Page 6
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note A - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month periods
ended September 30, 2002 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 2001.
The condensed consolidated statements of operations for the three month and nine
month periods ended September 30, 2001 and the condensed consolidated statement
of cash flows for the nine month period ended September 30, 2001 have been
reclassified to conform with the 2002 presentation of certain items.
Note B - Change in Accounting for Derivatives and Hedging Activities:
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, a change in the fair value of the derivative is either offset against the
change in fair value of the hedged item (fair value hedge), or recognized in
other comprehensive income/(loss) until the hedged item is reflected in earnings
(cash flow hedge). The ineffective portion (that is, the change in fair value of
the derivative that does not offset the change in fair value of the hedged item)
of a derivative's change in fair value will be immediately recognized in
earnings. The adoption of FAS 133 on January 1, 2001 resulted in the cumulative
effect of an accounting change, net of taxes, of $3,455,000 being recognized as
a gain in other comprehensive income/(loss). The cumulative effect of such
accounting change on net income was insignificant.
Form 10-Q
Page 7
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note C -Segment Reporting:
The Company has five reportable segments: Foreign Flag VLCCs, Aframaxes, and
Product Carriers, and U.S. Flag Crude Tankers and Dry Bulk Carriers. Information
about the Company's reportable segments as of and for the three month and nine
month periods ended September 30, 2002 and 2001 is as follows:
Foreign Flag U.S. Flag
---------------------------------- ------------------
Product Crude Dry Bulk
In thousands VLCCs Aframaxes Carriers Tankers Carriers All other Totals
- ------------------------------------------------------------------------- -------------------------------------------
Three months ended Sept. 30, 2002:
Shipping revenues * $ 17,514 $ 16,267 $ 13,728 $ 7,013 $ 6,083 $ 8,350 $ 68,955
Time charter equivalent revenues 17,109 16,167 9,549 7,013 4,090 8,266 62,194
Income from vessel operations 1,989 5,040 3,258 3,431 602 1,040 15,360**
Equity in income of joint ventures (132) (27) 1,541 93 1,475
Total assets at Sept. 30, 2002 872,941 492,114 93,207 7,153 6,388 161,687 1,633,490
Nine months ended Sept. 30, 2002:
Shipping revenues * 51,902 52,159 39,372 21,039 18,482 30,241 213,195
Time charter equivalent revenues 50,893 52,123 26,836 21,039 8,533 29,970 189,394
Income from vessel operations 6,262 19,022 8,351 10,314 (3,660) 8,185 48,474**
Equity in income of joint ventures 536 (207) 4,342 91 4,762
Three months ended Sept. 30, 2001:
Shipping revenues * 23,343 30,226 14,586 7,013 9,308 12,959 97,435
Time charter equivalent revenues 23,080 20,385 11,245 7,013 3,814 12,819 78,356
Income from vessel operations 11,035 7,907 2,866 3,442 (1,144) 2,765 26,871**
Equity in income of joint ventures 1,982 1,574 3,556
Total assets at Sept. 30, 2001 818,732 405,024 103,404 2,224 14,901 168,176 1,512,461
Nine months ended Sept. 30, 2001:
Shipping revenues * 96,451 127,134 60,834 21,039 25,999 44,844 376,301
Time charter equivalent revenues 95,908 91,003 49,249 21,039 10,016 44,468 311,683
Income from vessel operations 60,671 57,433 27,466 10,733 (5,682) 9,001 159,622**
Equity in income of joint ventures 7,297 4,640 1,228 33 13,198
* Beginning in 2002, operation of the PDV Marina/OSG Aframax pool, now doing
business as Aframax International, changed to be substantially similar to
the operations of the Tankers and dry bulk carrier pools. Accordingly, in
the first quarter of 2002, Aframax International began reporting results
on a time charter equivalent basis (after reduction for voyage expenses).
Prior to 2002, revenues of the Aframaxes were reported on a voyage charter
basis, that is, before reduction for voyage expenses that aggregated
$9,841 for the three months ended September 30, 2001 and $36,131 for the
nine months ended September 30, 2001.
For vessels operating in pools or on time or bareboat charters, shipping
revenues are substantially the same as time charter equivalent revenues.
** Segment totals for income from vessel operations are before general and
administrative expenses and the restructuring charge.
Form 10-Q
Page 8
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note C - Segment Reporting (continued):
A reconciliation of total assets of the segments to amounts included in the
condensed consolidated balance sheets is as follows:
IN THOUSANDS AS OF
------------------------
SEPTEMBER SEPTEMBER
30, 2002 30, 2001
---------- ----------
Total assets of all segments $1,633,490 $1,512,461
Corporate cash and securities, including Capital
Construction Fund 266,144 307,526
Other unallocated amounts 75,222 85,779
---------- ----------
Consolidated total assets $1,974,856 $1,905,766
========== ==========
Note D - Assets and Liabilities of Foreign Subsidiaries:
A condensed summary of the combined assets and liabilities of the Company's
foreign subsidiaries, whose operations are principally conducted in U.S.
dollars, is as follows:
IN THOUSANDS AS OF
------------------------
SEPTEMBER DECEMBER
30, 2002 30, 2001
---------- ----------
Current assets $ 46,872 $ 35,182
Vessels, net 1,336,871 1,259,383
Other assets 166,421 166,238
---------- ----------
Total Assets $1,550,164 $1,460,803
========== ==========
Current installments of long-term debt, including
intercompany of $66,800 as of December 31, 2001 $ 14,285 $ 79,400
Other current liabilities 10,917 16,135
---------- ----------
Total current liabilities 25,202 95,535
Long-term debt, deferred credits
and other liabilities 461,756 304,861
Equity 1,063,206 1,060,407
---------- ----------
Total Liabilities and Equity $1,550,164 $1,460,803
========== ==========
Note E - Joint Ventures:
As of September 30, 2002, the Company is a partner in joint ventures that own 11
foreign flag vessels (ten VLCCs and one Aframax). Eight of these VLCCs
participate in the Tankers pool; two operate on long-term charters, one to the
Company and one to the other joint venture partner, and do not participate in
the Tankers pool. The Aframax participates in the Aframax International pool.
Form 10-Q
Page 9
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note E - Joint Ventures (continued):
In May 2002, a joint venture in which the Company has a 50% interest exercised a
purchase option to acquire the 1992-built Aframax tanker that it had bareboat
chartered in. The purchase price of approximately $13 million was financed
through capital contributions from the partners.
A condensed summary of the results of operations of the joint ventures is as
follows:
IN THOUSANDS
----------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
2002 2001 2002 2001
-------- -------- --------- ---------
Time charter equivalent revenues $ 59,729 $ 59,030 $ 177,199 $ 168,401
Ship operating expenses 52,988 49,923 155,088 143,332
-------- -------- --------- ---------
Income from vessel operations 6,741 9,107 22,111 25,069
Other income 125 219 479 726
Interest expense * (7,257) (5,970) (19,341) (11,259)
-------- -------- --------- ---------
Net income/(loss) $ (391) $ 3,356 $ 3,249 $ 14,536
======== ======== ========= =========
* Interest expense includes interest on subordinated loans payable to the
joint venture partners of $4,097,000 (three months ended September 30,
2002), $2,337,000 (three months ended September 30, 2001), $10,296,000
(nine months ended September 30, 2002) and $3,467,000 (nine months ended
September 30, 2001). The Company's share of such interest is eliminated in
recording the results of the joint ventures by the equity method.
As of September 30, 2002, the joint ventures in which the Company had interests
ranging from 30% to 50% had bank debt of $341,480,000 and subordinated loans
payable to all joint venture partners of $195,624,000. The Company's guaranties
in connection with the joint ventures' bank financings, which are otherwise
nonrecourse to the joint venture partners, aggregated $36,133,000 at September
30, 2002. The amount of these guaranties reduces as the bank loans are paid
down.
Note F - Investments in Marketable Securities:
The Company accounts for investments in marketable securities in accordance with
the provisions of Statement of Financial Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" and Staff Accounting Bulletin
No. 59, "Noncurrent Marketable Equity Securities." Accordingly, if a material
decline in the fair value below the Company's cost basis is determined to be
other-than-temporary, a noncash impairment loss is recorded as a charge in the
statement of operations in the period in which that determination is made. As a
matter of policy, the Company evaluates all material declines in fair value for
impairment whenever the fair value of a stock has been below its cost basis for
six consecutive months. In the period in which a decline in fair value is
determined to be other-than-temporary, the carrying value of that security is
written down to its fair value at the end of such period, thereby establishing a
new cost basis. Based on a number of factors, including the magnitude of
Form 10-Q
Page 10
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note F - Investments in Marketable Securities (continued):
the drop in market values below the Company's cost bases and the length of time
that the declines have been sustained, management concluded that the declines in
fair value of certain securities with an aggregate cost basis of $44,201,000,
including $4,578,000 attributable to securities in the Capital Construction
Fund, were other-than-temporary at the end of the third quarter of 2002.
During the three month and nine month periods ended September 30, 2002, the
Company recorded noncash impairment losses of $31,976,000 related to its
marketable securities, including $3,159,000 related to securities held in the
Capital Construction Fund, in the accompanying condensed consolidated statements
of operations.
Note G - Derivatives:
As of September 30, 2002, the Company is a party to floating-to-fixed interest
rate swaps with various major financial institutions covering notional amounts
aggregating approximately $422,000,000, including 11-year swaps that commence in
the third quarter of 2003, pursuant to which it pays, or will pay, fixed rates
ranging from 4.6% to 7.1% and receives floating rates based on LIBOR
(approximately 1.8% as of September 30, 2002). These agreements contain no
leverage features and have various maturity dates from February 2003 to August
2014. As of September 30, 2002, the Company has recorded a liability of
$29,579,000 related to the fair values of these swaps in other liabilities.
Note H - Debt:
In February 2002, the Company increased its unsecured short-term credit facility
to $45,000,000 from $15,000,000. There was no balance outstanding under such
facility at September 30, 2002. In addition, the Company has unsecured long-term
credit facilities aggregating $700,000,000, of which $503,000,000 was used at
September 30, 2002.
In late July and early August 2002, the Company entered into four secured loan
agreements aggregating $256,000,000. Seven vessels (three VLCCs and four
Aframaxes) were pledged as collateral in connection with such loans. The loans
have terms ranging from 10 to 12 years (with an average life of approximately
eight years) and currently carry interest rates based on a spread above LIBOR.
The interest rate basis applicable to $50,000,000 of such loans will convert to
a fixed rate in August 2003. The Company used the proceeds received from these
borrowings to pay down existing secured Term Loans and unsecured Promissory Note
with an aggregate outstanding balance of $117,100,000, which had significantly
shorter remaining terms, and to reduce amounts then outstanding under the
Company's revolving credit facilities. As of September 30, 2002, the full
$256,000,000 has been effectively converted into fixed rate debt for periods up
to 12 years.
Agreements relating to long-term debt provide for prepayment privileges (in
certain instances with penalties), a limitation on the amount of total
borrowings, and acceleration of payment under certain circumstances, including
failure to satisfy the financial covenants contained in certain of such
agreements.
Form 10-Q
Page 11
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note H - Debt (continued):
As of September 30, 2002, approximately 25.3% of the net book amount of the
Company's vessels, representing seven foreign flag vessels, is pledged as
collateral under certain debt agreements.
Interest paid approximated $38,199,000 (nine months ended September 30, 2002)
and $28,323,000 (nine months ended September 30, 2001), excluding capitalized
interest, which decreased due to vessel deliveries.
Note I - Taxes:
Since January 1, 1987, earnings of the foreign shipping companies (exclusive of
foreign joint ventures in which the Company has a less than 50% interest) are
subject to U.S. income taxation in the year earned and may be distributed to the
U.S. parent without further tax. Prior to 1987, tax on such earnings was
deferred as long as the earnings were reinvested in foreign shipping operations.
Foreign income, substantially all of which resulted from the operations of
companies that are not subject to income taxes in their country of
incorporation, aggregated $16,494,000 (three months ended September 30, 2001),
$1,144,000 (nine months ended September 30, 2002) and $130,724,000 (nine months
ended September 30, 2001), before any U.S. income tax effect. There was a loss
from foreign shipping operations of $2,953,000 for the three months ended
September 30, 2002. No provision for U.S. income taxes on the undistributed
income of the foreign shipping companies accumulated through December 31, 1986
was required at September 30, 2002 since undistributed earnings of foreign
shipping companies have been reinvested or are intended to be reinvested in
foreign shipping operations so that the qualified investment therein is not
expected to be reduced below the corresponding amount at December 31, 1986.
Further, no provision for U.S. income taxes on the Company's share of the
undistributed earnings of the less than 50%-owned foreign shipping joint
ventures was required as of September 30, 2002, since it is intended that such
undistributed earnings ($2,300,000 at September 30, 2002) will be indefinitely
reinvested; the unrecognized deferred U.S. income taxes attributable thereto
approximated $800,000.
The components of the provision for federal income taxes are as follows:
IN THOUSANDS
-----------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2002 2001 2002 2001
------- ------- -------- -------
Current $ (258) $ 2,200 $ (482) $23,400
Deferred (6,252) 3,750 (3,518) 24,900
------- ------- -------- -------
$(6,510) $ 5,950 $ (4,000) $48,300
======= ======= ======== =======
Form 10-Q
Page 12
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note I - Taxes (continued):
During the three month and nine month periods ended September 30, 2002, the
Company established a valuation allowance offset of $6,888,000 against the
deferred tax asset resulting from the write-down of certain marketable
securities (see Note F), and the unrealized losses on available-for-sale
securities that are reflected in accumulated other comprehensive income/(loss).
The valuation allowance was established because the Company believes, based on
currently available evidence, that it is more likely than not that the full
amount of the deferred tax asset will not be realized through the generation of
capital gains in the future.
The above valuation allowance has been recorded in the accompanying condensed
financial statements as follows (in thousands):
Increase in provision for federal income taxes $ 5,431
Decrease in other comprehensive income/(loss) 1,457
--------
$ 6,888
========
Federal income taxes paid during the nine months ended September 30, 2002
amounted to $24,500,000, all of which related to 2001. Federal income taxes paid
during the nine months ended September 30, 2001 amounted to $6,100,000, of which
$3,100,000 related to 2000.
Note J - Accumulated Other Comprehensive Income/(Loss):
The components of accumulated other comprehensive income/(loss), net of related
taxes, are as follows:
IN THOUSANDS AS OF
---------------------
SEPTEMBER DECEMBER
30, 2002 31, 2001
--------- --------
Unrealized losses on available-for-sale securities $(14,041) $(16,445)
Unrealized losses on derivative instruments (19,226) (6,014)
Minimum pension liability (3,545) (3,824)
-------- --------
$(36,812) $(26,283)
======== ========
Note K - Leases (Charters-in):
As of September 30, 2002, the Company participates in the charter-in of three
vessels (two Capesize Dry Bulk Carriers at an average rate of $11,500 per day
and one VLCC at an average rate of $23,700 per day), which are commercially
managed by pools in which the Company participates. As of September 30, 2002,
these charters-in, which principally commenced during the third quarter of 2002,
have remaining terms ranging from nine months for one of the Dry Bulk Carriers
to 34 months for the VLCC. The Company's share of such charter-in obligations as
of September 30, 2002 is $1,114,000 (fourth quarter of 2002), $4,191,000 (2003),
$3,712,000 (2004) and $1,995,000 (2005).
Form 10-Q
Page 13
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note L - Restructuring Charge:
In the first quarter of 2001, the Company completed a review of its ship
management and administrative functions and adopted a plan to transfer a major
portion of such functions to its subsidiary in Newcastle, United Kingdom,
resulting in New York headquarters staff reductions numbering approximately 100
persons. In connection with such staff reductions, the Company recorded
restructuring charges of $382,000 (three months ended September 30, 2001) and
$9,196,000 (nine months ended September 30, 2001). The charge included
$7,626,000 related to employee termination and severance costs associated with
the reduction in workforce and $1,570,000 for the disposal of certain assets.
Additional charges related to this restructuring aggregating $1,243,000 were
recognized over the remainder of 2001, in accordance with existing accounting
pronouncements. The restructuring has been completed. The remaining liability of
$204,000, for severance costs to be paid over the remaining three months of
2002, is included in sundry liabilities and accrued expenses in the condensed
consolidated balance sheet as of September 30, 2002.
Note M - Other Income/(Expense) - net:
Other income/(expense) - net consists of the following:
IN THOUSANDS
----------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2002 2001 2002 2001
------- ------- -------- -------
Investment income:
Interest and dividends $ 1,735 $ 3,441 $ 7,247 $13,293
Realized gain/(loss) on sale of securities - net (1,027) 1,760 1,656 22,015
Foreign currency exchange gain on
available-for-sale securities 272 2,422 3,755 152
------- ------- -------- -------
980 7,623 12,658 35,460
Gain/(loss) on sale of vessels (1,549) -- (861) 436
Gain on derivative transactions -- 2 325 4,465
Miscellaneous - net 78 72 169 338
------- ------- -------- -------
$ (491) $ 7,697 $ 12,291 $40,699
======= ======= ======== =======
Note N - Capital Stock and Per Share Amounts:
1. In September 2002, the Board of Directors authorized the repurchase of up to
3,000,000 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 will take
into account such factors as price and prevailing market conditions. As of
September 30, 2002, there have been no purchases under this program.
Form 10-Q
Page 14
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note N - Capital Stock and Per Share Amounts (continued):
2. Basic net income/(loss) per share is based on the following weighted average
number of common shares outstanding during each period: 34,427,000 shares (three
months ended September 30, 2002), 34,245,000 shares (three months ended
September 30, 2001), 34,381,000 shares (nine months ended September 30, 2002)
and 34,139,000 shares (nine months ended September 30, 2001). Diluted net
income/(loss) per share, which gives effect to stock options, is based on the
following weighted average number of shares during each period: 34,427,000
shares (three months ended September 30, 2002), 34,742,000 shares (three months
ended September 30, 2001), 34,381,000 shares (nine months ended September 30,
2002) and 34,708,000 shares (nine months ended September 30, 2001). Such options
have not been included in the computation of diluted net (loss) per share for
the three month and nine month periods ended September 30, 2002 since their
effect thereon would be antidilutive.
Note O - Commitments:
In late July 2002, the Company prepaid approximately $47,600,000 of vessel
construction costs to recognize the benefit of a contractually provided
prepayment discount, thereby reducing the 2003 commitments by $52,000,000. As of
September 30, 2002, the Company had non-cancelable contracts for the
construction of three double-hulled foreign flag tankers (one VLCC and two
Aframaxes), scheduled for delivery between January 2003 and January 2004, with
an aggregate unpaid cost of approximately $43,200,000. Unpaid costs, which are
net of $105,200,000 of progress payments and prepayments, will be funded as
follows: $26,500,000 during the remaining three months of 2002 and $16,700,000
in 2003. The progress payments are covered by refundment guaranties.
Form 10-Q
Page 15
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General:
The Company is one of the largest independent bulk shipping companies in the
world. The Company's operating fleet consists of 52 vessels aggregating 8.5
million deadweight tons ("dwt"), including 11 vessels that are owned by joint
ventures in which the Company has an average interest of 41%. An additional
three newbuildings aggregating 0.5 million dwt are scheduled for delivery in the
next 15 months.
Operations:
The Company's revenues are highly sensitive to patterns of supply and demand for
vessels of the types and sizes owned and operated by the Company and the trades
in which those vessels operate. Rates for the transportation of crude oil and
refined petroleum products from which the Company earns a substantial majority
of its revenue are determined by market forces such as the supply and demand for
oil, the distance that cargoes must be transported, and the number of vessels
expected to be available at the time such cargoes need to be transported. The
demand for oil shipments is significantly affected by the state of the global
economy and the level of OPEC's exports. The number of vessels is affected by
newbuilding deliveries and by the removal of existing vessels from service,
principally because of scrapping. The Company's revenues are also affected by
the mix of charters between spot (voyage charter) and long-term (time charter).
Because shipping revenues and voyage expenses are significantly affected by the
mix between voyage charters and time charters, the Company manages its vessels
based on time charter equivalent ("TCE") revenues. Management makes economic
decisions based on anticipated TCE rates and evaluates financial performance
based on TCE rates achieved.
Set forth in the tables below are daily TCE rates that prevailed in various
markets in which the Company's vessels operated for the periods indicated. In
each case, the rates may differ from the actual TCE rates achieved by the
Company in the period indicated because of the timing and length of voyages and
the portion of revenue generated from long-term charters. It is important to
note that the spot market is quoted in Worldscale rates. The conversion of
Worldscale rates to the following TCE rates necessarily required the Company to
make certain assumptions as to brokerage commissions, port time, port costs,
speed and fuel consumption, all of which will vary in actual usage.
Foreign Flag VLCC Segment
- --------------------------------------------------------------------------------
Spot Market TCE Rates
VLCCs in the Arabian Gulf
-------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Average $ 9,500 $26,400 $11,300 $36,800
High $18,800 $42,100 $26,800 $69,800
Low $ 3,500 $14,800 $ 3,500 $14,800
- --------------------------------------------------------------------------------
Form 10-Q
Page 16
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Operations (continued):
During the third quarter of 2002, TCE rates for modern VLCCs operating in the
Arabian Gulf fell to an average of $9,500 per day, 64% below the average daily
rate of $26,400 per day achieved in the third quarter of 2001. This drop in
rates was attributable to a slower recovery in the global economy and a
reduction in OPEC crude oil production caused by successive OPEC quota cuts.
Approximately two-thirds of this reduction has been borne by member countries
located in the Arabian Gulf, the primary source of VLCC employment, placing
significant pressure on VLCC rates. OPEC production in the third quarter of 2002
was 25.3 million barrels per day, 7.0% lower than the production levels in the
third quarter of 2001.
Foreign Flag Aframax Segment
- --------------------------------------------------------------------------------
Spot Market TCE Rates
Aframaxes in the Caribbean
-------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Average $14,000 $18,000 $14,800 $26,600
High $22,000 $26,000 $24,000 $51,000
Low $ 8,500 $12,000 $ 8,500 $12,000
- --------------------------------------------------------------------------------
Aframaxes are less reliant on trades from the Arabian Gulf than VLCCs and have
benefited from increased non-OPEC production. During the third quarter of 2002,
non-OPEC oil output averaged 47.6 million barrels per day, an increase of 0.8
million barrels per day, or 1.6%, compared with the third quarter of 2001.
Substantially all of the non-OPEC production increase was attributable to an
8.6% rise in output in the Former Soviet Union ("FSU"). Seaborne crude oil
exports from the FSU rose year-over-year by 19% to 3.0 million barrels per day,
over 50% of which was carried on Aframaxes, benefiting Mediterranean trades.
Demand for Aframax tonnage in the Caribbean trades during the third quarter of
2002, however, was moderated by counter-seasonal reductions in U.S. crude oil
inventory levels. Rates for Aframaxes operating in the Caribbean in the third
quarter of 2002 averaged $14,000 per day, 22% below the average of $18,000 per
day that prevailed in the third quarter of 2001.
Foreign Flag Product Carrier Segment
- --------------------------------------------------------------------------------
Spot Market TCE Rates
Panamaxes in the Pacific and
Bostonmaxes in the Caribbean
-------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Panamax Average $13,600 $20,200 $12,100 $30,600
Panamax High $14,800 $24,000 $14,800 $58,000
Panamax Low $12,000 $16,000 $ 9,000 $16,000
Bostonmax Average $ 8,900 $16,200 $ 9,900 $20,200
Bostonmax High $11,500 $19,000 $12,400 $32,000
Bostonmax Low $ 8,000 $13,000 $ 8,000 $13,000
- --------------------------------------------------------------------------------
Form 10-Q
Page 17
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Operations (continued):
TCE rates for Panamax Product Carriers in the Pacific averaged $13,600 per day
during the third quarter compared with $20,200 per day in the third quarter of
2001, a decrease of 33%. In recent months, refined-products inventories in the
Pacific region have increased, but remain about 5% below year ago levels.
Japanese oil demand remained stagnant for most of the third quarter of 2002, at
1% to 2% below demand in the third quarter of 2001.
Long haul refined-products trades from the Middle East to Europe declined
further in the third quarter of 2002, adversely affecting demand for larger
product tankers. Weak European demand during the third quarter of 2002 kept
product inventory stocks relatively high. Nevertheless, product exports from the
FSU, which primarily move to Europe, were more than 6% higher in the third
quarter of 2002 compared with the third quarter of last year. The resulting
increase in employment has primarily benefited medium-size (25-45,000 dwt)
product carriers, which carry approximately 60% of FSU product exports to Europe
that are shipped in vessels over 25,000 dwt.
TCE rates for Bostonmax Product Carriers (approximately 39,000 dwt) trading from
the Caribbean fell to an average of $8,900 per day in the third quarter of 2002
from $16,200 per day in the third quarter of 2001, a decrease of 45%.
Refined-products inventory levels in North America peaked early in the third
quarter, gradually declining thereafter, largely as the result of the seasonal
drawdown of gasoline stocks. Despite this inventory drawdown, product
inventories at the end of August were at their highest end-of-August level since
1999. Exports of unleaded gasoline from Europe to the U.S. remained strong
throughout most of the third quarter, with over one million tons exported in
August alone.
Update on Critical Accounting Policies:
The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require the
Company to make estimates in the application of its accounting policies based on
the best assumptions, judgments, and opinions of management. For a description
of all of the Company's material accounting policies, see Note A to the
Company's consolidated financial statements included in the Company's annual
report on Form 10-K for the year ended December 31, 2001.
Market Value of Marketable Securities
In accordance with Financial Accounting Standards No. 115, the Company's
holdings in marketable securities are classified as available-for-sale and,
therefore, are carried on the balance sheet at fair market value (determined by
using period-end sales prices on U.S. or foreign stock exchanges) with changes
in carrying value being recorded in accumulated other comprehensive
income/(loss) until the investments are sold. Accordingly, these changes in
value are not reflected in the Company's statements of operations. If, however,
pursuant to the provisions of Financial Accounting Standards No. 115 and Staff
Accounting Bulletin No. 59, the Company determines that a material decline in
the fair value below the Company's cost basis is other-than-temporary, the
Company records a noncash impairment loss as a charge in the statement of
operations in the period in which that determination is made. As a matter of
policy, the Company evaluates all material declines in fair value for impairment
whenever the fair value
Form 10-Q
Page 18
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Update on Critical Accounting Policies (continued):
of a stock has been below its cost basis for six consecutive months. In the
period in which a decline in fair value is determined to be
other-than-temporary, the carrying value of that security is written down to its
fair value at the end of such period, thereby establishing a new cost basis.
Based on a number of factors, including the magnitude of the drop in market
values below the Company's cost bases and the length of time that the declines
have been sustained, management concluded that the declines in fair value of
securities with an aggregate cost basis of $44,201,000, including $4,578,000
attributable to securities in the Capital Construction Fund, was
other-than-temporary at the end of the third quarter of 2002. For the third
quarter and first nine months of 2002, the Company recorded a pre-tax noncash
impairment losses of $31,976,000 related to such marketable securities,
including $3,159,000 related to securities held in the Capital Construction
Fund. These impairment losses are reflected in the accompanying condensed
consolidated statements of operations.
The fair value of certain other marketable securities has declined below the
Company's cost bases in those securities. At September 30, 2002, the net after
tax unrealized loss applicable to available-for-sale securities included in
accumulated other comprehensive income/(loss) was $14.0 million, including $7.5
million applicable to securities in the Capital Construction Fund in the
accompanying condensed consolidated balance sheet. Certain of these securities
have had fair values below their carrying values for more than six months. The
Company has evaluated the circumstances surrounding the declines in market
values as of September 30, 2002, and believes that these declines are temporary
and, accordingly, continues to record the unrealized losses in accumulated other
comprehensive income/(loss). If, however, the market values of these securities
do not recover in the near term, the decline may then be considered to be an
other-than-temporary impairment, which would result in a charge to earnings in
future periods, which charges previously have been included in accumulated other
comprehensive income/(loss).
Income from Vessel Operations:
During the third quarter of 2002, TCE revenues decreased by $16,162,000, or 21%,
to $62,194,000 from $78,356,000 in the third quarter of 2001, resulting from a
sharp decline in average daily TCE rates for vessels operating in the spot
market partially offset by an increase in revenue days. During the third quarter
of 2002, approximately 71% of the Company's TCE revenues were derived in the
spot market, including vessels in pools that predominantly perform voyage
charters, compared with 66% in the third quarter of 2001. In the third quarter
of 2002, approximately 29% of TCE revenues were generated from long-term
charters compared with 34% in the third quarter of 2001. This reduction in
percentage contribution from long-term charters in the third quarter of 2002 was
principally attributable to an increase in drydocking days for two U.S. Flag
Product Carriers and the expiry, in the first quarter of 2002, of a long-term
charter on a VLCC.
During the first nine months of 2002, TCE revenues decreased by $122,289,000, or
39%, to $189,394,000 from $311,683,000 in the first nine months of 2001 because
of a significant decrease in spot market rates partially offset by an increase
in revenue days. For the first nine months of 2002, approximately 68% of the
Company's TCE revenues were derived in the spot market compared with 75% for the
first nine months of 2001. In the first nine months of 2002, approximately 32%
of TCE revenues were generated from long-term charters compared with 25% in the
first nine months of 2001.
Form 10-Q
Page 19
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
The increased percentage contribution from long-term charters during the first
nine months of 2002 compared with the comparable period of 2001 reflects the
sharp decline in average daily TCE rates for the vessels operating in the spot
market.
The reliance on the spot market contributes to fluctuations in the Company's
revenue, cash flow, and net income, but affords the Company greater opportunity
to increase income from vessel operations when rates rise. On the other hand,
long-term charters provide the Company with a more predictable level of
revenues.
During the third quarter of 2002, income from vessel operations decreased by
$8,812,000 to $8,088,000 from $16,900,000 in the third quarter of 2001. Income
from vessel operations for the 2001 period reflects a restructuring charge of
$382,000. The reduction resulted from a decrease in average daily TCE rates and
revenues for all of the Company's Foreign Flag segments (see Note C to the
condensed financial statements for additional information on the Company's
segments).
During the first nine months of 2002, income from vessel operations decreased by
$95,988,000 to $25,757,000 from $121,745,000 in the first nine months of 2001,
including a restructuring charge of $9,196,000 in the 2001 period. This
reduction resulted from a decrease in average daily TCE rates and revenues for
all of the Company's Foreign Flag segments. Average daily vessel expenses
decreased by more than $200 per day on a consolidated basis for the first nine
months of 2002 compared with the first nine months of 2001.
VLCC Segment
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------
TCE revenues (in thousands) $17,109 $23,080 $50,893 $95,908
Running expenses (in thousands)(a) 15,120 12,045 44,631 35,237
------- ------- ------- -------
Income from vessel operations (in thousands)(b) $ 1,989 $11,035 $ 6,262 $60,671
======= ======= ======= =======
Average daily TCE rate $16,956 $29,819 $17,795 $43,774
Average number of vessels(c) 10.0 7.5 9.7 7.2
Average number of vessels chartered in
under operating leases 1.1 1.0 1.0 1.0
Number of revenue days(d) 1,009 774 2,860 2,191
Number of ship-operating days(e) 1,025 780 2,923 2,228
a) Running expenses represent vessel expenses, time and bareboat charter hire
expenses, and depreciation and amortization.
b) Income from vessel operations by segment is before general and
administrative expenses and the restructuring charge.
c) The average is calculated to reflect the addition and disposal of vessels
during the period.
d) Revenue days represent ship-operating days less days that vessels were not
available for employment due to repairs, drydock or lay-up.
e) Ship-operating days represent calendar days.
Form 10-Q
Page 20
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
The VLCC segment includes two vessels that were time chartered out during the
periods. The charter on one of these vessels expired at the end of February
2002, at which time the vessel commenced participation in the Tankers pool. The
following table presents information for the VLCCs generating revenue in the
spot market.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------
Spot Market:
TCE revenues (in thousands) $13,868 $17,133 $40,047 $77,951
Running expenses (in thousands) 13,189 8,871 37,688 26,061
------- ------- ------- -------
Income from vessel operations (in thousands) $ 679 $ 8,262 $ 2,359 $51,890
======= ======= ======= =======
Average daily TCE rate $15,123 $28,990 $15,686 $47,300
Number of revenue days 917 591 2,553 1,648
During the third quarter of 2002, TCE revenues for the VLCC segment decreased by
$5,971,000, or 26%, to $17,109,000 from $23,080,000 in the third quarter of
2001. This reduction in TCE revenues resulted from a decrease of $12,863 per day
in the average daily TCE rate earned partially offset by an increase in the
number of revenue days. The increase in revenue days resulted from the delivery
of three newbuilding VLCCs (two in the second half of 2001 and one in
early-April 2002). Running expenses increased by $3,075,000 to $15,120,000 in
the third quarter of 2002 from $12,045,000 in the prior year's third quarter as
a result of an increase in ship-operating days. Average daily running expenses,
however, were relatively unchanged.
For the first nine months of 2002, TCE revenues decreased by $45,015,000, or
47%, to $50,893,000 from $95,908,000 in the first nine months of 2001. The
reduction in TCE revenues resulted from a decrease of $25,979 per day in the
average daily TCE rate earned partially offset by an increase in revenue days
resulting from the delivery of new vessels. Running expenses increased by
$9,394,000 to $44,631,000 from $35,237,000 in 2001 because of an increase in
ship-operating days. Average daily running expenses, however, were relatively
unchanged.
Aframax Segment
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------
TCE revenues (in thousands) $16,167 $20,385 $52,123 $91,003
Running expenses (in thousands) 11,127 12,478 33,101 33,570
------- ------- ------- -------
Income from vessel operations (in thousands) $ 5,040 $ 7,907 $19,022 $57,433
======= ======= ======= =======
Average daily TCE rate $16,007 $20,716 $16,857 $32,936
Average number of vessels 11.5 10.0 11.6 9.7
Average number of vessels chartered in
under operating leases -- 1.0 -- 0.6
Number of revenue days 1,010 984 3,092 2,763
Number of ship-operating days 1,060 1,012 3,175 2,801
Form 10-Q
Page 21
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
During the third quarter of 2002, TCE revenues for the Aframax segment decreased
by $4,218,000, or 21%, to $16,167,000 from $20,385,000 in the third quarter of
2001. This reduction in TCE revenues resulted from a decrease of $4,709 per day
in the average daily TCE rate earned partially offset by a small increase in
revenue days. The increase in revenue days resulted from the delivery of two
newbuilding Aframaxes subsequent to September 30, 2001 (one in 2001 and one in
the first quarter of 2002), the purchase, in the third quarter of 2002, of a
1994-built double-hulled Aframax, offset by the sale, also in the third quarter
of 2002, of the last two of the Company's single-hulled Aframaxes. TCE revenues
for the third quarter of 2001 include $408,000 generated by forward freight
agreements. Running expenses decreased by $1,351,000 to $11,127,000 in the third
quarter of 2002 from $12,478,000 in the prior year's third quarter as a result
of a reduction in charter-in expense partially offset by an increase in
ship-operating days. Average daily running expenses, excluding the impact of
chartered in vessels, were relatively unchanged because an increase in repair
costs counterbalanced a decrease in other components of running expenses.
For the first nine months of 2002, TCE revenues decreased by $38,880,000, or
43%, to $52,123,000 from $91,003,000 in the first nine months of 2001. This
reduction in TCE revenues resulted from a decrease of $16,079 per day in the
average daily TCE rate earned partially offset by an increase in revenue days
primarily resulting from the delivery of four new vessels since January 1, 2001.
TCE revenues for the first nine months of 2001 include $3,193,000 generated by
forward freight agreements. Running expenses decreased by $469,000 to
$33,101,000 from $33,570,000 as a result of a reduction in charter-in expense
partially offset by an increase in ship-operating days. Average daily running
expenses, excluding charter-in expense, decreased by approximately $400 per day
compared with the first nine months of 2001.
Product Carrier Segment
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------
TCE revenues (in thousands) $ 9,549 $11,245 $26,836 $49,249
Running expenses (in thousands) 6,292 8,379 18,485 21,783
------- ------- ------- -------
Income from vessel operations (in thousands) $ 3,257 $ 2,866 $ 8,351 $27,466
======= ======= ======= =======
Average daily TCE rate $13,244 $17,116 $12,581 $23,689
Average number of vessels 8.0 8.0 8.0 8.0
Average number of vessels chartered in
under operating leases -- -- -- 0.3
Number of revenue days 721 657 2,133 2,079
Number of ship-operating days 736 736 2,184 2,271
During the third quarter of 2002, TCE revenues for the Product Carrier segment
decreased by $1,696,000, or 15%, to $9,549,000 from $11,245,000 in the third
quarter of 2001. This reduction in TCE revenues resulted from a decrease of
$3,872 per day in the average daily TCE rate earned partially offset by an
increase in revenue days resulting from a 55-day reduction in repair and
drydocking days for the segment's vessels. Running expenses decreased by
$2,087,000 to $6,292,000 in the third quarter of 2002 from $8,379,000 in the
third quarter of 2001 because of a decrease in insurance costs related to hull
and machinery claims. Average daily running expenses, excluding the impact of
such insurance costs,
Form 10-Q
Page 22
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
were relatively unchanged.
For the first nine months of 2002, TCE revenues for the Product Carrier segment
decreased by $22,413,000, or 46%, to $26,836,000 from $49,249,000 in the first
nine months of 2001. This reduction in TCE revenues resulted from a decrease of
$11,108 per day in the average daily TCE rate earned and the redelivery of a
chartered in vessel to its owner in late-March 2001 partially offset by an
increase in revenue days caused by a 132-day reduction in repair and drydocking
days. Running expenses decreased by $3,298,000 to $18,485,000 from $21,783,000
in the first nine months of 2001 as a result of decreases in charter-in expense
and insurance costs related to hull and machinery claims. Average daily running
expenses, excluding the impact of charter-in expense and insurance costs related
to hull and machinery claims, were relatively unchanged.
U.S. Flag Crude Tanker Segment
TCE revenues in the third quarter of 2002 and in the first nine months of 2002
for the U.S. Flag Crude Tanker segment were unchanged from the comparable 2001
periods because the segment's vessels are bareboat chartered at fixed rates to
Alaska Tanker Company ("ATC").
U.S. Flag Dry Bulk Carrier Segment
During the third quarter of 2002, TCE revenues for the U.S. Flag Dry Bulk
Carrier segment increased by $276,000 to $4,090,000 from $3,814,000 in the third
quarter of 2001 reflecting an increase of $9,664 per day in the charter rates
earned, partially offset by a 100-day reduction in revenue days. Running
expenses decreased by $1,470,000 to $3,488,000 from $4,958,000 in the third
quarter of 2001 due to the sale in June 2002 of a segment vessel.
For the first nine months of 2002, TCE revenues for the U.S. Flag Dry Bulk
Carriers decreased by $1,483,000, or 15%, to $8,533,000 from $10,016,000 in the
first nine months of 2001. This reduction in TCE revenues resulted from a
121-day reduction in revenue days. Running expenses decreased by $3,504,000 to
$12,194,000 from $15,698,000 in the first nine months of 2001 as a result of the
sale of one segment vessel in June 2002 and another in June 2001. Average daily
running expenses, however, were relatively unchanged.
All Other
As of September 30, 2002, the Company also owns and operates a U.S. Flag Pure
Car Carrier, two U.S. Flag Handysize Product Carriers operating in the Jones Act
trade, and a Foreign Flag Suezmax, all on long-term charter, as well as two
Foreign Flag Dry Bulk Carriers that operate in a pool of Capesize Dry Bulk
Carriers. TCE revenues decreased by $4,553,000, or 36%, to $8,266,000 in the
third quarter of 2002 from $12,819,000 in the third quarter of 2001 principally
because of the Company's reduced participation in the charter-in of vessels that
were commercially managed by the Capesize pool and a 72-day reduction in revenue
days due to the drydocking of the two U.S. Flag Product Carriers. Running
expenses similarly decreased because of the reduction in charter-in expense
attributable to the vessels that were commercially managed by the Capesize pool.
Form 10-Q
Page 23
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
For the first nine months of 2002, TCE revenues decreased by $14,498,000, or
33%, to $29,970,000 from $44,468,000 in the first nine months of 2001. The
reduction in TCE revenues resulted from OSG's reduced participation in the
charter-in of vessels that were commercially managed by the Capesize pool and a
decrease in revenue days and TCE rates earned by the two Foreign Flag Dry Bulk
Carriers. Such decreases were partially offset by an increase in TCE revenues of
$532,000 earned by two U.S. Flag Product Carriers as a result of new long-term
charters that commenced in late 2001 and early 2002.
The average daily rates paid with respect to the chartered in vessels discussed
in the two preceding paragraphs were higher than the TCE rates earned by such
vessels during the respective periods. Accordingly, the reduced participation in
the charter-in of vessels positively affected consolidated income from vessel
operations by $290,000 in the third quarter of 2002 and $1,886,000 in the first
nine months of 2002, compared with the comparable periods of 2001.
General and Administrative Expenses
During the third quarter of 2002, general and administrative expenses decreased
by $2,317,000 to $7,272,000 from $9,589,000 in the third quarter of 2001
principally due to a decrease in cash compensation and related benefits.
During the first nine months of 2002, general and administrative expenses
decreased by $5,964,000 to $22,717,000 from $28,681,000 in the first nine months
of 2001 principally due to a decrease in cash compensation and related benefits.
Equity in Income of Joint Ventures:
The following is a summary of the Company's interest in its joint ventures,
excluding ATC (see discussion below), and the revenue days for the respective
vessels since their acquisition date. Revenue days are adjusted for the
Company's percentage ownership in order to state the revenue days on a basis
comparable to that of a wholly-owned vessel. For the joint venture VLCCs
operating in the Tankers pool, the ownership percentage reflected below is an
average as of September 30, 2002. The Company's actual ownership percentages for
these joint ventures range from 30% to 49.9%.
Number of Revenue Days
-----------------------------------------
2002 2001
------------------- -----------------
Average
% Three Nine Three Nine
Ownership Months Months Months Months
--------- ------ ------ ------ ------
VLCCs participating in Tankers pool 37.1% 269 724 187 356
VLCCs owned jointly with a major oil company 50.0% 92 273 92 273
Aframax participating in Aframax International pool 50.0% 31 122 46 137
----- ----- ----- -----
Total 392 1,119 325 766
The increase in revenue days resulted from the delivery since January 1, 2001 of
seven joint venture vessels.
Form 10-Q
Page 24
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Equity in Income of Joint Ventures (continued):
Additionally, the Company has a membership interest in ATC, a limited liability
company that operates ten U.S. Flag Tankers transporting Alaskan crude oil for
BP. The participation in ATC provides the Company with the opportunity to earn
income (in the form of its share of incentive hire paid by BP to ATC) based on
ATC's meeting certain predetermined performance standards.
During the third quarter of 2002, equity in income of joint ventures decreased
by $2,081,000 to $1,475,000 from $3,556,000 in 2001, principally due to a
decrease in average daily TCE rates earned by the joint venture vessels
partially offset by an increase of $1,541,000 in the Company's share of
incentive hire earned by ATC.
During the first nine months of 2002, equity in income of joint ventures
decreased by $8,436,000 to $4,762,000 from $13,198,000 in 2001, principally due
to a decrease in average daily TCE rates earned by the joint venture vessels
partially offset by an increase of $3,114,000 in the Company's share of
incentive hire earned by ATC.
Interest Expense:
The components of interest expense are as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Interest before impact of swaps
and capitalized interest $ 11,140 $ 12,444 $ 32,564 $ 42,179
Impact of swaps 3,352 1,581 11,009 1,780
Capitalized interest (1,225) (2,984) (3,492) (10,853)
-------- -------- -------- --------
Interest expense $ 13,267 $ 11,041 $ 40,081 $ 33,106
======== ======== ======== ========
Interest expense increased by $2,226,000 to $13,267,000 in the third quarter of
2002 from $11,041,000 in the third quarter of 2001 as a result of an increase in
the average amount of debt outstanding of $124,000,000 and a reduction of
$1,759,000 ($1,225,000 in the third quarter of 2002 compared with $2,984,000 in
the third quarter of 2001) in interest capitalized in connection with vessel
construction. Such increases were offset by a decrease of 160 basis points in
the average rate paid on floating rate debt to 3.0% in the 2002 third quarter
from 4.6% in the comparable quarter of 2001. The impact of this reduction in
rates on floating rate debt was significantly offset by the impact of
floating-to-fixed interest rate swaps that increased interest expense by
$3,352,000 in the third quarter of 2002 and $1,581,000 in the third quarter of
2001.
Interest expense increased by $6,975,000 to $40,081,000 in the first nine months
of 2002 from $33,106,000 in the first nine months of 2001 as a result of an
increase in the average amount of debt outstanding of $72,900,000 and a
reduction of $7,361,000 ($3,492,000 in the first nine months of 2002 compared
with $10,853,000 in the first nine months of 2001) in interest capitalized in
connection with vessel construction. Such increases were offset by a decrease of
250 basis points in the average rate paid on floating rate debt to 3.1% in the
first nine months of 2002 from 5.6% in the comparable period of
Form 10-Q
Page 25
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Interest Expense (continued):
2001. The impact of this reduction in rates on floating rate debt was
significantly offset by the impact of floating-to-fixed interest rate swaps that
increased interest expense by $11,009,000 in the first nine months of 2002 and
$1,780,000 in the first nine months of 2001.
Provision/(Credit) for Federal Income Taxes:
The credits for income taxes for the third quarter and first nine months of 2002
reflect the recording of a valuation allowance offset of $5,431,000 against the
deferred tax asset resulting from the write-down of certain marketable
securities. The valuation allowance was established because the Company
believes, based on currently available evidence, that it is more likely than not
that the full amount of the deferred tax asset will not be realized through the
generation of capital gains in the future.
Liquidity and Sources of Capital:
Working capital at September 30, 2002 was approximately $30,000,000 compared
with $61,000,000 at December 31, 2001. 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 $228,000,000 at
September 30, 2002. Net cash provided by operating activities in the first nine
months of 2002 approximated $3,000,000 (which is not necessarily indicative of
the cash to be provided by or used in operating activities for the year ended
December 31, 2002) compared with net cash provided by operating activities of
$177,000,000 in the first nine months of 2001. Net cash provided by operating
activities in the first nine months of 2002 reflects $24,500,000 of payments
with respect to estimated 2001 federal income taxes. Excluding such payments,
net cash provided by operating activities amounted to approximately $27,000,000.
Current financial resources, together with cash anticipated to be generated from
operations, are expected to be adequate to meet requirements in the next year.
The Company has unsecured long-term credit facilities aggregating $700,000,000,
of which $503,000,000 was used at September 30, 2002, and an unsecured
short-term credit facility of $45,000,000, all of which was unused at September
30, 2002. In late July and early August 2002, the Company entered into four
secured loan agreements aggregating $256,000,000. Seven vessels (three VLCCs and
four Aframaxes) were pledged as collateral in connection with such loans. The
Company used the proceeds received from these borrowings to pay down existing
term loans with an outstanding balance of $117,100,000, which had significantly
shorter remaining terms, and to reduce amounts then outstanding under the
Company's revolving credit facilities.
As of September 30, 2002, the joint ventures in which the Company participates
had total bank debt of $341,480,000. The Company's percentage interests in these
joint ventures range from 30% to 50%. The Company has guaranteed a total of
$36,133,000 of the joint venture debt at September 30, 2002. The balance of the
joint venture debt is nonrecourse to the Company. The amount of the Company's
guaranties reduces proportionately as the principal amounts of the joint venture
debt are paid down.
Form 10-Q
Page 26
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Liquidity and Sources of Capital (continued):
In July, the Company prepaid approximately $47,600,000 of progress payments for
two newbuildings recognizing the benefit of a contractually provided prepayment
discount. As of September 30, 2002, the Company had non-cancelable contracts for
the construction of three double-hulled foreign flag tankers for delivery
between January 2003 and January 2004, with an aggregate unpaid cost of
approximately $43,200,000. Unpaid costs, which are net of progress payments and
prepayments, will be funded as follows: $26,500,000 during the fourth quarter of
2002 and $16,700,000 in 2003. The Company expects to finance such vessel
commitments from working capital, cash anticipated to be generated from
operations, existing long-term credit facilities and additional long-term debt,
as required. The amounts of working capital and cash generated from operations
that may, in the future, be utilized to finance vessel commitments are dependent
on the rates at which the Company can charter its vessels. Such rates are
volatile. Cancellation of these contracts by the Company, except as provided in
the contracts, could require the Company to reimburse the respective shipyard
for any losses that the shipyard may incur as a result of such cancellation.
The Company has used interest rate swaps to effectively convert a portion of its
debt from a floating to a fixed rate basis. These agreements contain no leverage
features and have various maturity dates from February 2003 to August 2014. As
of September 30, 2002, the interest rate swaps effectively convert the Company's
interest rate exposure on $312,000,000 from a floating rate based on LIBOR to an
average fixed rate of 6.73%.
Risk Management:
The Company is exposed to market risk from changes in interest rates, which
could impact its results of operations and financial condition. The Company
manages this exposure to market risk through its regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial
instruments. The Company manages its ratio of fixed to floating rate debt with
the objective of achieving a mix that reflects management's interest rate
outlook at various times. To manage this mix in a cost-effective manner, the
Company, from time to time, enters into interest rate swap agreements, in which
it agrees to exchange various combinations of fixed and variable interest rates
based on agreed upon notional amounts. The Company uses derivative financial
instruments as risk management tools and not for speculative or trading
purposes. In addition, derivative financial instruments are entered into with a
diversified group of major financial institutions in order to manage exposure to
nonperformance on such instruments by the counterparties.
In August 2002, floating-to-fixed interest rate swaps, with notional amounts
aggregating $133,000,000 matured. Pursuant to these agreements, the Company paid
fixed rates of 5.1% and received floating rates based on LIBOR. In late
September 2002, the Company entered into 11-year floating-to-fixed amortizing
interest rate swaps with major financial institutions that commence in the third
quarter of 2003. These swaps are designated and qualify as cash flow hedges. As
of September 30, 2002, the Company has effectively converted the full
$256,000,000 of floating rate, secured loans, borrowed in the third quarter,
into fixed rate debt for periods up to 12 years.
Form 10-Q
Page 27
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Independent Accountants' Report on Review of Interim Financial Information
The accompanying condensed consolidated financial statements as of September 30,
2002 and for the three months and nine months ended September 30, 2002 and 2001
are unaudited; however, such financial statements have been reviewed by the
Company's independent accountants.
Item 4. Controls and Procedures
As of September 30, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the Company's
current disclosure controls and procedures were effective as of September 30,
2002 in timely providing them with material information relating to the Company
required to be included in the reports the Company files or submits under the
Exchange Act. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to September 30, 2002.
PART II
Item 6(a). Exhibits
See Exhibit Index on page 35.
Item 6(b). Reports on Form 8-K
During the quarter ended September 30, 2002, the Registrant filed one Current
Report on Form 8-K. The Registrant disclosed under Item 9 of the Current Report,
which was dated August 14, 2002, that it had filed with the Secretary of the SEC
solely for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act a certification with respect to the Registrant's Form 10-Q
for the period ended June 30, 2002.
Form 10-Q
Page 28
Ernst & Young LLP 5 Times Square Phone: 212 773-3000
New York, New York 10036
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders
Overseas Shipholding Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Overseas Shipholding Group, Inc. and subsidiaries as of September 30, 2002, and
the related condensed consolidated statements of operations for the three and
nine month periods ended September 30, 2002 and 2001 and the condensed
consolidated statements of cash flows and changes in shareholders' equity for
the nine month periods ended September 30, 2002 and 2001. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Overseas
Shipholding Group, Inc. and subsidiaries as of December 31, 2001, and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for the year then ended, not presented herein, and in our
report dated February 20, 2002, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2001,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ERNST & YOUNG LLP
New York, New York
November 11, 2002
Form 10-Q
Page 29
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OVERSEAS SHIPHOLDING GROUP, INC.
(Registrant)
Date: November 11, 2002 /s/ Morton P. Hyman
--------------------------------
Morton P. Hyman
Chairman, President and
Chief Executive Officer
Date: November 11, 2002 /s/ Myles R. Itkin
--------------------------------
Myles R. Itkin
Senior Vice President, Chief
Financial Officer and
Treasurer
Form 10-Q
Page 30
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Morton P. Hyman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Overseas
Shipholding Group, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of Registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
Form 10-Q
Page 31
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
6. The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 11, 2002 /s/ Morton P. Hyman
----------------------------
Morton P. Hyman
Chief Executive Officer
Form 10-Q
Page 32
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Myles R. Itkin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Overseas
Shipholding Group, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of Registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
Form 10-Q
Page 33
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
6. The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 11, 2002 /s/ Myles R. Itkin
----------------------------
Myles R. Itkin
Chief Financial Officer
Form 10-Q
Page 34
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CERTIFICATION OF THE CHIEF EXECUTIVE
OFFICER AND CHIEF FINANCIAL OFFICER
Each of the undersigned, the Chief Executive Officer and the Chief Financial
Officer of Overseas Shipholding Group, Inc. (the "Company"), hereby certifies,
to the best of his knowledge and belief, that the Form 10-Q of the Company for
the quarterly period ended September 30, 2002 (the "Periodic Report")
accompanying this certification fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d))
and that the information contained in the Periodic Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company. This certification is provided solely for purposes of complying with
the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to
be used for any other purpose.
Date: November 11, 2002 /s/ Morton P. Hyman
----------------------------
Morton P. Hyman
Chief Executive Officer
Date: November 11, 2002 /s/ Myles R. Itkin
----------------------------
Myles R. Itkin
Chief Financial Officer
Form 10-Q
Page 35
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
15. Letter from Ernst & Young LLP.
NOTE: 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 on a consolidated basis, are not being
filed herewith. The Registrant agrees to furnish a copy of each such
instrument to the Commission upon request.