Form 10-Q
Page 1
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 MARCH 31, 2003
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 Identification No.)
incorporation or organization)
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 May 12, 2003 - 34,502,848
Form 10-Q
Page 2
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
MARCH 31, DECEMBER 31,
2003 2002
---------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 32,744 $ 36,944
Investments in marketable securities - Note F 12,446 28,796
Voyage receivables, including unbilled of $44,380 and $35,637 49,309 38,755
Other receivables, including federal income taxes recoverable of
$5,888 and $6,098 13,195 12,777
Inventories and prepaid expenses 10,168 6,115
---------- ----------
Total Current Assets 117,862 123,387
Capital Construction Fund - Note F 232,082 231,072
Vessels, at cost, less accumulated depreciation of $410,297
and $423,344 - Note H 1,362,927 1,383,744
Vessels under Capital Leases, less accumulated amortization of
$90,404 and $89,060 31,686 33,030
Vessel Held for Sale - Note K 10,166 --
Investments in Joint Ventures - Note E 165,538 168,315
Other Assets 99,285 95,294
---------- ----------
Total Assets $2,019,546 $2,034,842
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and sundry liabilities and accrued expenses $ 29,217 $ 25,172
Federal income taxes 8,813 --
Short-term debt and current installments of long-term debt 14,284 14,284
Current obligations under capital leases 6,897 6,791
---------- ----------
Total Current Liabilities 59,211 46,247
Long-term Debt - Note H 859,613 932,933
Obligations under Capital Leases 51,101 52,102
Deferred Federal Income Taxes ($142,171 and $134,204), Deferred
Credits and Other Liabilities - Notes G and I 224,254 219,411
Shareholders' Equity - Notes I and J 825,367 784,149
---------- ----------
Total Liabilities and Shareholders' Equity $2,019,546 $2,034,842
========== ==========
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
-----------------------------------
MARCH 31, 2003 MARCH 31, 2002
-------------- --------------
Shipping Revenues - Note C:
Time and bareboat charter revenues, including vessels
operating in pools, and $7,013 in each period received
from a 37.5% owned joint venture $ 110,855 $ 52,196
Voyage charter revenues 16,030 21,299
------------ ------------
126,885 73,495
Voyage expenses (5,755) (9,616)
------------ ------------
Time Charter Equivalent Revenues 121,130 63,879
------------ ------------
Ship Operating Expenses:
Vessel expenses 20,758 21,291
Time and bareboat charter hire expenses, including $1,402
and $2,366 paid to a 50% owned joint venture 6,812 6,347
Depreciation and amortization 20,448 18,860
General and administrative 11,045 7,846
------------ ------------
Total Ship Operating Expenses 59,063 54,344
------------ ------------
Income from Vessel Operations 62,067 9,535
Equity in Income of Joint Ventures - Note E 12,015 1,945
------------ ------------
Operating Income 74,082 11,480
Other Income/(Expense) - Note K (686) 2,535
------------ ------------
73,396 14,015
Interest Expense 13,150 12,946
------------ ------------
Income before Federal Income Taxes 60,246 1,069
Provision for Federal Income Taxes - Note I 16,011 325
------------ ------------
Net Income $ 44,235 $ 744
============ ============
Weighted Average Number of Common Shares
Outstanding - Note L:
Basic 34,456,688 34,312,712
Diluted 34,676,905 34,603,835
Per Share Amounts
Basic net income $ 1.28 $ 0.02
Diluted net income $ 1.28 $ 0.02
Cash dividends declared $ 0.15 $ 0.15
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)
THREE MONTHS ENDED
----------------------------------
MARCH 31, 2003 MARCH 31, 2002
-------------- --------------
Net cash provided by/(used in) operating activities $ 62,429 $ (8,723)
------------ -----------
Cash Flows from Investing Activities:
Proceeds from sales of marketable securities 17,346 29,587
Expenditures for vessels, including $15,584 and $22,700
related to vessels under construction (15,627) (23,390)
Proceeds from disposal of vessels 10,216 --
Investments in and advances to joint ventures (1,110) (4,451)
Distributions from joint ventures 6,612 5,087
Other - net (368) 1,271
------------ -----------
Net cash provided by investing activities 17,069 8,104
------------ -----------
Cash Flows from Financing Activities:
Issuance of long-term debt, net of issuance costs 194,877 --
Payments on debt and obligations under capital leases (274,038) (11,777)
Cash dividends paid (5,168) (5,147)
Issuance of common stock upon exercise of stock options 295 1,436
Other - net 336 (1,148)
------------ -----------
Net cash (used in) financing activities (83,698) (16,636)
------------ -----------
Net decrease in cash and cash equivalents (4,200) (17,255)
Cash and cash equivalents at beginning of period 36,944 30,256
------------ -----------
Cash and cash equivalents at end of period $ 32,744 $ 13,001
============ ===========
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, 2003 $ 39,591 $ 106,154 $ 731,201 5,139,684 $ (70,270) $ (22,527) $ 784,149
---------
Net Income 44,235 44,235
Net Unrealized Holding Gains on
Available-For-Sale Securities 2,290 2,290
Effect of Derivative Instruments (668) (668)
---------
Comprehensive Income 45,857
---------
Cash Dividends Declared (5,168) (5,168)
Deferred Compensation Related to
Options Granted 226 226
Options Exercised and Employee
Stock Purchase Plan (7) (20,106) 302 295
Tax Benefit Related to Options
Exercised 8 8
--------- ---------- ---------- --------- ---------- ---------- ---------
Balance at March 31, 2003 $ 39,591 $ 106,381 $ 770,268 5,119,578 $ (69,968) $ (20,905) $ 825,367
========= ========== ========== ========= ========== ========== =========
Balance at January 1, 2002 $ 39,591 $ 103,529 $ 769,457 5,312,867 $ (72,868) $ (26,283) $ 813,426
---------
Net Income 744 744
Net Unrealized Holding Gains on
Available-For-Sale Securities 8,559 8,559
Effect of Derivative Instruments 2,613 2,613
Minimum Pension Liability 279 279
---------
Comprehensive Income 12,195
---------
Cash Dividends Declared (5,147) (5,147)
Deferred Compensation Related to
Options Granted 566 566
Options Exercised and Employee
Stock Purchase Plan 35 (93,381) 1,401 1,436
Tax Benefit Related to Options
Exercised 160 160
--------- ---------- ---------- --------- ---------- ---------- ---------
Balance at March 31, 2002 $ 39,591 $ 104,290 $ 765,054 5,219,486 $ (71,467) $ (14,832) $ 822,636
========= ========== ========== ========= ========== ========== =========
* Par value $1 per share; 60,000,000 shares authorized and 39,590,759 shares
issued.
** Amounts are net of tax.
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 months ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2003.
The balance sheet at December 31, 2002 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, 2002.
Note B - Significant Accounting Policy:
Stock-based compensation - As of March 31, 2003, the Company has three
stock-based employee compensation plans and one non-employee director plan. The
Company accounts for those plans in accordance with the recognition and
measurement principles of 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. The following table presents the effects on net income and
earnings per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"), to stock-based compensation.
IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS, FOR
THE THREE MONTHS ENDED
MARCH 31,
-------------------------
2003 2002
---------- ----------
Net income, as reported $ 44,235 $ 744
Deduct: Total stock-based compensation expense determined
under fair value based method for all awards, net of tax (69) (219)
---------- ----------
Pro forma net income $ 44,166 $ 525
========== ==========
Per share amounts:
Basic - as reported $ 1.28 $ 0.02
Basic - pro forma $ 1.28 $ 0.02
Diluted - as reported $ 1.28 $ 0.02
Diluted - pro forma $ 1.27 $ 0.02
Form 10-Q
Page 7
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note C - Segment Reporting:
The Company has four reportable segments: Foreign Flag VLCCs, Aframaxes, and
Product Carriers, which participate in the international markets, and U.S. Flag
Crude Tankers, which participate in the U.S. Flag trades. U.S. Flag Dry Bulk
Carriers no longer meet the materiality thresholds for disclosure as a
reportable segment as established by Statement of Financial Accounting Standards
No. 131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." Information about the Company's reportable segments as of and for
the three month periods ended March 31, 2003 and 2002 follows:
Foreign Flag
--------------------------------------- U.S. Flag
Product Crude
In thousands VLCCs Aframaxes Carriers Tankers All other Totals
- --------------------------------------------------------------------------------- ------- --------- ----------
Three months ended March 31, 2003:
Shipping revenues * $ 55,865 $ 31,801 $14,634 $7,013 $ 17,572 $ 126,885
Time charter equivalent revenues 55,636 31,748 10,816 7,013 15,917 121,130
Income from vessel operations 39,045 21,198 4,973 3,427 4,469 73,112**
Equity in income of joint ventures 9,735 1,041 1,179 60 12,015
Loss on disposal of vessels (902) (902)
Total assets at March 31, 2003 918,553 484,302 78,023 3,782 168,013 1,652,673
Three months ended March 31, 2002:
Shipping revenues * 17,722 16,593 13,159 7,013 19,008 73,495
Time charter equivalent revenues 17,262 16,557 8,871 7,013 14,176 63,879
Income from vessel operations 2,852 6,042 2,821 3,425 2,241 17,381**
Equity in income/(loss) of joint
ventures 1,118 (326) 1,153 1,945
Total assets at March 31, 2002 847,321 429,862 98,410 3,783 171,905 1,551,281
* 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.
Reconciliation of total assets of the segments to amounts included in the
condensed consolidated balance sheets follow:
IN THOUSANDS AS OF
--------------------------------
MARCH 31, MARCH 31,
2003 2002
------------- -------------
Total assets of all segments $ 1,652,673 $ 1,551,281
Corporate cash and securities, including Capital
Construction Fund 277,272 298,196
Other unallocated amounts 89,601 73,289
------------- -------------
Consolidated total assets $ 2,019,546 $ 1,922,766
============= =============
Form 10-Q
Page 8
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
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
-----------------------------
MARCH 31, DECEMBER 31,
2003 2002
---------- ------------
Current assets $ 68,643 $ 54,186
Vessels, net 1,327,646 1,337,260
Other assets 169,733 165,324
---------- ----------
Total Assets $1,566,022 $1,556,770
========== ==========
Current installments of long-term debt $ 14,284 $ 14,284
Other current liabilities 13,554 10,461
---------- ----------
Total current liabilities 27,838 24,745
Long-term debt, deferred credits and other liabilities, including
intercompany debt of $28,000 as of
March 31, 2003 387,239 451,881
Equity 1,150,945 1,080,144
---------- ----------
Total Liabilities and Equity $1,566,022 $1,556,770
========== ==========
Note E - Joint Ventures:
As of March 31, 2003, the Company is a partner in joint ventures that own 11
foreign flag vessels (ten VLCCs and one Aframax). As of March 31, 2003, eight of
these VLCCs participate in the Tankers pool and 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 Aframax
International.
A condensed summary of the results of operations of the joint ventures follows:
IN THOUSANDS FOR THE
THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
---------- ----------
Time charter equivalent revenues $ 89,945 $ 59,673
Ship operating expenses 55,944 49,963
---------- ----------
Income from vessel operations 34,001 9,710
Other income 104 191
Interest expense* (7,392) (5,687)
---------- ----------
Net income $ 26,713 $ 4,214
========== ==========
* Includes interest on subordinated loans payable to the joint venture
partners of $4,704 (three months ended March 31, 2003) and $2,839 (three
months ended March 31, 2002). The Company's share of such interest is
eliminated in recording the results of the joint ventures by the equity
method.
Form 10-Q
Page 9
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note E - Joint Ventures (continued):
In January 2003, a joint venture in which the Company has a 50% interest
borrowed $15,375,000. The proceeds from such borrowing were used to repay the
capital contributions received from the shareholders in 2002 to purchase an
Aframax tanker that had previously been chartered in by such joint venture.
As of March 31, 2003, the joint ventures in which the Company had interests
ranging from 30% to 50% had bank debt of $317,134,000 and subordinated loans
payable to all joint venture partners of $228,185,000. The Company's guaranties
in connection with the joint ventures' bank financings, which are otherwise
nonrecourse to the joint venture partners, aggregated $32,494,000 at March 31,
2003. The amount of these guaranties reduces as the bank loans are paid down.
These guaranties remain outstanding until the related debt matures between March
2005 and June 2009.
Note F - Investments in Marketable Securities and Capital Construction Fund:
Based on a number of factors, including the magnitude of the drop in market
values below the Company's cost bases and length of time that the declines had
been sustained, management concluded that declines in fair value of certain
securities in the Capital Construction Fund with an aggregate cost basis of
$16,187,000 were other-than-temporary. Accordingly, during the three months
ended March 31, 2003, the Company recorded impairment losses aggregating
$4,756,000 related to such securities in the accompanying condensed consolidated
statement of operations.
During the first quarter of 2003, the Company sold certain of the securities for
which write-downs aggregating $11,634,000 had previously been recorded in 2002,
resulting in the recognition of a gain of $4,071,000 (see Note K).
Note G - Derivatives:
As of March 31, 2003, the Company is a party to floating-to-fixed interest rate
swaps with various major financial institutions covering notional amounts
aggregating approximately $409,000,000, 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 6.7% and receives floating rates based on LIBOR
(approximately 1.3% as of March 31, 2003). These agreements contain no leverage
features and have various maturity dates from July 2005 to August 2014. As of
March 31, 2003, the Company has recorded a liability of $31,633,000 related to
the fair values of these swaps in other liabilities.
As of March 31, 2003, the Company is a party to forward freight agreements
maturing in December 2003 with a remaining notional value of $6,277,000. The
fair value, $134,000, of these agreements, which do not qualify as effective
hedges, is recorded in other assets.
Form 10-Q
Page 10
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note H - Debt:
In March 2003, the Company issued $200,000,000 principal amount of senior
unsecured notes in an unregistered offering pursuant to Rule 144A and Regulation
S under the Securities Act of 1933. The notes, which are due in March 2013, have
a coupon of 8.25% and are non-callable for a period of five years from the date
of issuance. Proceeds from the offering of approximately $194,877,000 were used
to repay a portion of the balances then outstanding under long-term credit
facilities.
The Company has unsecured long-term credit facilities aggregating $700,000,000,
of which $250,000,000 was used at March 31, 2003. In addition, the Company has
an unsecured short-term credit facility of $45,000,000, of which $20,000,000 was
used at March 31, 2003.
The Company intends to refinance both the $70,211,000 balance of the 8% Notes,
which mature in December 2003, and the $20,000,000 balance outstanding under the
short-term line of credit facility as of March 31, 2003, using amounts available
under the long-term revolving credit facilities. Accordingly, such amounts have
been classified as long-term as of March 31, 2003.
Agreements relating to long-term debt provide for prepayment privileges (in
certain instances with penalties), limitations on the amount of total borrowings
and secured debt (as defined), and acceleration of payment under certain
circumstances, including failure to satisfy the financial covenants contained in
certain of such agreements.
As of March 31, 2003, approximately 25.0% of the net book amount of the
Company's vessels (including the vessel held for sale as of March 31, 2003),
representing seven foreign flag vessels, is pledged as collateral under certain
debt agreements.
Interest paid approximated $11,801,000 (three months ended March 31, 2003) and
$10,948,000 (three months ended March 31, 2002), excluding capitalized interest.
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 $71,042,000 (three months ended March 31, 2003) and
$3,171,000 (three months ended March 31, 2002), before any U.S. income tax
effect. No provision for U.S. income taxes on the undistributed income of the
foreign shipping companies accumulated through December 31, 1986 was required at
March 31, 2003 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 March 31, 2003,
since it is intended that such undistributed earnings ($11,600,000 at March 31,
2003) will be indefinitely reinvested; the unrecognized deferred U.S. income
taxes attributable thereto approximated $4,100,000.
Form 10-Q
Page 11
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note I - Taxes (continued):
The components of the provision for federal income taxes follow:
IN THOUSANDS FOR THE
THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
---------- ---------
Current $ 8,919 $ (331)
Deferred 7,092 656
---------- ---------
$ 16,011 $ 325
========== =========
During 2002, the Company established a valuation allowance of $3,640,000 against
the deferred tax asset resulting from the write-down of certain marketable
securities. The valuation allowance was established because the Company
believed, based on currently available evidence, that it was more likely than
not that the full amount of the deferred tax asset would not be realized through
the generation of capital gains in the future. The valuation allowance was
recorded as a reduction in the federal income tax credit in 2002. During the
three months ended March 31, 2003, the Company reduced the above valuation
allowance by $2,261,000 based on increases subsequent to December 31, 2002 in
fair values of securities previously written down. The above reduction in the
valuation allowance has been recorded as a decrease in the provision for federal
income taxes in the accompanying condensed consolidated statement of operations
for the three months ended March 31, 2003.
Actual federal income taxes paid during the three months ended March 31, 2002
amounted to $24,500,000, all of which related to 2001. There were no payments of
federal income taxes during the three months ended March 31, 2003.
Note J - Accumulated Other Comprehensive Income/(Loss):
The components of accumulated other comprehensive income/(loss), net of related
taxes, follow:
IN THOUSANDS AS OF
-------------------------
MARCH 31, DECEMBER 31,
2003 2002
---------- ------------
Unrealized gains on available-for-sale securities $ 2,622 $ 332
Unrealized losses on derivative instruments (20,562) (19,894)
Minimum pension liability (2,965) (2,965)
---------- ------------
$ (20,905) $ (22,527)
========== ============
Form 10-Q
Page 12
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Financial Statements
Note K - Other Income/(Expense):
Other income/(expense) consists of:
IN THOUSANDS FOR THE
THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
---------- ----------
Investment income:
Interest and dividends $ 1,473 $ 2,537
Realized gain/(loss) on sale of securities - net 3,424 (645)
Write-down of marketable securities - see Note F (4,756) --
Foreign currency exchange gain -- 243
---------- ----------
141 2,135
Loss on sale of vessels (902) --
Gain on derivative transactions -- 325
Miscellaneous - net 75 75
---------- ----------
$ (686) $ 2,535
========== ==========
Loss on sale of vessels for the three months ended March 31, 2003 includes a
provision of $416,000 for the loss on disposal of a vessel held for sale as of
March 31, 2003. Such vessel was delivered to the buyer in early-April 2003.
Note L - Capital Stock and Per Share Amounts:
In February 2003, options covering 7,500 shares were granted at $16.35 (the
market price at the date of grant) under the 1999 non-employee director (as
defined) stock option plan. The Company follows APB 25 and related
interpretations in accounting for its stock options. For purposes of determining
compensation cost for the Company's stock option plans using the fair value
method of FAS 123, the fair values of the options granted were estimated on the
dates of grant using the Black-Scholes option pricing model. The grant-date fair
value of options granted in 2003 was $4.47 per share.
Diluted net income per share gives effect to stock options.
Note M - Commitments:
As of March 31, 2003, the Company had remaining commitments of $16,700,000 on
non-cancelable contracts for the construction of two double hulled foreign flag
Aframax tankers, scheduled for delivery in October 2003 and January 2004. Unpaid
costs, which are net of $64,300,000 of progress payments and prepayments, will
be funded in 2003. The progress payments are covered by refundment guaranties.
Form 10-Q
Page 13
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 51 vessels aggregating 8.9
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 two
newbuildings aggregating 0.2 million dwt are scheduled for delivery in the next
nine months.
Operations:
The Company's revenues are highly sensitive to patterns of supply and demand for
vessels of the size and design configurations 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
Q1-2003 Q1-2002
---------------------------------
Average $ 68,000 $ 13,600
High $ 96,100 $ 20,600
Low $ 31,100 $ 7,500
-----------------------------------------------------
Form 10-Q
Page 14
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Operations (continued):
First quarter rates for modern VLCCs trading East and West out of the Arabian
Gulf averaged $68,000 per day, 60% higher than the average for the previous
quarter and 400% higher than the average for the corresponding quarter in 2002.
The improvement in VLCC spot freight rates that started in the fourth quarter of
2002 and continued into the first quarter of 2003 was caused by several factors
including higher oil demand due to extremely low crude oil inventory levels, a
colder than normal winter in the Northern Hemisphere, and continuing problems
with Japanese nuclear power stations. Furthermore, significant supply
disruptions in and uncertainties surrounding future oil supplies from Iraq,
Venezuela and Nigeria, led to a substantial increase in ton-miles resulting from
higher production by Middle Eastern OPEC nations (excluding Iraq). OPEC
production averaged 26.7 million barrels per day ("b/d") in the first quarter of
2003, 7.2% higher than in the first quarter of 2002. Further, as a result of
production quota increases and the loss of non-Middle Eastern OPEC output from
Venezuela the proportion of long haul production by Middle Eastern OPEC nations
to total OPEC production rose to 72.0% in the first quarter of 2003 from 67.4%
during the first quarter of 2002.
The world VLCC fleet grew from 427 vessels (124.8 million dwt) at the start of
2003 to 433 vessels (126.8 million dwt) at March 31, 2003, as VLCC deliveries
exceeded deletions. Newbuilding orders in the first quarter of 2003 increased
from fourth quarter 2002 levels to reach 20 vessels. At March 31, 2003, the VLCC
orderbook had risen to 73 vessels (22.3 million dwt), equivalent to 17.6% of the
existing VLCC fleet and compared with 64 vessels (19.6 million dwt) at the start
of 2003. In comparison, the orderbook as of March 31, 2003 represented 123.0%
(107.3% as of December 31, 2002), based on deadweight tons, of those VLCCs over
20 years of age.
Foreign Flag Aframax Segment
----------------------------------------------------------
Spot Market TCE Rates
Aframaxes in the Caribbean
Q1-2003 Q1-2002
-----------------------------------
Average $ 41,200 $ 12,700
High $ 67,000 $ 24,000
Low $ 11,000 $ 10,500
----------------------------------------------------------
Rates for Aframaxes operating in the Caribbean trades during the first quarter
2003 averaged $41,200 per day, an increase of 224% from the corresponding
quarter in 2002 and 109% higher than the fourth quarter of 2002. The strike in
Venezuela, which started in early December, led to a marked decrease in U.S.
imports from that country. U.S. crude oil imports from Venezuela for December
2002 and January 2003 were 57% lower than the corresponding year ago periods.
Consequently, areas such as West Africa, the Middle East and the North Sea
increased exports to the U.S. to overcome the shortfall resulting from the loss
of Venezuelan supplies. While the increase in ton-miles due to the source of
these replacement supplies has been beneficial for VLCC employment in
particular, the loss of Venezuelan exports had a considerable impact on rates
for Aframaxes operating in the Caribbean trades.
Form 10-Q
Page 15
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Operations (continued):
The lack of cargoes in the Caribbean and the high rates available in other
loading regions, such as in Europe, prompted many owners, normally trading in
the Caribbean area, to ballast away from the region, reducing tonnage
availability. Consequently, when Mexico announced an increase in crude oil
exports to help satisfy some of the shortfall caused by the absence of
Venezuelan crude oil production, there was little tonnage available in the
region and rates spiked. Similarly, when Venezuelan exports resumed late in the
quarter, tonnage was again in short supply, providing further support for rates.
The increase in long-haul crude oil imports to the U.S. during the first
quarter, largely in VLCCs, also led to increased Aframax employment in
lightering operations, particularly in the U.S. Gulf, providing additional
support for rates in the Caribbean region.
Aframax freight rates have derived support from increased non-OPEC production,
particularly crude oil exports from the Former Soviet Union ("FSU"), most of
which are handled by Aframax and Suezmax tonnage. FSU production growth in the
first quarter of 2003 of 0.1 million b/d compared with the fourth quarter of
2002 was constrained because of weather-related delays, restrictions imposed on
the use of the Bosphorus Strait and concerns, in the short term, about the
availability of crude oil export capacity.
Earnings for modern Aframaxes have strengthened at the expense of older tonnage
in the aftermath of the sinking of the Prestige in late November, as charterers
have generally opted for modern double hull tonnage, especially for trades
involving passage through European waters. Ahead of a call for European Union
("EU") legislation several European countries have taken unilateral action to
ban the carriage of persistent oils in single hull tankers in their waters.
The world Aframax fleet rose from 565 vessels (54.6 million dwt) at the start of
2003 to 583 vessels (56.6 million dwt) at March 31, 2003. Aframax newbuilding
deliveries during the first quarter far exceeded removals from the fleet. New
orders for Aframaxes accelerated from the levels set in the previous three
quarters to reach 20 tankers. As of March 31, 2003, the Aframax orderbook had
dropped to 125 vessels (13.5 million dwt), equivalent to 23.9 % of the existing
Aframax fleet and compared with 132 vessels (14.2 million dwt) at December 31,
2002. In comparison, the orderbook as of March 31, 2003 represented 115.4%
(123.2% as of December 31, 2002), based on deadweight tons, of such fleet sector
that was over 20 years old.
Foreign Flag Product Carrier Segment
---------------------------------------------------
Spot Market TCE Rates
Panamaxes in the Pacific and
Bostonmaxes in the Caribbean
Q1-2003 Q1-2002
----------------------------
Panamax Average $ 22,800 $ 12,000
Panamax High $ 27,000 $ 13,300
Panamax Low $ 20,000 $ 9,500
Bostonmax Average $ 17,400 $ 9,400
Bostonmax High $ 24,900 $ 12,000
Bostonmax Low $ 13,800 $ 8,300
---------------------------------------------------
Form 10-Q
Page 16
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Operations (continued):
Panamax Product Carriers operating in the Pacific region during the first
quarter of 2003 averaged $22,800 per day, a gain of 90% compared with the first
quarter of 2002 and 42% higher than the fourth quarter of 2002. Rates for
Bostonmax Product Carriers in the Caribbean trades during the first quarter of
2003 averaged $17,400 per day, an increase of 85% from the comparable period of
2002 and 63% higher than the fourth quarter of 2002.
The combination of a cold winter in the U.S. combined with very low heating oil
and gasoline inventory levels led to an active transAtlantic trade from Europe.
The longer haul voyages necessary to replace Venezuelan product exports
increased ton-mile demand for product carriers and, therefore, vessel
employment. The lack of export cargoes in the Caribbean prompted many owners to
ballast away from the region to take advantage of the higher rates available in
other regions, particularly Europe. Extra exports from the U.S. Gulf to the
Caribbean region to help offset the absence of Venezuelan product exports,
increased imports of naphtha by the petrochemical sector in the Far East,
building stocks ahead of any potential supply disruptions, and increased
Japanese fuel oil imports for power generation due to ongoing problems with
nuclear power stations acted in concert to provide support for rates in the
first quarter.
Early in March, Venezuela lifted the force majeure restriction on most product
exports, which caused average spot rates for March in the Caribbean trades to
rise by 68% compared with the average rates for February.
The world Panamax Product Carrier fleet at March 31, 2003 amounted to 282
vessels (18.1 million dwt), virtually unchanged from the 283 vessels (18.1
million dwt) at the beginning of 2003. At March 31, 2003, the orderbook rose
sharply to 88 vessels (6.2 million dwt), equivalent to 34.1% of the existing
Panamax fleet and compared with 75 vessels (5.3 million dwt) at the beginning of
2003. In comparison, the newbuilding orderbook as of March 31, 2003 represented
72.3% (67.8% as of December 31, 2002), based on deadweight tons, of this fleet
sector that was over 20 years old.
The world Handysize Product Carrier (which includes Bostonmaxes) fleet rose from
501 vessels (19.9 million dwt) at the start of 2003 to 508 vessels (20.3 million
dwt) at March 31, 2003, as deliveries exceeded scrappings. At March 31, 2003,
the newbuilding orderbook for Handysize Product Carriers reached 138 vessels
(6.3 million dwt), equivalent to 31.1% of the existing Handysize fleet and
compared with 131 vessels (6.0 million dwt) at the beginning of 2003. In
comparison, the orderbook as of March 31, 2003 represented 82.3% (81.8% as of
December 31, 2002), based on deadweight tons, of this fleet sector that was over
20 years old.
Impact of proposed EU legislation on the OSG fleet
The Transport Council of the European Union has agreed to accelerate the phasing
out of single hull tankers which, if ratified by the European Parliament, will
include an immediate ban on pre-MARPOL tankers (vessels generally built before
1982) over 23 years old loading or discharging at EU ports. It is expected that
parliamentary ratification will be considered by July. The ban will apply to
EU-flagged vessels and all vessels calling at European ports. In addition, all
single hull tankers over 5,000 dwt carrying heavy fuels will be banned from
European ports or terminals regardless of age or flag.
Form 10-Q
Page 17
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Operations (continued):
Category 1 single hull pre-MARPOL crude tankers (over 20,000 dwt) and product
carriers (over 30,000 dwt) over 23 years old will be phased out immediately upon
ratification, and all Category 1 tankers will be phased out by 2005. The maximum
age for Category 2 single hull MARPOL (vessels generally built after 1982) crude
tankers (over 20,000 dwt) and product carriers (over 30,000 dwt) will be 28
years and all Category 2 tankers will be banned from European ports by 2010.
Category 2 tankers fitted with double sides or double bottoms will be banned
from EU ports commencing in 2015, or upon reaching the age of 25 years.
Since the OSG Foreign Flag tanker fleet comprises mainly modern, double hull
vessels, the proposed EU regulations will only affect a few vessels, despite
these regulations being more stringent than existing IMO regulations. Two single
hull VLCCs will be banned from European ports beginning in 2010 at the ages of
17 (the VLCC is 30% owned by OSG) and 20 years. Two double sided VLCCs (both
49.9% owned by OSG) will be banned from European ports in 2015, at an age of 22
years. The Company's single hull Suezmax tanker (Category 2) will be banned from
European ports in 2010 at the age of 21 years. A 50% owned double sided Aframax
tanker will be banned from European ports in 2015 at the age of 23 years.
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, 2002.
Market Value of Marketable Securities
In accordance with Financial Accounting Standards No. 115 ("FAS 115"), the
Company's holdings in marketable securities are classified as available-for-sale
and, therefore, are carried on the balance sheet at fair 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 FAS 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 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. As of March 31, 2003, the Capital
Construction Fund holds a diversified portfolio of marketable equity securities,
with an aggregate cost basis of $38,076,000 (after consideration of the
write-down discussed below) and an aggregate fair value
Form 10-Q
Page 18
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Update on Critical Accounting Policies (continued):
of $35,889,000. 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 in the Capital Construction Fund with an aggregate cost
basis of $16,187,000 were other-than-temporary at the end of the first quarter
of 2003. For the first quarter of 2003, the Company recorded pre-tax impairment
losses of $4,756,000 related to such securities in the Capital Construction
Fund. These impairment losses are reflected in the accompanying condensed
consolidated statement of operations for the three months ended March 31, 2003.
The fair value of certain other marketable securities in the Capital
Construction Fund has declined below the Company's cost bases in those
securities. The gross unrealized losses on equity securities held in the Capital
Construction Fund as of March 31, 2003 were $3,299,000. Only one of these
securities had a fair value that had been materially below its carrying value
for more than six months. The Company has evaluated the circumstances
surrounding the decline ($416,000) in market value of this security, which has
traded continuously below its cost basis for less than 12 months as of March 31,
2003, and believes this decline to be temporary and, accordingly, continues to
record the net after tax unrealized loss in accumulated other comprehensive
income/(loss). If, however, the market value of this security does not recover
in the near term, the decline may then be considered to be an
other-than-temporary impairment, which would result in an impairment charge to
earnings in future periods, which charge previously have been included in
accumulated other comprehensive income/(loss).
Income from Vessel Operations:
During the first quarter of 2003, TCE revenues increased by $57,251,000, or 90%,
to $121,130,000 from $63,879,000 in the first quarter of 2002, resulting from
increases in average daily TCE rates for vessels operating in the spot market
and revenue days. During the first quarter of 2003, approximately 82% of the
Company's TCE revenues were derived in the spot market, including vessels in
pools that predominantly perform voyage charters, compared with 67% in the first
quarter of 2002. In the first quarter of 2003, approximately 18% of TCE revenues
were generated from long-term charters compared with 33% in the first quarter of
2002. This reduction in percentage contribution from long-term charters was
principally attributable to significant increases in average TCE rates in the
first quarter of 2003 for vessels operating in the spot market and the expiry,
in the first quarter of 2002, of a long-term charter on a VLCC.
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,
time and bareboat charters provide the Company with a more predictable level of
revenues.
Form 10-Q
Page 19
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
During the first quarter of 2003, income from vessel operations increased by
$52,532,000, or 551%, to $62,067,000 from $9,535,000 in the first quarter of
2002. The improvement resulted from an increase 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).
VLCC Segment THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
---------- ----------
TCE revenues (in thousands) $ 55,636 $ 17,262
Vessel expenses (in thousands) (5,586) (5,077)
Time and bareboat charter hire expenses (in thousands) (2,930) (2,366)
Depreciation and amortization (in thousands) (8,075) (6,967)
---------- ----------
Income from vessel operations (in thousands)(a) $ 39,045 $ 2,852
========== ==========
Average daily TCE rate $ 52,968 $ 20,049
Average number of vessels(b) 11.8 9.0
Average number of vessels chartered in under operating leases 1.4 1.0
Number of revenue days(c) 1,050 861
Number of ship-operating days(d) 1,065 900
(a) Income from vessel operations by segment is before general and
administrative expenses.
(b) The average is calculated to reflect the addition and disposal of vessels
during the period.
(c) Revenue days represent ship-operating days less days that vessels were not
available for employment due to repairs, drydock or lay-up.
(d) Ship-operating days represent calendar days.
During the first quarter of 2003, TCE revenues for the VLCC segment increased by
$38,374,000, or 224%, to $55,636,000 from $17,262,000 in the first quarter of
2002. This improvement in TCE revenues resulted from an increase of $32,919 per
day in the average daily TCE rate earned and an increase in the number of
revenue days. The increase in revenue days resulted principally from the
delivery of two newbuilding VLCCs (one in April 2002 and another in mid-February
2003). Vessel expenses increased by $509,000 to $5,586,000 in the first quarter
of 2003 from $5,077,000 in the prior year's first quarter as a result of an
increase in ship-operating days. Average daily vessel expenses decreased by $396
per day in the first quarter of 2003 compared with the first quarter of 2002,
principally attributable to the timing of delivery of stores and supplies. Time
and bareboat charter hire expenses increased by $564,000 to $2,930,000 in the
first quarter of 2003 from $2,366,000 in the first quarter of 2002 as a result
of the inclusion of a chartered-in VLCC in which the Company has an interest
along with certain other members of the Tankers pool. Such charter-in, which
commenced in the third quarter of 2002, provides for profit sharing with the
vessel's owner when TCE rates exceed $23,000 per day, as they did in the first
quarter of 2003. Depreciation and amortization increased by $1,108,000 to
$8,075,000 from $6,967,000 in the first quarter of 2002 as a result of the two
newbuilding deliveries discussed above.
Form 10-Q
Page 20
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
THREE MONTHS ENDED
Aframax Segment MARCH 31,
-----------------------------
2003 2002
---------- ----------
TCE revenues (in thousands) $ 31,748 $ 16,557
Vessel expenses (in thousands) (5,049) (5,034)
Time and bareboat charter hire expenses (in thousands) -- --
Depreciation and amortization (in thousands) (5,501) (5,481)
---------- ----------
Income from vessel operations (in thousands) $ 21,198 $ 6,042
========== ==========
Average daily TCE rate $ 33,140 $ 16,217
Average number of vessels 11.0 11.4
Number of revenue days 958 1,021
Number of ship-operating days 990 1,023
During the first quarter of 2003, TCE revenues for the Aframax segment increased
by $15,191,000, or 92%, to $31,748,000 from $16,557,000 in the first quarter of
2002. This improvement in TCE revenues resulted from an increase of $16,923 per
day in the average daily TCE rate earned partially offset by a small decrease in
revenue days. The decrease in revenue days resulted from the delivery of one
newbuilding Aframax 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 first quarter of 2003 reflect a loss of $953,000
generated by forward freight agreements. Although the Company entered into these
forward freight agreements to convert a portion of its variable revenue stream
from Aframax International to a fixed rate, such forward freight agreements do
not qualify as effective cash flow hedges under FAS 133. Vessel expenses
increased marginally by $15,000 to $5,049,000 in the first quarter of 2003 from
$5,034,000 in the prior year's first quarter and average daily vessel expenses
increased by $180 per day principally due to increases in crew costs and the
timing of delivery of lubricating oils.
THREE MONTHS ENDED
Product Carrier Segment MARCH 31,
-----------------------------
2003 2002
---------- ----------
TCE revenues (in thousands) $ 10,816 $ 8,871
Vessel expenses (in thousands) (3,445) (3,683)
Time and bareboat charter hire expenses (in thousands) -- --
Depreciation and amortization (in thousands) (2,398) (2,367)
---------- ----------
Income from vessel operations (in thousands) $ 4,973 $ 2,821
========== ==========
Average daily TCE rate $ 15,929 $ 12,969
Average number of vessels 8.0 8.0
Number of revenue days 679 684
Number of ship-operating days 700 720
During the first quarter of 2003, TCE revenues for the Product Carrier segment
increased by $1,945,000, or 22%, to $10,816,000 from $8,871,000 in the first
quarter of 2002. As of March 31, 2003, two of the
Form 10-Q
Page 21
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Income from Vessel Operations (continued):
four Bostonmaxes were operating on time charters extending through December
2003. This improvement in TCE revenues resulted from an increase of $2,960 per
day in the average daily TCE rate earned. Vessel expenses decreased marginally
by $238,000 to $3,445,000 in the first quarter of 2003 from $3,683,000 in the
first quarter of 2002. Average daily vessel expenses decreased by $194 per day
in the first quarter of 2003 compared with the first quarter of 2002. This
decrease was attributable to the timing of delivery of stores and supplies and
lubricating oils. The Company sold two of its four Panamax Product Carriers in
2003. One of these vessels was delivered to buyers in late-March 2003 and the
other, which was held for sale at March 31, 2003, was delivered to buyers in
early-April 2003.
U.S. Flag Crude Tanker Segment
TCE revenues in the first three months of 2003 for the U.S. Flag Crude Tanker
segment were unchanged from the comparable 2002 period because the segment's
vessels are bareboat chartered at fixed rates to Alaska Tanker Company ("ATC").
All Other
As of March 31, 2003, 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 U.S.
Flag Dry Bulk Carriers that carry U.S. foreign aid grain cargoes and two Foreign
Flag Dry Bulk Carriers that operate in a pool of Capesize Dry Bulk Carriers. The
U.S. Flag Dry Bulk Carriers no longer meet the materiality threshold established
by FAS 131 for disclosure as a reportable segment. This was due to the reduction
in shipping revenues attributable to the sale of two of that segment's vessels
during 2001 and 2002. TCE revenues increased by $1,741,000, or 12%, to
$15,917,000 in the first quarter of 2003 from $14,176,000 in the first quarter
of 2002 principally because of an increase of $4,269 per day in the average
daily TCE rate earned, partially offset by a decrease in revenue days resulting
from the sale in June 2002 of one U.S. Flag Dry Bulk Carrier. Vessel expenses
decreased by $1,350,000 to $6,637,000 in the first quarter of 2003 from
$7,987,000 in the first quarter of 2002 because of the vessel sale in June 2002.
Depreciation and amortization expense increased by $429,000 to $4,474,000 in the
first quarter of 2003 from $4,045,000 in the first quarter of 2002 because of
the amortization of drydock costs that were capitalized in the latter half of
2002.
General and Administrative Expenses
During the first quarter of 2003, general and administrative expenses increased
by $3,199,000 to $11,045,000 from $7,846,000 in the first quarter of 2002
principally due to severance payments of approximately $500,000 made in
connection with the 2003 resignation of a senior officer, 2003 bonus payments
aggregating $1,940,000 in recognition of the substantial completion of the
Company's five year cost reduction program, and increases in the cost of certain
benefits.
Form 10-Q
Page 22
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Equity in Income of Joint Ventures:
During the first quarter of 2003, equity in income of joint ventures increased
by $10,070,000 to $12,015,000 from $1,945,000 in the first quarter of 2002,
principally due to a significant increase in average daily TCE rates earned by
the joint venture vessels operating in pools.
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 March 31, 2003. The Company's actual ownership percentages for
these joint ventures range from 30% to 49.9%.
NUMBER OF REVENUE DAYS
FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------------
Average %
Ownership 2003 2002
--------- ------ ------
VLCCs participating in Tankers pool* 37.1% 267 217
Two VLCCs owned jointly with a major oil company 50.0% 90 90
One Aframax in Aframax International pool 50.0% 45 45
------ ------
Total 402 352
====== ======
* The increase in revenue days reflects the delivery of two VLCC
newbuildings in February and July 2002 to joint ventures in which the
Company has a 33.3% interest. At March 31, 2003, the Company's percentage
ownership interests in the eight joint venture VLCCs participating in
Tankers was equivalent to three wholly-owned vessels.
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
additional income (in the form of its share of incentive hire paid by BP to ATC)
based on ATC's meeting certain predetermined performance standards.
Interest Expense:
The components of interest expense are as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
-------- --------
Interest before impact of swaps and capitalized interest $ 11,357 $ 10,762
Impact of swaps 2,926 3,779
Capitalized interest (1,133) (1,595)
-------- --------
Interest expense $ 13,150 $ 12,946
======== ========
Form 10-Q
Page 23
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Interest Expense (continued):
Interest expense increased by $204,000 to $13,150,000 in the first quarter of
2003 from $12,946,000 in the first quarter of 2002 as a result of an increase in
the average amount of debt outstanding of $133,000,000 and a reduction of
$462,000 ($1,133,000 in the first quarter of 2003 compared with $1,595,000 in
the first quarter of 2002) in interest capitalized in connection with vessel
construction. Such increases were offset by a decrease of 40 basis points in the
average rate paid on floating rate debt to 2.7% in the first quarter of 2003
from 3.1% in the comparable quarter of 2002. The impact of this decline in rates
was substantially offset by the impact of floating-to-fixed interest rate swaps
that increased interest expense by $2,926,000 in the first quarter of 2003
compared with an increase of $3,779,000 in the first quarter of 2002.
The issuance of 10-year senior unsecured notes with a coupon of 8.25% and the
application of the resulting proceeds to repay amounts outstanding under
long-term credit facilities, which bear interest at a margin above LIBOR,
increased the weighted average effective interest rates for debt (excluding
capital lease obligations) outstanding at March 31, 2003 by 130 basis points to
6.27%.
Provision for Federal Income Taxes:
The provision for income taxes for the first three months of 2003 reflects a
$2,261,000 reduction in the valuation allowance offset of $3,640,000 recorded in
2002 against the deferred tax asset resulting from the write-down of certain
marketable securities. This reduction in the valuation allowance reflects
increases subsequent to December 31, 2002 in fair values of securities
previously written down and the effect of securities sold in the first quarter
of 2003. The valuation allowance was established in 2002 because the Company
believed, based on currently available evidence, that it was more likely than
not that the full amount of the deferred tax asset would not be realized through
the generation of capital gains in the future.
Newly Issued Accounting Standard:
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities." This
interpretation requires the consolidation of special purpose entities by the
company that is deemed to be the primary beneficiary of such entities. This
represents a significant change from current rules, which require consolidation
by the entity with voting control and according to which OSG accounted for its
1999 sale-leaseback transaction of U.S. Flag Crude Tankers as an off-balance
sheet financing. On July 1, 2003, the Company expects to consolidate the special
purpose entity ("Alaska Equity Trust") that now owns these vessels and holds the
associated bank debt used to purchase them. The special purpose entity's bank
debt of approximately $46,100,000 as of March 31, 2003 is secured by the vessels
but is otherwise nonrecourse to OSG. In addition, OSG did not issue any
repayment or residual-value guaranties. Therefore, OSG is not exposed to any
loss as a result of its involvement with Alaska Equity Trust. The Company does
not believe that the effect of adoption of FASB Interpretation No. 46 and
consolidation of Alaska Equity Trust will be material to either consolidated net
income or consolidated financial position.
Form 10-Q
Page 24
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Liquidity and Sources of Capital:
Working capital at March 31, 2003 was approximately $59,000,000 compared with
$77,000,000 at December 31, 2002. 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 $232,000,000 at March 31,
2003. Net cash provided by operating activities in the first three months of
2003 was more than $62,000,000 (which is not necessarily indicative of the cash
to be provided by operating activities for the year ended December 31, 2003)
compared with net cash used in operating activities of $9,000,000 in the first
three months of 2002. Net cash used in operating activities in the first three
months of 2002 reflected $24,500,000 of payments with respect to estimated 2001
federal income taxes. The Company's reliance on the spot market contributes to
fluctuations in cash flows from operating activities. Any decrease in the
average TCE rates earned by the Company's vessels in quarters subsequent to
March 31, 2003, compared with the actual TCE rates achieved during the first
quarter of 2003, will have a negative comparative impact on the amount of cash
provided by operating activities. Current financial resources, together with
cash anticipated to be generated from operations, are expected to be adequate to
meet requirements in the next year.
In March 2003, the Company issued $200,000,000 principal amount of senior
unsecured notes ("Notes") in an unregistered offering pursuant to Rule 144A and
Regulation S of the Securities Act of 1933. The notes, which are due in March
2013, have a coupon of 8.25%. Proceeds from the offering of approximately
$194,877,000 were used to repay a portion of the balances then outstanding under
long-term credit facilities. The Company has unsecured long-term credit
facilities aggregating $700,000,000, of which $250,000,000 was used at March 31,
2003, and an unsecured short-term credit facility of $45,000,000, of which
$20,000,000 was used at March 31, 2003. The Company intends to refinance both
the outstanding balance of the 8% Notes, which mature in December 2003, and the
$20,000,000 balance outstanding under the short-term credit facility as of March
31, 2003, using amounts available under long-term credit facilities.
Accordingly, the aggregate amount outstanding of $90,211,000 has been classified
as long-term.
The indenture pursuant to which the Notes were issued requires the Company to
secure the Notes equally and comparably with any indebtedness under existing
revolving credit facilities in the event OSG is required to secure the debt
outstanding under such credit facilities as a result of a downgrade in the
credit rating of senior unsecured debt.
The Company was in compliance with all of the financial covenants contained in
the Company's debt agreements as of March 31, 2003. Existing financing
agreements impose operating restrictions and establish minimum financial
covenants. Failure to comply with any of the covenants in existing financing
agreements could result in a default under those agreements and under other
agreements containing cross-default provisions. A default would permit lenders
to accelerate the maturity of the debt under these agreements and to foreclose
upon any collateral securing that debt. Under those circumstances, the Company
might not have sufficient funds or other resources to satisfy its obligations.
In addition, the secured nature of a portion of OSG's debt, together with the
limitations imposed by financing agreements on the ability to secure additional
debt and to take other actions, might impair the Company's ability to obtain
other financing.
Form 10-Q
Page 25
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Liquidity and Sources of Capital (continued):
As of March 31, 2003, the joint ventures in which the Company participates had
total bank debt of $317,134,000. The Company's percentage interests in these
joint ventures range from 30% to 50%. The Company has guaranteed a total of
$32,494,000 of the joint venture debt at March 31, 2003. The balance of the
joint venture debt is nonrecourse to the Company. The amount of the Company's
guaranties reduces as the principal amounts of the joint venture debt are paid
down.
As of March 31, 2003, the Company had non-cancelable commitments for the
construction of two double hulled foreign flag Aframax tankers for delivery in
October 2003 and January 2004, with an aggregate unpaid cost of approximately
$16,700,000. Unpaid costs, which are net of progress payments and prepayments,
will be funded 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 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 July 2005 to August 2014. As of
March 31, 2003, the interest rate swaps effectively convert the Company's
interest rate exposure on $299,000,000 from a floating rate based on LIBOR to an
average fixed rate of 6.67%.
EBITDA represents operating earnings, which is before interest expense and
income taxes, plus other income/(expense) and depreciation and amortization
expense. EBITDA for the first quarter of 2003 includes $6,878,000 resulting from
a charge of $4,756,000 recorded in connection with the write-down of marketable
securities in accordance with FAS 115, offset by the recognition of $11,634,000
attributable to the 2002 write-down of certain marketable securities that were
subsequently sold in the first quarter of 2003. EBITDA should not be considered
a substitute for net income, cash flow from 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 operating results 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. The
following table is a reconciliation of operating income, as reflected in the
condensed consolidated statements of operations, to EBITDA:
THREE MONTHS ENDED
MARCH 31,
----------------------
2003 2002
-------- --------
Operating income $ 74,082 $ 11,480
Other income/(expense) (686) 2,535
Depreciation and amortization 20,448 18,860
-------- --------
EBITDA $ 93,844 $ 32,875
======== ========
Form 10-Q
Page 26
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Liquidity and Sources of Capital (continued):
The ratio of earnings to fixed charges for the three months ended March 31, 2003
was 4.1x. There was a deficiency of earnings necessary to cover fixed charges of
$1,721,000 for the three months ended March 31, 2002. The ratio of earnings to
fixed charges has been computed by dividing the sum of (a) pretax income from
continuing operations, (b) fixed charges (reduced by the amount of interest
capitalized during the period) and (c) amortization expense related to
capitalized interest, by fixed charges. Fixed charges consist of all interest
(both expensed and capitalized), amortization of debt issuance costs, and the
interest portion of time and bareboat charter hire expenses.
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 September 2002, the Company entered into 11-year floating-to-fixed amortizing
interest rate swaps with major financial institutions with notional amounts
aggregating $110,000,000 that commence in the third quarter of 2003. These swaps
are designated and qualify as cash flow hedges.
The Company has one long-term revolving credit facility under which borrowings
bear interest at LIBOR plus a margin, where the margin is dependent on the
Company's leverage. As of March 31, 2003, there was no balance outstanding under
such facility.
Independent Accountants' Report on Review of Interim Financial Information
The accompanying condensed consolidated financial statements as of March 31,
2003 and for the three months ended March 31, 2003 and 2002 are unaudited;
however, such financial statements have been reviewed by the Company's
independent accountants.
Available Information
The Company makes available free of charge through its internet website,
www.osg.com, its Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to these reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended, as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the Securities and
Exchange Commission.
Form 10-Q
Page 27
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Item 4. Controls and Procedures
As of March 31, 2003, 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 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
March 31, 2003 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 March 31, 2003.
PART II
Item 6(a). Exhibits
See Exhibit Index on page 35.
Item 6(b). Reports on Form 8-K
During the quarter ended March 31, 2003, the Registrant filed one Current Report
on Form 8-K. The Registrant disclosed under Item 5 of the Current Report, which
was dated March 4, 2003, that it had priced a $200 million unsecured notes
offering (the "Notes"). The Notes have a coupon of 8.25% and are due in 2013.
The Notes were offered in an unregistered offering pursuant to Rule 144A and
Regulation S under the Securities Act of 1933.
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 March 31, 2003, and the
related condensed consolidated statements of operations, cash flows and changes
in shareholders' equity for the three month periods ended March 31, 2003 and
2002. 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, 2002, and the
related consolidated statements of operations, cash flows and changes in
shareholders' equity for the year then ended, not presented herein, and in our
report dated February 24, 2003, 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, 2002,
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
May 8, 2003
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: May 12, 2003 /s/ Morton P. Hyman
-----------------------------------------------
Morton P. Hyman
Chairman, President and Chief Executive Officer
Date: May 12, 2003 /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: May 12, 2003 /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: May 12, 2003 /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 March 31, 2003 (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: May 12, 2003 /s/ Morton P. Hyman
---------------------------
Morton P. Hyman
Chief Executive Officer
Date: May 12, 2003 /s/ Myles R. Itkin
---------------------------
Myles R. Itkin
Chief Financial Officer
Form 10-Q
Page 35
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
EXHIBIT INDEX
12. Computation of Ratio of Earnings to Fixed Charges.
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.