ITEM 1. BUSINESS - ------ -------- Overseas Shipholding Group, Inc. (the "registrant") and
its subsidiaries (collectively the "Company") constitute a major
international shipping enterprise owning and operating a
diversified fleet of oceangoing bulk cargo vessels (principally
tankers and dry bulk carriers). The Company's operating bulk
fleet consists of 61 vessels having an aggregate carrying
capacity of approximately 6,490,150 deadweight tons ("DWT"),
including six ships aggregating approximately 1,178,500 DWT which
the Company owns jointly with others and in which the Company has
at least a 49% interest.* Fifteen vessels in the Company's
operating bulk fleet, which total approximately 955,650 DWT and
represent about 25% of the Company's investment in bulk cargo
vessels at cost, are registered under the U.S. flag; the balance
are registered under foreign flags. Forty-four tankers account
for 77% of the total tonnage, and 16 dry bulk carriers and a pure
car carrier account for the remainder. A single company and its
subsidiaries, for and under the direction and control of the
Company, act as agents in respect of the bulk fleet of the
registrant's majority-owned subsidiaries and certain of its bulk
shipping joint ventures.
- ----------------------------
* Except as otherwise noted, references herein to the Company's "operating bulk fleet" are as of February 19, 1997. Such fleet includes six vessels that are leased from financial institutions under bareboat charters having remaining terms of from 5 to 15 years, but does not include a 264,900 DWT single-hulled tanker, in which the Company had a 50% interest, which the Company sold for demolition in late February 1997, or a 29,300 DWT petroleum barge which is owned by a partnership in which the Company has a 50% interest, or the two newbuildings currently on order which are more fully described under "Bulk Fleet Renewal Program" below.
Celebrity Cruise Lines Inc. (together with its
subsidiaries collectively "CCLI"), the Company's joint venture in
the passenger cruise business, owns and operates cruise ships
marketed primarily under the trade name Celebrity Cruises in the
premium segment of the industry. The Celebrity Cruises fleet
currently consists of five cruise ships with a total passenger-
carrying capacity of over 7,450 berths, including the 1,750-
passenger newbuilding CENTURY, delivered in late 1995, and its
1,870-passenger sistership GALAXY, delivered in late 1996. After
delivery of the third sistership MERCURY, scheduled for October
1997, the Celebrity Cruises total passenger carrying capacity
will increase to over 8,200 berths, excluding the 1,106-
passenger MERIDIAN which is under contract of sale for delivery
to a buyer in October 1997. See "Investment in Cruise Business"
below.
The Company's operating bulk fleet, aggregating
approximately 6,490,150 DWT, represents approximately 1% of the
total world tonnage of oceangoing bulk cargo vessels. As of
February 19, 1997, the Company had on order two vessels,
aggregating 571,800 DWT, for delivery to its international bulk
fleet. See "Bulk Fleet Renewal Program" below.
The Company charters its ships to commercial shippers
and U.S. and foreign governmental agencies for the carriage of
bulk commodities, primarily crude oil, petroleum products, grain,
coal and iron ore. Generally, each ship is chartered for a
specific period of time ("time charter"), or for a specific
voyage or voyages ("voyage charter"). Under the terms of time
and voyage charters covering the Company's vessels, the ships are
equipped and operated by the Company and are manned by personnel
in the Company's employ. From time to time, the Company also has
some of its vessels on bareboat charter. Under the terms of
bareboat charters, the ships are chartered for fixed periods of
time (generally medium- or long-term) during which they are
operated and manned by the charterer.
The Company's ships engage in carriage of cargo in
various parts of the world. Revenues from carriage of petroleum
and its derivatives represented approximately 82% of the voyage
revenues of the Company in 1996, 77% in 1995 and 78% in 1994.
Revenues from carriage of dry cargo accounted for the balance of
such voyage revenues for each of those years. The carriage of
petroleum and its derivatives also accounted for the majority of
the voyage revenues of the Company's bulk shipping joint
ventures. The relative contributions to voyage revenues of the
various types of cargoes carried may vary from year to year,
depending upon demand for particular kinds of carriage and the
purposes for which and the terms on which the ships are
chartered. The Company does not employ any container or similar
vessels in its operation.
As of February 19, 1997, all of the vessels in the
Company's operating bulk fleet were employed. Fifty-six of
these vessels were chartered to non-governmental commercial
shippers. These 56 ships include thirteen U.S.-flag ships and 43
foreign-flag ships, which together represent approximately 95% of
the combined carrying capacity of the Company's operating bulk
fleet. Of the remaining ships in the Company's operating bulk
fleet, two U.S.-flag ships and three foreign-flag ships were
under charter to foreign or U.S. governmental agencies.
U.S.-FLAG AND FOREIGN-FLAG OPERATIONS - ------------------------------------- The Company's U.S.-flag and foreign-flag bulk fleets
operate substantially in separate markets. The Company believes
that ownership of a diversified fleet, with vessels of different
flags, types and sizes and with operating flexibility, enables
the Company to take advantage of chartering opportunities for
domestic and international shipment of bulk commodities and
thereby cushions the effects of weakness in particular markets.
Information about the Company's operations under U.S. and foreign
flags for the three years ended December 31, 1996 is set forth in
the table in Note B to the Company's financial statements
incorporated by reference in Item 8 below. For information
regarding the revenues and net income of the Company's bulk
shipping joint ventures for the three years ended December 31,
1996, see Note E to the Company's financial statements
incorporated by reference in Item 8 below.
In each of the years 1996, 1995 and 1994 the Company
had one charterer, BP Oil Company, USA ("BP"), from which it had
revenues in excess of 10% of revenues from voyages, amounting in
1996 to approximately $98.3 million, in 1995 to approximately
$49.5 million, and in 1994 to approximately $63.7 million. In
late 1996 and early 1997, the Company increased its interest in
four of the U.S.-flag carriers on charter to BP by acquiring the
remaining 20% interest in the vessels from its minority partner,
and by acquiring from a financial institution its residual
ownership interests in certain of the vessels.
U.S. DOMESTIC AND PREFERENCE TRADES - ----------------------------------- Under the Jones Act, shipping between United States
coastal ports, including the movement of Alaskan oil, is reserved
by law primarily to U.S.-flag vessels, owned by U.S. citizens,
crewed by U.S. seafarers, built in the United States and operated
without operating differential subsidies. With eight crude
carriers and four product carriers, the Company is the largest
independent owner of unsubsidized U.S.-flag tankers and is a
major participant in the Alaskan oil trade.
Demand for tonnage in the Alaskan oil trade depends on
the volume of crude shipped out of Alaska and its distribution to
ports at varying distances from the source. Shipments of Alaskan
crude oil from Valdez are the main source of employment for U.S.-
flag crude carriers and are carried mostly on unsubsidized U.S.-
flag crude carriers of over 60,000 DWT.
In May 1996, legislation went into effect that lifted
the 22-year ban on exports of Alaska North Slope ("ANS") crude oil.
Following the implementation of the legislation, six of the
Company's eight U.S.-flag crude carriers began long-term charters
to BP. These charters have to a large extent eliminated the
Company's exposure to the volatility of the U.S.-flag crude
shipping markets and increased employment of its fleet. In
comparison, during 1995, six vessels were unemployed for a
substantial part of the year. Since May 1996, an average of
50,000 barrels per day of ANS crude oil has been exported to Far
Eastern buyers.
Following the repeal of the ban on ANS exports, BP and
other oil producers have announced plans for new investments in
Alaska. These investments are expected to slow the declining
trend in ANS production, which has fallen 28% since 1988.
United States military cargo must be transported on
U.S.-flag vessels, if available. The Merchant Marine Act, 1936,
as amended, requires that preference be given to U.S.-flag
vessels, if available at reasonable rates, in the shipment of at
least half of all U.S. government-generated cargoes and 75% of
food-aid cargoes.
In recent years there have been increased calls by
members of Congress and others to reduce or eliminate cargo
preference and, in some cases, to weaken the long-standing
requirement that U.S. coastwise trade be conducted by U.S.-flag
Jones Act ships. If such changes were implemented, they would
adversely affect the already diminished U.S.-flag merchant
marine.
Vessels in the Company's operating bulk fleet have been
chartered from time to time to the Military Sealift Command of
the United States Navy ("MSC"), and to recipient nations for the
carriage of grain and other cargoes under United States foreign
aid and agricultural assistance programs. Charters to MSC
reflect in large part the requirements of the United States
military for waterborne carriage of cargoes, and, accordingly,
depend in part on world conditions and United States foreign
policy.
Late last year, the Company's U.S.-flag car carrier,
OVERSEAS JOYCE, was selected to participate in the new U.S.
Maritime Security Program, which ensures that militarily-useful
U.S.-flag ships are available to the Department of Defense in the
event of war or national emergency. Under the program, the
Company will receive approximately $2.1 million per year through
2005, subject to annual Congressional appropriations.
EMPLOYMENT OF VESSELS - --------------------- The bulk shipping industry is highly fragmented and
competitive. The Company competes with other owners of U.S. and
foreign-flag tankers and dry cargo ships operating on an
unscheduled basis similar to the Company and, to some extent,
with owners operating cargo ships on a scheduled basis. Because
of increasing environmental concerns and decreasing control over
their sources of oil, the major oil companies have sharply
reduced their tanker ownership in recent years.
In chartering vessels to the United States government,
the Company competes primarily with other owners of U.S.-flag
vessels. Demand for U.S.-flag product carriers is closely linked
to changes in regional energy demands and in refinery activity.
These vessels also compete with pipelines and oceangoing barges
and are affected by the level of imports on foreign-flag product
carriers. In the spot and short-term charter market, the
Company's vessels compete with all other vessels of a size and
type required by a charterer that can be available at the date
specified. In the spot market, competition is based primarily on
price. Nevertheless, within a narrow price band, factors related
to quality of service and safety enter into a potential
customer's decision as to which vessel to charter.
Prevailing rates for charters of particular types of
ships are subject to fluctuations depending on conditions in
United States and international bulk shipping markets and other
factors. Although medium- and long-term charter business avoids,
to some extent, the sharp rate fluctuations characteristic of the
spot or voyage markets, the availability of such business in
recent years has been relatively limited, and, when available,
rates of return have generally been unattractive.
For additional information as of February 19, 1997
regarding the 61 vessels in the Company's operating bulk fleet,
including information as to the employment of such vessels, see
the table in the "To Our Shareholders" section (page 2), and the
"International Bulk Fleet" and "U.S. Bulk Fleet" tables (pages 16
and 17), of the registrant's Annual Report to Shareholders for
1996, which tables are incorporated herein by reference.
ENVIRONMENTAL MATTERS RELATING TO BULK SHIPPING - ----------------------------------------------- Since 1990, bulk shipping companies have been operating
in an increasingly stringent regulatory environment. Safety and
pollution concerns have led to strengthening of inspection
programs by governmental authorities, charterers and
classification societies. Moreover, there has been a growing
reluctance among charterers to accept older tonnage due to safety
and pollution concerns.
OPA 90. The Oil Pollution Act of 1990 ("OPA 90")
significantly expands the potential liability of a vessel owner
or operator (including a bareboat charterer), for damage
resulting from spills in U.S. waters (up to 200 miles offshore).
OPA 90 applies to all U.S. and foreign-flag vessels.
Under OPA 90, a vessel owner or operator is liable
without fault for removal costs and damages, including economic
loss without physical damage to property, up to $1,200 per gross
ton of the vessel. When a spill is proximately caused by gross
negligence, willful misconduct or a violation of a Federal
safety, construction or operating regulation, liability is
unlimited. OPA 90 did not preempt State law, and therefore States
remain free to enact legislation imposing additional liability.
Virtually all coastal States have enacted pollution prevention,
liability and response laws, many with some form of unlimited
liability.
In addition, OPA 90 imposes a requirement that tankers
calling at U.S. ports have double hulls. This requirement applies
to newly constructed tankers contracted for after June 1990, or
delivered after 1993. Beginning in 1995, the double-hull
requirement was phased in for existing tankers. The age
requirement is reduced in stages so that by the year 2000,
tankers of at least 30,000 gross tons over 23 years old (and
tankers between 15,000 and 30,000 gross tons over 30 years old)
must have double hulls, and by 2010, all tankers must have double
hulls, except that tankers with double bottoms or double sides
are afforded an additional five years for compliance but must
comply no later than the year 2015. Tankers discharging at a
deepwater port or lightering more than 60 miles offshore will not
be required to have double hulls until 2015.
OPA 90 also requires owners and operators of vessels
calling at U.S. ports to adopt contingency plans for responding
to a worst case oil spill under adverse weather conditions. The
plans must include contractual commitments with clean-up response
contractors in order to ensure an immediate response to an oil
spill. Furthermore, training programs and drills for vessel,
shore and response personnel are required. The Company has
developed and timely filed its vessel response plans with the
U.S. Coast Guard and has received approval of such plans.
Under U.S. Coast Guard financial responsibility
regulations issued pursuant to OPA 90, all tankers entering U.S.
waters since the end of 1994 were required to obtain Certificates
of Financial Responsibility ("COFRs") from the Coast Guard
demonstrating financial capability to meet potential spill
liabilities. All the vessels in the Company's U.S.-flag and
international flag tanker fleets have obtained COFRs.
INTERNATIONAL REQUIREMENTS. In addition to the OPA 90
requirements, in worldwide trade MARPOL regulations of the
International Maritime Organization (IMO) require double hulls or
equivalent tanker designs for newbuildings ordered after 1993 and
mandate double hulls for existing tankers by their 30th
anniversary. These regulations also require that, upon reaching
25 years of age, existing tankers either have protective wing
tanks or double bottom spaces not used for cargo carriage
covering at least 30% of the cargo tank area or, alternatively,
that they employ hydrostatic balanced loading. Some of these
measures may be costly, and all reduce the carrying capacity of a
vessel.
OPA 90 and IMO regulations continue to accelerate the
scrapping of older tonnage.
Since the Company maintains a modern fleet, regulations
mandating double hulls and other protective loading measures do
not apply to most of the Company's existing tanker fleet until
after the year 2000, at which time the affected ships will have
operated for substantially all of their economic lives.
BP is considering options to begin replacement of its
single-hulled vessels in the Alaskan crude oil trade, consistent
with OPA 90. The Company and BP have agreed to work together to
develop this project and are currently evaluating design,
construction and operational alternatives. A final decision on
vessel specifications will be made following a comprehensive
review of technical and commercial considerations.
INSURANCE. Consistent with the currently prevailing
practice in the industry, the Company presently carries $700
million of pollution coverage per occurrence on every vessel in
its fleet. While the Company has historically been able to
obtain such insurance at commercially reasonable rates, no
assurances can be given that such insurance will continue to be
available in the future.
BULK SHIPPING MARKETS - --------------------- Information regarding the international bulk shipping
markets and the markets for U.S.-flag vessels, including the
Alaskan oil trade, is set forth in the text of the "Global Bulk
Shipping Markets" section (pages 4, 7, 8 and 11) of the
registrant's Annual Report to Shareholders for 1996, which
information is incorporated herein by reference.
BULK FLEET RENEWAL PROGRAM - -------------------------- As part of the Company's ongoing modernization program,
the Company continually reviews its fleet profile. This entails
periodically selling older vessels, placing newbuilding orders
and purchasing existing modern tonnage, when available at
attractive prices. The Company has now completed its latest
newbuilding program which, including deliveries scheduled through
March 1997, consists of six double-hulled very large crude
carriers ("VLCCs" - tankers over 200,000 DWT) and two 160,000 DWT
capesize bulk carriers.
NEWBUILDING ORDERS. In January 1996, the Company took
delivery for its international fleet of two double-hulled VLCCs,
each of approximately 296,000 DWT. In November 1996 and January
1997, the Company took delivery for its international fleet of
two double-hulled VLCCs of approximately 305,000 DWT and 269,000
DWT, respectively, the second of which was ordered with a joint
venture partner and immediately commenced an eight-year charter
to the Company, which simultaneously chartered the vessel to the
partner for the same period. In January 1997, the Company took
delivery for its international fleet of two capesize bulk
carriers, each of approximately 157,000 DWT. In late March 1997,
the Company is scheduled to take delivery of two double-hulled
VLCCs of approximately 302,000 DWT and 269,000 DWT, respectively,
the second of which was ordered with a joint venture partner and
will commence an eight-year charter to the partner when
delivered. These two VLCCs are being built by major shipbuilders
(in Japan and South Korea) for delivery to the Company's
international fleet. The commitments for these two tankers are
in U.S. Dollars; for additional information as of February 19,
1997 about the commitments, see Notes E and L(1) to the Company's
financial statements incorporated by reference in Item 8 below.
SALES. The 1996 results reflect the sale of one U.S.-
flag and three foreign-flag single-hulled tankers (including a
VLCC in which the Company had a 50% interest). The Company also
sold an older foreign-flag bulk carrier in 1996, provision for
which had been made in 1995.
The Company's newbuilding program, together with the
selective upgrading of the Company's fleet through acquisition
and disposition of existing tonnage, reflects changes that the
Company makes from time to time in light of its continuing review
of changing market conditions and the needs of its customers.
All of the ships in the Company's fleet have been either built to
its exacting specifications or purchased after stringent
inspection. These vessels are designed for safe, efficient and
environmentally-friendly operation. Features in the tankers in
the current newbuilding program such as double hulls, satellite
navigation systems and increased steel in areas of high stress,
have been included to improve their safety and efficiency. Upon
delivery of the remaining two tanker newbuildings at the end of
March 1997, more than half of the Company's tanker fleet will be
protected by double sides, double bottoms or double hulls, and
the average age of the Company's international tanker fleet will
be only eight years compared with 13 years for the world tanker
fleet. Despite improvements in tanker rates over the past year,
rates today are still not at levels sufficient to provide a
satisfactory return on the high capital costs of the Company's
newest double-hulled vessels. The Company believes that these
ships are critical to its ability to serve the needs of its
customers in the years ahead. There is no assurance that the
Company's fleet will expand, or that the Company will acquire
vessels or place orders for the construction of new vessels, to
the same extent as in the past.
POOLING ARRANGEMENT - ------------------- In April 1996, the Company entered into a pooling
arrangement with PDV Marina ("PDVM") for Aframax tankers (80,000
to 120,000 DWT). PDVM is the marine transportation subsidiary of
the Venezuelan state oil company. By January 1997, the Company
and PDVM had each contributed ten vessels to the pool - their
entire Aframax fleets. Today Venezuela is the number one
exporter of crude oil to the United States, and its production is
expected to rise over the next decade. Because the pooling
arrangement is intended to carry a major portion of PDVM's
cargoes, the Company and PDVM anticipate growth in pool
activities. To date, pool operations have resulted in enhanced
opportunities for backhaul cargoes and reduced idle time, thereby
improving the earnings of pool vessels.
EMPLOYEES - --------- As of February 19, 1997, the Company employed
approximately 2,100 seagoing personnel to operate its ships.
The Company has collective bargaining agreements with three
different maritime unions, covering seagoing personnel employed
on the Company's U.S.-flag vessels. These agreements are in
effect through June 15, 2001 with one of the unions and through
June 15, 2000 with two of the unions. Under the collective
bargaining agreements, the Company is obligated to make
contributions to pension and other welfare programs. The Company
believes that its relations with its employees are satisfactory.
U.S. SUBSIDIES - -------------- To encourage private investment in U.S.-flag ships, the
Merchant Marine Act of 1970 permits deferral of taxes on earnings
deposited into capital construction funds and amounts earned
thereon, which can be used for the construction or acquisition
of, or retirement of debt on, qualified U.S.-flag vessels
(primarily those limited to United States foreign and
noncontiguous domestic trades). The registrant is a party to an
agreement under the Act. Under the agreement, the general
objective is (by use of assets accumulated in the fund) for two
vessels to be constructed or acquired by the end of 1999. If the
agreement is terminated or amounts are withdrawn from the capital
construction fund for non-qualified purposes, such amounts will
then be subject to Federal income taxes. Monies can remain tax-
deferred in the fund for a maximum period of 25 years (commencing
January 1, 1987 for deposits prior thereto). See the second
paragraph of Note J to the Company's financial statements
incorporated by reference in Item 8 below.
INVESTMENT IN CRUISE BUSINESS - ----------------------------- The Company owns a 49% equity investment in Celebrity
Cruise Lines Inc. (together with its subsidiaries collectively
"CCLI"), a joint venture that owns and operates cruise vessels.
CCLI functions as an equal joint venture and the approval of both
shareholders is required for all substantive policy matters. All
debt of the joint venture is nonrecourse to the joint venture
partners. It is anticipated that CCLI's earnings will be
reinvested in the cruise business, and accordingly the Company
has made no provision for U.S. income taxation with respect to
its share of CCLI's earnings.
CCLI markets its ships primarily under the brand name
Celebrity Cruises, which is a leading provider of cruises in the
premium segment of the North American cruise market.
Traditionally, the cruise market generally is divided
into three major segments - standard, premium and luxury -
principally defined by price and quality of product. Ships in
the standard, or mass market, segment tend to offer a more modest
level of service, accommodations and cuisine at a lower price.
The premium segment, in which Celebrity Cruises is positioned, is
designed to appeal to more sophisticated, less budget conscious
cruisers seeking more luxurious accommodations and higher
standards of service and cuisine. Although the premium cruise
market is generally priced higher than the standard market, the
strong competitive conditions in recent years have put pressure
on the pricing differential. The relatively small luxury segment
of the industry generally consists of smaller vessels offering an
exceptionally high level of service at a very high price.
The Celebrity Cruises fleet currently consists of five
ships -- GALAXY, CENTURY, ZENITH, HORIZON and MERIDIAN -- having
a total of over 7,450 berths and sailing mainly in the Caribbean
and to Bermuda. Cruises to Alaska and the West Coast, and
increased Panama Canal routes, were added to the itineraries
during 1996, and a further expansion of the itineraries is
scheduled for 1997 and 1998.
The Company's earnings in 1996 reflect a break-even
result from CCLI, compared with a net loss of $1,208,000 in 1995.
This is before the Company's estimated interest expense, after-
tax, of approximately $10,300,000 in 1996 and $11,000,000 in
1995, incurred to fund the CCLI investment. As a result of the
continuation of a highly competitive pricing environment in the
North American cruise market, the industry faced significant
discounting throughout 1996, which is reflected in the results of
CCLI.
In December 1996, CCLI took delivery of the second of
its three newbuildings, the 77,700 gross ton GALAXY. The 1,870-
passenger state-of-the-art cruise vessel GALAXY, and its
sisterships, CENTURY, delivered in late 1995, and MERCURY, to be
delivered later this year, will expand the Celebrity Cruises
fleet passenger-carrying capacity to over 8,200 berths, excluding
the 1,106-passenger MERIDIAN which is under contract of sale for
delivery to a buyer in October 1997. The larger fleet should
enable Celebrity Cruises to achieve significant additional
economies of scale in both operations and marketing, and to gain
wider brand recognition among the public at large. With the
delivery of all three newbuildings, the Celebrity Cruises fleet
will be among the most modern in the industry.
The contract for the MERCURY is with the same European
shipyard that built the GALAXY, CENTURY, ZENITH and HORIZON. Long-
term financing arrangements exist for substantially all of the
unpaid cost of this ship. For additional information about
Celebrity Cruises and its fleet and itineraries and the CCLI
commitments as of February 19, 1997, see the text of the CCLI
section (pages 12 and 14), and the Celebity Cruises fleet table
(page 17), of the registrant's Annual Report to Shareholders for
1996, which information is incorporated herein by reference, and
Note D to the Company's financial statements incorporated by
reference in Item 8 below.
COMPETITION. CCLI operates its vessels primarily in
the North American cruise market, which accounts for
approximately 80% of total cruise passengers carried worldwide
and is characterized by a small number of large and generally
well-capitalized companies. According to the Cruise Lines
International Association (CLIA), the six largest companies,
including CCLI, have more than 70% of total capacity.
Following modest declines of approximately 1% in 1994
and 2% in 1995, the total number of cruise passengers in 1996,
according to CLIA, rose to an estimated 4.7 million, a 6%
increase over the prior year. Preliminary indications for 1997
are that the growth in demand is continuing, as increased levels
of bookings have been reported by a number of cruise lines. But
despite stronger demand, the industry faced significant
discounting throughout 1996, particularly in the Caribbean, as
substantial new capacity entered the market.
In the past few years, the largest cruise lines have
sought to strengthen their positions by ordering larger and more
sophisticated ships. As a result, over the next four years
approximately 20 large new cruise ships are scheduled for
delivery, most into the North American cruise market. These
ships will increase current capacity by approximately 40,000
berths by the year 2000, before taking into account any deletions
from the fleet (see discussion below regarding amended SOLAS
requirements). While this increase is substantial, historically
growth in demand has outpaced growth in capacity. Significantly
for Celebrity Cruises, with its modern fleet, cruisers have
tended to prefer the newest cruise vessels, which offer more
dramatic design elements and state-of-the-art amenities.
Cruise lines compete with other vacation alternatives
such as land-based resort hotels and sightseeing destinations for
consumers' discretionary income. The amount of discretionary
income spent on vacations is influenced by general economic
conditions. Within the cruise industry, competition is primarily
based on product quality, itinerary and price. Product quality
is a function of ship design, onboard facilities, amenities,
service and cuisine.
REGULATORY MATTERS. Each cruise ship is subject to
regulations of its country of registry, including regulations
issued pursuant to international treaties governing the safety of
the ship and its passengers. Each country of registry conducts
periodic inspections to verify compliance with these regulations.
In addition, ships operating from U.S. ports are subject to
inspection by the U.S. Coast Guard for compliance with
international treaties and by the U.S. Public Health Service for
sanitary conditions.
With respect to passengers to and from U.S. ports, CCLI
is required to obtain certificates from the U.S. Federal Maritime
Commission and the U.S. Coast Guard relating to its ability to
satisfy liabilities arising out of nonperformance of obligations
to passengers, casualty or personal injury and water pollution.
The Company believes CCLI is in compliance with all material
regulations applicable to its ships and has all licenses
necessary for the conduct of its business.
The International Maritime Organization's SOLAS 1974
convention, which became effective in 1980 and was last amended
in 1992, established minimum safety, fire prevention and fire
protection standards (the "SOLAS '74 standards"). Under the
amended SOLAS requirements, all existing passenger ships must
have upgraded fire detection and fire protection systems by
October 1997. The schedule for compliance with certain other
aspects of the amended requirements for passenger vessels
currently meeting SOLAS '74 standards extends until 2005 or 15
years after construction, whichever is later.
The growth in world cruise capacity should be mitigated
somewhat by the application of the amended SOLAS requirements.
It is likely that a number of older vessels will leave the cruise
trade as their owners decide not to incur the significant capital
expenditures needed to bring them into compliance with these
requirements. Because of the young age of the Celebrity Cruises
fleet, the work necessary for its ships to meet the amended SOLAS
requirements will not require CCLI to make material capital
expenditures.
FORWARD LOOKING STATEMENTS
This Form 10-K, including portions of the registrant's
Annual Report to Shareholders for 1996 incorporated herein by
reference, contains forward looking statements relating to the
Company's prospects, the outlook for the tanker and dry cargo
markets and prospects for CCLI and the cruise industry. There
are risks and uncertainties that could cause actual results to
differ from the expectations reflected in these forward looking
statements, including changes in production of or demand for oil
and petroleum products, and various dry bulk commodities, either
generally or in particular regions; greater than anticipated
levels of newbuilding orders or less than anticipated rates of
scrapping; changes in trading patterns for particular commodities
significantly impacting overall tonnage requirements; changes in
the rates of growth of the world and various regional economies;
risks incident to vessel operation, including pollution;
unexpected adverse trends in demand for cruising among the public
at large; unanticipated changes in laws and regulations; and
other factors. Forward looking statements in the registrant's
Annual Report to Shareholders for 1996 and written and oral
forward looking statements attributable to the Company or its
representatives after the date of this Form 10-K are qualified in
their entirety by the cautionary statement contained in this
paragraph and in other reports hereafter filed by the registrant
with the Securities and Exchange Commission.
ITEM 2.
ITEM 2. PROPERTIES - ------ ---------- See Item 1.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ------ ----------------- The Company and CCLI are parties, as plaintiff or
defendant, to various suits in the ordinary course of business
for monetary relief arising principally from personal injuries,
collision or other casualty and to claims arising under charter
parties. All such personal injury, collision and casualty claims
against the Company and CCLI are fully covered by insurance
(subject to deductibles not material in amount). Each of the
other claims involves an amount which in the opinion of
management is not material in relation to the consolidated
current assets of the Company as shown in the Company's
Consolidated Balance Sheet as at December 31, 1996, incorporated
herein by reference. There have not been any material
developments in the investigation reported on in Item 1 of Part
II of the registrant's Form 10-Q report for the quarter ended
June 30, 1996 and incorporated herein by reference.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------
HAS SERVED AS NAME AGE POSITION HELD SUCH SINCE - ---- --- ------------- -------------
Morton P. Hyman 61 President October 1971
Robert N. Cowen 48 Senior Vice February 1993 President, Secretary, June 1982
Myles R. Itkin 49 Senior Vice June 1995 President, Chief Financial Officer and Treasurer
Alan Carus 58 Controller December 1987
Messrs. Hyman and Cowen are directors of the registrant
and members of the Finance and Development Committee of its Board
of Directors. The term of office of each executive officer
continues until the first meeting of the Board of Directors of
the registrant immediately following the next annual meeting of
its stockholders, to be held in June 1997, and until the election
and qualification of his successor. There is no family
relationship between the executive officers.
Mr. Morton P. Hyman has served as a director of the
registrant since 1969. Mr. Robert N. Cowen has served as a
director of the registrant since June 1993, as an officer and
director of certain of the registrant's subsidiaries during the
past five years, and as a director of Maritime Overseas
Corporation ("MOC"), the agent for the Company's vessels referred
to in the first paragraph of Item 1, during the past five years.
Prior to joining the registrant in June 1995, Mr. Myles R. Itkin
was employed for one year by Alliance Capital Management L.P. as
Senior Vice President-Finance, and prior thereto was employed by
Northwest Airlines, Inc. as Vice President-Finance. Mr. Alan
Carus has served as an officer and director of certain of the
registrant's subsidiaries during the past five years; he has also
served as a senior officer of MOC during the past five years.
PART II -------
The information called for by Items 5 through 8 is
incorporated herein by this reference from the following
respective portions and page numbers of the registrant's Annual
Report to Shareholders for 1996:
ITEM INCORPORATED FROM: ----- ------------------
ITEM 5.
ITEM 5. Market for Registrant's Last three paragraphs under Common Equity and Related "Shareholder Information" and Stockholder Matters the "Stock Price and Dividend Data" table, all on inside back cover (page 37);
ITEM 6.
ITEM 6. Selected Financial Data The information for the years 1992 through 1996 under "Eleven- Year Statistical Review" section (pages 34 and 35).
ITEM 7.
ITEM 7. Management's Discussion Information set forth in text and Analysis of Financial of "Management's Discussion Condition and Results of and Analysis" section (pages Operations 18 through 20).
ITEM 8.
ITEM 8. Financial Statements and "Consolidated Statements of Supplementary Data Operations and Retained Earnings", "Consolidated Balance Sheets", "Consolidated Statements of Cash Flows", "Notes to Consolidated Financial Statements" and "Report of Independent Auditors" sections (pages 21 through 33).
Additional Supplementary Data - Ratio of Earnings to Fixed Charges ----------------------------------
There was a deficiency of earnings to fixed charges for 1996 of $1,509,000. This has been computed by subtracting the sum of income before federal income taxes and fixed charges from fixed charges. Fixed charges consist of interest expense, including the proportionate share of interest of joint venture companies, capitalized interest and an estimate of the interest component of an operating lease.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III --------
The information called for by Items 10 through 13,
except for the information set forth in Part I above regarding
the executive officers of the registrant, is incorporated herein
by this reference from the following respective portions of the
definitive proxy statement to be filed by the registrant in
connection with its 1997 Annual Meeting of Shareholders.
ITEM INCORPORATED FROM: ---- -----------------
ITEM 10.
ITEM 10. Directors and Executive "Election of Directors" Officers of the Registrant
ITEM 11.
ITEM 11. Executive Compensation "Compensation and Certain Transactions"*
ITEM 12.
ITEM 12. Security Ownership of "Election of Directors" Certain Beneficial Owners and "Information as to and Management Stock Ownership"
ITEM 13.
ITEM 13. Certain Relationships and "Election of Directors" and Related Transactions "Compensation and Certain Transactions"* ___________
* Excluding material under "Stockholder Return Performance Presentation" and "Executive Compensation Report of the Executive Compensation Committee and the Stock Option Committee".
PART IV ------- ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) See the accompanying index to financial statements
and schedules, and the accompanying Exhibit Index.
(b) Reports on Form 8-K: The registrant did not file
any report on Form 8-K during the quarter ended December 31,
1996.
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
OVERSEAS SHIPHOLDING GROUP, INC.
By: s/Myles R. Itkin -------------------------------- Myles R. Itkin Senior Vice President, Chief Financial Officer & Treasurer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Each of such persons appoints Morton P. Hyman and Myles R. Itkin, and each of them, as his agents and attorneys- in-fact, in his name, place and stead in all capacities, to sign and file with the SEC any amendments to this report and any exhibits and other documents in connection therewith, hereby ratifying and confirming all that such attorneys-in-fact or either of them may lawfully do or cause to be done by virtue of this power of attorney.
By s/Morton P. Hyman ------------------------------- Morton P. Hyman, Principal Executive Officer and Director
By s/Myles R. Itkin ------------------------------- Myles R. Itkin, Principal Financial Officer
By s/Alan Carus ------------------------------- Alan Carus, Controller
By s/Robert N. Cowen ------------------------------- Robert N. Cowen, Director
By s/Ran Hettena ------------------------------- Ran Hettena, Director
By s/George C. Blake ------------------------------- George C. Blake, Director
By s/Solomon N. Merkin ------------------------------- Solomon N. Merkin, Director
By s/William L. Frost ------------------------------- William L. Frost, Director
By s/Thomas H. Dean ------------------------------- Thomas H. Dean, Director
By s/Joel I. Picket ------------------------------- Joel I. Picket, Director Date: March 26, 1997
FORM 10-K--ITEM 14(a) (1) and (2)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Overseas Shipholding Group, Inc. and subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 31, 1996 are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1996 and 1995 Consolidated Statements of Operations and Retained Earnings-- Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows-- Years Ended December 31, 1996, 1995 and 1994 Notes to Financial Statements --December 31, 1996
All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
Exhibit Index
3(i) Certificate of Incorporation of the registrant, as amended to date (filed as Exhibit 3(a) to the registrant's Form 10-K for 1988 and incorporated herein by reference).
3(ii) By-Laws of the registrant, as amended to date (filed via EDGAR as Exhibit 3(ii) to the registrant's Form 10-K for 1993 and incorporated herein by reference).
4(a) Amended and Restated Credit Agreement dated as of February 9, 1990, as amended and restated as of October 31, 1994, among the registrant, two subsidiaries of the registrant and certain banks (filed via EDGAR as Exhibit 4(a) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
4(b) Form of Note Purchase Agreement dated as of March 1, 1992 between the registrant and each of the purchasers of its senior notes (filed as Exhibit 4(b) to the registrant's Form 10-K for 1991 and incorporated herein by reference).
4(c) Form of Note Purchase Agreement dated as of June 1, 1993 between the registrant and each of the purchasers of its senior notes (filed via EDGAR as Exhibit 4 to the registrant's Form 10- Q for the quarter ended June 30, 1993 and incorporated herein by reference.)
4(d)(1) Form of Indenture dated as of December 1, 1993 between the registrant and The Chase Manhattan Bank (National Association) providing for the issuance of debt securities by the registrant from time to time (filed via EDGAR as Exhibit 4(d)(1) to the registrant's Form 10-K for 1993 and incorporated herein by reference).
4(d)(2) Resolutions dated December 2, 1993 fixing the terms of two series of debt securities issued by the registrant under the Indenture (filed via EDGAR as Exhibit 4(d)(2) to the registrant's Form 10-K for 1993 and incorporated herein by reference).
4(d)(3) Form of 8% Notes due December 1, 2003 of the registrant (filed via EDGAR as Exhibit 4(d)(3) to the registrant's Form 10-K for 1993 and incorporated herein by reference).
4(d)(4) Form of 8-3/4% Debentures due December 1, 2013 of the registrant (filed via EDGAR as Exhibit 4(d)(4) to the registrant's Form 10-K for 1993 and incorporated herein by reference).
NOTE: The Exhibits filed herewith do not include other instruments authorizing long-term debt of the registrant and its subsidiaries, none of which exceeds 10% of total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish a copy of each such instrument to the Commission upon request.
10(a) Form of Agency Agreements between Maritime Overseas Corporation and each of the registrant's majority-owned subsidiaries that owns or operates a U.S.-flag vessel (refiled as Exhibit 10(a) to the registrant's Form 10-K for 1989 and incorporated herein by reference).
10(b) Form of Agency Agreements between Maritime Overseas Corporation and each of the registrant's majority-owned subsidiaries that owns or operates a foreign-flag vessel (refiled as Exhibit 10(b) to the registrant's Form 10-K for 1989 and incorporated herein by reference).
10(c)(1) Form of Management Agreement dated as of January 1, 1985 between Lion Insurance Company Ltd. and Maritime Overseas Corporation (refiled via EDGAR as Exhibit 10(c)(1) to the registrant's Form 10-K for 1995 and incorporated herein by reference).
*10(c)(2) Form of Amendment No. 1 dated as of April 1, 1986 to the Management Agreement between Lion Insurance Company Ltd. and Maritime Overseas Corporation (previously filed more than 10 years ago and refiled herewith).
10(d)(1) Form of General Services Agreement dated December 31, 1969 between the registrant and Maritime Overseas Corporation (the form of which was filed as Exhibit 13(3) to Registration Statement No. 2-34124 and is incorporated herein by reference).
10(d)(2) Form of Amendment dated as of January 1, 1975 to General Services Agreement between the registrant and Maritime Overseas Corporation (refiled via EDGAR as Exhibit 10(d)(2) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(d)(3) Amendment dated January 10, 1980 to General Services Agreement between the registrant and Maritime Overseas Corporation (refiled as Exhibit 10(d)(3) to the registrant's Form 10-K for 1989 and incorporated herein by reference).
10(d)(4) Form of Amendment dated as of January 1, 1981 to General Services Agreement between the registrant and Maritime Overseas Corporation (refiled as Exhibit 10(d)(4) to the registrant's Form 10-K for 1990 and incorporated herein by reference).
10(d)(5) Form of Amendment dated as of October 1, 1987 to General Services Agreement between the registrant and Maritime Overseas Corporation (filed as Exhibit 10(d)(5) to the registrant's Form 10-K for 1987 and incorporated herein by reference).
10(d)(6) Form of Amendment dated as of July 1, 1994 to General Services Agreement between the registrant and Maritime Overseas Corporation (filed via EDGAR as Exhibit 10(d)(6) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(e)(1) Form of Letter Agreement dated as of August 9, 1973 between the registrant and Maritime Overseas Corporation (refiled via EDGAR as Exhibit 10(e)(1) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(e)(2) Form of Letter Agreement dated as of August 9, 1973 by Maritime Overseas Corporation (refiled via EDGAR as Exhibit 10(e)(2) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(e)(3) Form of Letter Agreement dated as of August 9, 1973 by Maritime Overseas Corporation (refiled via EDGAR as Exhibit 10(e)(3) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(e)(4) Form of Letter Agreement dated as of January 1, 1981 between the registrant and Maritime Overseas Corporation (refiled as Exhibit 10(e)(4) to the registrant's Form 10-K for 1991 and incorporated herein by reference).
10(f)(1) Form of Service Agreements between Maritime Overseas Corporation and each of the partnerships First Shipmor Associates, Second Shipmor Associates, Third Shipmor Associates and Fourth Shipmor Associates and related letter agreements between the registrant and each of said partnerships (refiled as Exhibit 10(f)(1) to the registrant's Form 10-K for 1987 and incorporated herein by reference).
10(f)(2) Service Agreement dated January 27, 1983 between Cambridge Tankers, Inc. and Maritime Overseas Corporation relating to the OVERSEAS BOSTON (refiled as Exhibit 10(f)(2) to the registrant's Form 10-K for 1992 and incorporated herein by reference).
10(f)(3) Form of Service Agreement between respective subsidiaries of the registrant and Maritime Overseas Corporation relating to the OVERSEAS NEW ORLEANS and OVERSEAS PHILADELPHIA (not filed--substantially identical in all material respects to the agreement listed as Exhibit 10(f)(2) hereto except as to the parties, the vessels and the dates).
10(g)(1) Form of Management Agreements between Maritime Overseas Corporation and each of First United Shipping Corporation, Interocean Tanker Corporation, Second United Shipping Corporation and Third United Shipping Corporation (refiled via EDGAR as Exhibit 10(g)(1) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(g)(2) Form of Amendment No. 1 and Amendment No. 2 to Management Agreements between Maritime Overseas Corporation and each of First United Shipping Corporation, Interocean Tanker Corporation, Second United Shipping Corporation and Third United Shipping Corporation (refiled via EDGAR as Exhibit 10(g)(2) to the registrant's Form 10- K for 1995 and incorporated herein by reference).
10(g)(3) Form of Amendment No. 3 to Management Agreements between Maritime Overseas Corporation and each of First United Shipping Corporation, Interocean Tanker Corporation, Second United Shipping Corporation and Third United Shipping Corporation (filed via EDGAR as Exhibit 10(g)(3) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(g)(4) Form of Company Service Employees Agreement between Maritime Overseas Corporation and each of First Union Tanker Corporation and Second Union Tanker Corporation (filed via EDGAR as Exhibit 10(g)(4) to the registrant's Form 10-K for 1994 and incorporated herein by reference).
10(h)(1) Agreement dated April 1, 1992 between the registrant and Maritime Overseas Corporation (filed as Exhibit 10 to the registrant's Form 10-Q for the quarter ended March 31, 1992 and incorporated herein by reference).
10(h)(2) Letter Agreement dated November 9, 1993 amending the Agreement dated April 1, 1992 referred to above (filed via EDGAR as Exhibit 10(h)(2) to the registrant's Form 10-K for 1993 and incorporated herein by reference).
10(i) Indemnification Agreement dated December 21, 1992 among Continental Grain Company, Third Contiship Inc., Fourth Contiship Inc., OSG Bulk Ships, Inc., Third Shipco Inc., Fourth Shipco Inc. and the registrant (filed as Exhibit 10(i) to registrant's Form 10-K for 1992 and incorporated herein by reference).
10(j)(1) Exchange Agreement dated December 9, 1969 (including exhibits thereto) between the registrant and various parties relating to the formation of the registrant (the form of which was filed as Exhibit 2(3) to Registration Statement No. 2-34124 and is incorporated herein by reference).
10(j)(2) Form of Additional Exchange Agreement referred to in Section 2.02 of Exhibit 10(j)(1) hereto (filed as Exhibit 2(4) to Registration Statement No. 2-34124 and incorporated herein by reference).
*10(k)(1) Supplemental Executive Retirement Plans of the registrant, as amended and restated as of January 1, 1997.
10(k)(2) Employment Contract with an executive officer (filed via EDGAR as Exhibit 10 to the registrant's Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference).
10(k)(3) Letter Agreement with a former executive officer (filed via EDGAR as Exhibit 10 to the registrant's Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference).
*10(k)(4) Agreement with an executive officer.
*10(k)(5) Agreement with an executive officer.
10(l)(1) 1989 Stock Option Plan adopted for officers and key employees of the registrant or its subsidiaries (filed as Exhibit 10(l) to the registrant's Form 10-K for 1989 and incorporated herein by reference).
10(l)(2) Amendment adopted October 9, 1990 to the registrant's 1989 Stock Option Plan referred to above (filed as Exhibit 10(l)(2) to the registrant's Form 10-K for 1990 and incorporated herein by reference).
10(m) 1990 Stock Option Plan adopted for officers and employees of the registrant or its subsidiaries, excluding the recipients of options under Exhibits 10(l)(1) and (2) listed above (filed as Exhibit 10(m) to the registrant's Form 10-K for 1990 and incorporated herein by reference).
10(n)(1) Joint Venture Agreement dated September 23, 1992 among Archinav Holdings Ltd. ("Archinav"), Overseas Cruiseship Inc. ("Overseas"), and Celebrity Cruise Lines Inc. ("CCLI") (excluding exhibits and schedules) and the following related agreements: Guarantee of the registrant dated September 23, 1992 and Shareholders Agreement dated October 21, 1992 among Archinav, Overseas and CCLI (excluding exhibits)(filed as Exhibits 2(a), (b) and (c), respectively, to the registrant's Report on Form 8-K dated October 21, 1992 and incorporated herein by reference).
10(n)(2) Supplemental Agreement dated January 29, 1993 to the Shareholders Agreement referred to in Exhibit 10(n)(1) above (filed as Exhibit 10(n)(2) to the registrant's Form 10-K for 1992 and incorporated herein by reference).
10(n)(3) Supplemental Agreement dated November 21, 1995 to the Shareholders Agreement referred to in Exhibit 10(n)(1) above (filed via EDGAR as Exhibit 10(n)(3) to the registrant's Form 10-K for 1995 and incorporated herein by reference).
*10(n)(4) Supplemental Agreement dated October 4, 1996 to the Shareholders Agreement referred to in Exhibit 10(n)(1) above.
*10(o) Form of Sublease dated as of November 1, 1996 between the registrant and Maritime Overseas Corporation.
*12 Computation of Ratio of Earnings to Fixed Charges.
*13 Such portions of the Annual Report to security holders for 1996 as are expressly incorporated herein by reference.
*21 List of subsidiaries of the registrant.
*23 Consent of Independent Auditors of the registrant.
*27 Financial Data Schedule.
NOTE: The Exhibits which have not previously been filed or listed or are being refiled are marked with an asterisk (*).
List of Executive Compensation Plans and Arrangements - See Exhibits 10(k)(1),(2), (3), (4) and (5), 10(l)(1) and (2), and 10(m) above.