AS FILED WITH THE
As filed with the Securities and Exchange Commission on August 9, 2016 |
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 2001
Registration No. 333-62702
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OVERSEAS SHIPHOLDING GROUP, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)charter)
Delaware incorporation or | 4412 (Primary Standard Industrial Classification Code Number) | 13-2637623 (I.R.S. Employer Identification No.) |
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
Robert N. Cowen511 Fifth600 Third Avenue,
39th Floor
New York, New York 10017212-953-410010016
(212) 953-4100
(Name, Address, Including Zip Code,including zip code, and Telephone Number, Including Area Code,telephone number,
including area code, of Agent for Service)registrant’s principal executive offices)
Copies to:
James D. Small III, Esq. Senior Vice President, Secretary and General Counsel 600 Third Avenue, 39th Floor, New York, New York (212) 953-4100 |
(Name, address, including zip code, and telephone number, |
(Copies of all communications, including communications sent to agent for service) | ||
Jeffrey D. Karpf, Esq.
| John T. Gaffney, Esq. J. Alan Bannister, Esq. Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166 (212) 351-4000 |
Approximate date of commencement of proposed sale to the public: As soon as practicableFrom time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box./ /¨
If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box./ /x
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering./ /¨
If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering./ /¨
If delivery ofthis Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the prospectus is expected to be madeCommission pursuant to Rule 434, please462(e) under the Securities Act, check the following box./ /¨
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box.¨
Large accelerated filer ¨ | Accelerated filer x | Non-accelerated filer ¨ | Smaller reporting company ¨ |
(Do not check if a smaller reporting company) |
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered | Amount to be Registered(1) | Proposed Maximum Offering Price Per Unit(2) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee(3) | ||||||||||||
Class A Common Stock, par value $0.01 per share | 29,983,409 | $ | 12.48 | $ | 374,192,944.32 | $ | 37,681.23 | |||||||||
Class A Warrants to purchase Class A Common Stock | 17,719,598 | $ | — | $ | — | $ | — | (4) | ||||||||
Class A Common Stock, par value $0.01 per share, issuable upon exercise of Class A Warrants | 3,366,727 | $ | 12.48 | $ | 42,016,752.96 | 4,231.09 | ||||||||||
Total | $ | 41,912.32 |
(1) | Pursuant to Rule 416(a) under the Securities Act of 1933, as amended (the “Securities Act”), this registration statement shall be deemed to cover any additional shares of common stock that become issuable as a result of stock dividends, stock splits and similar transactions effected without receipt of consideration that result in an increase in the number of outstanding shares of the registrant’s common stock. | |
(2) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c) under the Securities Act based on the average of the reported high and low prices of the Class A Common Stock on the New York Stock Exchange on August 2, 2016. | |
(3) | The Registrant previously filed a Form S-1 (333-198278) on August 20, 2014, and paid a filing fee of $156,732.00. The Registrant did not sell any securities pursuant to that Form S-1, and it was withdrawn on May 4, 2015. As of the filing of this registration statement, there are unused filing fees of $145,574.44. Pursuant to Rule 457(p), the Registrant hereby applies $41,912.32 of the remaining previously paid filing fee against amounts due herewith. | |
(4) | Pursuant to Rule 457(g) under the Securities Act, no separate registration fee is required to be paid. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securitiesThe selling securityholders may not be soldsell these securities until the registration statement filed with the Securities and Exchange Commission relating to these securities is effective. This preliminary prospectus is not an offer to sell nor doesthese securities and it seekis not a solicitation of an offer to buy these securities in any jurisdiction where thesuch offer, solicitation or sale is not permitted.
Subject to Completion. Dated June 15, 2001.
5,000,000 SharesSUBJECT TO COMPLETION, DATED AUGUST 9, 2016
PROSPECTUS
Overseas Shipholding Group, Inc.
33,350,136 Shares of Class A Common Stock
All
17,719,598 Class A Warrants, Each to Purchase 0.190 Shares of Class A Common Stock
This prospectus relates to the shares of common stock in the offering are being soldresale from time to time by the selling stockholderssecurityholders identified in this prospectus. Overseas Shipholding Group, Inc.prospectus of up to (i) 33,350,136 shares of our Class A Common Stock, par value $0.01 per share, and (ii) 17,719,598 Class A Warrants, each to purchase 0.190 shares of our Class A Common Stock (subject to adjustment as described herein). The Class A Warrants have a per share exercise price of $0.01 and expire on August 5, 2039.
We are not offering any securities for sale under this prospectus, and we will not receive any of the proceeds from the sale or other disposition of the shares.securities covered hereby.
The common stockselling securityholders may offer the securities from time to time directly or through underwriters, broker-dealers or agents and in one or more public or private transactions and at fixed prices, prevailing market prices, at prices relating to prevailing market prices or at negotiated prices, or otherwise. If the securities are sold through underwriters, broker-dealers or agents, the selling securityholders will be responsible for underwriting discounts or commissions or agents’ commissions. See “Plan of Distribution” for additional information.
Our Class A Common Stock is listed on the New York Stock Exchange under the symbol "OSG."“OSG.” The last reported sale price of our Class A Common Stock on the common stockNew York Stock Exchange on June 14, 2001August 8, 2016 was $30.79$12.77 per share.
See "Risk Factors"
We will pay the expenses related to the registration of the shares of the securities covered by this prospectus. The selling securityholders will pay any underwriting discounts or commissions or agents’ commissions and selling expenses they may incur.
Investing in our Class A Common Stock and Class A Warrants involves a high degree of risk. You should consider carefully the risks and uncertainties in the section entitled “Risk Factors” beginning on page 6 in4 of this prospectus, to read about certain factors you should considerin the documents we file with the Securities and Exchange Commission and as set forth in any applicable prospectus supplement before buying the common stock.investing in our securities.
Neither the Securities and Exchange Commission nor any other regulatory bodystate securities commission has approved or disapproved of these securities or passed upon the accuracyadequacy or adequacyaccuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2016.
TABLE OF CONTENTS
ii | ||||||
1 | ||||||
4 | ||||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | ||||||
USE OF PROCEEDS | 11 | |||||
SELLING SECURITYHOLDERS | 12 | |||||
DESCRIPTION OF CAPITAL STOCK | ||||||
DESCRIPTION OF THE CLASS A WARRANTS | 19 | |||||
PLAN OF DISTRIBUTION | 25 | |||||
LEGAL MATTERS | 28 | |||||
EXPERTS | 28 | |||||
WHERE YOU CAN FIND MORE INFORMATION | 28 | |||||
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE | 28 |
To
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This prospectus is part of a registration statement on Form S-3 that we filed with the extentSecurities and Exchange Commission (the “SEC”) using a “shelf” registration process. Under this shelf registration process, the selling securityholders may, from time to time, offer and sell, in one or more offerings, the securities described in this prospectus.
This prospectus only provides you with a general description of the securities that may be offered. Each time the selling securityholders sell securities using this shelf registration, we may provide a supplement to this prospectus that will contain specific information about the terms of that offering, including the specific amounts, prices and terms of the securities offered. The prospectus supplement may also add, update or change information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any applicable prospectus supplement, you should rely on the information in the applicable prospectus supplement. You should read in their entirety both this prospectus and any accompanying prospectus supplement, together with the additional information described under the sections entitled “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference” before deciding to invest in any of the securities being offered.
This prospectus and any accompanying prospectus supplement do not contain all of the information included in the registration statement as permitted by the rules and regulations of the SEC. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, therefore, file reports and other information with the SEC. Statements contained in this prospectus and any accompanying prospectus supplement about the provisions or contents of any agreement or other document are only summaries. If SEC rules require that any agreement or document be filed as an exhibit to the registration statement, you should refer to that agreement or document for its complete contents. Any summaries of such agreement or documents set forth in this prospectus or any accompanying prospectus supplement are qualified in their entirety by reference to such agreement or document as filed with the SEC.
You should not assume that the Underwriters sell moreinformation in this prospectus, any accompanying prospectus supplement or any document incorporated by reference herein is accurate as of any date other than 5,000,000 sharesthe date on the front of common stock, the Underwriters have the option to purchase up to an additional 750,000 shares from certaineach document, regardless of the selling stockholderstime of delivery of this prospectus, any accompanying prospectus supplement or any sale of securities. Our business, financial condition, results of operations and prospects may have changed since then. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. Any information we incorporate by reference in accordance with SEC rules into this prospectus or any accompanying prospectus supplement shall be deemed to be a part of this prospectus from the respective dates of filing of that information.
IF YOU ARE IN A JURISDICTION WHERE OFFERS TO SELL, OR SOLICITATIONS OF OFFERS TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT ARE UNLAWFUL, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT THESE TYPES OF ACTIVITIES, THEN THE OFFER PRESENTED IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT DOES NOT EXTEND TO YOU.
In this prospectus, unless otherwise specified or the context otherwise requires, we use the terms “the Company,” “OSG,” “we,” “our” and “us” to refer to Overseas Shipholding Group, Inc., a Delaware corporation, and its consolidated subsidiaries.
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This summary highlights information contained elsewhere in, or incorporated by reference into, this prospectus. As a result, it may not contain all the information that may be important to you in, or that you should consider before making a decision as to whether or not to invest in our securities, and is qualified in its entirety by the more detailed information included in and incorporated by reference into this prospectus. You should read theentire prospectus carefully, including the section entitled “Risk Factors” and the documents incorporated by reference herein, which are described under “Incorporation of Certain Documents by Reference,” before making an investment decision. For a more complete description of our business, see the “Business” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and see our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, each of which is incorporated by reference herein.
A glossary of shipping terms that should be used as a reference when reading this prospectus and the documents incorporated by reference herein can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Our Company
We are a leading provider of ocean transportation services for crude oil and refined petroleum products, and the only major tanker company operating in both the U.S. Flag and International Flag markets. We own or operate a fleet of 79 double-hulled vessels, including 55 vessels that operate in the International Flag market and 24 vessels that operate in the U.S. Flag market. We serve a diverse group of customers, including major independent and state-owned oil companies, oil traders and refinery operators, and have a reputation in the industry for excellent service. We have a long history of operations in the markets that we serve, initiated in 1948 by our predecessor company, and were first listed on the New York Stock Exchange in 1970.
We operate our vessels in two strategic business units: we serve the U.S. Flag market through our subsidiary OSG Bulk Ships, Inc. (“OBS”) and the International Flag market through our subsidiary OSG International, Inc. (“OIN”):
· | U.S. Flag. Through OBS, we are currently the largest operator of Jones Act vessels in our market by both number of vessels and deadweight tons (“dwt”), have a strong presence in all U.S. coastal regions and are the only operator of Jones Act shuttle tankers. Our 24-vessel U.S. Flag fleet includes tankers and articulated tug barges (“ATBs”), of which 22 operate under the Jones Act and two operate internationally in the U.S. Maritime Security Program (the “MSP”). The Jones Act requires all vessels transporting cargo between U.S. ports to be built in the United States, registered under the U.S. Flag, manned by U.S. crews, and owned and operated by U.S.-organized companies that are controlled, and at least 75% owned, by U.S. Citizens (as defined under the Jones Act), conditions that limit direct foreign competition. Revenues from our U.S. Flag fleet, derived predominantly from medium-term time charters, were $227 million in the first six months of 2016 and $449 million in 2015, or 50% and 49%, respectively, of our consolidated time charter equivalent (“TCE”) revenues. |
· | InternationalFlag. Our 55-vessel International Flag fleet includes ULCC, VLCC, Aframax and Panamax crude tankers and LR1, LR2 and MR product carriers, as well as the vessels operated by our international joint ventures (the “JVs”). Revenues from our International Flag fleet, derived predominantly through spot market voyage charters, were $226 million in the first six months of 2016 and $476 million in 2015, or 50% and 51%, respectively, of our consolidated TCE revenues. Through the JVs, we have ownership interests in two businesses — two floating storage and offloading vessels (“FSOs”) and four liquefied natural gas (“LNG”) carriers (collectively, our “JV Vessels”). |
We believe our unique position in both the U.S. Flag and International Flag markets enables us to pursue an overall chartering strategy that seeks an optimal blend of medium-term time charters and spot rate exposure. In addition, we seek to actively manage the composition of our U.S. Flag and International Flag fleets through acquisitions and dispositions while maintaining an appropriate scale and age profile, with a focus on acquiring high-quality secondhand vessels and existing newbuild contracts.
Company Information
Our executive offices are located at the initial price to public less the underwriting discount.
The Underwriters expect to deliver the shares against payment in600 Third Avenue, 39th Floor, New York, New York 10016, and our telephone number is (212) 953-4100. Our Internet website address is www.osg.com. Information on, June , 2001.or accessible through, our website is not incorporated into, nor should it be considered part of, this prospectus or any applicable prospectus supplement, except as and solely to the extent otherwise provided herein or therein. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.
The Offering
Overseas Shipholding Group, Inc. | ||||||||||
selling securityholders | 33,350,136 shares of Class A Common Stock. | |||||||||
Prospectus dated June , 2001.
This summary highlights selected information contained in this prospectus. This summary is included for convenience only and may not include all of the information that is important to you. You should carefully read this entire prospectus, including our financial statements and the notes to those financial statements appearing elsewhere in this prospectus.
Overseas Shipholding Group, Inc.
Since our formation in 1969, we have become one of the world's leading independent bulk shipping companies, engaged primarily in the seaborne transportation of crude oil and petroleum products. Our customers include many of the world's largest oil companies and oil trading companies, as well as governments and governmental agencies. Our fleet consists of 43 vessels that aggregate approximately 5.9 million deadweight tons, or dwt, of carrying capacity, including 33 vessels used primarily for the international transportation of crude oil and petroleum products (for example, voyages from the Arabian Gulf to the United States) and 10 vessels used in the U.S. flag trades.
In our international business, we have concentrated our fleet in two vessel segments, Very Large Crude Carriers (VLCCs) and medium-size crude carriers (Aframaxes). These two segments constitute approximately 67% of the world tanker fleet and approximately 78% of the world crude carrier fleet measured by dwt. We have a fleet of 11 VLCCs and will take delivery of four additional VLCCs over the next 18 months. We have entered most of our VLCCs in the Tankers International LLC pool, the world's largest commercial operator of VLCCs. Tankers International, which we formed with five other leading tanker companies and which commenced operations in February 2000, commercially manages 48 modern VLCCs. Its size and market presence has provided us with superior asset utilization resulting in enhanced financial returns on our vessels.
We also have a fleet of 11 Aframaxes and will take delivery of four additional Aframaxes during the next 30 months. We have entered our Aframax tankers in the Aframax Pool, an alliance with PDV Marina S.A., the marine transportation subsidiary of PDVSA, the Venezuelan state oil company. The Aframax Pool, which was formed in 1996, consists of 21 vessels that operate in the Atlantic Basin, making this alliance among the largest operators of Aframaxes in this region. The pool is able to utilize base load PDVSA cargoes to create opportunities for backhaul cargoes resulting in greater utilization of pool vessels.
Our VLCC and Aframax fleets are among the youngest in the world. Our VLCC fleet has an average age of 5.3 years, compared with an industry average of 11.8 years. Our Aframax fleet (after taking into account our planned disposition of two older Aframaxes during the next 12 months) has an average age of 5.5 years, compared with an industry average of 11.5 years. Our modern fleet and our reputation for quality service are key competitive advantages, especially as customers are becoming increasingly focused on environmental and safety concerns.
The strength of oil tanker markets and our ability to take advantage of certain industry trends have helped us achieve record levels of revenues and earnings in 2000. In 2000, we had net shipping revenues of $370.1 million and net income of $90.4 million. In the quarter ended March 31, 2001, we had net shipping revenues of $125.5 million and net income of $40.4 million.
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Industry Trends and Opportunities
We believe the following industry trends create market opportunities and improve the prospects for us as an owner of modern tankers, particularly when such vessels are marketed as part of a large, unified fleet:
Greater focus on environmental and safety concerns. Major oil companies and other customers are increasingly concerned with environmental and safety issues, and as a result established operators of modern, high quality ships generally receive preferential employment and in some cases higher charter rates than operators of older vessels.
The world tanker fleet is aging and new environmental regulations will increase scrapping rates. Approximately 32% of the world tanker fleet is over 20 years of age and scrapping is expected to increase over the next several years due to recent International Maritime Organization (IMO) regulations that have imposed stricter limits on the use of older vessels. Given the world tanker fleet age profile, the new IMO regulations are expected to result in over 30% of the world fleet retiring by the end of 2007.
World oil consumption is increasing. A major factor in determining tanker demand is world oil consumption, which continues to rise. The International Energy Agency projects that world oil consumption will increase by an average of two percent per year through 2010.
Consolidation of tanker assets. The tanker industry is highly fragmented, which provides an opportunity for larger operators to acquire assets of smaller operators and employ those assets more productively as part of a unified fleet, facilitating superior asset utilization and operating efficiencies.
Consolidation of integrated oil companies. The consolidation trend among our oil company customers and their desire to outsource non-core activities, including the transportation of crude oil, represents an opportunity for large, high quality operators that are able to offer a broad range of transportation solutions.
We believe that we possess significant competitive advantages in the world tanker industry that permit us to maintain and improve our leadership position in the industry and to enhance the financial performance of our shipping assets. These advantages include:
Our international fleet of modern, high quality vessels. Our international VLCC and Aframax fleets are among the youngest in the industry. A modern, high quality fleet allows us to better meet our customers' needs, capture higher charter rates associated with modern vessels, comply with more stringent environmental regulations, reduce downtime due to maintenance and achieve lower operating costs compared to older vessels.
Our participation in leading strategic alliances. We have benefited by placing a large number of our vessels into large commercial pools. The scale and market presence of these pools have resulted in enhanced financial performance of our vessels through superior asset utilization and lower operating costs.
Our strong financial profile. We have a strong financial profile and a low debt-to-capital ratio relative to most of our industry peers. This allows us to take advantage of market opportunities, including acquiring new vessels and making strategic acquisitions.
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Our fully integrated technical and commercial operations. Our experienced in-house personnel are capable of providing all commercial and operating services to our fleet worldwide, which permits us to better control our operations and costs.
Our long-established industry reputation and experienced management team. We have a reputation in the international tanker industry for excellence in service, quality of vessels and technical operations. We have an experienced and dedicated senior management team, many of whom have been with us for over 20 years and, in the case of our chief executive officer, since we were founded in 1969.
Our strategy is to employ our competitive strengths to enhance stockholder value and further our industry position as a leading provider of international tanker services. Our strategic initiatives include:
Continuing to be a preferred provider of VLCC and Aframax vessels. We focus on the needs of our customers and seek to be a preferred provider by offering modern, high quality and well-operated vessels.
Enhancing vessel earnings by deploying our vessels in strategic alliances. Through participation in Tankers International and the Aframax Pool, we enhance fleet utilization, generating increased vessel earnings. We plan to enter into these pools all of our VLCC and Aframax newbuildings and newly acquired vessels.
Opportunistically growing our VLCC and Aframax fleets through newbuildings, acquisitions and joint ventures. We utilize our commercial, financial and operating expertise to opportunistically acquire modern vessels and order newbuildings. We expect to take delivery of eight newbuildings over the next 30 months, increasing the carrying capacity of each of our VLCC and Aframax fleets by over 30%. In addition, we recently announced our agreement to acquire a 33% interest in a joint venture formed to purchase four new VLCCs.
Reducing overhead, operating and other costs. We have reduced annualized overhead, operating and other costs by $40 million since 1998. We have recently commenced implementation of a further cost-reduction program which we believe will yield an additional $20 million of annualized savings beginning in 2002.
We have recently agreed to acquire a one-third interest in a joint venture formed to purchase four new VLCCs from Bergesen d.y. ASA, a major Norwegian owner. Two of these vessels were completed in 2001 and are expected to be delivered to the joint venture by the end of the third quarter. The other two are expected to be delivered to the joint venture upon completion of construction in February and July 2002. The other joint venture partners will be Frontline Ltd. and Euronav Luxembourg S.A., which are also participants in Tankers International. The total purchase price for the vessels is $321 million. The transaction is subject to the execution of definitive documents and the closing conditions to be contained in those documents and there can be no assurance that this transaction will be completed. The information in this prospectus regarding the number and type of vessels owned by us does not give effect to this pending transaction.
In March 2000, we formed a joint venture with Frontline and Euronav to acquire a modern VLCC and in January 2001, we formed a joint venture with Frontline to acquire two modern VLCCs. We also formed a joint venture with another shipowner in June 2000 to acquire control of a modern Aframax tanker.
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17,719,598 Class A Warrants, each to purchase 0.190 shares of Class A Common Stock (subject to adjustment pursuant to the terms thereof). The Class A Warrants have a per share exercise price of $0.01 and expire on August 5, 2039. | ||
Class A Common | 91,643,800 shares of Class A Common Stock. The number of shares of Class A Common Stock shown to be outstanding | |
Use of proceeds | We will not receive any of the proceeds from the sale | |
Risk factors | You should read the section entitled “Risk Factors” beginning on page 4, the risk factors incorporated by reference in this prospectus, and any risk factors set forth in any applicable prospectus supplement or incorporated by reference therein, for a discussion of some of the risks and uncertainties you should carefully consider before deciding to invest in our securities. |
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An investment in this prospectus assumes thatour securities involves a high degree of risk. You should carefully consider the Underwriters' over-allotment option to purchase an additional 750,000 shares is not exercised. If it is exercised, up to an additional 750,000 shares will be soldspecific risks described below, in the documents incorporated by the selling stockholders.(2)Based on the number of shares outstanding as of March 31, 2001. Excludes shares of common stock reserved for issuance upon exercise of options under our stock option plans, of which options to purchase up to 2,076,732 shares of common stock at an average weighted price of $14.32 per share were outstanding as of March 31, 2001.
Prospective purchasers of the common stock should consider all of the information contained inreference into this prospectus, including in the information incorporated by reference,“Risk Factors” sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in any applicable prospectus supplement before making an investment decision. If any of the risks described below or in these documents actually materializes, our business, financial condition, results of operations and prospects could be materially adversely affected. As a result, the common stock. Ourvalue of our securities could decline and you could lose part or all of your investment. The risks described below are not the only ones we face. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. Past financial performance is subject to various risks, including the cyclical naturemay not be a reliable indicator of the oil shipping industry, the volatility of charter ratesfuture performance and vessel values, and potential liabilities and costs under environmental laws and regulations. You should consider carefully the information set forth in the section of this prospectus entitled "Risk Factors" beginning on page 6.
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Summary Consolidated Financial Data
We present below our summary consolidated financial data as of and for each of the periods indicated. You should read the information set forth below, together with the information under "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our financial statements and the related notes thereto included elsewhere in this prospectus.
| As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||
Income Statement Data: | |||||||||||||||||||||||
Revenues from voyages(a) | $ | 148,537 | $ | 84,041 | $ | 467,618 | $ | 350,545 | $ | 412,384 | $ | 477,950 | $ | 452,263 | |||||||||
Operating income | 61,603 | 6,063 | 145,515 | 30,498 | 37,450 | 65,611 | 46,616 | ||||||||||||||||
Net income/(loss)(b)(c) | 40,363 | 5,013 | 90,391 | 14,764 | (37,920 | ) | 19,017 | 2,502 | |||||||||||||||
Balance Sheet Data(d): | |||||||||||||||||||||||
Cash and investments in marketable securities | $ | 123,524 | $ | 64,541 | $ | 70,766 | $ | 88,993 | $ | 61,689 | $ | 139,987 | $ | 124,457 | |||||||||
Capital construction fund | 219,119 | 183,239 | 213,440 | 181,933 | 176,154 | 174,892 | 145,350 | ||||||||||||||||
Vessels and capital leases, at net book amount | 1,308,447 | 1,237,058 | 1,293,958 | 1,237,513 | 1,229,110 | (e) | 1,308,125 | (e) | 1,293,817 | ||||||||||||||
Short-term debt(f) | 16,316 | 15,321 | 14,294 | 14,947 | 24,438 | 28,297 | 25,959 | ||||||||||||||||
Long-term debt and capital lease obligations (exclusive of current portions) | 848,185 | 808,037 | 836,497 | 827,372 | 833,893 | 1,056,306 | 1,093,475 | ||||||||||||||||
Total assets | 1,911,707 | 1,698,369 | 1,823,918 | 1,720,945 | 1,695,515 | 2,023,224 | 2,037,301 | ||||||||||||||||
Shareholders' equity | 796,912 | 661,216 | 750,167 | 661,058 | 707,622 | 779,797 | 769,438 | ||||||||||||||||
Cash Flow Statement Data: | |||||||||||||||||||||||
Capital expenditures for new vessel additions | $ | 28,798 | $ | 12,602 | $ | 117,974 | $ | 177,334 | $ | 123,960 | $ | 129,407 | $ | 151,166 | |||||||||
Cash provided by operating activities | 71,883 | 7,239 | 100,292 | 37,033 | 56,296 | 59,854 | 50,180 | ||||||||||||||||
Other Data: | |||||||||||||||||||||||
EBITDA(g) | $ | 86,101 | $ | 24,440 | $ | 234,882 | $ | 110,223 | $ | 140,568 | $ | 189,208 | $ | 143,848 | |||||||||
Adjusted debt/total capitalization(h) | 42.2 | % | 48.6 | % | 45.5 | % | 48.4 | % | 48.2 | % | 50.7 | % | 53.2 | % | |||||||||
Per Share Amounts: | |||||||||||||||||||||||
Basic net income/(loss) | $ | 1.19 | $ | 0.15 | $ | 2.67 | (b) | $ | 0.41 | (b) | $ | (1.03) | (b) | $ | 0.52 | $ | 0.07 | ||||||
Diluted net income/(loss) | 1.17 | 0.15 | 2.63 | (b) | 0.41 | (b) | (1.03) | (b) | 0.52 | 0.07 | |||||||||||||
Cash dividends paid | 0.15 | 0.15 | 0.60 | 0.60 | 0.60 | 0.60 | 0.60 |
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You should consider carefully the following factors, as well as the other information set forth in this prospectus, before making an investment in our common stock. Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our stock. Any of the risk factors could significantly and negativelyreference herein may also materially affect our business, financial condition, or operating results of operations and prospects. See “Incorporation of Certain Documents by Reference.”
Risks Related to the tradingClass A Common Stock and Class A Warrants
The market price of our stock. In that case,securities may fluctuate significantly following the offering and you could lose all or a part of your investment.
Industry Specific Risk Factorsinvestment as a result.
The market price of our securities may fluctuate substantially. The price of our Class A decline in demand for crude oil could cause demand for tanker capacityCommon Stock and charter rates to decline which would decrease our revenues and profitability.
The demand for tanker capacity to transport crude oil is influenced by the demand for crude oil and other factors including:
· | fluctuations in our results of operations; |
· | activities of and results of operations of our competitors; |
· | changes in our relationships with our customers or our vendors; |
· | changes in business or regulatory conditions; |
· | any announcements by us or our competitors of significant acquisitions, strategic alliances or joint ventures; |
· | additions or departures of key personnel; |
· | announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint ventures or capital commitments; |
· | investors’ general perception of us; |
· | failure to meet market expectations; |
· | future sales of our securities by us, directors, executives and significant stockholders; |
· | changes in domestic and international economic and political conditions; |
· | changes in accounting principles; |
· | announcements by third parties or governmental entities of significant claims or proceedings against us; |
· | a default under the agreements governing our indebtedness; and |
· | other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events. |
Any of thesethe foregoing factors could also cause the price of our Class A Common Stock and Class A Warrants to fall and may expose us to securities class action litigation. Any securities class action litigation could result in substantial costs and the diversion of management’s attention and resources. Furthermore, the stock market has recently experienced volatility that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the demandmarket price of our securities, regardless of our actual operating performance.
Our Class A Common Stock and Class A Warrants are thinly traded, and your ability to sell such Class A Common Stock or Class A Warrants will be limited.
We cannot assure you as to the liquidity of any market that may develop for tanker capacitythe Class A Common Stock and charter rates. Any decrease in demandClass A Warrants, your ability to sell your Class A Common Stock and Class A Warrants or the price at which you would be able to sell such securities. Future trading prices of the Class A Common Stock and Class A Warrants will depend on many factors, including, among other things, our operating results and the market for tanker capacitysimilar securities. The effect an offering of our Class A Common Stock or decrease in charter rates would adversely affect our business.Class A Warrants by one or more selling securityholder from time to time will have on the volume or trading price of these securities is uncertain. You may not be able to sell acquired securities at the price equal to or greater than the offering price.
Demand
Prior to this offering, there has not been an active trading market for our Class A Warrants. Our Class A Warrants are currently traded as “restricted securities” in the over-the-counter market and in privately negotiated transactions among individual holders pursuant to exemptions from the Securities Act. Although our Class A Common Stock is listed on the New York Stock Exchange, our common stock has experienced low trading volume. Limited trading volume may subject our common stock to greater price volatility and may make it difficult for investors to sell shares at a price that is attractive to them
Our common stock is subject to restrictions on foreign ownership, which could have a negative impact on the transferability of our common stock, its liquidity and market value, and on a change of control of OSG.
Certain of our U.S. Flag operations are conducted in the U.S. coastwise trade and are governed by the U.S. federal law commonly known as the “Jones Act”. The Jones Act restricts waterborne transportation of goods and passengers between points in the United States to vessels owned and our related servicescontrolled by “U.S. Citizens” as defined thereunder (as so defined, “U.S. Citizens”). We could lose the privilege of owning and operating vessels in transporting crude oil is also dependent upon world and regional oil markets. Historically, these markets have been volatile as a resultthe Jones Act trade if non-U.S. Citizens were to own or control, in the aggregate, more than 25% of the many conditions and events that can affect the price, demand, production and transport of oil. Any decreaseequity interests in the shipment of crude oil in these markets could result in tanker charter rates in our markets declining or a decrease in the number of charters for our vessels, both of which couldCompany. Such loss would have a material adverse effect on our revenuesresults of operations.
Our Amended and profitability.
An increase in the supplyRestated Certificate of tanker capacity without an increase in demand for tanker capacity could cause charter ratesIncorporation and Amended and Restated By-Laws authorize our Board of Directors to decline which could have a material adverse effect on our revenues and profitability.
Historically, the tanker industry has been cyclical. The profitability and asset values of companies in the industry have fluctuated based on changes in the supply of and demand for tanker capacity. The supply of tankers generally increases with deliveries of new vessels and decreases with the scrapping of older vessels, conversion of vessels to other uses, such as floating production and storage facilities, and loss of tonnage as a result of casualties. Currently there is significant newbuilding activityestablish with respect to VLCCsany class or series of our capital stock certain rules, policies and Aframaxes. Ifprocedures, including procedures with respect to transfer of shares, to assist in monitoring and maintaining compliance with the number of new ships delivered exceeds the number of vessels being scrapped, tanker capacity will increase. If the supply of tanker capacity increases and the demand for tanker capacity does not, the charter rates paid for our vessels could materially decline. A decline in charter rates could have a material adverse effect on our revenues and profitability.
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Charter rates may decline from their current level which could have a material adverse effect on our revenues and profitability.
Average charter rates for 2000 and for the first quarter of 2001 have significantly exceeded the average charter rates in prior periods, particularly 1999. Because many of the factors which influence the supply of and demand for vessel capacity are unpredictable, the nature, timing and degree of changes in charter rates are unpredictable. Charter rates can also be negatively affected by anticipated additional tanker capacity. All of the factors influencing the supply of and demand for oil tankers, and therefore future charter rates and values of vessels, are beyond our control. The nature, timing and degree of changes in industry conditions are unpredictable. These changes could have a material adverse effect on our revenues and profitability.
Our revenues are subject to seasonal variations.
We operate our tankers in markets that have historically exhibited seasonal variations in demand, and therefore, charter rates. Tanker charter rates (and our revenues and earnings) are typically higher in the winter and fall months (the first and fourth quarters of the calendar year) as a result of anticipated increased oil consumption in the Northern Hemisphere during the winter months. In addition, unpredictable weather patterns in the winter months and variations in oil reserves tend to disrupt vessel scheduling. Because we largely trade in the spot market, seasonality has affected our operating results on a quarter-to-quarter basis and could continue to do so in the future.
Environmental costs and liabilities could have a material adverse effect on our business, results of operations or financial condition.
Our operations are subject to extensive laws, treaties and international agreements governing environmental protection, the management, transportation, discharge and release of hazardous substances, and human health and safety. We are required to satisfy insurance and financial responsibility requirements for potential oil spills and other pollution incidents. In addition, our vessels must meet stringent operational, maintenance, inspection, training and structural requirements and follow approved safety management and emergency preparedness procedures and are subject to rigorous inspections by governmental authorities and other parties. Violations of applicable requirements could result in substantial penalties, and in certain instances, seizure or detention of one or more vessels. From time to time, in connection with our shipping operations, we have experienced spills of oil or other materials and incurred cleanup costs relating to such spills. We could be required to pay the costs of responding to future oil spills or cleaning up contaminated properties pursuant to the Oil PollutionJones Act of 1990, the Comprehensive Environmental Response Compensation and Liability Act and other U.S. and foreign laws and regulations. We also could become subject to personal injury or property damage claims relating to exposure to hazardous substances in connection with our existing and historical operations. Our existing insurance may not be sufficient to cover all such risks, in which case such risks could have a material adverse effect on our business, results of operations or financial condition.
ownership restrictions. In order to maintainprovide a reasonable margin for compliance with existing and future laws, treaties and international agreements, we incur, and expect to continue to incur, substantial costs in meeting maintenance and inspection requirements, developing and implementing emergency procedures to address potential oil spills, and obtaining insurance coverage or other required financial assurance of our ability to address pollution incidents. These laws, treaties and international agreements also can:
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Future environmental requirements may be adopted which could limit our ability to operate, require us to incur substantial additional costs or otherwise have a material adverse effect on our business, results of operations or financial condition.
Because the market value of our vessels may fluctuate significantly, we may incur losses when we sell vessels, which could adversely affect our financial condition.
The market value of vessels has fluctuated over time. The market value of oil tankers may vary significantly over time based upon various factors, including:
Declining vessel values could affect our ability to replace existing financings upon their expiration as well as raise cash generally and thereby adversely impact our liquidity. In addition, declining vessel values could result in a breach of certain loan covenants, which could give rise to events of default under the relevant financing agreements. There can be no assurance that the market value of our vessels will not decline, nor can there be any assurance that the market value of the vessels that are currently under construction or on order will not decline during the construction process.
Shipping is a business with inherent risks and our insurance may not be adequate.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as:
In addition, transporting crude oil creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes, port closings and boycotts. Any of these events may result in loss of revenues and increased costs.
We carry insurance to protect against most of the accident-related risks involved in the conduct of our business. We currently maintain one billion dollars in coverage for each of our vessels for liability for spillage or leakage of oil or pollution. We also carry insurance covering lost revenue resulting from vessel off-hire due to vessel damage. Nonetheless, risks may arise against which we are not adequately insured. For example, a catastrophic spill could exceed our insurance coverage and have a material adverse effect on our operations. In addition, we may not be able to procure adequate insurance coverage at commercially reasonable rates in the future and we cannot guarantee that any particular claim will be paid. In the past, new and stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable. Furthermore, even if insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement ship in the event of a loss. We may also be subject to calls, or
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premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we obtain insurance coverage for tort liability. Our payment of these calls could result in significant expenses to us which would reduce our profits or cause losses.
Because we conduct our business on a worldwide basis, we face a number of significant risks that could result in losses or higher costs.
Our vessels operate all over the world, exposing us to many risks, including:
As a result of these risks, we may incur losses or higher costs, including those incurred as a result of the impairment of our assets or a curtailment of our operations.
Our vessels could be arrested by maritime claimants which could result in a significant loss of earnings and cash flow for the related off-hire period.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by either arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could result in a significant loss of earnings and cash flow for the related off-hire period.
In addition, international vessel arrest conventions and certain national jurisdictions allow so-called "sister ship" arrests, that allow the arrest of vessels that are within the same legal ownership as the vessel which is subject to the claim or lien. Certain jurisdictions go further, permitting not only the arrest of vessels within the same legal ownership, but also any "associated" vessel. In nations with these laws, an "association" may be recognized when two vessels are owned by companies controlled by the same party. Consequently, a claim may be asserted against us, any of our subsidiaries or our vessels for the liability of one or more of the other vessels we own.
Company Specific Risk Factors
Our existing financing arrangements contain provisions that may adversely affect our ability to operate and expand our business and our ability to obtain additional financing.
We had approximately $864.5 million of debt outstanding at March 31, 2001, of which approximately $182.1 million is secured by a pledge of certain of our vessels and related collateral as security to the lenders under these loan agreements. This substantial indebtedness may:
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In addition, our existing financing agreements impose operating and financial restrictions, including restrictions which limit our ability to:
As a result, we may need the permission of our lenders to engage in various corporate activities. Our lenders' interests may be different from, and may be adverse to, those of our stockholders, and we cannot assure you that we will be able to obtain our lenders' permission if and when we need it. Our failure to obtain a required permission will keep us from effecting corporate transactions and may prevent us from expanding or properly managing our business.
In addition, if we default under any of our secured loan agreements, we could forfeit our rights in our vessels and their charters, the lenders could foreclose on the mortgages on the vessels and the related collateral, and we could lose our rights in the vessels and their charters.
When our credit facilities mature, we may not be able to refinance or replace them.
When our indebtedness matures, we may need to refinance it and we may not be able to do so. If we are able to refinance maturing indebtedness, the terms of any refinancing or alternate credit arrangements may contain terms and covenants that restrict our financial and operating flexibility.
Interest rate fluctuations may significantly affect our loan payments.
At March 31, 2001, approximately $638.1 million, or 74%, of our indebtedness bore interest at floating interest rates. We have entered into interest rate swaps with respect to a portion of this floating rate indebtedness, resulting in approximately $425 million of our total indebtedness being subject to interest rate fluctuation. Increases in interest rates would increase interest payments on that indebtedness.
We are highly dependent upon volatile spot market charter rates.
We depend on spot charters for a significant portion of our revenues. During 2000, we derived approximately 76% of our net shipping revenues from spot charters and contracts of affreightment which are predominantly priced on a spot market basis. During the quarter ended March 31, 2001, we derived approximately 80% of our net shipping revenues from spot voyages and contracts of affreightment.
The spot market is highly competitive and charter rates in the spot market are volatile. As a result, our revenues may fluctuate significantly. Successful operation of a vessel in the spot market depends on a number of factors, including obtaining profitable voyage charters and minimizing, to the extent possible, ballast legs (time spent traveling unladen to load cargo) and time waiting for charters. Increased dependence on the spot market by us could result in a lower utilization of our vessels and decreased profitability. There can be no assurance that charter rates in the spot market will not decline, or that charters in the spot market will continue to be available.
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We may not be able to renew time charters when they expire.
There can be no assurance that any of our existing time charters will be renewed, or if renewed, will be renewed at similar rates. If upon expiration of the existing time charters, we are unable to obtain time charters or voyage charters at rates equivalent to those received under the charters, our profitability may be adversely affected.
Termination or change in the nature of our relationship with the Tankers International pool or the Aframax Pool could adversely affect our business and our ability to grow our VLCC and Aframax fleets.
Our VLCCs are part of the Tankers International pool and our Aframaxes are part of the Aframax Pool. Being part of these pools enhances the financial performance of our vessels as a result of the higher vessel utilization these pools provide. A participant in either pool may withdraw upon notice in accordance with the respective pool agreement. The termination of Tankers International or the Aframax Pool, the withdrawal by participants in either pool or other significant change in our or another participant's relationship with either pool could adversely affect our ability to commercially market our VLCC and Aframax fleets.
We may not be able to grow our VLCC and Aframax fleets.
One part of our strategy is to continue to grow, on an opportunistic basis, our VLCC and Aframax fleets. Our ability to grow these fleets will depend upon a number of factors, many of which we cannot control. These factors include our ability to:
Our strategy of growing our business in part through acquisitions is capital intensive, time consuming and subject to a number of inherent risks.
Part of our business strategy is based upon the opportunistic acquisitions of complementary businesses or vessels. If we fail to develop and integrate any acquired businesses or vessels effectively, our results of operations may be adversely affected. In addition, our management team will need to devote substantial time, attention and other resources to the integration of the acquired businesses or vessels, which could distract them from running the business. Operational or financial problems may occur as a result of the integration with our business of an acquisition.
Our newbuilding program requires us to advance significant progress payments prior to the time a vessel is placed in service.
We currently have contracts for the delivery of four newbuilding VLCCs and four newbuilding Aframaxes. The aggregate purchase price for these newbuildings is approximately $406 million, of which progress payments of $201 million have been made through March 31, 2001. When we order newbuildings, we are typically required to expend substantial sums in the form of progress payments during the construction of the vessel, but we do not derive any revenue from the vessel until after its delivery. Moreover, if we were unable to obtain financing required to complete payments on any of our newbuilding orders, we could effectively forfeit all or a portion of the progress payments previously made with respect to such contract.
Operating costs and capital expenses will increase as our vessels age.
In general, capital expenditures and other costs necessary for maintaining a vessel in good operating condition increase as the age of the vessel increases. Accordingly, it is likely that the
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operating costs of the older vessels in our fleet will increase. Due to improvements in engine technology, older vessels are typically less fuel efficient than more recently constructed vessels. In addition, changes in governmental regulations, safety or other equipment standards as well as compliance with classification society standards may require us to make additional expenditures. For example, we may be required to make significant expenditures for alterations or the addition of new equipment. In addition, these modifications may require us to take our vessels out of service for extended periods of time (with corresponding losses of revenue) in order to make such alterations or to add such equipment. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. There can be no assurance that market conditions will justify such expenditures or enable us to operate our older vessels profitably during the remainder of their economic lives.
Our purchase of second-hand vessels carries risks associated with the quality of those vessels.
Our fleet renewal and expansion strategy includes the opportunistic acquisition of quality second-hand vessels as well as the ordering of newbuildings. Second-hand vessels typically do not carry warranties with respect to their condition in contrast to warranties available for a newbuilding. While we generally inspect any second-hand vessel prior to purchase, such an inspection would normally not provide us with as much knowledge of its condition as we would possess if the vessel had been built for us and operated by us during its life.
In the highly competitive international tanker market, we may not be able to effectively compete for charters with new entrants or established companies with greater resources.
Our vessels are employed in a highly competitive market. Competition arises primarily from other tanker owners, including major oil companies and independent owners, some of which have substantially greater resources than we do. Competition for the transportation of crude oil and other petroleum products can be intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. We believe that because ownership of the world tanker fleet is highly fragmented, no single owner is able to substantially influence charter rates. To the extent we enter into new geographic regions or provide new services, we may not be able to compete profitably. New markets may involve competitive factors which differ from those of our current markets and the competitors in those markets may have greater financial strength and capital resources than we do.
We depend upon a few significant customers for a large part of our revenues.
Historically, we have derived a significant portion of our revenue from a small number of charterers. In 1999 and 2000, our 10 largest customers accounted for approximately 50% and 46%, respectively, of our consolidated voyage revenues. One customer accounted for $35.2 million, or approximately 10%, of our consolidated voyage revenues for 1999. No other single customer accounted for over 10% of our consolidated voyage revenues in either 1999 or 2000. The failure by a major charterer to meet its charter payment obligations could result in a material loss.
We depend on our key personnel and may have difficulty attracting and retaining skilled employees.
Our success depends to a significant extent upon the abilities and efforts of our key personnel, particularly senior management who have been employed by us for many years. The loss of the services of any of our key personnel or our inability to attract and retain qualified personnel in the future could have a material adverse effect on our business, financial condition and operating results.
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Our inability to successfully shift certain ship management and administrative functions to our U.K. office may adversely affect our operations.
As part of our cost reduction program, we are shifting ship management and administrative functions associated with our international fleet from New York to Newcastle, U.K. If we are unable to make this shift successfully or if it is delayed, we may not realize the cost reductions we anticipate and our ability to manage our vessels and administer our business may be adversely affected.
We may face unexpected drydock costs for our vessels.
Vessels must be drydocked periodically, in the case of a VLCC or Aframax vessel, typically every 24 to 30 months. The cost of repairs and renewals required at each drydock are difficult to predict with certainty and can be substantial. Our insurance does not cover these costs. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage. Our insurance may not cover all of these costs. Large drydocking expenses could significantly decrease our profits.
We may not be able to make dividend payments to holders of our common stock.
The timing and amount of dividends, if any, will depend, among other things, on our operating results, cash flow, working capital requirements and other factors deemed relevant by our Board of Directors. Because we are a holding company with no material operating assets other than the stock of our subsidiaries, our ability to pay dividends on our common stock is dependent on the earnings and cash flow of our subsidiaries. The credit agreements governing certain of our credit facilities also limit our ability to pay dividends.
Restrictions on foreign ownership of our common stock may decrease the liquidity of our common stock.
U.S. law requires that, to be eligible for U.S. coastwise trade, a corporation owning a vessel must be at least 75% owned by U.S. citizens. In order to assure compliance with this citizenship requirement,Jones Act, our Board of Directors has adopted a requirementdetermined that until further action by it, at least 77% (the “Minimum Percentage”) of the outstanding shares of each class of our capital stock must be owned by U.S. Citizens. Moreover, our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws provide that any purported transfer of equity interests in us that caused the percentage of outstanding shares of a class of our capital stock to fall below the Minimum Percentage will be ineffective to transfer the equity interests or any voting, dividend or other rights associated with such interests.
The percentage of U.S. Citizen ownership of our outstanding common stock be held by U.S. citizens. This requirement mayfluctuates based on daily trading, and at times in the past has declined to the Minimum Percentage. At and during such time that the Minimum Percentage is reached with respect to outstanding shares of a class of our stock, we are unable, among other things, to issue any further shares of such class of common stock to non-U.S. Citizens or to approve transfers of such class of common stock to non-U.S. Citizens. The existence and enforcement of these ownership restrictions could have an adverse impact on the liquidity or market value of our equity securities. Under certain circumstances, the ownership restrictions could discourage, delay or prevent a change of control of OSG.
Our outstanding warrants are not subject to the above ownership restrictions, but the warrants include provisions limiting the right of non-U.S. Citizens to exercise warrants if the shares of common stock because ifthat would be issued upon exercise would cause the percentage of outstanding shares of our common stock held by non-U.S. citizens reaches 23%, U.S. holders will be unable to sell additional shares to non-U.S. citizens. Any purported transfer of shares in violation of these provisions will be ineffective to transfer the shares or any voting, dividend or other rights in respect of the shares.
The requirement that at least 77% of our outstanding common stock be held by U.S. citizens may restrict us from making certain acquisitions usingCitizens to decline below the Minimum Percentage.
Holders of our common stock.Class A Warrants will have no rights as a stockholder of the Company until such holders exercise their warrants and acquires shares of Class A Common Stock.
Currently, approximately 83.6%
Until a holder of Class A Warrants acquires shares of Class A Common Stock upon exercise of its Class A Warrants, such holder will have no rights with respect to the Class A Common Stock underlying such warrants. Any such exercising holder will be entitled to exercise the rights of a shareholder only as to matters of which the record date occurs after the exercise date. The Class A Warrants do not confer any rights of common share ownership on their holders, such as voting rights or the right to receive dividends, and represent solely the right to acquire shares of Class A Common Stock.
Future sales of our common stock or warrants, or the perception in the public markets that these sales may occur, may depress our stock price.
Sales of substantial amounts of our common stock or warrants, including the sale by the selling securityholders of our Class A Common Stock and Class A Warrants from time to time, or the perception that these sales could occur, could adversely affect the price of our common stock or warrants and impair our ability to raise capital through the sale of equity securities.
The Company has a limited history of paying cash dividends on its securities.
The Company has not paid any regular cash dividends since the third quarter of 2011. On February 29, 2016, the Board of Directors declared a cash dividend of $0.08 per share of common stock, which was paid on March 25, 2016. The declaration and timing of future cash dividends, if any, will be at the discretion of the Board of Directors and will depend upon, among other things, our future operations and earnings, capital requirements, general financial condition, contractual restrictions, restrictions imposed by applicable law or the SEC and such other factors as our Board of Directors may deem relevant.
We are a holding company and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations or pay dividends.
Overseas Shipholding Group, Inc. is held by U.S. citizens.a holding company and its subsidiaries conduct all of its operations and own all of its operating assets. It has no significant assets other than the equity interests in its subsidiaries. As a result, of our relatively high non-U.S. holdings, we may be unableits ability to offer certain non-U.S. sellerssatisfy its financial obligations or pay dividends depends on its subsidiaries and their ability to distribute funds to it. In addition, the terms of vessels our common stock as consideration. In some cases, our common stock as opposed to cash may be the preferred form of consideration for sellers. Our inability to offer our common stock as consideration to certain sellers could make certain acquisition transactions unavailable to us.
Anti-takeover provisions in our financing agreements restrict the ability of our organizational documents, our Rights Agreement and certainsubsidiaries to distribute funds to Overseas Shipholding Group, Inc.
Some provisions of Delaware law and our governing documents could discourage a takeover that stockholders may consider favorable, or otherwise influence our ability to consummate a change of control.
Delaware law and provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws could have the effect of discouraging, delaying, deferring or preventing a mergerchange of control of us. In addition, these provisions could make it more difficult to bring about a change in the composition of our board of directors. For example, our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws:
· | give the sole ability to then-current members of our board of directors to fill a vacancy on the board of directors; |
· | require the affirmative vote of two-thirds or more of the combined voting power of the outstanding shares of our capital stock in order to amend or repeal certain provisions of our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws; and |
· | establish advance notice requirements for nomination for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
These and other provisions of our organizational documents and Delaware law may have the effect of delaying, deferring or acquisition,preventing changes of control or changes in management, even if such transactions or changes would have significant benefits for our stockholders. See “Description of Capital Stock.” As a result, these provisions could limit the price some investors might be willing to pay in the future for shares of our common stock.
Separately, we have elected to opt out of Section 203 (“Section 203”) of the Delaware General Corporation Law (the “DGCL”), which restricts certain business combinations between a Delaware corporation and an “interested stockholder.” Accordingly, we will be able to enter into such transactions with our principal stockholders without complying with the requirements of Section 203. The election to opt out of Section 203 could deprive certain stockholders of an opportunity to receive a premium for their common stock as part of a sale of OSG, particularly if we enter into a transaction with an “interested stockholder.”
We may issue preferred shares in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock and warrants, which could depress the price of our securities.
Our Amended and Restated Certificate of Incorporation authorizes us to issue one or more series of preferred shares. Our Board of Directors will have the authority to determine the preferences, limitations and relative rights of such preferred shares and to fix the number of shares, up to the current authorized share capital amount, constituting any series and the designation of such series, without any further vote or action by our shareholders. Our preferred shares could be issued with voting, liquidation, dividend and other rights superior to the rights of shares of our common stock. The potential issuance of preferred shares may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially and adversely affect the market price of our common stock.
Severalstock and warrants and the voting and other rights of the holders of shares of our existing financing agreements impose restrictions on changes of control ofcommon stock.
If securities or industry analysts issue an adverse or misleading opinion regarding us or do not publish or cease publishing research or reports about us, our companybusiness, our market or our competitors, or if they change their recommendations regarding our Class A Common Stock adversely, the price and our ship-owning subsidiaries. These agreements include requirements that we obtain
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the lenders' consent prior to any merger or consolidation unless we ensure that any surviving entity assumes the relevant indebtedness.
Several provisions of our certificate of incorporation, our by-laws and Delaware law could discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including those provisions:
These provisions could impede the stockholders' ability to change our management and Board of Directors. Please see "Description of Capital Stock."
Offering Specific Risks
The pricetrading volume of our common stock may fluctuate significantly, which may result in losses for investors.and warrants could decline.
The trading market price for our common stock has beenClass A Common Stock and Class A Warrants will be influenced, to some extent, by the research and reports that industry or securities analysts may continue to be volatile. For example, during the 52-week period ended June 8, 2001, the closing prices ofpublish about us, our common stock as reported on the New York Stock Exchange ranged from a high of $37.09 to a low of $20.25. Our stock price can fluctuate as a result of a variety of factors, including:
Because of this volatility, we may fail to meet the expectations ofanalysts who cover us change their recommendation regarding our stockholdersClass A Common Stock adversely, or of securities analysts at some time in the future, andprovide more favorable relative recommendations about our competitors, our stock price could decline as a result.
Future saleswould likely decline. If any analyst who covers us were to cease coverage of us or fail to publish reports on us regularly, or if analysts elect not to provide research coverage of our common stockClass A Common Stock, we could depresslose visibility in the marketfinancial markets, which in turn could cause the price and/or trading volume of our common stock.Class A Common Stock and Class A Warrants to decline.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The market price
Some of our common stock could decline duethe statements contained in this prospectus and the documents incorporated by reference herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements other than statements of historical facts should be considered forward-looking statements. These statements can be identified by the fact that they do not relate strictly to saleshistorical or current facts, and you can often identify these forward-looking statements by the use of a large number of shares in the market after this offeringforward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “forecasts,” “shall,” “contemplates” or the perceptionnegative version of those words or other comparable words. Such forward-looking statements represent our reasonable expectation with respect to future events or circumstances based on various factors and are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. You should not place undue reliance on any forward-looking statements and should consider the following factors, as well as the factors discussed elsewhere in this prospectus, including under “Risk Factors,” when reviewing such statement. We believe that these salesfactors include, but are not limited to:
· | the highly cyclical nature of our industry; |
· | fluctuations in the market value of vessels; |
· | declines in charter rates, including spot charter rates or other market deterioration; |
· | an increase in the supply of vessels without a commensurate increase in demand; |
· | the impact of adverse weather and natural disasters; |
· | the adequacy of our insurance to cover our losses, including in connection with maritime accidents or spill events; |
· | constraints on capital availability; |
· | changing economic, political and governmental conditions in the United States and/or abroad and general conditions in the oil and natural gas industry; |
· | changes in fuel prices; |
· | acts of piracy on ocean-going vessels; |
· | terrorist attacks and international hostilities and instability; |
· | the effect of our indebtedness on our ability to finance operations, pursue desirable business operations and successfully run our business in the future; |
· | our ability to generate sufficient cash to service our indebtedness and to comply with debt covenants; |
· | our ability to make additional capital expenditures to expand the number of vessels in our fleet and to maintain all of our vessels; |
· | the availability and cost of third party service providers for technical and commercial management of our International Flag fleet; |
· | fluctuations in the contributions of our joint ventures to our profits and losses; |
· | our ability to renew our time charters when they expire or to enter into new time charters; |
· | termination or change in the nature of our relationship with any of the commercial pools in which we participate; |
· | competition within our industry and our ability to compete effectively for charters with companies with greater resources; |
· | the loss of a large customer or significant business relationship; |
· | our ability to realize benefits from our past acquisitions or acquisitions or other strategic transactions we may make in the future; |
· | changes in demand in specialized markets in which we currently trade; |
· | increasing operating costs and capital expenses as our vessels age, including increases due to limited shipbuilder warranties or the consolidation of suppliers; |
· | refusal of certain customers to use vessels of a certain age; |
· | our ability to replace our operating leases on favorable terms, or at all; |
· | changes in credit risk with respect to our counterparties on contracts; |
· | the failure of contract counterparties to meet their obligations; |
· | our ability to attract, retain and motivate key employees; |
· | work stoppages or other labor disruptions by our unionized employees or unionized employees of other companies in related industries; |
· | unexpected drydock costs; |
· | the potential for technological innovation to reduce the value of our vessels and charter income derived therefrom; |
· | the impact of an interruption in, or failure of, our information technology and communication systems upon our ability to operate; |
· | seasonal variations in our revenues; |
· | our compliance with 46 U.S.C. sections 50501 and 55101 (commonly known as the “Jones Act”) limitations on U.S. coastwise trade, the waiver, modification or repeal of the Jones Act limitations or changes in international trade agreements; |
· | government requisition of our vessels during a period of war or emergency; |
· | our compliance with requirements imposed by the U.S. government restricting calls on ports located in countries subject to sanctions and embargoes; |
· | our compliance with complex laws and regulations and, in particular, environmental laws and regulations, including those relating to the emission of greenhouse gases and ballast water treatment; |
· | any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 or other applicable regulations relating to bribery; |
· | the impact of litigation, government inquiries and investigations; |
· | governmental claims against us; |
· | the arrest of our vessels by maritime claimants; |
· | the potential for audit or material adjustment by the IRS of certain tax benefits recognized by us; |
· | our ability to use our net operating loss carryforwards; |
· | the shipping income of our foreign subsidiaries becoming subject to current taxation in the United States; |
· | changes in laws, treaties or regulations; and |
· | the impact of the lifting of the U.S. crude oil export ban on our U.S. Flag fleet. |
The factors identified above should not be construed as exhaustive list of factors that could occur. These sales could also make it more difficult or impossible for us to sell equity securitiesaffect our future results, and should be read in the future at a time and price that we deem appropriate to raise funds through offerings of common stock.
As of June 1, 2001, 34.2 million shares of common stock were outstanding. We have also reserved 2.9 million shares of common stock for issuance under our stock option plans. Options to purchase 1.9 million shares were outstanding as of June 1, 2001. We and our executive officers and directors and the selling stockholders have agreedconjunction with the Underwriters not to offer, sell, contract to sell or otherwise dispose of any shares of common stock without the prior written consent of Goldman, Sachs & Co.,other cautionary statements that are included elsewhere in the case of us and our executive officers and directors who are not selling stockholders, prior to 90 days after the date ofthis prospectus. The forward-looking statements made in this prospectus or, in the caseare made only as of our selling stockholders, 180 days after the date of this prospectus. AfterThe forward-looking statements made in documents incorporated by reference into this prospectus are made only as of the date of such documents. The forward-looking statements made in any accompanying prospectus supplement are made only as of the date of such document. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise. If we do update one or more forward-looking statements, no inference should be made that time, the selling stockholderswe will make additional updates with respect to those or other forward-looking statements.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or may not decide, based upon the prevailing market and other conditions, to sell all or a portion of their remaining shares in the market.
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This prospectus includesimplied by these forward-looking statements. We have based these forward-looking statements largelycaution that you should not place undue reliance on our current expectations and projections about future events and financial trends affecting the financial conditionany of our business. These forward-looking statements are subject to several risks, uncertainties and assumptions.
In addition,statements. You should specifically consider the factors identified in this prospectus the words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect" and similar expressions, as they relatethat could cause actual results to us,differ before making an investment decision to purchase our business or our management, are intended to identify forward-looking statements.
In light of thesecommon stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.
You should refer to our periodic and current reports filed with the SEC for further information on other factors that could cause actual results to be significantly different from those expressed or implied by these forward-looking events and circumstances discussedstatements. See “Where You Can Find More Information” in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.prospectus.
All securities sold pursuant to this prospectus will be offered and sold by the selling securityholders. We will not receive any of the proceeds from the sale of the shares of common stock by the selling stockholders. All proceedssecurityholders of the securities offered hereby.
This prospectus covers (i) 33,350,136 shares of our Class A Common Stock and (ii) 17,719,598 Class A Warrants, each to purchase 0.190 shares of our Class A Common Stock, subject to adjustment pursuant to the terms thereof ((i) and (ii) together, the “Securities”). The Securities were issued in a private placement transaction exempt from the saleregistration requirements of the commonSecurities Act pursuant to Regulation D thereunder and in a stock offered in this offering will be for the accountdividend effected on December 17, 2015. We have entered into a Registration Rights Agreement with each of the selling stockholders.
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PRICE RANGE OF COMMON STOCK
securityholders to register the resale of the Securities by the selling securityholders.
Our common stock
The selling securityholders may from time to time offer and sell pursuant to this prospectus any or all of the Securities set forth below. However, the selling securityholders are under no obligation to sell any of the Class A Common Stock or Class A Warrants offered pursuant to this prospectus. As used in this prospectus, the term “selling securityholders” includes the selling securityholders listed in the table below, as well as permitted transferees, pledgees, donees, assignees, successors and others who later come to hold any of the selling securityholders’ interests in the Securities, other than through a public sale pursuant to this prospectus or Rule 144 under the Securities Act.
Beneficial ownership for the purposes of the following table is listeddetermined in accordance with the rules and tradedregulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities or has the right to acquire such powers within 60 days. In some cases, we believe that foreign ownership or other restrictions may limit the ability of warrantholders to exercise Class A Warrants they hold, meaning that such person may not be required, under relevant rules and regulations, to report beneficial ownership as they would not be entitled to receive the underlying shares of Class A Common Stock.
Except as disclosed in the footnotes to these tables and subject to applicable community property laws, we believe that each beneficial owner identified in the table possesses sole voting and investment power over all Class A Common Stock shown as beneficially owned by the beneficial owner. The information with respect to beneficial ownership by the selling securityholders was prepared based on information supplied by such stockholders to us. Unless otherwise indicated in the table or footnotes thereto, the address for each beneficial owner is c/o Overseas Shipholding Group, Inc., 600 Third Avenue, 39th Floor, New York, Stock Exchange and the Pacific Stock Exchange under the symbol "OSG." New York 10016.
Selling Securityholders
The following table sets forth for the periods indicated, the price range of our common stock as reported on the New York Stock Exchange.
Prices shown in the table are the high and low closing prices on the New York Stock Exchange by quarter.
| Market Price | ||||
---|---|---|---|---|---|
| High | Low | |||
| (In dollars) | ||||
1999 | |||||
First Quarter | 16.8125 | 11.3750 | |||
Second Quarter | 13.8750 | 10.8125 | |||
Third Quarter | 15.4375 | 13.0000 | |||
Fourth Quarter | 15.0625 | 12.1250 | |||
2000 | |||||
First Quarter | 24.4375 | 13.8750 | |||
Second Quarter | 26.1875 | 21.5000 | |||
Third Quarter | 30.2500 | 22.6250 | |||
Fourth Quarter | 27.5625 | 20.2500 | |||
2001 | |||||
First Quarter | 28.0000 | 21.3750 | |||
Second Quarter (through June 14, 2001) | 37.0900 | 27.3500 |
On June 14, 2001, the last reported sales price of our common stock on the New York Stock Exchange was $30.79 per share. As of June 1, 2001, there were approximately 1,018 stockholders of record. We believe there are approximately 2,100 beneficial owners of our common stock.
We have continuously paid cash dividends since 1974 and we have paid a regular quarterly cash dividend of $0.15 per share of common stock for each of the quarters during the last two years. The payment of cash dividends in the future will depend on our operating results, cash flow, working capital requirements and other factors deemed relevant by our Board of Directors.
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The following table summarizes our capitalization as of March 31, 2001. You should read the information in this table together with our consolidated statements and the related notes and with "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
| As of March 31, 2001 | |||||
---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||
Long-term debt: | ||||||
Bank revolving credit | $ | 506,000 | ||||
8% Notes due 2003 | 71,125 | |||||
8.75% Debentures due 2013 | 84,802 | |||||
Other vessel financings (Libor plus .675% to 1.0%) | 132,100 | |||||
Capital leases—9.6% to 10% | 70,474 | |||||
Less: Current portion | 16,316 | |||||
Total long-term debt | 848,185 | |||||
Shareholders' equity: | ||||||
Common stock, $1.00 par value(1) | 39,591 | |||||
Paid-in additional capital | 100,173 | |||||
Retained earnings | 723,782 | |||||
Accumulated other comprehensive income | 8,845 | |||||
Less: Treasury stock | 75,479 | |||||
Total shareholders' equity | 796,912 | |||||
Total capitalization | $ | 1,645,097 | ||||
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SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our selected consolidated financial data. You should read carefully our financial statements included elsewhere in this prospectus, including the notes to those consolidated financial statements. The selected consolidated financial data in this section is not intended to replace our financial statements.
We derived the selected consolidated statement of operations data for the years ended December 31, 1998, 1999 and 2000 and the selected consolidated balance sheet data as of December 31, 1999 and 2000 from the audited consolidated financial statements included elsewhere in this prospectus. We derived the selected consolidated financial data as of December 31, 1996, 1997 and 1998 and for the years ended December 31, 1996 and 1997 from our audited financial statements not included in this prospectus. The selected consolidated statement of operations data for the three months ended March 31, 2001 and 2000 and the selected consolidated balance sheet data as of March 31, 2001 and 2000 are derived from our unaudited condensed consolidated financial statements, which, in the opinion of management, have been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and reflect all adjustments (which were only of a normal recurring nature) necessary to present fairly the financial results for those periods. The results for the three months ended March 31, 2001 may not be indicative of the results that will be attained for the year ending December 31, 2001. The selected financial data set forth below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our financial statements, including the notes, appearing elsewhere in this prospectus.
| As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||
Income Statement Data: | |||||||||||||||||||||||
Revenues from voyages(a) | $ | 148,537 | $ | 84,041 | $ | 467,618 | $ | 350,545 | $ | 412,384 | $ | 477,950 | $ | 452,263 | |||||||||
Income from vessel operations | 56,295 | 5,275 | 134,066 | 23,366 | 41,050 | 62,502 | 43,011 | ||||||||||||||||
Operating Income | 61,603 | 6,063 | 145,515 | 30,498 | 37,450 | 65,611 | 46,616 | ||||||||||||||||
Income/(loss) before federal income taxes, extraordinary gain/(loss) and cumulative effect of change in accounting principle(b) | 60,593 | 1,061 | 132,186 | 19,515 | (35,222 | ) | 31,167 | 3,387 | |||||||||||||||
Net income/(loss)(c) | 40,363 | 5,013 | 90,391 | 14,764 | (37,920 | ) | 19,017 | 2,502 | |||||||||||||||
Balance Sheet Data(d): | |||||||||||||||||||||||
Cash and investments in marketable securities | $ | 123,524 | $ | 64,541 | $ | 70,766 | $ | 88,993 | $ | 61,689 | $ | 139,987 | $ | 124,457 | |||||||||
Capital construction fund | 219,119 | 183,239 | 213,440 | 181,993 | 176,154 | 174,892 | 145,350 | ||||||||||||||||
Working capital(e) | 125,917 | 53,124 | 88,207 | 75,775 | 47,627 | 120,491 | 109,070 | ||||||||||||||||
Vessels and capital leases, at net book amount | 1,308,447 | 1,237,058 | 1,293,958 | 1,237,513 | 1,229,110 | (f) | 1,308,125 | (f) | 1,293,817 | ||||||||||||||
Short-term debt(g) | 16,316 | 15,321 | 14,294 | 14,947 | 24,438 | 28,297 | 25,959 | ||||||||||||||||
Long-term debt and capital lease obligations (exclusive of current portions) | 848,185 | 808,037 | 836,497 | 827,372 | 833,893 | 1,056,306 | 1,093,475 | ||||||||||||||||
Reserve for deferred federal income taxes—noncurrent | 131,009 | 78,225 | 117,749 | 77,877 | 69,384 | 108,814 | 101,003 | ||||||||||||||||
Total assets | 1,911,707 | 1,698,369 | 1,823,918 | 1,720,945 | 1,695,515 | 2,023,224 | 2,037,301 | ||||||||||||||||
Shareholders' equity | 796,912 | 661,216 | 750,167 | 661,058 | 707,622 | 779,797 | 769,438 | ||||||||||||||||
Cash Flow Statement Data: | |||||||||||||||||||||||
Capital expenditures for new vessel additions | $ | 28,798 | $ | 12,602 | $ | 117,974 | $ | 177,334 | $ | 123,960 | $ | 129,407 | $ | 151,166 | |||||||||
Cash provided by operating activities | 71,883 | 7,239 | 100,292 | 37,033 | 56,296 | 59,854 | 50,180 |
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Other Data: | |||||||||||||||||||||||
EBITDA(h) | $ | 86,101 | $ | 24,440 | $ | 234,882 | $ | 110,223 | $ | 140,568 | $ | 189,208 | $ | 143,848 | |||||||||
Depreciation of vessels and amortization of capital leases | 14,309 | 13,056 | 55,226 | 57,855 | 70,806 | 77,940 | 71,003 | ||||||||||||||||
Debt/total capitalization | 51.6 | % | 55.0 | % | 52.7 | % | 55.6 | % | 54.1 | % | 57.5 | % | 58.7 | % | |||||||||
Adjusted debt/total capitalization(i) | 42.2 | % | 48.6 | % | 45.5 | % | 48.4 | % | 48.2 | % | 50.7 | % | 53.2 | % | |||||||||
Per Share Amounts: | |||||||||||||||||||||||
Basic net income/(loss) | $ | 1.19 | $ | 0.15 | $ | 2.67 | (b) | $ | 0.41 | (b) | $ | (1.03) | (b) | $ | 0.52 | $ | 0.07 | ||||||
Diluted net income/(loss) | 1.17 | 0.15 | 2.63 | (b) | 0.41 | (b) | (1.03) | (b) | 0.52 | 0.07 | |||||||||||||
Shareholders' equity | 23.38 | 19.58 | 22.07 | 19.63 | 19.24 | 21.19 | 21.23 | ||||||||||||||||
Cash dividends paid | 0.15 | 0.15 | 0.60 | 0.60 | 0.60 | 0.60 | 0.60 | ||||||||||||||||
Average shares outstanding for basic earnings per share | 33,982 | 33,699 | 33,870 | 35,712 | 36,794 | 36,468 | 36,234 | ||||||||||||||||
Average shares outstanding for diluted earnings per share | 34,531 | 33,914 | 34,315 | 35,725 | 36,794 | 36,569 | 36,333 |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should carefully read the following discussion in conjunction with "Risk Factors," "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus.
Overview
We are oneeach of the leading bulk shipping companies in the world focusingselling securityholders as of August 8, 2016. Based on the worldwide transportation of crude oil and petroleum products. Our customers include manyinformation provided to us by the selling securityholders, assuming that the selling securityholders sell all of the world's largest oil companiesSecurities owned by them that have been registered by us pursuant to the registration statement of which this prospectus forms a part, including any shares of Class A Common Stock issuable upon exercise of Class A Warrants, and oil trading companies as well as governments and government agencies. Our modern fleet of 43 vessels has an aggregate carrying capacity of approximately 5.9 million dwt. Our international fleet includes 11 VLCCs and 11 Aframax tankers, with four VLCCs and four Aframax newbuildings to be delivered within the next 30 months. The balancedo not acquire any additional shares of our international fleet consists of a Suezmax, eight products carriers and two Capesize dry bulk carriers. Our U.S. flag fleet includes four crude carriers, two products carriers, three dry bulk vessels (including one tanker which trades exclusively as a dry bulk carrier) and a car carrier. Net shipping revenues from carriage of crude oil and petroleum products accounted for 86%Class A Common Stock or our Class A Warrants, each selling securityholder will not own any shares of our net shipping revenues in both 1999 and 2000.
MostClass A Common Stock or any of our international fleet operates through two major commercial alliances, Tankers International andClass A Warrants after completion of this offering. We cannot advise you as to whether the Aframax Pool. Tankers International, formedselling securityholders will, in February 2000 by us and five other leading tanker companies, consistsfact, sell any or all of 48 modern VLCCs and greatly improves vessel utilization through backhauls, contracts of affreightment and other efficiencies facilitated by the size and quality of its fleet. Each pool participant committed its modern VLCCs (other than certain of those on long-term charter) to Tankers International, which handles commercial activities for the vessels in the pool. Over a period of time, each vessel receives a rating based on its speed, fuel consumption and carrying capacity. Based on that rating, each vessel owner receives a proportionate share of the earnings of Tankers International. The Aframax Pool and another commercial alliance in which our two Capesize dry bulk vessels participate allocate earnings in a substantially similar fashion.
We charter our vessels for a specific voyage or voyages (voyage charter) or for a specific period of time (time charter). However, because our business comes mostly from voyage charters, our revenues are significantly affected and reliant upon prevailing spot market charter rates. In fact, in 2000, voyage charters made up 76% of our net shipping revenues. Under both time and voyage charters, we man and operate the vessels. We also have chartered out five of our vessels on bareboat charters. Under these charters, the ships are chartered for a fixed time period during which they are operated and manned by the charterer.
Traditionally, the tanker industry has been highly cyclical, with changes in tanker supply and tanker requirements resulting in significant volatility in charter rates and vessel values. Demand requirements, particularly for VLCCs, can change rapidly as a result of political events (for example, Middle East conflicts and OPEC production decisions). Periods of strong demand boost rates and encourage investment. But vessels require 18 to 36 months from contracting to delivery and by the time new vessels enter service, the demand may have moderated. Conversely, it often takes a prolonged period of low rates to encourage scrapping, particularly if vessels are relatively young. The past decade reflects this cyclicality. With rates rising in the early 1990s, tanker orders increased with deliveries peaking in 1993. After rates began to fall in 1992, scrapping increased, but did not completely offset new deliveries until 1994. Overall, tanker capacity declined between 1993 and 1995, setting the stage for a recovery in rates as seaborne trade began to increase. Scrapping eased significantly, permitting the fleet to grow modestly over the next two years. The recovery in rates encouraged newbuildings and deliveries rose sharply in 1999, when OPEC effected a sharp reduction in oil production (in response to low demand growth). Declining rates, however, helped to keep scrapping high, restraining fleet growth
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and causing rates to rise when OPEC restored their production cutbacks in 2000 in response to depleted oil stocks.such Securities. In addition, theErika oil pollution incident in late 1999, which involved an older, single-hulled tanker, effectively cut the supply selling securityholders may have sold, transferred or otherwise disposed of, suitable vessels as charterers became more selective with respect to the qualityor may sell, transfer or otherwise dispose of, vessels they hired. This combination of events resulted in a dramatic increase in tanker spot charter rates in 2000.
In addition, tanker charter marketsat any time and rates have historically displayed significant seasonality. Rates are typically strongest during the winter and fall months (our first and fourth quarters), when oil consumption in the Northern Hemisphere increases. However, unpredictable weather patterns during the winter months make revenues volatile and can disrupt vessel scheduling.
Consistent with industry practice, we use time charter equivalent, or TCE, rate calculations as a measure of analyzing fluctuations in net shipping revenues between financial periods. The TCE rate is defined as voyage revenues less voyage expenses divided by the round-trip voyage days. We also use the number of revenue days as a method of analyzing fluctuations in vessel operating results between financial periods. Total revenue days is the total number of days in a given period less the total number of off-hire days. We define off-hire days as any days on which vessels cannot be employed due to repairs, drydockings, special surveys, vessel upgrades and lay-ups.
International and domestic environmental regulations applicable to oceangoing bulk shipping have become more stringent in recent years. These regulations impose higher operating standards, greater potential liability and higher costs on tanker owners and operators. In the United States, the Oil Pollution Act of 1990 requires that all single-hulled tankers over 30,000 gross tons docking at most U.S. ports be fitted with double hulls at the age of 23 years. In response to several environmental incidents, the International Maritime Organization passed regulations in April 2001 to further restrict the employment of old and substandard oil tankers. The regulations lower the size limits and advance the timetable for the elimination of single-hulled tankers.
Vessel operating costs consist primarily of crew wages and related costs, including costs for supplying provisions, insurance, lubricating oils, stores, spares, paints, routine repairs and maintenance, including special survey costs and tonnage taxes. Over the past few years, we have implemented a number of cost-cutting measures, including the transfer of most of our international vessel management and administrative functions from New York City to our office in Newcastle, U.K. (to be completed by the end of 2001). Since 1998, this cost reduction program has led to annualized savings of approximately $40 million, and we believe that measures undertaken in 2001 will generate additional annualized savings starting in 2002 of approximately $20 million.
We have financed vessel additions through cash from operating activities and long-term borrowings.
Quarter Ended March 31, 2001 Versus Quarter Ended March 31, 2000
Income from Vessel Operations. Income from vessel operations for the first three months of 2001 increased by approximately $59,500,000 from the corresponding 2000 period, before taking into account a $8,545,000 restructuring charge. The improvement resulted from significant increases in time charter equivalent rates achieved by all classes of our foreign flag tonnage. VLCCs and modern Aframaxes accounted for approximately $34,100,000, or 56%, of the improvement in foreign flag vessel operations, as TCEs improved by approximately $27,100 and $22,500 per day, respectively, compared with the 2000 quarter. Foreign flag products carriers contributed approximately $14,500,000, or 24%, to the improvement in results of foreign flag vessel operations, as TCEs rose by approximately $18,200 per day. Weaker results from the four U.S. flag vessels participating in the U.S. grain trades reduced income from vessel operations by approximately $3,100,000 in the 2001 quarter compared with 2000. Operating results for the 2001 quarter reflect an increase of approximately 100 revenue days from the comparable 2000 quarter. This change resulted from four newbuildings (two VLCCs and two Aframaxes) entering the fleet, offset by the
21
sales of an older Aframax tanker and one of the U.S. flag crude carriers included in the 1999 sale and leaseback transaction.
The results for the first quarter of 2001 benefited from fleet-wide reductions in running expenses in excess of $500 per day per vessel.
Since late December 1996, our U.S. flag car carrier has received $2,100,000 per year under the U.S. Maritime Security Program, which continues through 2005, subject to annual Congressional appropriations.
Equity in Results of Bulk Shipping Joint Ventures. The improvement in the results of bulk shipping joint ventures in the first quarter of 2001 compared with the first quarter of 2000 was principally attributable to the inclusion of the results of a 30% interest in a 1993-built VLCC and a 50% interest in a 1992-built Aframax tanker that were acquired during 2000, and the results of a 49.9% interest in two 1993-built VLCCs that was acquired late in the 2001 quarter. All three of the above VLCCs operate in the Tankers International pool and the Aframax tanker operates in the Aframax Pool.
Interest Expense. Interest expense increased by approximately $900,000 in the first quarter of 2001 compared with the comparable period of 2000 principally as a result of an increase in the average amount of debt outstanding. The average rate paid in the first quarter of 2001 on floating rate debt was relatively unchanged from the 2000 period. Interest expense is net of amounts capitalized in connection with vessel construction of approximately $4,500,000 in each period. Interest expense in each period also reflects $300,000 of net benefits from interest rate swaps referred to below in "Liquidity and Capital Resources."
Year Ended December 31, 2000 Versus Year Ended December 31, 1999
Income from Vessel Operations. Income from vessel operations of approximately $134,050,000 in 2000 increased by $110,700,000 from the results for 1999. The improvement resulted from significant increases in time charter equivalent rates achieved by all classes of our foreign flag tonnage. VLCCs and modern Aframaxes accounted for $95,800,000, or 74%, of the improvement in foreign flag vessel operations, as TCEs improved by approximately $21,400 and $15,000 per day, respectively, compared with 1999. Because six of our VLCCs and all of our Aframaxes traded in the spot market, we benefited significantly from the most attractive VLCC and Aframax rate environment in more than 25 years. Foreign flag products carriers and the two Capesize bulk carriers contributed $19,900,000 and $6,900,000 to the improvement in results, as TCEs rose by approximately $5,800 and $8,400 per day, respectively. With TCE rates for these products carriers improving dramatically, $12,000,000 of the $19,900,000 improvement for this vessel class was achieved in the fourth quarter of 2000. Weaker results from our four U.S. flag vessels participating in the U.S. grain trades reduced income from vessel operations by approximately $5,400,000 in 2000 compared with 1999. The impact of the conversion of long-term time charters on five U.S. flag crude carriers to bareboat charters is discussed below. Operating results for 2000 reflect a decline of approximately 300 revenue days from 1999. This decline, the substantial portion of which occurred in the first quarter of 2000, was attributable to the sale of our three older Suezmaxes in late 1999 and an increase in idle days for U.S. flag tonnage participating in the U.S. grain trades, partially offset by the delivery of two VLCCs in the first half of 2000.
The results for 2000 benefited from further fleet-wide reductions in running expenses in excess of $500 per day, per vessel. Significantly higher average bunker prices in 2000 partially offset the benefit of increases in freight rates; average bunker prices paid in 2000 rose more than 50% from 1999. This increase came on top of a 30% increase in average bunker prices in 1999 compared with 1998.
The conversion of long-term time charters on five U.S. flag crude carriers in the second quarter of 1999 to bareboat charters, with BP Amoco guarantees, resulted in reductions in TCE revenues in 2000 (all in the first half of 2000) of approximately $10,500,000. Vessel running expenses, however,
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attributable to these five vessels decreased by approximately the same amount as the reduction in TCE revenues, because under bareboat charters these expenses are the responsibility of the charterer. Accordingly, these reductions in revenue had no material effect on income from vessel operations.
The increased time charter hire expense in 2000 principally reflects the August 1999 sale and leaseback of the five vessels referred to in the preceding paragraph (one of which was sold in October 2000) and is net of amortization of the related deferred gain. This increase in shipping expenses was partially offset by a reduction in depreciation in 2000 of $6,500,000, resulting from the removal of these five vessels from the consolidated balance sheet. The net reduction in results from vessel operations for 2000 of approximately $6,700,000 was offset by a decrease in interest expense resulting from the application of the net proceeds received (from the sale and leaseback transaction) of approximately $170,000,000 to reduce outstanding debt. The balance of the increase in time charter hire expense in 2000 was attributable to our share (approximately $8,900,000) of the cost of short-term time charters-in entered into by participants in the Capesize bulk carriers pool.
Equity in Results of Bulk Shipping Joint Ventures. The improvement in the results of bulk shipping joint ventures in 2000 compared with 1999 was attributable to the inclusion of the results of a 30% interest in a 1993-built VLCC and a 50% interest in a 1992-built Aframax tanker that were acquired during 2000, and an increase in our share of incentive hire earned by Alaska Tanker Company, LLC.
Interest Expense. Interest expense increased by approximately $2,200,000 in 2000 compared with 1999 principally as a result of an increase of 130 basis points in the average rate paid on floating rate debt (approximately 7.2% for 2000). The impact of such rate increase was substantially offset by increased amounts capitalized in connection with vessel construction, $15,400,000 in 2000 compared with $10,600,000 in 1999. The average amount of debt outstanding in 2000 was relatively unchanged from 1999 despite payments in connection with the construction of vessels exceeding $116,100,000 during 2000. Interest expense also reflected $1,300,000 in 2000 versus $1,500,000 in 1999 of net benefits from the interest rate swaps referred to in "Liquidity and Capital Resources."
Provision for Federal Income Taxes. The income tax provision was based on pre-tax income, adjusted to reflect items that are not subject to tax and the dividends received deduction.
Year Ended December 31, 1999 Versus Year Ended December 31, 1998
Income from Vessel Operations. Income from vessel operations for 1999 of approximately $23,350,000 decreased by approximately $17,700,000 from the results for 1998. Results from vessel operations for 1999 benefited from both reductions in corporate overhead of approximately $11,700,000, and a fleet-wide reduction in running expenses in excess of $900 per day, per vessel. The 1999 results, however, were adversely affected by lower rates and significantly higher bunker prices; average bunker prices of approximately $98 per ton in 1999 exceeded the average for 1998 by over 30%.
Income from foreign flag vessel operations in 1999 decreased by approximately $28,600,000 from the results for 1998, reflecting a $3,600 per day average TCE rate decline for our foreign flag tankers. The decrease in VLCC rates represented the majority of the 1999 reduction in income from foreign flag vessel operations, with TCE rates for this vessel class averaging $12,000 per day below those obtained in 1998. During the fourth quarter, VLCC rates declined to their lowest level for the year. TCE rates for our Aframaxes averaged $2,900 per day below those obtained in 1998. Foreign flag operating results for 1999 were also negatively affected by a decline of approximately 800 revenue days, attributable to the sale of two older tankers in the first quarter of 1999 and a significant increase in the number of days in drydock. Results from vessel operations for 1999 benefited from a reduction in depreciation of $4,500,000 attributable to the sale of certain older and less efficient tankers held for disposal at the end of 1998.
Income from operations of our U.S. flag fleet for 1999 improved by approximately $10,900,000 from 1998. This was partially attributable to improved results of two small dry cargo ships that had been laid up for substantial portions of 1998. The total number of revenue days for the U.S. flag
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fleet in 1999 was not significantly different from 1998. The second quarter conversion of long-term time charters on five U.S. flag crude carriers to bareboat charters resulted in reductions in TCE revenue of $17,100,000 in 1999. Vessel running expenses, however, attributable to these five vessels decreased by approximately the same amount. Accordingly, this reduction in revenue had no material effect on income from vessel operations. Results from vessel operations in 1999 benefited from reduced depreciation of approximately $9,200,000, principally resulting from both the extension of the depreciable lives of four of these U.S. flag crude carriers whose underlying charters were extended to their OPA 90 expiry dates in 2005/2006, and the sale and leaseback transaction.
Equity in Results of Bulk Shipping Joint Ventures. As part of the 1998 reserve taken in connection with planned vessel dispositions, we recorded a provision of approximately $5,900,000 ($3,800,000 after tax) to reduce to estimated realizable value our proportionate share of the carrying amounts of certain vessels that were held in joint ventures and scheduled for disposal in 1999; this provision was reflected in the 1998 results of bulk shipping joint ventures. All of these vessels were sold in 1999, resulting in an aggregate gain of approximately $3,200,000. Our share of this gain, approximately $1,600,000 on a pre-tax basis, is reflected in the 1999 results of bulk shipping joint ventures.
Other Income. Interest income in 1999 included approximately $3,700,000 related to a federal income tax refund, which covered open years through 1995.
Interest Expense. Interest expense decreased by approximately $16,900,000 in 1999 compared with 1998. Approximately $2,800,000 of this decrease was attributable to a reduction in the average amount of debt outstanding that was achieved despite $161,000,000 of progress payments made in 1999 in connection with our vessel construction program. This reduction reflects the application of the proceeds of approximately $170,000,000 from a sale and leaseback transaction and $180,000,000, net of taxes, from the sale of 3,650,000 shares of Royal Caribbean Cruises Ltd. common stock in the first quarter of 1998 and gross proceeds of approximately $120,000,000 ($67,000,000 in 1999 and $53,000,000 in 1998) from the sale of eight older tankers held for disposal at year-end 1998 and the vessels included in the dry cargo disposal program. Interest expense is net of amounts capitalized in connection with vessel construction of $10,600,000 in 1999 and $3,000,000 in 1998. In addition, during 1999, we repurchased our 8.75% Debentures and 8% Notes, with an aggregate principal amount of $23,875,000 and, in the fourth quarter of 1998, refinanced $310,000,000 of our Unsecured Senior Notes with coupons averaging 8.7%, by borrowing under our revolving credit agreement. This refinancing and the repurchases of our Senior Notes reduced annual interest costs by approximately $5,000,000 (based on amounts outstanding and effective interest rates at the time of the respective transactions), which accounted for the balance of the 1999 expense decrease. Interest expense also reflected $1,500,000 in 1999 versus $4,000,000 in 1998 of net benefits from the interest rate swaps referred to in "Liquidity and Capital Resources."
Provision for Federal Income Taxes. The tax provision in 1999 reflects the release of approximately $300,000 of reserves in connection with the settlement of federal tax audits covering open years through 1996. The 1998 credit for federal income taxes includes approximately $1,000,000 of tax on previously untaxed cruise earnings.
Cumulative Effect of Accounting Change
We changed our accounting policy effective January 1, 2000, for the recognition of net voyage revenues of vessels operating on voyage charters to the percentage of completion method. Prior years' financial statements have not been restated. Net income for 2000 includes $4,152,000, net of related income taxes, from the cumulative effect of this change in accounting principle. Assuming the above percentage of completion method had been applied retroactively, the pro forma income before cumulative effect of change in accounting principle for 1999 would have been reduced by $1,314,000 to $13,450,000, or $.37 per basic and diluted share. The pro forma loss before
24
cumulative effect of change in accounting principle for 1998 would have been increased by $2,860,000 to $40,780,000, or $1.11 per basic and diluted share.
Liquidity and Capital Resources
Working capital at March 31, 2001 was approximately $126,000,000. Current assets are highly liquid, consisting principally of cash, interest-bearing deposits, investments in marketable securities and receivables. In addition, we maintain a capital construction fund with a market value of approximately $219,000,000 at March 31, 2001. Net cash provided by operating activities in the first three months of 2001 approximated $72,000,000 (which is not necessarily indicative of the cash to be provided by operating activities for a full fiscal year). Current financial resources, together with cash anticipated to be generated from operations, are expected to be adequate to meet financial requirements in the next year.
We have unsecured long-term credit facilities of $775,000,000, of which $506,000,000 was used at March 31, 2001, and an unsecured short-term credit facility of $15,000,000, all of which was unused at that date.
We have used interest rate swaps to effectively convert a portion of our debt either from a fixed to floating rate basis or from floating to fixed rate, reflecting management's interest rate outlook at various times. These agreements contain no leverage features and have various maturity dates from mid 2002 to 2008. We have hedged our exchange rate risk with respect to contracted future charter revenues receivable in Japanese yen to minimize the effect of foreign exchange rate fluctuations on reported income by entering into currency swaps with a major financial institution to deliver such foreign currency at fixed rates. This will result in our receiving approximately $15,000,000 for such foreign currency from April 1, 2001 through March 31, 2002.
As of March 31, 2001, we had commitments for the construction of eight double-hulled foreign flag tankers for delivery between August 2001 and early-January 2004, with an aggregate unpaid cost of approximately $216,400,000. Unpaid costs are net of progress payments, which are covered by refundment guaranties, principally from major U.S. insurance companies.
Risk Management
We are exposed to market risk from foreign currency fluctuations and changes in interest rates, which could impact our results of operations and financial condition. We manage this exposure to market risk through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We manage our 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, we, from time to time, enter into interest rate swap agreements,the Securities in transactions exempt from the registration requirements of the Securities Act after the date on which we agree to exchange various combinations of fixed and variable interest rates basedthey provided the information set forth in the table below.
Name of Selling Securityholder | Aggregate Number of Shares of Common Stock Beneficially Owned, and Shares Underlying Beneficially Owned Warrants, Prior to the Offering(1) | Number of Shares of Class A Common Stock That May Be Offered Hereby | Number of Class A Warrants That May Be Offered Hereby | Number of Shares of Class A Common Stock Beneficially Owned After Completion of the Offering(2) | ||||||||||||
BlueMountain Nautical, LLC(3) | 10,252,034 | 10,252,034 | — | — | ||||||||||||
Cyrus Capital Partners, L.P.(4) | 41,765 | 41,765 | — | — | ||||||||||||
Cyrus Polaris LLC(4) | 6,667,619 | (5) | 6,130,970 | 2,824,464 | — | |||||||||||
Cyrus Polaris II LLC(4) | 667,320 | (6) | 611,644 | 293,031 | — | |||||||||||
CYR Fund, L.P.(4) | 2,011,533 | (7) | 1,801,592 | 1,104,950 | — | |||||||||||
Crescent 1, L.P.(4) | 2,101,954 | (8) | 512,178 | 8,367,240 | — | |||||||||||
Cyrus Canary Fund, L.P.(4) | 563,428 | (9) | 323,705 | 1,261,697 | — | |||||||||||
PCO Shipping LLC and certain other accounts managed by Paulson & Co. Inc., a Delaware corporation registered as an investment advisor with the SEC(10) | 11,044,483 | (11) | 10,309,521 | 3,868,216 | — |
(1) | Shares of Class A Common Stock underlying Class A Warrants owned by the selling securityholder assumes gross exercise of warrants without withholding pursuant to the cashless exercise procedures, such that the number of shares of Class A Common Stock equal in value to the aggregate price is not deducted from the number of shares of Class A Common Stock that would otherwise be required to be delivered to the warrantholder upon exercise of the warrant. The Class A Warrants may be exercised only with our consent and are subject to certain citizenship rules and limitations on exercise, sale, transfer or other disposition. As of the date of this filing, it is unlikely that we would grant such consent to a holder of Class A Warrants who does not meet such citizenship rules and limitations. See “Description of the Class A Warrants—Compliance with Citizenship Rules and Limitations on Exercise, Sale, Transfer or Other Disposition”. |
(2) | Assumes the full exercise of the Class A Warrants and the sale of all of the shares of Class A Common Stock underlying the Class A Warrants by such selling securityholder offered pursuant to this prospectus. |
(3) | BlueMountain Nautical LLC (“Nautical”) is a Delaware limited liability company whose sole member is BlueMountain Guadalupe Peak Fund L.P. Nautical is managed by BlueMountain Capital Management, LLC (“BMCM”), a non-member manager. BMCM has voting power and dispositive power with respect to the Class A Common Stock held by Nautical. Derek Smith, Ethan Auerbach, Andrew Feldstein, Peter Greatrex, Bryce Markus, Marina Lutova and David Zorub, as members of the Investment Committee of BMCM, jointly exercise shared voting and dispositive power over the Class A Common Stock beneficially owned by Nautical. The business address of each of Nautical and BMCM is 280 Park Avenue, 12th Floor, New York, New York 10017. Chad L. Valerio, an employee of BMCM, has served on the Company’s Board of Directors since August 4, 2015. |
(4) | Based on an amendment to a Schedule 13D filed on June 23, 2016 and a Form 4 filed on June 24, 2016, each with the SEC by Cyrus Capital Partners, L.P. (“CCP”), CCP serves as the investment advisor to (i) Cyrus Polaris LLC, (ii) Cyrus Polaris II LLC, (iii) CYR Fund, L.P., (iv) Crescent 1, L.P., and (v) Cyrus Canary Fund, L.P. (collectively, the “Cyrus Funds”). Cyrus Capital Partners GP, L.L.C. (“CCPGP”) serves as the general partner of CCP. Stephen C. Freidheim (“Freidheim”) serves as the principal of both CCP and CCPGP. All discretion over the investment activities of the Cyrus Funds has been delegated to CCP. The address of each of CCP, CCPGP and Freidheim is 399 Park Avenue, 39th Floor, New York, New York 10022. Joseph I. Kronsberg, an employee of CCP, has served on the Company’s Board of Directors since August 4, 2015. On June 22, 2016, 8,432 shares of restricted Class A Common Stock were granted to CCP by the Company pursuant to the Company’s Non-Employee Director Incentive Compensation Plan and vest on the earlier of (i) June 8, 2017 and (ii) the date of the annual meeting of stockholders in 2017 The grant was made directly to CCP because pursuant to agreements between CCP and Mr. Kronsberg, CCP is required to receive all compensation in connection with Mr. Kronsberg’s directorship. |
(5) | Includes 536,649 shares of Class A Common Stock underlying Class A Warrants. |
(6) | Includes 55,676 shares of Class A Common Stock underlying Class A Warrants. |
(7) | Includes 209,941 shares of Class A Common Stock underlying Class A Warrants. |
(8) | Includes 1,589,776 shares of Class A Common Stock underlying Class A Warrants. |
(9) | Includes 239,723 shares of Class A Common Stock underlying Class A Warrants. |
(10) | Based on an amendment to a Schedule 13D and a Form 4 filed on June 29, 2016 with the SEC by Paulson & Co. Inc. (“Paulson”), Paulson is the investment manager of PCO Shipping LLC and certain other accounts (collectively, the “Paulson Accounts”). Paulson possesses voting and investment power over the shares owned or held by the Paulson Accounts. John Paulson is the controlling person of Paulson. The address of each of Paulson and the Paulson Accounts is c/o Paulson & Co. Inc., 1251 Avenue of the Americas, 50th Floor, New York, New York 10020. Ty E. Wallach, a Partner at Paulson and a Co-Portfolio Manager at Paulson’s credit funds, has served on the Company’s Board of Directors since August 4, 2015. |
(11) | Includes 734,962 shares of Class A Common Stock underlying Class A Warrants. |
Based on agreed upon notional amounts. We use 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 non-performance on such instrumentsinformation provided by the counterparties.
selling securityholders, except as further described below, no selling securityholder is a broker-dealer or an affiliate of a broker-dealer. The following tables provide information about our derivative financial instrumentsPaulson Accounts have advised us that Plus Securities LLC, an affiliate of Paulson & Co. Inc., is a limited purpose broker-dealer registered with the Financial Industry Regulatory Authority, Inc. (“FINRA”), and other financial instruments that are sensitive to changes in interest rates. ForPlus Securities LLC only assists with the offer of investment securities and debt obligations,funds and/or accounts sponsored or advised by its affiliates. The Paulson Accounts have also advised us that they purchased the tables present principal cash flows and related weighted average interest rates by expected maturity dates. Additionally, we have assumed that our fixed income securities are similar enough to aggregate those securities for presentation purposes. For interest rate swaps, the tables present notional amounts and weighted average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contracts.
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Interest Rate Sensitivity
Principal (Notional) Amount (dollars in millions)offered and sold by Expected Maturity and Average Interest (Swap) Rate
At December 31, 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | Beyond 2005 | Total | Fair Value at Dec. 31, 2000 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||||||||||||||||||
Fixed income securities | $ | 30.2 | $ | 2.4 | $ | 2.5 | $ | 8.2 | $ | 5.1 | $ | 43.1 | $ | 91.5 | $ | 91.5 | |||||||||
Average interest rate | 6.2 | % | 7.0 | % | 6.3 | % | 6.6 | % | 6.9 | % | 6.5 | % | |||||||||||||
Liabilities | |||||||||||||||||||||||||
Long-term debt and capital lease obligations, including current portion: | |||||||||||||||||||||||||
Fixed rate | $ | 5.6 | $ | 6.4 | $ | 76.8 | $ | 4.3 | $ | 5.1 | $ | 127.5 | $ | 225.7 | $ | 222.0 | |||||||||
Average interest rate | 9.8 | % | 9.8 | % | 8.2 | % | 10.0 | % | 10.0 | % | 9.2 | % | |||||||||||||
Variable rate | $ | 8.7 | $ | 431.6 | $ | 12.6 | $ | 12.6 | $ | 91.5 | $ | 68.1 | $ | 625.1 | $ | 625.1 | |||||||||
Average spread over LIBOR | 1.00 | % | 0.71 | % | 0.90 | % | 0.90 | % | 1.07 | % | 1.00 | % | |||||||||||||
Interest Rate Swaps Related to Debt | |||||||||||||||||||||||||
Pay variable*/receive fixed | $ | 60.0 | $ | 60.0 | $ | 0.2 | |||||||||||||||||||
Average receive rate | 6.1 | % | |||||||||||||||||||||||
Pay fixed/receive variable* | $ | 17.8 | $ | 150.8 | $ | 19.5 | $ | 11.8 | $ | 11.8 | $ | 66.5 | $ | 278.2 | $ | 3.2 | |||||||||
Average pay rate | 6.3 | % | 5.2 | % | 6.3 | % | 5.9 | % | 5.9 | % | 5.5 | % |
At December 31, 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | Beyond 2004 | Total | Fair Value at Dec. 31, 1999 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||||||||
Fixed income securities | $ | 0.8 | $ | 1.9 | $ | 2.8 | $ | 6.3 | $ | 5.4 | $ | 43.5 | $ | 60.7 | $ | 60.7 | ||||||||||
Average interest rate | 6.2 | % | 6.2 | % | 6.2 | % | 6.2 | % | 6.7 | % | 6.4 | % | ||||||||||||||
Liabilities | ||||||||||||||||||||||||||
Long-term debt and capital lease obligations, including current portion: | ||||||||||||||||||||||||||
Fixed rate | $ | 8.8 | $ | 8.8 | $ | 6.6 | $ | 91.9 | $ | 3.9 | $ | 132.7 | $ | 252.7 | $ | 236.9 | ||||||||||
Average interest rate | 10.1 | % | 10.1 | % | 9.8 | % | 8.1 | % | 10.0 | % | 9.2 | % | ||||||||||||||
Variable rate | $ | 6.1 | $ | 12.8 | $ | 468.8 | $ | 11.8 | $ | 11.8 | $ | 78.2 | $ | 589.5 | $ | 589.5 | ||||||||||
Average spread over LIBOR | 0.82 | % | 0.86 | % | 0.70 | % | 0.89 | % | 0.89 | % | 0.96 | % | ||||||||||||||
Interest Rate Swaps Related to Debt | ||||||||||||||||||||||||||
Pay variable*/receive fixed | $ | 40.0 | $ | 150.0 | $ | 50.0 | $ | 240.0 | $ | (7.3 | ) | |||||||||||||||
Average receive rate | 6.0 | % | 6.1 | % | 6.4 | % | ||||||||||||||||||||
Pay fixed/receive variable* | $ | 17.2 | $ | 19.5 | $ | 150.8 | $ | 19.5 | $ | 11.8 | $ | 78.3 | 297.1 | $ | 13.4 | |||||||||||
Average pay rate | 6.6 | % | 6.3 | % | 5.2 | % | 6.3 | % | 5.9 | % | 5.6 | % |
In December 2000, we terminated fixed-to-floating interest rate swaps, maturing in 2003 and 2008, with a notional amount of $140,000,000.
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THE INTERNATIONAL TANKER INDUSTRY
The information contained under this heading has been reviewed by Maritime Strategies International Ltd., or MSI, and they confirmed to us that this information is a general, accurate description of the international tanker market, subject to the availability and reliability of the data supporting the statistical and graphic information as described below in this paragraph. The statistical and graphic information in this prospectus has been compiled by MSIthem from its databases. Its methodologies for collecting data, and therefore the data collected, may differ from those of other sources, and its data do not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the market. MSI collects market data from a number of industry sources but there can be no assurance that these data reflect actual market conditions. Data compilation is subject to limited audit and validation procedures and may contain errors. For these reasons, you should not place undue reliance on the statistical data contained in this discussion.
Overview
The international tanker industry provides seaborne transportation of crude and refined petroleum products for the oil market. In 2000, an estimated 2.35 billion metric tons of oil, representing over two-thirds of global oil consumption, was transported by sea in oil tankers. Customers for oil tanker services include oil companies, oil traders, large oil consumers, petroleum product producers, government agencies and storage facility operators. The pricing for transporting oil can be volatile and is based on the demand for and supply of oil tankers. Demand for oil tankers is influenced by many factors including international economic activity, changes in oil production, consumption, price levels, crude and refined products inventories and the distances over which oil is transported. Tanker supply, or the size of the international tanker fleet, is influenced by newbuildings, the scrapping of older tankers, the drydocking of existing tankers, environmental regulations and other factors.
Industry Ownership
International seaborne crude oil and other petroleum products transportation services are provided by two main types of tanker owners: major oil companies (both private and state-owned) and independent shipowners. The trend by major oil companies toward outsourcing non-core activities, such as shipping, has caused the number of tankers owned by oil companies to decrease in recent years. As a result of this trend, independent tanker companies now own a large majority of the global tanker fleet.
In recent years, there has been some consolidation in tanker ownership. There are several advantages to owning or participating in a large fleet of tankers. In order to exploit the commercial and operational advantages of a large fleet, some independent owners place their vessels in operating "pools" or seek to gain scale by chartering in vessels from third parties so as to achieve a fleet size sufficient to exploit scale efficiencies. These advantages include the ability to enter into more complex charters, including contracts of affreightment, and to employ vessel substitution so as to minimize unloaded backhauls and non-earning days and to achieve greater scheduling efficiencies. Large fleets also allow operators to gain competitive benefits from centralized purchasing and lower unit operating costs.
Tanker Demand
The amount of oil transported in tankers is driven by oil demand, which is affected by general economic conditions, including international economic activity, changes in oil production, consumption, price levels and crude and refined products inventories. In addition to the demand for oil, tanker demand is influenced by the distance from oil-producing locations to oil-consuming destinations. Tanker demand can be expressed in "ton-miles," measured as the product of (a) the amount of oil transported in tankers, multiplied by (b) the distance over which this oil is transported.
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The distance over which oil is transported is the most variable element of the ton-mile demand equation. It is determined by seaborne trading and distribution patterns, which are influenced principally by the location of production and the optimal economic distribution of that production for refining and consumption. Seaborne trading patterns are also influenced by geopolitical events that divert tankers from normal trading patterns, as well as by inter-regional oil trading activity created by global supply and demand imbalances. Tankers, particularly older vessels, are also used as "floating storage" by oil companies and oil traders, notably during times of supply uncertainty.
The following chart outlines world oil consumption and seaborne trade from 1980 to 2000:
OIL CONSUMPTION AND SEABORNE TRADE
The growth in demand for seaborne transportation in recent years has been driven by two significant factors: a worldwide increase in oil consumption and the increasing proportion of oil shipped from long-haul, Middle Eastern sources.
The greatest portion of oil delivered by sea is delivered to the major industrial and industrializing economies of the world, such as the United States, Western Europe, Japan, the Pacific Rim and India. This oil is shipped by tankers from the main exporting regions, primarily the Middle East, which has the world's largest proven oil reserves and accounts for almost half of all oil exports. Due to the relatively long distances between Middle Eastern loading terminals and discharge ports in most of these importing regions, the level of oil exports from the Middle East strongly affects the demand for tanker capacity and hence tanker rates. Oil exports from regions such as Latin America and the North Sea are typically shipped over much shorter distances to the United States or to Western Europe and thus have a relatively smaller impact on tanker demand and rates.
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As the tables below illustrate, growth in oil consumption over the last five years has been strongest in North America and Asia. In contrast, Western European demand has barely risen. At the same time, the fastest growth in oil supply has been from the Middle Eastern OPEC producers. These trends have contributed to robust growth in long-haul oil trade over the five year period. Oil supply in the Middle East (Arabian Gulf) has grown at more than double the average annual rate of the rest of the world between 1996 and 2000. These increased Middle Eastern supplies have accelerated demand for oil tankers, because of the long distances this oil needs to travel to the major import destinations. For example, the tanker tonnage required to ship the incremental supply of one million barrels per day from the Arabian Gulf to the United States is approximately 13 million dwt as compared to approximately five million dwt from the North Sea.
World Oil Demand | 1996 | 1997 | 1998 | 1999 | 2000 | Compound Annual Growth Rate 1996-2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (million metric tons) | |||||||||||||
North America | 915 | 930 | 947 | 966 | 970 | 1.5 | % | |||||||
Western Europe | 672 | 678 | 689 | 685 | 680 | 0.3 | % | |||||||
Asia | 846 | 877 | 853 | 885 | 909 | 1.8 | % | |||||||
Rest of World | 883 | 905 | 918 | 926 | 941 | 1.6 | % | |||||||
Total | 3,316 | 3,390 | 3,407 | 3,462 | 3,500 | 1.4 | % | |||||||
World Oil Supply | 1996 | 1997 | 1998 | 1999 | 2000 | Compound Annual Growth Rate 1996-2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (million metric tons) | |||||||||||||
North Sea | 285 | 285 | 283 | 286 | 284 | -0.1 | % | |||||||
Other Non-OPEC | 1,816 | 1,855 | 1,865 | 1,861 | 1,921 | 1.4 | % | |||||||
Total Non-OPEC | 2,101 | 2,140 | 2,148 | 2,147 | 2,205 | 1.2 | % | |||||||
Arabian Gulf OPEC | 857 | 903 | 956 | 922 | 978 | 3.4 | % | |||||||
Other OPEC | 433 | 454 | 443 | 406 | 416 | -1.0 | % | |||||||
Total OPEC | 1,289 | 1,357 | 1,399 | 1,328 | 1,393 | 2.0 | % | |||||||
Total | 3,391 | 3,497 | 3,546 | 3,475 | 3,598 | 1.5 | % | |||||||
Source: MSI Ltd
Note: Totals in the above table may not add due to rounding.
Tanker Supply
The supply of tanker capacity is measured by the amount of suitable tonnage available to transport oil and will vary over time based on the number of newbuildings, the scrapping of older tankers and the number of tankers in storage, drydocked or otherwise not available for use.
The decision to order newbuildings and scrap older vessels is influenced by many factors, including prevailing and expected charter rates, newbuildings and scrap prices, availability of delivery dates and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. In general, it takes from 18 to 36 months from the date a shipowner places a newbuilding contract to the date a shipowner takes delivery of the vessel.
Scrapping is likely to increase as a result of stricter inspection, the age profile of the world fleet and regulatory and political pressures which are forcing the mandatory retirement of older tonnage. The age of the global tanker fleet has been increasing in recent years and a large number of ships that were built in the mid-1970s are now approaching the end of their economic life. For example, the proportion of the fleet aged 25 years or more has risen from 2% in 1985 to over 10% in 2000. The U.S. Oil Pollution Act prohibits all single-hulled tankers over 23 years of age and over 30,000 gross tons (the latter category includes the vast majority of crude tankers) from docking at most U.S. ports (except for Louisiana Offshore Oil Port) unless retrofitted with double hulls. Similarly, IMO regulations restrict the trading lives of older, single-hulled vessels on a worldwide basis. In response
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to theErikaincident off the coast of France, IMO in April 2001 passed more restrictive regulations that further advance the timetable for the elimination of single-hulled tankers. Whereas previously some single-hulled tankers could continue trading up to their 30th anniversary, by the end of 2007, none will be able to trade beyond their 26th anniversary.
The Major Tanker Segments
Crude tankers are customarily divided into the following four market segments:
The chart below sets forth information concerning the number of vessels and deadweight capacity of each of these market segments. The information below for VLCCs includes Ultra Large Crude Carriers, or ULCCs, which have a cargo weight capacity of 320,000 dwt and above and the information for Aframaxes and Panamaxes include coated tankers which can transport refined products as well as crude oil.
Crude Oil Tanker Fleet as of March 31, 2001
| Number of Vessels | Deadweight Capacity | |||||||
---|---|---|---|---|---|---|---|---|---|
Segment | Total | Share (%) | Total (millions) | Share (%) | |||||
VLCCs | 443 | 29 | 129.3 | 54 | |||||
Suezmax | 266 | 18 | 38.9 | 16 | |||||
Aframax | 576 | 39 | 55.4 | 24 | |||||
Panamax | 217 | 14 | 14.4 | 6 | |||||
Total | 1,502 | 100 | 238.0 | 100 | |||||
Source: MSI Ltd
The VLCC Segment
VLCC Trade Routes. VLCCs are the largest segment of the crude carrying tanker fleet and constituted 54% of fleet capacity by dwt as of March 31, 2001. Because of their considerable size and economies of scale, VLCCs primarily transport crude oil on long-haul trade routes, such as from the Arabian Gulf to the Far East, from the Arabian Gulf to Rotterdam via the Cape of Good Hope and from the Arabian Gulf to the U.S. Gulf/Caribbean, with an average round-trip voyage of approximately 75 days. VLCCs carry approximately 80-85% of all crude oil exported from the Middle East. Enhanced by growing cargo volumes from the Middle East, longer average voyage hauls and diversification into new Atlantic and West African routes, VLCC employment expanded by 32% over the last decade compared to around 18% in the rest of the tanker market.
In addition, due to increased oil production and port developments in West Africa, VLCCs have been able to diversify into West African routes, both to the U.S. Gulf and on new eastbound routes to India and the People's Republic of China. These new routes have added to the flexibility of VLCC trading and have allowed operators to cut down on voyages without cargo. Significant new oil production planned for West Africa over the next decade coupled with the above-average oil demand growth expected in the Asia-Pacific region should support expansion of this long-haul trade.
VLCC Fleet Ownership. VLCC ownership is fragmented with some 108 different owners of the 443 vessels in the world VLCC fleet making the average number of vessels per owner only 4.1. The distribution of VLCC ownership is uneven. For example, as of March 31, 2001, the 20 largest owners owned 59% of the fleet. The remaining 88 owners owned an average of only 2.1 vessels per company.
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VLCC Fleet Profile. The chart below outlines the VLCC fleet by year built, including scheduled new deliveries as of March 31, 2001:
VLCC FLEET BY YEAR OF BUILDAND SCHEDULED DELIVERIES(AS OF MARCH 31, 2001)
As a result of the uneven pattern of deliveries over the last 20 to 25 years (as illustrated above), the VLCC fleet has an age profile heavily weighted (by dwt) toward single hull tankers now reaching the end of their economic lives. This effect of skewed age distribution on the growth in tonnage aged 20 or more years since the first half of the 1990s is illustrated in the chart below.
PERCENTAGE OF THE VLCC FLEET AGED 20 YEARS ORMORE AT YEAR END
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VLCC Scrapping. The key factors influencing the scrapping of VLCCs have been their age and the repair and maintenance costs of keeping them in class, relative to their earning power. Since approximately 130 of the currently active VLCCs (30% of the fleet by dwt) will pass their 25th and 30th anniversaries during the current decade (see chart below), scrapping is likely to be far higher than it was in the 1990s, even during stronger charter markets.
VLCCs AGED 25+ AND 30+ YEARSOVER THE NEXT 10 YEARS* BY DWT
Between 1992 and 2000 the average age of VLCCs scrapped rose from 19 to 25 years (see table below). Most of the 1970s-built fleet did not approach their 25th anniversary until the end of the decade. In addition, market conditions have generally favored continued trading of older vessels. As a result, 45 VLCCs are now trading beyond their 25th anniversary. Currently, IMO regulations do not permit VLCCs to continue trading after their 30th anniversary without a double hull and, under the recent modifications to the regulations, this deadline will drop progressively between 2003 and 2007 to their 26th anniversary. Given the considerable cost of retrofitting a second hull to a vessel of this size and age, it is highly likely that all these ships will have to be scrapped.
VLCCs Sold for Scrap: Number of Vessels, Average Age and Deadweight Tonnage
| 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of ships | 0 | 22 | 24 | 33 | 30 | 14 | 8 | 15 | 34 | 25 | ||||||||||
Average age (years) | 0 | 19 | 20 | 20 | 21 | 22 | 24 | 23 | 24 | 25 | ||||||||||
Dwt (in millions) | 0 | 5.4 | 6.0 | 8.7 | 7.6 | 3.6 | 2.0 | 4.2 | 9.9 | 7.1 |
Source: MSI Ltd
VLCC Newbuildings. Although actual deliveries will depend on whether shipyards alter their delivery schedules and changes to the volume of new orders placed, short-term additions to VLCC capacity may be inferred from the current orderbook schedule (see "VLCC Fleet by Year of Build and Scheduled New Deliveries" chart). In 2001, a further 7.5 million dwt is scheduled for delivery, in addition to the 1.8 million dwt already delivered.
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While the number of new fleet deliveries has accelerated since 1998, the overall net addition after accounting for scrappings has remained modest. The chart below displays the net new annual dwt deliveries. While 11.8 million dwt of new VLCC tankers was delivered in 2000, 9.7 million dwt was scrapped, resulting in a net addition of only 2.1 million dwt.
VLCC DELIVERIES AND DELETIONS BY YEAR
The following chart shows that relative to the volume of 20 year or older tonnage, the VLCC order book remains relatively modest. Prior to 1988, there were no VLCCs aged over 20 years and consequently no need to scrap ships because of their age. As a result, the new supply during that time period was not offset by the scrapping of such vessels. During the 1990s, the size of the fleet over 20 years of age was comparable to the size of the new orderbook. As a result, ship scrapping has offset most of the tonnage delivered since the mid-1990s (see "VLCC Deliveries and Deletions by Year" above).
VLCC ORDERBOOK AND 20 YEARS AND OLDER VLCC FLEET (END OF YEAR)
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Given the current backlog in the orderbook and lack of available building berths, any new VLCC orders would likely not be delivered until after January 1, 2004.
VLCC Earnings. VLCC freight rates can be highly volatile and vary substantially even on a day-to-day basis. While VLCC rates depend largely on the market fundamentals of VLCC supply and demand, other factors (including the cost of bunkers and port charges) also influence their level. Modern vessels typically earn more than older vessels due to fuel and other efficiencies. In addition, older vessels are prone to longer off-hire periods, which reduce their earnings capabilities.
At the end of last year VLCC spot and time charter rates touched 25 year highs and, although rates have subsequently come off these peaks, VLCC earnings remain at high levels. The chart on VLCC rates shows the substantial premium earned by modern double-hulled VLCCs on period time charter as compared to their 1970s built counterparts. This premium has increased in both absolute and proportional terms since the end of the 1990s.
VLCC ONE-YEAR TIME CHARTER RATES
The Aframax Segment
Aframax Trade Routes. As a result of their flexibility and size, Aframaxes are deployed in much more diverse trading patterns than the larger tankers and transport crude from virtually all the major crude exporting regions in both the Atlantic and Pacific. For example, Aframax crude carriers are typically deployed on short haul or distributive routes where there are draft or other size restrictions or where crude oil is produced in smaller quantities.
The principal intra-regional trading areas for Aframax crude carriers are Europe and the Mediterranean (including the Black Sea), the Atlantic Basin (including the Caribbean and North Sea) and the Asia Pacific region. But Aframaxes also transport crude on longer haul routes. They operate across the Atlantic Ocean, particularly westbound from Europe to North America.
There are major potential offshore developments planned for the current decade in the North Sea, in the deepwater Gulf of Mexico and off southwest Africa which should increase the demand for Aframaxes. Aframaxes are also likely to benefit from increased upstream activity in the Caspian
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Sea, particularly if crude oil is transported by pipeline to Black Sea or East Mediterranean terminals. In the Pacific Rim countries, rapid industrialization, combined with the large number of planned expansions of oil refining capacity, should also increase demand for Aframaxes, particularly in countries where there are port or other limitations on the use of larger vessels.
Aframax Fleet Ownership. Ownership of the Aframax fleet is even more fragmented than that of VLCCs. As of March 31, 2001, there were an estimated 167 owners, with an average of only 3.5 vessels per owner. The 20 largest companies owned approximately 45% of the total number of vessels while the top three owned approximately 15% (by both deadweight capacity and number of ships).
AFRAMAX FLEET BY YEAR OF BUILDAND SCHEDULED DELIVERIES(AS OF MARCH 31, 2001)
Aframax Fleet Profile. Aframax tankers account for the second largest share (after VLCCs) of the total crude tanker fleet by dwt. As of March 31, 2001, this share was 24% of the fleet including coated tankers which also trade in refined products.
The above chart outlines the Aframax fleet by year built, including scheduled deliveries. Aframaxes are the youngest segment of the worldwide tanker fleet. However, 27.8% of the fleet was built prior to 1982. This compares with a newbuilding orderbook which amounts to less than 20% of the fleet. Out of a total fleet capacity of 55.4 million dwt (as of March 31, 2001), approximately 50% was built in or after 1990 and only 17% was built in the 1970s.
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PERCENTAGE OF THE AFRAMAX FLEETAGED 20 YEARS OR MORE AT YEAR END
Aframax Scrapping. While there is substantially less single-hulled Aframax tonnage approaching the critical IMO deadlines compared to the VLCC segment, the percentage of the Aframax fleet aged 25 years or more has risen from 2.1% in 1995 to just under 9% currently. This tonnage will most probably all have to be scrapped over the next five years.
Aframax Newbuildings. Although the Aframax orderbook at the end of April 2001 was 10.65 million dwt, which is high by historical standards, as a percentage of the fleet aged 20 years or more, it amounts to only 83% (as compared to almost 99% in 1991).
AFRAMAX DELIVERIES AND DELETIONS BY YEAR
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AFRAMAX ORDERBOOK AND 20 YEARS AND OLDER AFRAMAX FLEET (END OF YEAR)
Aframax Earnings. Aframax earnings are highly volatile and vary substantially even on a day-to-day basis. While Aframax earnings depend largely on the supply-demand imbalance, other factors also affect earnings. Modern vessels typically earn more than older vessels due to fuel and other efficiencies. In addition, modern tonnage is generally preferred for time charters.
Average spot earnings for Aframaxes increased sharply from April last year and by December 2000 were at $50,300 per day compared to $16,300 per day in January. Having remained virtually static since 1994, time charter earnings similarly rose almost continuously in 2000. By the end of the year, they were more than double January's levels.
Overview
We are a major international tanker company engaged in providing oceangoing bulk shipping for our customers, which include many of the world's largest oil companies. Our fleet consists of 43 vessels with an aggregate carrying capacity of approximately 5.9 million dwt. Our international fleet of 33 vessels includes 11 VLCCs and 11 Aframaxes, with an additional four VLCCs and four Aframax vessels scheduled for delivery during the next 30 months. Our international VLCC and Aframax fleets, after taking into account our planned dispositions of two older Aframaxes during the next 12 months, have an average age of 5.3 years and 5.5 years, respectively, versus the current world fleet averages of 11.8 years and 11.5 years, respectively. Our international fleet also includes one Suezmax crude carrier, eight products carriers and two Capesize bulk carriers. After taking into account our newbuildings, over 93% of our international fleet in terms of aggregate carrying capacity will be protected by double hulls, double sides or double bottoms. In addition to our international fleet, our U.S. fleet of 10 vessels includes four crude carriers, three bulk carriers, two products carriers and one car carrier.
We operate most of our international fleet through two major commercial alliances, Tankers International (for VLCCs) and the Aframax Pool. We have improved the financial results of our vessels because we are able to achieve higher asset utilization as a result of the size and market presence of these pools. Our ships are chartered to major oil companies, government agencies and oil traders. Our customers include British Petroleum, Exxon Mobil and PDVSA (the Venezuelan state oil company). Net shipping revenues from carriage of crude oil and petroleum products represented approximately 86% of our net shipping revenues in each of 1999 and 2000.
Our revenues are derived principally from the chartering of our vessels. In most cases, we charter our vessels either for a specific voyage or voyages (a voyage charter) or for a specific period of time (a time charter). Time charters generally run from six months up to as long as multiple years, and can include options for further extensions. In 2000 and the first quarter of 2001, voyage charters constituted 76% and 80%, respectively, of our net shipping revenues. Accordingly, our net shipping revenues are significantly affected by prevailing voyage or spot market rates. Under the terms of voyage and time charters, our ships are operated and crewed by our personnel. From time to time wehereunder for investment purposes. The Paulson Accounts have also placed certain of our vessels on bareboat charters, typically for extended periods of time, under arrangements whereby operation, crewing and maintenance areadvised us that they purchased the responsibility of the charterer.
Our Competitive Strengths
We believe that we possess significant competitive advantages in the world tanker industry that permit us to maintain and improve our leadership position in the industry and to enhance the financial performance of our shipping assets. These advantages include:
Our international fleet of modern, high quality vessels. Our international fleet of VLCC and Aframax vessels is among the most modern fleets in the industry. In addition, we are completing a major newbuilding program. Having a modern fleet is a key competitive advantage for several reasons, including:
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Our participation in leading strategic alliances. We participate in strategic alliances with other leading tanker companies that consolidate the commercial management of multiple owners. Through our participation in these pools, which include Tankers International (which manages 48 modern VLCCs) and the Aframax Pool (which manages 21 vessels), we have been able to enhance the financial performance of our vessels through these pools' ability to (1) achieve higher asset utilization through combination voyages and scheduling and operating efficiencies and (2) reduce operating costs through joint purchasing of goods and services by pool participants.
Our strong financial profile. We have a strong financial profile and a low debt-to-capital ratio relative to most of our industry peers. As of March 31, 2001, our working capital was $126 million and we had availability under our unsecured credit facilities of $269 million. Our lower than industry average leverage allows us to take advantage of market opportunities, including selectively acquiring new vessels and making strategic acquisitions.
Our fully integrated technical and commercial operations. Our experienced in-house personnel are capable of providing all commercial and operating services to our fleet worldwide, including chartering, technical supervision and purchasing. We believe this capability permits us to better control our operations and costs.
Our long-established industry reputation and experienced management team. We have built a strong reputation for quality and service in the international tanker industry and have become recognized for excellence in service, quality of vessels and technical operations. We have an experienced senior management team, many of whom have been with us for over 20 years and, in the case of our chief executive officer, since we were founded. We believe that our extensive network of relationships in the tanker industry and our reputation and commitment to customer service will continue to benefit us and permit us to strengthen relationships with existing customers and establish relationships with new charterers.
Business Strategy
Our strategy is to employ our competitive strengths to enhance stockholder value and further our industry position as a leading provider of international tanker services. Our strategic initiatives include:
Continuingsecurities to be a preferred provider of VLCCsoffered and Aframaxes. We believe that major customers, when chartering VLCCs and Aframaxes, consider other factors, in addition to charter rates, including the reputation of the vessel owner. We believe that we have a reputation in the international tanker community for the highest standards for service, safety and reliability. As one of the first major shipowners to obtain certification of compliance with the International Standards Organization's ISO 9000 series of Quality Assurance Standards, we have directed our efforts towards safe and environmentally conscious vessel operations.
Enhancing vessel earningssold by deploying our vessels in strategic alliances. Through participation in Tankers International and the Aframax Pool, we enhance fleet utilization, generating increased vessel earnings. In addition, these alliances have helped us reduce our operating costs and offer charterers the efficiencies and capabilities inherent in a larger fleet of vessels. We plan to enter all of our VLCC and Aframax newbuildings and acquired vessels in Tankers International and the Aframax Pool.
Opportunistically growing VLCC and Aframax fleets through newbuildings, acquisitions and joint ventures. We utilize our commercial, financial and operating expertise to opportunistically acquire modern vessels and order newbuildings, either alone or through joint ventures. The VLCC and Aframax markets are highly fragmented with approximately 108 owners of VLCCs and 167 owners of Aframaxes. As of March 31, 2001, 61% of the VLCC owners owned fewer than three
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VLCCs and 77% of the Aframax owners owned fewer than three Aframaxes. Therefore, we believe that we have significant opportunity to expand our fleets and achieve greater economies of scale. We expect to take delivery of eight newbuildings over the next 30 months. These newbuildings represent a greater than 30% increase in the carrying capacity in each of our VLCC and Aframax fleets. In addition, we recently announced our intention to obtain a 33% interest in a joint venture formed to acquire four modern VLCCs.
Reducing overhead, operating and other costs. We intend to continue to reduce our cost structure so as to improve our financial results. Since 1998, we have implemented a major cost reduction program. This program has resulted in annualized overhead, operating and other cost reductions of approximately $40 million. We have recently identified other areas for cost reductions that we anticipate will result in further annualized savings of approximately $20 million beginning in 2002.
Our International Fleet
Our international fleet consists of 33 foreign flag vessels with an average age of 6.6 years aggregating over 5.2 million dwt, with an additional eight newbuildings on order aggregating nearly 1.7 million dwt. Our foreign flag fleet includes 11 VLCCs (plus four newbuildings on order), one Suezmax, 11 Aframaxes (plus four newbuildings on order), eight products carriers and two Capesize bulk carriers.
International Fleet Listing
The following table sets forth certain information with respect to our international fleet.
Vessel Name | Year Built | DWT | Hull Type | Charter Expiration | |||||
---|---|---|---|---|---|---|---|---|---|
VLCC Fleet | |||||||||
Overseas Donna (1) | 2000 | 304,722 | Double Hulled | Voyage Charter | |||||
Raphael (1) | 2000 | 304,608 | Double Hulled | Voyage Charter | |||||
Regal Unity (1) | 1997 | 305,072 | Double Hulled | Voyage Charter | |||||
Meridian Lion (2) | 1997 | 295,833 | Double Hulled | March 2005 | |||||
Equatorial Lion (2) | 1997 | 295,608 | Double Hulled | December 2004 | |||||
Sovereign Unity (1) | 1996 | 305,000 | Double Hulled | Voyage Charter | |||||
Majestic Unity (1) | 1996 | 295,805 | Double Hulled | Voyage Charter | |||||
Crown Unity (1) | 1996 | 295,738 | Double Hulled | Voyage Charter | |||||
Edinburgh (1)(3) | 1993 | 302,432 | Double Sided | Voyage Charter | |||||
Dundee (1)(3) | 1993 | 302,417 | Double Sided | Voyage Charter | |||||
Olympia | 1990 | 270,923 | Single Hulled | March 2002 | |||||
Hull 1320 (1) | 2001 | 303,825 | Double Hulled | N/A (Newbuilding) | |||||
Hull 1321 (1) | 2002 | 303,825 | Double Hulled | N/A (Newbuilding) | |||||
Hull 1372 (1) | 2002 | 313,963 | Double Hulled | N/A (Newbuilding) | |||||
Hull 1395 (1) | 2003 | 313,963 | Double Hulled | N/A (Newbuilding) | |||||
Total Dwt | 4,513,734 | ||||||||
Suezmax Fleet | |||||||||
Eclipse | 1989 | 145,170 | Single Hulled | June 2005 |
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Aframax Fleet | |||||||||
Overseas Josefa Camejo (4) | 2001 | 110,920 | Double Hulled | Voyage Charter | |||||
Overseas Shirley (4) | 2001 | 110,920 | Double Hulled | Voyage Charter | |||||
Ania (4) | 1994 | 93,350 | Double Hulled | Voyage Charter | |||||
Eliane (4) | 1994 | 93,316 | Double Hulled | Voyage Charter | |||||
Pacific Ruby (4) | 1994 | 94,837 | Double Hulled | Voyage Charter | |||||
Pacific Sapphire (4) | 1994 | 94,655 | Double Hulled | Voyage Charter | |||||
Beryl (4) | 1994 | 93,302 | Double Hulled | Voyage Charter | |||||
Rebecca (4) | 1994 | 93,375 | Double Hulled | Voyage Charter | |||||
Compass I (2)(4) | 1992 | 95,545 | Double Sided | Voyage Charter | |||||
Venus V (4)(5) | 1981 | 95,996 | Single Hulled | Voyage Charter | |||||
Vesta (4)(5) | 1980 | 96,060 | Single Hulled | Voyage Charter | |||||
Hull 1285 (4) | 2001 | 110,920 | Double Hulled | N/A (Newbuilding) | |||||
Hull 1286 (4) | 2002 | 110,920 | Double Hulled | N/A (Newbuilding) | |||||
Hull S163 (4) | 2003 | 110,920 | Double Hulled | N/A (Newbuilding) | |||||
Hull S164 (4) | 2004 | 110,920 | Double Hulled | N/A (Newbuilding) | |||||
Total Dwt | 1,515,956 | ||||||||
Products Carriers Fleet(50,000-70,000 dwt) | |||||||||
Diane | 1987 | 63,127 | Double Sided | Voyage Charter | |||||
Lucy | 1986 | 65,138 | Double Sided | Voyage Charter | |||||
Suzanne | 1986 | 65,158 | Double Sided | Voyage Charter | |||||
Mary Ann | 1986 | 63,224 | Double Sided | Voyage Charter | |||||
Total Dwt | 256,647 | ||||||||
Products Carriers Fleet(35,000-50,000 dwt) | |||||||||
Vega | 1989 | 39,084 | Double Sided | Voyage Charter | |||||
Delphina | 1989 | 39,047 | Double Sided | October 2001 | |||||
Neptune | 1989 | 39,452 | Double Sided | Voyage Charter | |||||
Uranus | 1988 | 39,452 | Double Sided | Voyage Charter | |||||
Total Dwt | 157,035 | ||||||||
Capesize Bulk Carrier Fleet | |||||||||
Matilde (6) | 1997 | 157,486 | N/A | Voyage Charter | |||||
Chrismir (6) | 1997 | 157,305 | N/A | Voyage Charter | |||||
Total Dwt | 314,791 | ||||||||
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International Fleet—Commercial Operation
We maintain an experienced chartering staff located at our New York headquarters responsible for the commercial management of our fleet. In coordination with our pool partner PDV Marina S.A., we are responsible for the day-to-day chartering of our Aframax vessels that participate in the Aframax Pool. We also provide day-to-day commercial management of our international flag products carriers. With respect to our VLCCs, which are entered in the Tankers International pool, daily chartering is delegated to the pool. However, our staff actively monitors the pool's chartering activity on a daily basis and consults with pool personnel on commercial strategies. Our New York headquarters houses the New York chartering office of Tankers International, and our Chairman is Chairman of Tankers International.
Tankers International. In December 1999, we and five other leading tanker companies formed Tankers International to pool the commercial operation of the participating companies' modern VLCC fleets. Tankers International, which began operations in February 2000, currently manages a fleet of 48 modern VLCCs (of which we contributed eight vessels, including two ships owned by a joint venture in which we have an approximately 50% interest). Tankers International's fleet constitutes 11% of the world VLCC fleet in aggregate carrying capacity. By the end of 2003, as the Tankers International participants take delivery of newbuildings and vessels are redeliveredthem from time charters, Tankers International's fleet is expected to exceed 60 vessels. Our four VLCC newbuildings are scheduled to enter the Tankers International pool upon delivery.
Tankers International arranges for the commercial chartering of its participants' vessels and collects the revenues from these charters. After deducting voyage expenses of charters and administrative and other costs and reserves, Tankers International distributes net revenues to its participants, using a formula that is based upon the relative carrying capacity, speed and fuel consumption of each of the participant's vessels contributed to Tankers International, but that is not based on the charter activity of a particular participant's vessels.
We believe that Tankers International has enabled us to achieve higher returns and increased utilization of our vessels through combination voyages and other efficiencies facilitated by the large number of vessels under common commercial management. As a result of higher demand for imported crude oil by China, India and other Asian countries, crude oil shipments from West Africa to the Far East increased in 2000, creating opportunities for triangular voyages and reducing the length of ballast (empty) legs. Tankers International charters its vessels primarily in the voyage or spot market but will opportunistically seek to increase its proportion of period charters, so as to reduce its reliance on the spot market.
By consolidating the commercial operation of its substantial VLCC fleet into a unified transportation system, Tankers International offers its customers "one stop shopping" for high quality modern VLCC tonnage. The size of the fleet enables Tankers International to become the logistics partner of major customers, providing new and improved tools to manage shipping programs, inventories and risk. We and the other participants seek to build upon our respective oil industry relationships to develop further strategic opportunities for the pool.
The Aframax Pool. Since 1996, OSG and PDV Marina, the marine transportation subsidiary of the Venezuelan state oil company, have pooled the commercial operation of their Aframax fleets. This pool currently operates 21 vessels in the Atlantic Basin. Our staff charters our Aframax fleet in close consultation and coordination with PDV Marina and meets frequently with Atlantic Basin charterers to develop contracts of affreightment business to complement our base load PDVSA cargoes. These contracts currently include commitments to carry Venezuelan crude oil to Europe and Canada. As a result, the Aframax Pool has enhanced vessel utilization, generating higher effective financial returns than are otherwise attainable in the spot market. We also meet periodically with major customers to review operating and performance data, to ensure that customer
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requirements are met and to develop additional business opportunities. Our four Aframax newbuildings are scheduled to enter this pool upon delivery, further increasing the pool's size and presence in the Atlantic Basin.
Products Carriers. We operate a diversified fleet of products carriers that is able to respond to the frequently changing patterns of the petroleum products trade, and we have extensive experience in both the Atlantic and Far East trades. Our fleet of four Bostonmax (39,000 dwt) carriers operating in the Atlantic Basin give our customers full access to all Boston-area terminals. Long active in the larger products carrier trade from the Arabian Gulf to the Far East, our four Panamax (65,000 dwt) tankers have adapted to changing trade patterns, carrying product from Korea to the U.S. West Coast as well as in the intra-Asian trades. Our breadth of experience enables us to service our customers in existing and emerging trades, while maintaining our high standards of quality and safety.
Dry Bulk Carriers. We own two modern Capesize (157,000 dwt) dry bulk carriers which are entered into a pool of such vessels managed by Bocimar N.V., a subsidiary of CMB N.V., a publicly held company based in Belgium. As of June 1, 2001, this pool had 33 vessels. Other participants in the pool include A.P. Moller and T. Klaveness Shipping AS. As part of the pool arrangement, we also participate in the results of several Capesize vessels chartered in by pool participants for varying periods, generally less than one year.
Joint Ventures. Over the years, we have entered into corporate joint ventures with oil companies and with other shipowners to acquire and employ tonnage. Beginning in the early 1970s, we established a joint venture with Amerada Hess for the construction of five VLCCs to meet their transportation requirements. This joint venture currently owns two modern VLCCs that we operate and which are on charter to Amerada Hess through 2005.
In March 2000, we formed a joint venture with two shipowners, Frontline Ltd. and Euronav Luxembourg S.A., in which we have a 30% interest that acquired a modern VLCC, and we entered into a 50-50 joint venture with a private U.S. based shipowner affording us control of a modern Aframax tanker. In February 2001, we formed a joint venture with Frontline in which we have an approximately 50% interest that acquired two modern VLCCs. We have entered these three VLCCs in the Tankers International pool and the Aframax in the Aframax Pool.
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Our U.S. Flag Fleet
We are the only major international tanker company that also has a significant presence in the U.S. flag oceangoing bulk shipping business. Our U.S. flag fleet consists of 10 vessels with an average age of 24.1 years aggregating almost 0.7 million dwt. The U.S. flag fleet includes four crude oil tankers, three bulk carriers, two products carriers and one car carrier.
U.S. Fleet Listing
The following table sets forth certain information with respect to our U.S. flag fleet.
Vessel Name | Year Built | DWT | Hull Type | Charter Expiration | |||||
---|---|---|---|---|---|---|---|---|---|
Crude Oil Tanker Fleet | |||||||||
Overseas Washington (1) | 1978 | 90,515 | Double Bottom | February 2006 | |||||
Overseas New York (1) | 1977 | 90,393 | Double Bottom | November 2005 | |||||
Overseas Chicago (1) | 1977 | 90,637 | Double Bottom | May 2005 | |||||
Overseas Boston (1)(2) | 1974 | 120,820 | Single Hulled | December 2003 | |||||
Total Dwt | 392,365 | ||||||||
Products Carrier Fleet | |||||||||
Overseas New Orleans (3) | 1983 | 42,954 | Double Bottom | January 2002 | |||||
Overseas Philadelphia (3) | 1982 | 42,702 | Double Bottom | October 2001 | |||||
Total Dwt | 85,656 | ||||||||
Bulk Carrier Fleet | |||||||||
Overseas Harriette (4) | 1978 | 25,541 | N/A | Voyage Charter | |||||
Overseas Marilyn (4) | 1978 | 25,541 | N/A | Voyage Charter | |||||
Overseas Juneau (5) | 1973 | 120,476 | N/A | Voyage Charter | |||||
Total Dwt | 171,558 | ||||||||
Car Carrier Fleet | |||||||||
Overseas Joyce | 1987 | 15,886 | N/A | August 2002 |
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U.S. Flag Fleet—Commercial Operation
Our U.S. flag fleet operates substantially in a separate market from the international tanker markets because shipping between U.S. coastal ports, including the movement of Alaskan oil, is reserved by law to U.S. flag vessels owned by U.S. citizens, crewed by U.S. citizens and built in the United States. Our shoreside staff has extensive experience in the operation of U.S. flag vessels and, in particular, those involved in Alaskan and coastwise trade. We believe that we have established a long-standing reputation among regulatory authorities and charterers as a leader in this area.
Alaska Tanker Company, LLC. Building on our 30-year relationship with BP p.l.c., in early 1999, we and BP, along with Keystone Shipping Company, formed Alaska Tanker Company, which is the leading provider of marine transportation services in the environmentally sensitive Alaskan crude oil trade. Alaska Tanker Company, which is owned 37.5% by us, 37.5% by Keystone and 25% by BP, currently manages the vessels carrying BP Alaskan crude oil, including four of our vessels. The formation of Alaska Tanker Company resulted in the conversion of our long-term time charters of five vessels to BP into bareboat charters to Alaska Tanker Company, with BP guarantees. During the fourth quarter of 2000, we sold one of these vessels for an after-tax gain of approximately $12.8 million. Each charter expires shortly before the date that the Oil Pollution Act of 1990 precludes such single-hulled tanker from calling on U.S. ports, with the last charter expiring in 2006. These four remaining bareboat charters will generate operating earnings averaging approximately $12 million per year for us through 2005. In 1999 we entered into an off-balance sheet securitization transaction under which we assigned all the earnings from these charters in exchange for proceeds of approximately $170 million. In addition, our participation in Alaska Tanker Company provides us with the ability to earn additional fee income based upon Alaska Tanker Company meeting certain predetermined performance standards.
Capital Construction Fund. To encourage private investment in U.S. flag ships, the Merchant Marine Act of 1970 permits deferral of taxes on earnings deposited into a Capital Construction Fund and amounts earned on the fund, which can be used for the construction or acquisition of, or retirement of debt on, qualified U.S. flag vessels, generally vessels built in the United States. These vessels then may not trade in the U.S. coastwise trade and may only engage in the U.S. foreign and noncontiguous domestic trades. We are a party to an agreement under the Merchant Marine Act governing the establishment of our Capital Construction Fund. The general objective of this agreement is to construct or acquire three vessels by the end of 2004. If the agreement is terminated or amounts are withdrawn from the Capital Construction Fund for non-qualified purposes, such amounts will then be subject to federal income taxes and penalty interest. Monies can remain tax-deferred in the fund for a maximum period of 25 years (commencing January 1, 1987 for deposits prior thereto). We had approximately $219 million in this Capital Construction Fund as of March 31, 2001. We have provided for deferred taxes on the fund deposits and earnings on these fund deposits, but we have not provided for the related interest.
Other U.S. Flag Operations. The Merchant Marine Act of 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. We have two geared dry bulk carriers and one older tanker (which is no longer eligible to carry oil under the Oil Pollution Act of 1990) engaged in the U.S. Department of Agriculture grain export program. Since late 1996, our U.S. flag car carrier, which is under long-term charter, has participated in the U.S. Maritime Security Program, which ensures that militarily useful U.S. flag ships are available to the Department of Defense in the event of war or national emergency. Under this program, we expect to receive approximately $2.1 million per year through 2005, subject to annual Congressional appropriations.
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Ship Management, Crewing and Employees
We maintain a shoreside staff and on-board crew of experienced operating personnel capable of providing all key technical and operating functions for our fleet. Our shoreside staff provides technical supervision, safety monitoring, purchasing, insurance and crewing services to our fleet worldwide. Our shoreside staff also supervises newbuilding construction and drydocking and provides financial, accounting and information technology services for our fleet. In addition, our crews regularly inspect each vessel (both at sea and in port) and perform most of the necessary ordinary course maintenance. Our shoreside staff inspects each vessel typically twice a year, making specific notations and recommendations regarding the overall condition of the vessel, maintenance, safety and crew welfare. In addition, approximately 10% of our fleet is inspected annually by independent consultants. Some of the vessels owned by our joint ventures, the Suezmax tanker and the U.S. flag crude carriers that are on bareboat charters are managed and operated by the joint ventures or by the charterer, as the case may be.
As of June 1, 2001, we employed approximately 1,560 employees, consisting of 210 shoreside staff and a sea staff of 1,350 for the crewing of our vessels. Our shoreside personnel are principally located at our U.S. headquarters in New York and in Newcastle, U.K. As part of our cost reduction program, we are shifting ship management and administrative functions associated with our international fleet from New York to Newcastle, which we expect to complete by the end of 2001.
Many of our sea staff are long-time employees and have received extensive training to support their functions. We support various cadet-training programs worldwide in order to ensure a continuing source of competent personnel to crew our vessels. All seagoing personnel serving on our international fleet are employed by the relevant shipowning subsidiary through manning agencies and work exclusively for us.
We have collective bargaining agreements in place with three different maritime unions, covering certain of the seagoing personnel employed by our U.S. flag vessels. One of these agreements expires on June 15, 2001 and the parties have agreed in principle to extend the agreement to June 15, 2006 subject to, among other things, ratification of the agreement by the union membership. The other collective bargaining agreements expire on June 15, 2002 and June 15, 2005. Under all three of these agreements, we are obligated to make contributions to pension and other welfare programs. There is no unfunded pension liability under any of these agreements. We believe that our relations with our employees are satisfactory.
Customers
Our customers include major oil companies, major oil traders, large oil consumers and petroleum product producers, government agencies and various other entities dependent upon the VLCC and Aframax tanker market and the products carriers market. While we have a diverse customer base, BP and its affiliates accounted for approximately 9.7% of our total operating revenues for the year ended December 31, 2000, and PDVSA and Petrocanada each accounted for approximately 7.5% of our total operating revenues for the year ended December 31, 2000.
Classification, Inspection and Certification
In accordance with standard industry practice, all of our vessels have been certified as being "in class" by their respective classification societies: principally American Bureau of Shipping and Lloyd's Register. Most insurance underwriters require an "in class" certification by a classification society before they will extend coverage to a vessel. The classification society certifies that the vessel has been built and maintained in accordance with the rules of such society and complies with applicable rules and regulations of the country of registry of the vessel and the international conventions of which that country is a member. Inspections are conducted on the vessel by a surveyor of the classification society in three surveys of varying frequency and thoroughness:
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annual surveys each year, an intermediate survey every two to three years and a special survey every four to five years. As part of an intermediate survey, vessels may be required to be drydocked every 24 to 30 months for inspection of the underwater parts of the vessel and for any necessary repair work related to such inspection.
Our vessels and shoreside operations are also inspected periodically by major oil companies, in some cases as a precondition to chartering our vessels. We maintain all necessary approvals required for our vessels to operate in their normal trades. We believe that the high quality of our modern tonnage, our crews and shoreside staff are an advantage when competing against other major shipowners for long-term business.
ISO 9002 and ISM Code. We were among the first major shipowners to obtain certification of compliance with the International Standards Organization's ISO 9000 series of Quality Assurance Standards.
Under the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention promulgated by the IMO, vessel operators are required to develop an extensive safety management system for each of the vessels over which they have operational control. The system includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The ISM Code requires a certificate of compliance to be obtained both for the vessel manager and for each vessel that it operates. We have obtained such certificates for our shoreside offices and for all of the vessels that we manage.
Risk of Loss and Liability Insurance
General. The operation of cargo vessels includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of any vessel trading in the U.S. economic exclusion zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the U.S. market. While we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance. We have obtained marine hull and machinery and war risk insurance, which includes the risk of actual or constructive total loss, for all of our vessels. The vessels are each covered up to at least fair market value, with deductibles ranging from $100,000 to $185,000 per vessel per incident.
Loss of Hire Insurance. We currently maintain loss of hire insurance to cover loss of charter income resulting from accidents or breakdowns of our owned vessels that are covered under the vessels' hull and machinery insurance. Although loss of hire insurance covers up to 120 days lost charter income, we have to bear the first 27 days loss.
Protection and Indemnity Insurance. Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which covers our third party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil and other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs."
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Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The thirteen P&I Associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each P&I Association has capped its exposure to each of its members at approximately $4.25 billion. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on its claim records as well as the claim records of all other members of the individual associations, and members of the pool of P&I Associations comprising the International Group.
Competition
The bulk shipping industry is highly competitive and fragmented, with no one shipping group owning or controlling as much as 6% of the world tanker fleet. We compete with other owners of U.S. and foreign flag tankers and dry cargo ships operating on an unscheduled basis similar to us.
In the spot and short-term charter market, our vessels compete with all other vessels of a size and type required by a charterer that can be available at the date specified. In the spot market, competition is based primarily on price, although charterers have become more selective with respect to the quality of vessels they hire, with particular emphasis on such factors as age, double hulls, and the reliability and quality of operations. Increasingly, major charterers are demonstrating a preference for modern vessels based on concerns about the environmental risks associated with older vessels. Consequently, owners of large modern fleets have been able to gain a competitive advantage over owners of older fleets.
In both the VLCC and Aframax sectors, we compete against a large number of companies that own or operate vessels in these segments. Competitors include other independent shipowners, oil companies and state-owned entities with fleets ranging from one to more than 50 vessels in a particular segment. While some companies operate worldwide, others focus on one or more geographical areas such as the Pacific, the Mediterranean or the Caribbean. In the VLCC sector, we have more than 100 competitors. As of March 31, 2001, our competitors with the largest VLCC carrying capacity include World-Wide Shipping Agency (S) Pte. Ltd. (25 ships, 7.1 million dwt), Mitsui OSK Lines Ltd. (23 ships, 6.2 million dwt), VELA International Marine Ltd., the shipping arm of the Saudi Arabian oil company (21 ships, 6.6 million dwt), Nippon Yusen Kabushiki Kaisha (22 ships, 5.9 million dwt) and Bergesen d.y. ASA (20 ships, 6.2 million dwt). More than 160 individual companies operate Aframax tankers. As of March 31, 2001, our key competitors in this segment include Teekay Shipping Corporation (54 ships, 5.4 million dwt), Neptune Orient Lines Ltd. (21 ships, 2.1 million dwt), Tanker Pacific Management (Singapore) Pte. Ltd. (12 ships, 1.2 million dwt) and General Maritime Corp. (13 ships, 1.2 million dwt). Our Aframax pool, with 21 vessels aggregating approximately 2.0 million dwt, is one of the largest Aframax fleets operating in the Atlantic Basin.
In chartering vessels in the U.S. cabotage trade, we compete primarily with other owners of U.S. flag vessels. Demand for U.S. flag products carriers is closely linked to changes in regional energy demands and in refinery activity. These vessels also compete with pipelines and oceangoing barges and are affected by the level of imports on foreign flag products carriers.
Prevailing rates for charters of particular types of ships are subject to fluctuations depending on conditions in United States and international bulk shipping markets and other factors. Although medium-term and long-term charter business avoids, to some extent, the sharp rate fluctuations characteristic of the spot or voyage markets, the availability of such business in international markets at attractive rates of return has been limited in recent years.
Legal Proceedings
We are a party, as plaintiff or defendant, to various suitshereunder in the ordinary course of business, and that at the time they purchased such securities, they had no agreements, understandings or arrangements, directly or indirectly, with the Company or any other person to dispose of or distribute the securities.
The following descriptions are summaries of the material terms of our capital stock, certificate of incorporation and by-laws, each as amended and restated, and any references to Delaware law are not meant to be complete and are subject to, and qualified in their entirety by, reference to our amended and restated certificate of incorporation (“Amended and Restated Certificate of Incorporation”), a copy of which has been filed as an exhibit to our Quarterly Report on Form 10-Q for monetary relief arising principally from personal injuries, collision or other casualtythe quarter ended June 30, 2016 and is incorporated by reference into the registration statement of which this prospectus forms a part, our amended and restated by-laws (“Amended and Restated By-Laws”), a copy of which has been filed as an exhibit to our Current Report on Form 8-K dated August 8, 2014 and is incorporated by reference into the registration statement of which this prospectus forms a part, and to claims arising under charter parties. All such personal injury, collisionthe DGCL. See “Where You Can Find More Information.” Thesedescriptions may not contain all of the information that may be important to you and casualty claims against usshould be read in conjunction with our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and applicable provisions of the DGCL.
Authorized Capitalization
Our authorized capital stock consists of (a) 167,987,800 authorized shares of common stock, consisting of 166,666,666 authorized shares of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and 1,321,134 authorized shares of Class B Common Stock, par value $0.01 per share (the “Class B Common Stock” and, together with the Class A Common Stock, the “common stock”), and (b) 60,000,000 shares of preferred stock, par value $0.01 per share (the “preferred stock”).
On May 27, 2016, pursuant to Article 4.A.5 of the Company’s Amended and Restated Certificate of Incorporation and Section 4.04(b) of the Class B warrant agreement, each outstanding share of Class B Common Stock was automatically converted into one share of Class A Common Stock and each outstanding Class B Warrant was automatically converted into one Class A Warrant.
On June 13, 2016, the Company effected a one (1) for six (6) reverse stock split of its Class A Common Stock and Class B Common Stock and a corresponding reduction of the number of authorized shares of Class A Common Stock and Class B Common Stock (the “Reverse Split”). In connection with the Reverse Split, the Class A Warrants were automatically adjusted so that exercising holders are fully covered by insurance (subjectentitled to deductibles not material in amount).
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Executive Officers and Directorsreceive, upon exercise, 0.190 shares of Class A Common Stock per Class A Warrant.
The following table sets forth information concerning the individuals who serve as our executive officers
As of August 8, 2016, there were 70,102,399 shares of Class A Common Stock outstanding and directors:no shares of Class B Common Stock or preferred stock outstanding. As of August 8, 2016, there were also 113,375,794 Class A Warrants (exercisable for 21,541,401 shares of Class A Common Stock) outstanding.
The term
Common Stock
As of officeAugust 8, 2016, there were approximately 216 holders of each executive officer continues until the first meetingrecord of our BoardClass A Common Stock and no holders of Directors immediately following the next annual meetingrecord of our stockholders, and until the election and qualificationClass B Common Stock, which excludes holders whose shares were held in nominee or street name by brokers. The actual number of his successor. Thereholders is no family relationship between any of the executive officers; however, Ariel Recanati is a first cousin of Oudi Recanati, one of our directors, and Oudi Recanati is a nephew of Ran Hettena, one of our directors.
Morton P. Hyman has been our Chairman of the Board since September 2000 and has served as one of our directors since 1969. Mr. Hyman has been our President and Chief Executive Officer since 1971.
Robert N. Cowen assumed the title of Chief Operating Officer in 1999, and has been our Senior Vice President since 1993 and our Secretary since 1982. Mr. Cowen has been one of our directors since 1993.
Myles R. Itkin has been our Senior Vice President, Chief Financial Officer and Treasurer since 1995.
Robert E. Johnston has been our Chief Commercial Officer since 1999 and Senior Vice President since 1998. In addition, Mr. Johnston has served as an officer and director of certain of our subsidiaries during the past five years; he also served for moregreater than the five years endednumber of record holders, and includes holders who are beneficial owners, but whose shares are held in 1998 as a senior officerstreet name by brokers and other nominees. This number of Maritime Overseas Corporation, the corporation that managed the fleet from our inceptionholders of record also does not include holders whose shares may be held in 1969 to 1998.trust by other entities.
Ariel Recanati has served as our Chief Strategic and Planning Officer since June 1999 and our Senior Vice President since 1998. Mr. Recanati has also served as one of our directors since October 1999 and as an officer and director of certain of our subsidiaries during the past five years;
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he served as a senior officer of Maritime Overseas Corporation for more than the five years ended in 1998.
Peter J. Swift has been our Senior Vice President and Head of Shipping Operations since June 1999 and was our Vice President from October 1998 until June 1999. Mr. Swift has served as an officer and director of certain of our subsidiaries since October 1998; he also served as an officer of Maritime Overseas Corporation and one of its subsidiaries for more than the five years ended in 1998.
Oudi Recanati has been one of our directors since 1996. Mr. Recanati has served as Chairman of Discount Bank and Trust Company since 1999. Until April 1, 2001, Mr. Recanati was Co-Chairman from 1999, and Co-Chief Executive from 1996, of IDB Holding Corporation Ltd., engaged in investment and finance; he was Chairman of Discount Investment Corporation Ltd., engaged in investment, from 1997 through May 2001, and he was Chairman of the Board of Y.L.R. Capital Markets Ltd., engaged in investment banking, for more than five years prior to 1998. Mr. Recanati is currently a director of IDB Holding Corporation Ltd. and several of its subsidiaries.
Alan R. Batkin has been one of our directors since 1999. Mr. Batkin has been Vice Chairman of Kissinger Associates, Inc., a geopolitical consulting firm, for at least the past five years. Mr. Batkin is currently a director of Diamond Offshore Drilling, Inc., Hasbro, Inc., and Schweitzer-Mauduit International, Inc.
Charles Fribourg has been one of our directors since 2000. Mr. Fribourg has been Directeur General of Finagrain S.A., an agribusiness investment holding company and a subsidiary of the ContiGroup Companies, Inc., since 1999. From 1994 to 1999, Mr. Fribourg was Senior Vice President and General Manager of the South American Division of Continental Grain Company (now known as ContiGroup Companies, Inc.).
William L. Frost has been one of our directors since 1989. Mr. Frost has been President of the Lucius N. Littauer Foundation for at least the past five years.
Ran Hettena has been one of our directors since 1969 and our senior consultant since 1998. Mr. Hettena was President of Maritime Overseas Corporation for more than 24 years prior to 1998.
Stanley Komaroff has been one of our directors since 1993. Mr. Komaroff is a Senior Partner in the law firm of Proskauer Rose LLP, our outside counsel.
Solomon N. Merkin has been one of our directors since 1989. Mr. Merkin has been Vice President of Leib Merkin, Inc., a private investment company, for at least the past five years.
Joel I. Picket has been one of our directors since 1989. Mr. Picket has been Chairman of the Board and Chief Executive Officer of Gotham Organization Inc., a real estate construction and development company, since 1999 and was President of Gotham for more than five years prior to 1999.
Michael J. Zimmerman has been one of our directors since 2000. Mr. Zimmerman has been Executive Vice President and Chief Financial Officer of ContiGroup Companies, Inc., a diversified agribusiness and finance company, since 1999. From 1996 to 1999, Mr. Zimmerman was Senior Vice President-Investment and Strategy of Continental Grain Company.
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The following table sets forth information regarding the beneficial ownershipholders of our common stock are entitled to such dividends as our board of June 1, 2001, after giving effectdirectors may declare from time to the distributions of common stock to certain selling stockholders, as described in note (c), and assuming the Underwriters' over-allotment option is not exercised for each of our selling stockholders. The shares of common stock subject to the Underwriters' over-allotment option will be provided by the selling stockholders in proportion totime from legally available funds, based on the number of shares of common stock theythen held of record by such holder, subject to the preferential rights of the holders of any shares of preferred stock that we may issue in the future. The holders of our common stock are selling, exceptentitled to one vote per share.
Our Amended and Restated Certificate of Incorporation does not provide for cumulative voting in the election of directors, which means that the over-allotment option with respect toholders of a majority of the outstanding shares of common stock can elect all of the directors standing for election, and the holders of the remaining shares are not able to be sold by (i) Diane Recanati, as trustee for the benefit of Diane Recanatielect any directors. Our Amended and her descendants,Restated By-Laws provide that directors will be providedelected by Oudi Recanati, (ii) York Shipping Corporation will be provideda majority of the shares voting once a quorum is present.
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of our common stock are entitled to share, on a pro rata bybasis, all assets remaining after payment to creditors and subject to prior distribution rights of any shares of preferred stock that we may issue in the other selling stockholders identified in note (b) other than Diane Recanati, as trustee, and (iii)future. All of the 27 selling stockholders listed in note (k) will be provided by the Estate of Hermann Merkin, which owns 92,196outstanding shares of common stock are fully paid and which should be considered a selling stockholder for this purpose.
Name of Beneficial Owner | Shares Beneficially Owned(a) | Percentage of Shares Outstanding | Number of Shares Offered in this Offering | Shares Beneficially Owned After the Offering | Percentage of Shares Outstanding After the Offering | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Oudi Recanati(b) | 6,101,852 | (c)(d) | 17.8 | % | 77,328 | 2,909,465 | 8.5 | % | |||
Ariel Recanati(b) | 4,475,409 | (e) | 13.1 | 394,474 | 2,393,259 | 7.0 | |||||
Diane Recanati, as Trustee for the benefit of Diane Recanati and her descendants(b) | 4,368,049 | (c)(f) | 12.8 | 711,620 | 2,285,899 | 6.7 | |||||
Leon Recanati(b) | 6,094,852 | (g) | 17.8 | 394,474 | 2,902,465 | 8.5 | |||||
Yudith Yovel Recanati(b) | 5,070,032 | (h) | 14.8 | 394,474 | 2,286,079 | 6.7 | |||||
Discount Bank and Trust Company(b) | 1,025,000 | 3.0 | 408,434 | 616,566 | 1.8 | ||||||
York Shipping Corporation(b) | 701,803 | 2.1 | 701,803 | — | — | ||||||
Recanati Foundation(b) | 250,000 | * | 109,780 | 140,220 | * | ||||||
Fribourg Grandchildren Family L.P. | 2,823,241 | (i) | 8.3 | 1,200,000 | 1,623,241 | 4.7 | |||||
Charles Fribourg | 147,744 | (j) | * | 50,000 | 97,744 | * | |||||
Harmony Investors, LLC(k) | 155,115 | (c) | * | 155,115 | (c) | — | |||||
Daphne Miriam Merkin(k) | 16,175 | (c) | * | 16,175 | (c) | — | |||||
Dinah Merkin Mendes(k) | 21,152 | (c) | * | 21,152 | (c) | — | |||||
Deborah Merkin Gerber(k) | 17,184 | (c) | * | 17,184 | (c) | — | |||||
Solomon Nehemiah Merkin(k) | 24,298 | (c) | * | 24,298 | (c) | — | |||||
Jacob Ezra Merkin(k) | 25,543 | (c) | * | 25,543 | (c) | — | |||||
David Elisha Merkin(k) | 25,543 | (c) | * | 25,543 | (c) | — | |||||
Solomon Nehemiah Merkin and Deborah Merkin Gerber, as Co-trustees under 20 separate trusts(k) | 272,603 | (c) | * | 272,603 | (c) | — |
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General
The following statements with respect to our capital stock are subject to, and may be impacted by, the detailed provisionsrights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Under our Amended and Restated Certificate of Incorporation, our board of directors, without further action by our stockholders, is authorized to issue shares of preferred stock with such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions as amended, and By-Laws, as amended. These statements dothe board of directors shall specify in the resolution or resolutions providing for the issue of such preferred stock, provided that the board of directors may not purportissue any preferred stock for any defensive or anti-takeover purpose, for the purpose of implementing any shareholders rights plan or with features specifically intended to be complete, or to give full effect to the provisions of statutory or common law, and are subject to, and are qualified to their entirety by reference to, the termsmake any attempted acquisition of the CertificateCompany more difficult or costly, without the affirmative vote of Incorporationat least a majority of the total voting power of the outstanding shares of our capital stock entitled to vote on such matter, voting as a class. Notwithstanding the foregoing, the preferred stock could have voting or conversion rights that could adversely affect the voting power or other rights of holders of our common stock and the By-Laws.
Common Stock
The Certificate of Incorporation authorizes the issuance of preferred stock could also have the effect, under certain circumstances, of delaying, deferring or preventing a totalchange of 60,000,000control of us. We currently have no plans to issue any shares of commonpreferred stock. At June 1, 2001, 34,221,914 shares of common stock were outstanding. Stock certificates for our common stock are issuable in two series, designated respectively Domestic Share Certificates and Foreign Share Certificates. Except as stated below under "Qualifications
Qualification for Ownership and Transfer of Shares" the rights of the holders of Domestic Share Certificates and Foreign Share Certificates are identical in all respects.
Qualifications for Ownership and Transfer of Shares. Our By-Laws provide that the outstanding shares must at all times be owned by citizens of the United States to such extent as will in the judgment of the Board of Directors reasonably assure the preservation
Certain of our status as a U.S. citizen within the provisions of the Shipping Act of 1916 and related laws, rules and regulations applicable to the business beingFlag operations are conducted by us. Since some of our vessels are engaged in the U.S. coastwise trade and are governed by the ShippingU.S. federal law commonly known as the “Jones Act, requires that at least 75%” specifically, 46 U.S.C. Sections 12103 and 50501. The Jones Act restricts waterborne transportation of goods and passengers between points in the United States to vessels owned and controlled by “U.S. Citizens” as specifically defined therein (as so defined, “U.S. Citizens”). We could lose the privilege of owning and operating vessels in the Jones Act trade if non-U.S. Citizens were to own or control, in the aggregate, more than 25% of the equity interests in the Company. Our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws authorizes our board of directors to establish with respect to any class or series of capital stock of the Company certain rules, policies and procedures, including procedures with respect to transfer of shares, be owned by U.S. citizens, as defined byto ensure compliance with the ShippingJones Act. In order to provide a reasonable margin for compliance with the BoardJones Act, our board of Directorsdirectors has determined that until further action by the Board of Directors,board, at least 77% of the outstanding shares of each class of capital stock of the Company must be owned by persons who are citizensU.S. Citizens (as defined in the Jones Act). At and during such time that the limit is reached with respect to shares of Class A Common Stock or Class B Common Stock, as applicable, we will be unable to issue any further shares of such class of common stock or approve transfers of such class of common stock to non-U.S. Citizens. Any purported transfer of equity interests in the Company in violation of these ownership provisions will be ineffective to transfer the equity interests or any voting, dividend or other rights associated with them.
Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation, Our Amended and Restated By-Laws and Delaware Law
Our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws contain a number of provisions relating to corporate governance and to the rights of stockholders. Certain of these provisions may be deemed to have a potential “anti-takeover” effect in that such provisions may delay, defer or prevent a change of control or an unsolicited acquisition proposal that a stockholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by the stockholders. Examples of such provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws relating to corporate governance and the rights of stockholders, certain of which may be deemed to have a potential “anti-takeover” effect include:
Authorized but Unissued or Undesignated Capital Stock. Our authorized capital stock consists of 167,987,800 authorized shares of common stock (consisting of 166,666,666 authorized shares of Class A Common Stock and 1,321,134 authorized shares of Class B Common Stock) and 60,000,000 shares of preferred stock. A large quantity of authorized but unissued shares may deter potential takeover attempts because of the United States.
Shares ownedability of recordour board of directors to authorize the issuance of some or beneficially by foreign citizens are evidenced by Foreign Share Certificates and are freely transferable bothall of these shares to U.S. and foreign citizens. Shares owneda friendly party, or to the public, which would make it more difficult for a potential acquirer to obtain control of record and beneficially by U.S. citizens are evidenced by Domestic Shares Certificates andus. This possibility may encourage persons seeking to acquire control of us to negotiate first with our board of directors. The authorized but unissued stock may be transferredissued by the board of directors in one or more transactions. In this regard, our Amended and Restated Certificate of Incorporation grants the board of directors broad power to U.S. citizensestablish the rights and preferences of authorized and unissued preferred stock. Although our Amended and Restated Certificate of Incorporation prohibits the board of directors, without the affirmative vote of at any time. Such shares may be transferred to foreign citizens only if at the time the certificate is presented to our transfer agent, the transfer will not reduce shareholdings of the U.S. citizens below the then permissible percentageleast a majority of the total outstanding shares, as determined by the Board of Directors. Any purported transfer to foreign citizens of shares or of a beneficial interest in shares evidenced by Domestic Share Certificates in violation of this limitation will be ineffective for all purposes (including transfer of voting rights), the shares will not be transferred on our books and we may regard the share certificate, whether or not validly issued, as having been invalidly issued. Subject to the above limitation, upon surrender of any share certificate for transfer, the transferee will receive Domestic Share Certificates or Foreign Share Certificates, as the case may be, for shares of the series appropriate to such person.
In the case of transferees that are corporations, partnerships, associations or trusts, the transferee will be deemed a citizen of the United States if the following conditions are satisfied:
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As of June 1, 2001, according to the records of the transfer agent, approximately 83.6% of our outstanding shares were represented by Domestic Share Certificates. It is anticipated thatof capital stock entitled to vote on such matters, voting as a class, from issuing any preferred stock for any defensive or anti-takeover purpose, for the salepurpose of implementing any shareholder rights plan or with features specifically intended to make any attempted acquisition of the Corporation more difficult or costly, the issuance of shares of preferred stock pursuant to the board of directors’ authority described above could decrease the amount of earnings and assets available for distribution to holders of common stock assuming all these shares are sold to U.S. citizens, willand adversely affect the rights and powers, including voting rights, of such holders and may have the effect of increasingdelaying, deferring or preventing a change of control. The board of directors does not currently intend to seek stockholder approval prior to any issuance of preferred stock, unless otherwise required by law or our Amended and Restated Certificate of Incorporation.
Action by Written Consent.Our Amended and Restated By-Laws provide that stockholder action can be taken by written consent in lieu of a meeting.
Special Meetings of Stockholders.Our Amended and Restated By-Laws provide that special meetings of our stockholders may be called only by the percentagePresident or any Vice President, by resolution of the board of directors or by holders of not less than 25% of all outstanding shares represented by Domestic Share Certificatesentitled to approximately 90.9%.
Shares represented by both Domestic Share Certificates and Foreign Share Certificates are tradedvote on the New York Stock Exchangematter for which the meeting is called. Our Amended and Restated By-Laws prohibit the conduct of any business at a special meeting other than as specified in the same price. Should the percentage of foreign ownership more closely approach the permitted maximum, the New York Stock Exchange may institute trading on a dual basis, depending on the circumstances at the time.notice for such meeting.
Transfer
Advance Notice Procedures. The Board of Directors is authorized to Our Amended and Restated By-Laws establish advance notice procedures with respect to stockholder proposals and the transfernomination of shares to enforcecandidates for election as directors, other than nominations made by or at the limitations referred to above. Procedures established by the Board of Directors require that, in connection with each transfer of shares, the transferee complete and file with our transfer agent an application for transferdirection of the shares. The application callsboard of directors. In order for information aboutany matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 60 days nor more than 90 days prior to the transferee's citizenship status and the citizenship status of any person who may have a beneficial interest in the shares being acquired by the transferee. The application for transfer must also be completed by each person who purchases shares from anyfirst anniversary of the Underwriters.date of the immediately preceding annual meeting. Our Amended and Restated By-Laws also specify requirements as to the form and content of a stockholder’s notice. These provisions may defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of us.
Voting Rights. Each holder
Super Majority Approval Requirements. Our Amended and Restated By-Laws provide that our board of commondirectors, at any regular meeting or special meeting called for the purpose, and our stockholders, at any annual meeting or special meeting called for the purpose, may make, alter, amend or repeal our Amended and Restated By-Laws. However, our board of directors may not, without the affirmative vote of a majority of the outstanding stock is entitled to one vote for each share registered inon such holder's name inmatters, alter, amend or repeal certain provisions of our books on all matters submittedAmended and Restated By-Laws, including those relating to astockholder meeting quorum requirements, majority election of directors, advanced notice procedures, special meetings of our board of directors, committees of the board of directors and amendments to the Amended and Restated By-Laws. Further, our board of directors may not, without the affirmative vote of stockholders. Except as otherwise provided by law, the holders of common stock do not have cumulative voting rights. As a result,two-thirds or more of the holders of commonoutstanding stock entitled to exercise more than 50%vote on such matters, alter, amend or repeal certain other provisions of our Amended and Restated By-Laws, including those relating to the calling of special meetings by stockholders and stockholder action by written consent.
The DGCL provides generally that the affirmative vote of a majority of the voting rights in an election of directors can elect 100% of the directors to be elected if they choose to do so. In that event, the holders of the remaining common stock voting for the election of directors will not be able to elect any persons to the Board of Directors.
Dividend Rights. Holders of common stock areoutstanding shares then entitled to such dividends asvote is required to amend a corporation’s certificate of incorporation, unless the Boardcertificate of Directors may declareincorporation requires a greater percentage. Our Amended and Restated Certificate of Incorporation provides that specified provisions, including those relating to amendment of our Amended and Restated Certificate of Incorporation, actions by written consent of stockholders and our opt out of funds legally available for a dividend. Our debt agreements contain restrictions on certain payments including dividends and purchases of common stock. As of March 31, 2001, these restricted payments were limited to approximately $91 million.
Delaware General Corporation Law Section 203
As a corporation organized under the laws of the State of Delaware, we are subject to Section 203 of the Delaware General Corporation Law,DGCL, may only be amended or repealed by the affirmative vote of two-thirds or more of the combined voting power of the outstanding shares of our capital stock.
The combination of these provisions may make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Because our board of directors has the power to retain or discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management.
Business Combinations with Interested Stockholders
Section 203 of the DGCL which restricts certain business combinations between usa Delaware corporation and an "interested stockholder"“interested stockholder” (in general, a stockholder owning 15% or more of ourthe corporation’s outstanding voting stock) or itsthe interested stockholders’ affiliates or associates for a period of
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three years following the date on which the stockholder becomes an "interested“interested stockholder." The restrictions do” Pursuant to our Amended and Restated Certificate of Incorporation, however, we have opted out of Section 203 of the DGCL, and therefore are not apply if:
Exclusive Forum
Our Amended and Restated By-Laws provides that unless we consent in writing to the selection of an interested stockholder becomingalternate forum, the State and Federal court located in the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees, (iii) any action asserting a claim against us arising pursuant to the DGCL or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine, in all cases subject to the court having personal jurisdiction over the parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in our shares of common stock shall be deemed to have notice of and consented to the forum provisions in our Amended and Restated By-Laws.
Dissenters’ Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation of us. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the Boardright to receive payment of Directors approves either the business combination orfair value of their shares as determined by the transactionDelaware Court of Chancery.
Stockholders’ Derivative Actions
Under the DGCL, any of our stockholders may bring an action in whichour name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder becomes an interested stockholder;
Limitations on Liability and Indemnification of Officers and Directors
Our Amended and Restated Certificate of Incorporation limits the liability of our directors to the fullest extent permitted by the DGCL and requires that we will provide them with customary indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
DESCRIPTION OF THE CLASS A WARRANTS
The following description is a summary of the material terms of our Class A Warrants and is subject to, and qualified in its entirety by, reference to the warrant agreement relating to the Class A Warrants and the form of warrant certificate for the Class A Warrants, copies of which have been filed as exhibits to our Current Report on Form 8-K dated August 8, 2014 and are incorporated by reference into the registration statement of which this prospectus forms a part. See “Where You Can Find More Information.” These descriptions may not contain all of the information that may be important to you, and should be read in conjunction with the warrant agreement relating to the Class A Warrants and the form of warrant certificate for the Class A Warrants.
Overview
Each Class A Warrant represents the right to purchase 0.190 shares of our Class A Common Stock, subject to the adjustments as provided pursuant to the terms thereof. The Class A Warrants may be exercised at a price per share of Class A Common Stock of $0.01, which shall be paid pursuant to a cashless exercise procedure. The Class A Warrants may be exercised at any time or from time to time on or before 5:00 p.m. New York City time, on August 5, 2039, subject to certain citizenship rules and limitations and to our consent, as further described below, and will expire thereafter. The Class A Warrants do not confer upon the holder any voting stock outstandingor any other rights of holders of our common stock.
Exercise of the Warrants
The exercise price of the Class A Warrants is $0.01 per share of Class A Common Stock. Each Class A Warrant is exercisable for 0.190 shares of Class A Common Stock (subject to adjustments, as discussed below). All or a portion of the Class A Warrants may be exercised in whole or in part at any time or from time to time on or before 5:00 p.m., New York City time, on August 5, 2039, subject to certain citizenship rules and limitations and to our consent, as further described below. The Class A Warrants are exercisable, at the timeoption of each holder, by delivering a duly completed and executed exercise notice and, in the transaction commences (excludingcase of a definitive warrant, such definitive warrant. The Class A Warrants are exercisable only through a cashless exercise procedure whereby we withhold, from the number of shares owned by certain employee stock ownership plans and persons who are both our directors and officers); or
Upon exercise of the Class A Warrants, the shares of Class A Common Stock issuable upon exercise will be issued in such name or names as the exercising warrantholder designates and be delivered by the Boardtransfer agent to the warrantholder or its nominee or nominees either via book-entry transfer crediting the account of Directors and authorizedsuch warrantholder (or the relevant participants of The Depository Trust Company (“DTC”) for the benefit of such warrantholder or its nominee) through DTC’s DWAC system or, otherwise in certificated form by physical delivery to the address specified by the warrantholder in the exercise notice, as applicable. We, at an annualour sole election, may issue fractional shares upon the exercise of the Class A Warrants or special meetinground up to the nearest whole number the number of shares of Class A Common Stock to be issued to the exercising warrantholder.
In addition, the terms of the Class A Warrants provide that any holder of Class A Warrants or any owner of a beneficial interest in Class A Warrants that is a U.S Citizen should exercise all of such warrantholder’s Class A Warrants.
Issuance of any shares of Class A Common Stock deliverable upon exercise of the Class A Warrants will be made without charge to the warrantholder for any issue or transfer tax or other incidental expense in respect of the issuance of those shares.
Rights as Stockholder
Except as otherwise provided in the Class A Warrants or by virtue of such holder’s ownership of shares of our stockholders bycommon stock, the affirmative vote, and not by written consent, of at least 662/3%holders of the outstanding voting stockClass A Warrants will not owned byhave the interested stockholder.
Liquidation Rights and Other Provisions
Subject to the prior rights or privileged of creditors, the holders of our common stock, including any voting rights or rights to receive dividends, until they exercise their Class A Warrants.
Adjustments to the Warrants
Pursuant to the terms of the warrants, the number of shares of Class A Common Stock issuable upon exercise of each Class A Warrant, or the warrant shares, will be adjusted upon occurrence of certain events as follows:
· | In the case of dividends, subdivisions, combination or reclassification of our Class A Common Stock. If we (i) make a dividend or distribution on the outstanding shares of Class A Common Stock payable in shares of Class A Common Stock, (ii) subdivide the outstanding shares of Class A Common Stock into a larger number of shares, (iii) combine the outstanding shares of Class A Common Stock into a smaller number of shares or (iv) issue any shares of capital stock in a reclassification of our Class A Common Stock (other than any such event for which an adjustment is made pursuant to another applicable provision of the Class A Warrants), the number of Class A Warrant shares immediately prior to such event will be proportionately adjusted so that the holder of a Class A Warrant after such date will be entitled to purchase the number of shares of Class A Common Stock that it would have owned or been entitled to receive in respect of the number of Class A Warrant shares had such Class A Warrant been exercised immediately prior to the occurrence of such event, calculated to the nearest 1/1000th of a share. |
· | In the case of certain distributions. If we make a distribution to all holders of shares of Class A Common Stock of cash, evidences of indebtedness, securities or other assets (excluding certain specified transactions and any dividend or other distribution for which adjustment is made pursuant to preceding bullet point), or rights or warrants to subscribe for or purchase any of the foregoing, the number of shares of Class A Common Stock deliverable upon exercise of a Class A Warrant will be increased to a number (calculated to the nearest 1/1000th of a share) equal to the product of (x) the number of shares of Class A Common Stock deliverable upon exercise of a Class A Warrant immediately prior to the record date for the distribution of such cash, evidences of indebtedness, securities, other assets or rights or warrants multiplied by (y) the quotient of (i) the Current Market Price immediately prior to the first date on which the Class A Common Stock trades regular way on the principal national securities exchange on which the Class A Common Stock is listed or admitted to trading without the right to receive such distribution of such cash, evidences of indebtedness, securities or other assets or rights or warrants (or, if the Class A Common Stock is not then so listed or traded, the first business day after the record date for such distribution) divided by (ii) the total (which total shall be greater than zero) of (a) the Current Market Price on the date specified in (i) above minus (b) the Fair Market Value per share of Class A Common Stock of such cash, evidences of indebtedness, securities or other assets or rights or warrants. |
· | In the case of a spin-off. If the event of a spin-off, we will issue to each warrantholder a new warrant to purchase, or convert its new warrant into, the number of shares of common stock or other proprietary interest in the spin-off entity that the warrantholder would have owned had the warrantholder exercise its Class A Warrant immediately prior to the consummation of such spin-off. Such new warrant will provide for rights and obligations that will be as nearly equivalent as may be practicable to the rights and obligations provided for in the Class A Warrants. Notwithstanding the foregoing, if any such spin-off shall relate to an entity that will not be subject to the citizenship rules to which we are subject under the Jones Act and the related citizenship policies, then in connection with such spin-off, our board of directors shall consider in good faith whether it is possible to issue to the warrantholder shares of common stock or other ownership interests directly in the name of such warrantholder, and if the board of directors determines in its sole discretion that it would be possible to do so without creating a material adverse effect on such warrantholder, then it will use reasonable best effort to provide for such direct issuance. |
· | In the case of a Significant Transaction. In the event of a Significant Transaction (as defined below), a warrantholder’s right to receive shares of Class A Common Stock upon exercise of a Class A Warrant will be converted into the right to exercise that Class A Warrant to acquire the number of shares of stock or other securities or property or cash receivable upon the consummation of such Significant Transaction by a holder of the number of shares of Class A Common Stock into which the warrantholder’s Class A Warrants could have been exercised immediately prior to the consummation of such Significant Transaction. |
· | In the case of other changes. If (i) we take any action which affects the Class A Common Stock and is similar to, or has an effect similar to, any of the actions described in the preceding four bullet points (but not including any of the actions described therein) and (ii) our board of directors in good faith determines that it would be equitable under such circumstances to adjust the number of shares of Class A Common Stock deliverable upon exercise of a Class A Warrant, then such number of shares will be adjusted in such manner and at such time as our board of directors in good faith determines would be equitable under such circumstance. Such a determination will be evidenced in a resolution of our board of directors, a certified copy of which will be mailed to the warrantholders. |
A “Significant Transaction” means (i) any reorganization, reclassification or other change of outstanding shares of Class A Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value); (ii) any voluntary sale, conveyance, exchange or transfer by us to any other person of all or substantially all of our assets; (iii) any voluntary sale, conveyance, exchange or transfer by our stockholders to any person of our capital stock if, immediately after giving effect to such sale, conveyance, exchange or transfer, our stockholders immediately prior to such sale, conveyance, exchange or transfer do not hold capital stock of the Company representing at least a majority of voting power of the Company; and (iv) any merger, consolidation or other business combination of the Company (including by way of a tender offer) if, immediately after giving effect to such merger, consolidation or other business combination, our stockholders immediately prior to such merger, consolidation or other business combination do not hold capital stock of the surviving person representing at least a majority of the voting power of the surviving person.
The “Current Market Price” means, as of any date, (a) the average of the daily Market Prices (as defined below) of the Class A Common Stock during the immediately preceding 20 consecutive trading days ending on such date or (b) if the Class A Common Stock is not then listed or admitted to trading on any national securities exchange, the Market Price.
“Market Price” means, with respect to a particular security, on any given day, the per-share volume weighted average price of such security, as calculated on Bloomberg (or, if such volume weighted average price is unavailable via Bloomberg, the average market value of one share of such security on such day, determined, using a volume weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose, or if such security is not listed or admitted to trading on any national securities exchange, the average of the closing bid and ask prices on such day as furnished by two members of the Financial Industry Regulatory Authority, Inc. selected from time to time by us for that purpose. The Market Price is determined without reference to after hours or extended hours trading. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of a particular security shall be deemed to be the Fair Market Value per share of such security (as defined below). For the purposes of determining the Market Price of any security on the “trading day” preceding, on or following the occurrence of an event, (a) that trading day is deemed to commence immediately after the regular scheduled closing time of trading on the primary national securities exchange on which the relevant security is then listed or traded or, if trading is closed at an earlier time, such earlier time (or, if the relevant securities is not then listed or traded on a national securities exchange, on the New York Stock Exchange) and (b) that trading day ends at the next regular scheduled closing time on such exchange, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last trading day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).
“Fair Market Value” means, with respect to any security or other property, the fair market value of such security or other property as determined in good faith by our board of directors in reliance on an opinion of a nationally recognized independent investment banking corporation retained by us for this purpose.
If more than one adjustment provision applies to a single event, the adjustment provision that produces the largest adjustment with respect to such event will be applied, and no single event will cause an adjustment under more than one adjustment provision so as to result in duplication. In addition, no adjustment need be made for a given transaction (other than a share split or share combination) if each warrantholder participates, on the same terms and otherwise on the same basis and solely as a result of holding the Class A Warrants, as a holder of shares of Class A Common Stock without having to exercise the Class A Warrants held by such holder as if such warrantholder had held a number of shares of Class A Common Stock equal to the then-current number of shares of Class A Common Stock deliverable upon exercise of a Class A Warrant, multiplied by the number of Class A Warrants held by such warrantholder.
In the event we propose to take any action of the type described above that would result in an adjustment pursuant to the provisions described above or a change in the type of securities or property to be delivered upon exercise of a Class A Warrant, we shall deliver to the warrant agent a notice and shall cause such notice to be sent or communicated to warrantholders in the manner set forth in the warrant certificate. Such notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place, and shall set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the number of shares of Class A Common Stock deliverable upon exercise of a Class A Warrant and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of a Class A Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. We shall, at the time we make such notice, post a copy of such notice on our website and issue a press release for publication on a newswire service.
Compliance with Citizenship Rules and Limitations on Exercise, Sale, Transfer or Other Disposition
In order to facilitate our compliance with the requirements of the Jones Act, in connection with any exercise of a Class A Warrant, a warrantholder or the person that the warrantholder has designated to receive the shares of Class A Common Stock issuable upon the exercise of the Class A Warrant, shall advise us whether or not it satisfies the requirements to be a U.S. Citizen. A warrantholder who cannot establish to our reasonable satisfaction that it or the person that the warrantholder has designated to receive the shares of Class A Common Stock upon the exercise of the Class A Warrant is a U.S. Citizen may not exercise any Class A Warrant to the extent the shares of the Class A Common Stock deliverable upon exercise would constitute Non-Complying Shares (as defined in our Amended and Restated Certificate of Incorporation) if they were issued.
In addition, any sale, transfer or other disposition of a Class A Warrant by a warrantholder that does not satisfy the definition of U.S. Citizen to a person who is a U.S. Citizen must be a complete transfer to such person of such warrantholder’s interests in the Class A Warrant and the Class A Common Stock issuable upon exercise thereof with no ability to direct or control such person.
Amendment
The Class A Warrants and the warrant agreement relating to the Class A Warrants may be amended without the consent of any warrantholder (i) when there are no Class A Warrants outstanding, (ii) for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained therein or adding or changing any other provision as we and the warrant agent may deem necessary or desirable that does not adversely affect the rights of any warrantholder in any material respect, (iii) in order to facilitate, in our sole reasonable judgment, our compliance with applicable citizenship rules and (iv) in order to make any other change that does not adversely affect the rights of any warrantholder in any material respect.
The Class A Warrants, the warrant agreement and the observance of any material term of such warrants or warrant agreement, as applicable, may be waived with the written consent of a majority of the aggregate number of the Class A Warrants at the time outstanding; provided that the consent of each affected warrantholder is necessary for any amendment (i) to decrease the number of shares issuable upon exercise of the Class A Warrants (other than pursuant to the terms of the adjustment provisions in the warrant certificate described above), (ii) that would shorten the time period during which the Class A Warrants are exercisable or (iii) that would change in a manner adverse to such warrantholder the terms of the adjustment provisions in the warrant certificate described above.
Description of the Warrant Agreement
Under the warrant agreement, Computershare Trust Company, N.A. is appointed as the warrant agent to act on our behalf in connection with the transfer, exchange, redemption, exercise and cancellation of the Class A Warrants and required to maintain a registry recording the names and addresses of all registered holders of Class A Warrants. The warrant agent will receive a fee in exchange for performing these duties under the warrant agreement and will be indemnified by us for liabilities not involving gross negligence or willful misconduct and arising out of its service as warrant agent.
Except as otherwise provided in the warrant agreement, the Class A Warrants will be issued in the form of one or more global warrants as specified in the warrant agreement. Each global warrant will be deposited upon issuance with the warrant agent, as custodian for DTC, and registered in the name of DTC or a nominee of DTC. For a description of book-entry procedures and settlement mechanics generally applicable to securities held through DTC participants, see the section entitled “Book-Entry Issuance” below.
Governing Law
The Class A Warrants and the warrant agreement are governed by New York law.
Book-Entry Issuance
The warrants may be issued as global warrants and deposited with a depositary. The following is a summary of the depositary arrangements applicable to warrants issued in permanent global form and for which DTC will act as depositary (the “global warrants”). The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.
Each global warrant will be deposited with, or on behalf of, DTC, as depositary, or its nominee and registered in the name of a nominee of DTC. Except under the limited circumstances described below, global warrants will not be exchangeable for certificated warrants.
Only institutions that have accounts with DTC or its nominee (“DTC participants”) or persons that may hold interests through DTC participants may own beneficial interests in a global warrant. DTC will maintain records evidencing ownership of beneficial interests by DTC participants in the global warrants and transfers of those ownership interests. DTC participants will maintain records evidencing ownership of beneficial interests in the global warrants by persons that hold through those DTC participants and transfers of those ownership interests within those DTC participants. DTC has no knowledge of the actual beneficial owners of the warrants. You will not receive written confirmation from DTC of your purchase, but we do expect that you will receive written confirmations providing details of the transaction, as well as periodic statements of your holdings from the DTC participant through which you entered the transaction. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of those securities in certificated form. Those laws may impair your ability to transfer beneficial interests in a global warrant.
DTC has advised us that upon the issuance of a global warrant and the deposit of that global warrant with DTC, DTC will immediately credit, on its book-entry registration and transfer system, the number of warrants represented by that global warrant to the accounts of DTC participants.
We will make any payments on warrants represented by a global warrant to DTC or its nominee, as the case may be, as the registered owner and holder of the global warrant representing those securities. DTC has advised us that upon receipt of any payment on a global warrant, DTC will immediately credit accounts of DTC participants with payments in amounts proportionate to their respective beneficial interests in that warrant, as shown in the records of DTC. Standing instructions and customary practices will govern payments by DTC participants to owners of beneficial interests in a global warrant held through those DTC participants, as is now the case with securities held for the accounts of customers in bearer form or registered in “street name.” Those payments will be the sole responsibility of those DTC participants, subject to any statutory or regulatory requirements in effect from time to time.
Neither we nor our agents will have any responsibility or liability for any aspect of the records of DTC, any nominee or any DTC participant relating to, or payments made on account of, beneficial interests in a global warrant or for maintaining, supervising or reviewing any of the records of DTC, any nominee or any DTC participant relating to those beneficial interests.
A global warrant is exchangeable for certificated warrants registered in the name of a person other than DTC or its nominee only if: (i) DTC notifies us that it is unwilling or unable to continue as depositary for that global warrant or DTC ceases to be a “clearing agency” registered under the Exchange Act, and, in each such case a successor depository is not appointed by us within 90 days of such notice; (ii) we, in our sole discretion, notify the warrant agent in writing that we elect to cause the issuance of definitive warrants under the applicable warrant agreement, or (iii) if we are adjudged a bankrupt or insolvent, make an assignment for the benefit of our creditors or upon certain similar events and upon the request of any warrantholder. Any global warrant that is exchangeable as described in the preceding sentence will be exchangeable in whole for certificated warrants in registered form. The registrar will register the certificated warrants in the name or names instructed by DTC. We expect that those instructions may be based upon directions received by DTC from DTC participants with respect to ownership of beneficial interests in the global warrant.
Except as provided above, as an owner of a beneficial interest in a global warrant, you will not be entitled to receive physical delivery of warrants in certificated form and will not be considered a holder of warrants for any purpose. No global warrant will be exchangeable except for another global warrant of like denomination and tenor to be registered in the name of DTC or its nominee. Accordingly, you must rely on the procedures of DTC and the DTC participant through which you own your interest to exercise any rights of a holder under the global warrant.
We understand that, under existing industry practices, in the event that we request any action of liquidation, dissolutionholders, or winding upan owner of a beneficial interest in a global warrant desires to share pro ratatake any action that a holder is entitled to take under the terms of the warrants, DTC would authorize the DTC participants holding the relevant beneficial interests to take that action, and those DTC participants would authorize beneficial owners owning through those DTC participants to take that action or would otherwise act upon the instructions of beneficial owners owning through them.
DTC has advised us that DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered under the Exchange Act.
We are registering the shares of Class A Common Stock and Class A Warrants previously issued to the selling securityholders listed in the section entitled “Selling Securityholders,” including shares of Class A Common Stock issuable upon exercise of the Class A Warrants, to permit the resale of the Securities by the selling securityholders from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling securityholders of the Securities. We will bear all fees and expenses incident to our obligations to register the Securities.
The selling securityholders may sell all or a portion of the Securities beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the Securities are sold through underwriters or broker-dealers, the selling securityholders will be responsible for the underwriting discounts, concessions or commissions.
The Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. Subject to the ownership and transfer restrictions set forth in our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and the citizenship rules, policies and procedures adopted by our board of directors from time to time, and in the warrant agreement and warrant certificate setting forth the terms of the Class A Warrants, including, in each case, those described under “Description of Capital Stock—Qualification for Ownership and Transfer of Shares” and “Description of the Class A Warrants—Compliance with Citizenship Rules and Limitations on Exercise, Sale, Transfer or Other Disposition,” the selling securityholders may use any one or more of the below methods when selling the Securities:
· | on any national securities exchange or quotation service on which the Securities may be listed or quoted at the time of sale; |
· | in the over-the-counter market; |
· | in transactions otherwise than on these exchanges or services or in the over-the-counter market; |
· | through the writing or settlement of options or other hedging transactions, whether the options are listed on an options exchange or otherwise; |
· | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
· | block trades in which the broker-dealer will attempt to sell the Securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
· | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
· | an exchange distribution in accordance with the rules of the applicable exchange; |
· | privately negotiated transactions; |
· | short sales; |
· | settlement of short sales entered into after the effective date of the registration statement of which this prospectus forms a part; |
· | broker-dealers may agree with the selling securityholder to sell a specified number of such Securities at a stipulated price per Security; |
· | through the distribution of Securities by any selling securityholder to its partners, members or stockholders; |
· | through one or more underwritten offerings on a firm commitment or best efforts basis; |
· | sales pursuant to Rule 144, Regulation S, Section 4(a)(1) or other exemptions from the registration requirements of the Securities Act; |
· | a combination of any such methods of sale; and |
· | any other method permitted pursuant to applicable law. |
A selling securityholder may also enter into hedging and/or monetization transactions. For example, a selling securityholder may:
· | enter into transactions with a broker-dealer or affiliate of a broker-dealer or other third party in connection with which that other party will become a selling securityholder and engage in short sales of the Securities under this prospectus, in which case the other party may use the Securities received from the selling securityholder to close out any short positions; |
· | itself sell short the Securities under this prospectus and use the Securities held by it to close out any short position; |
· | enter into options, forwards or other transactions that require the selling securityholder to deliver, in a transaction exempt from registration under the Securities Act, the Securities to a broker-dealer or an affiliate of a broker-dealer or other third party who may then become a selling securityholder and publicly resell or otherwise transfer those Securities under this prospectus; or |
· | loan or pledge the Securities to a broker-dealer or affiliate of a broker-dealer or other third party who may then become a selling securityholder and sell the loaned Securities or, in an event of default in the case of a pledge, become a selling securityholder and sell the pledged Securities, under this prospectus. |
The selling securityholders and any broker-dealers participating in the distribution of all remaining assets. There are no preemptive or conversion rights or redemption or sinking fund provisions in respectthe Securities may be deemed to be “underwriters” within the meaning of the common stock.Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time such an offering of the Securities is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of Securities being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling securityholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. The outstanding sharesselling securityholders may indemnify any broker-dealer that participates in transactions involving the sale of common stock are,the Securities against certain liabilities, including liabilities arising under the Securities Act.
Under the securities laws of some states, the Securities may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Securities may not be sold unless such Securities have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. The Securities may not be sold in any foreign country or jurisdiction unless such sale is made in compliance with any applicable laws and regulations of that country or jurisdiction.
There can be no assurance that any selling securityholder will sell any or all of the Securities registered pursuant to the registration statement of which this prospectus forms a part.
The selling securityholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the Securities by the selling securityholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the Securities to engage in market-making activities with respect to the Securities. The Jones Act also restricts the ability of a person to engage in market-making. All of the foregoing may affect the marketability of the shares of common stock offered hereby upon deliverythe Securities and payment will be, fully paid and non-assessable.
Our Certificatethe ability of Incorporation provides that no director shall be personally liableany person or entity to us or our stockholders for monetary damages for breach of fiduciary duty as a director, exceptengage in market-making activities with respect to the extentSecurities.
We have agreed to indemnify the exemption from or limitation of liability is not permittedselling securityholders against certain liabilities, including certain liabilities under the DGCL. Under Section 102(b)(7), the DGCL presently does not permit exemption from or limitation of liability:
Stockholder Rights Plan
Our Board of Directors has adopted a Stockholder Rights Agreement dated as of October 20, 1998, between usbear substantially all expenses (other than underwriting discounts and our transfer agent. The Stockholder Rights Agreement was adopted to give the Board of Directors increased power to negotiate in our best interests and to discourage appropriation of control of us at a price that is unfair to our stockholders. It is not intended to prevent fair offers for acquisition of control determined by our Board of Directors to be in the best interests of us and our stockholders, nor is it intended to prevent a person or group from obtaining representation on or control of our Board of Directors through a proxy contest, or to relieve our Board of Directors of its fiduciary duty to consider any proposal for our acquisition in good faith.
The Stockholder Rights Agreement involved the distribution of one "right" as a dividend on each outstanding share of our common stock to all holders of record on November 9, 1998 and, in certain circumstances, on each share of our common stock issued after that date. Each right shall entitle the holder to purchase one-tenth of a share of common stock at an exercise price of $70 per
56
whole share of common stock. The rights trade in tandem with the common stock until, and become exercisable upon, the occurrence of certain triggering events. The exercise of these rights becomes economically attractive upon the triggering of certain "flip-in" or "flip-over" rights which work in conjunction with the Stockholder Rights Agreement's basic provisions. The flip-in rights will permit their holders to purchase shares of common stock at a discounted rate, resulting in substantial dilution of an acquiror's voting and economic interests in us. The flip-over element of the Stockholder Rights Agreement involves some mergers or significant asset purchases, which trigger certain rights to purchase shares of the acquiring or surviving company at a discount. The Stockholder Rights Agreement contains a "permitted offer" exception which allows offers determined by our Board of Directors to be in our best interest and that of our stockholders to take place free of the diluting effects of the Stockholder Rights Agreement's mechanisms.
Under the Stockholder Rights Agreement, the Board of Directors may take whatever actions and procedures it deems reasonableselling commissions) in connection with the exercise, exchange registration and sale of the Securities covered by this prospectus.
To the extent required, this prospectus may be amended and/or transfersupplemented from time to time to describe a specific plan of rightsdistribution relating to preserve our statusa particular offering or distribution made by a selling securityholder.
The Committee on Uniform Securities Identification Procedures assigns a unique number, known as a U.S. citizen within the provisionsCUSIP number, to each issuance of securities in which all of the Shipping Act, including upholding minimum U.S. ownership percentage of common stock.
Our Board of Directors retainssecurities have similar rights. Upon issuance, the right, at all times prior to acquisition of 10%shares of our voting common stockClass A Common Stock and the Class A Warrants covered by an acquiror,this prospectus had different CUSIP numbers, depending upon whether those securities were delivered to discontinue the Stockholder Rights Agreement through the redemption of all rights,a qualified institutional buyer or to amend the Stockholder Rights Agreement in any respect. Unless redeemed earlier by us, the Stockholder Rights Agreement will terminate on November 9, 2008.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Mellon Investor Services L.L.C.
57
The selling stockholders and the Underwriters have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each Underwriter has severally agreed to purchase the numberaccredited investor. As of shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and ABN AMRO Rothschild LLC are the representatives of the Underwriters.
If the Underwriters sell more shares than the total number set forth in the table above, the Underwriters have an option to buy up to an additional 750,000 shares from certain of the selling stockholders to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the Underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discount to be paid to the Underwriters by the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the Underwriters' option to purchase 750,000 additional shares.
Shares sold by the Underwriters to the public will initially be offered at the initial price to public set forth on the cover of this prospectus. Any shares sold by the Underwriters to securities dealers may be sold at a discount of up to $ per share from the initial price to public. Any such securities dealers may resell any shares purchased from the Underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial price to public. If all the shares are not sold at the initial price to public, the representatives may change the offering price and the other selling terms.
We, our executive officers and directors and the selling stockholders have agreed with the Underwriters not to dispose of or hedge any of our common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus, continuing through,the securities covered by this prospectus are restricted securities, and their designated CUSIP numbers refer to such restricted status. Sales of securities pursuant to this prospectus must be settled with securities bearing the general unrestricted CUSIP number for our Class A Common Stock or Class A Warrants, as the case may be. A selling securityholder may obtain shares or warrants bearing that general CUSIP number for settlement purposes by presenting the shares or warrants to be sold (with a restricted CUSIP), together with any required documentation, to our transfer agent, Computershare Trust Company, N.A. The process of obtaining shares or warrants bearing the general unrestricted CUSIP number may take several business days. As SEC rules generally require trades in the casesecondary market to settle in three business days, unless the parties to any such trade expressly agree otherwise, a selling securityholder who holds securities with a restricted CUSIP at the time of the trade may wish to specify an alternate settlement cycle at the time of any such trade to provide additional time to obtain the shares or warrants with an unrestricted CUSIP.
Unless otherwise indicated in the applicable prospectus supplement, the validity of any securities offered hereby will be passed upon for us and our executive officers and directors who are not selling stockholders, the date 90 days after the date ofby Cleary Gottlieb Steen & Hamilton LLP.
The consolidated financial statements incorporated in this prospectus or, in the caseby reference to Overseas Shipholding Group, Inc.’s Current Report on Form 8-K dated July 14, 2016 and management’s assessment of the selling stockholders, 180 days after the dateeffectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) incorporated in this prospectus except withby reference to the prior written consentAnnual Report on Form 10-K of Goldman, Sachs & Co. This agreement does not apply to any existing employee benefit plans.
In connection with this offering, the Underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the Underwriters of a greater number of shares than they are required to purchase in the offering.
58
Stabilizing transactions consist of certain bids or purchases madeOverseas Shipholding Group, Inc. for the purpose of preventing or retarding a declineyear ended December 31, 2015 have been so incorporated in the market price of the common stock while this offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a particular Underwriter repays to the Underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such Underwriter in stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Underwriters at any time. These transactions may be effectedreliance on the NYSE,report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in the over-the-counter market or otherwise.auditing and accounting.
The selling stockholders estimate that their share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ .
We and the selling stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed with it. For further information about us, our common stock, warrants and other information set forth herein, reference is made to the registration statement and exhibits and schedules with it. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is subject to, and qualified in its entirety by, reference to the applicable contract or other document filed herewith.
We file annual, quarterly and specialcurrent reports, proxy statements and other information with the Securities and Exchange Commission, or the SEC. You may read and copy any documentmaterials we filehave filed with the SEC at the SEC's public reference roomsSEC’s Public Reference Room at 450 Fifth100 F Street, NW,N.E., Room 1580, Washington, D.C. 20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. OurPublic Reference Room. The SEC filings are also available to the public at the SEC's web sitemaintains a website at http://www.sec.gov.www.sec.gov that contains reports, proxy and information statements and other information concerning issuers that file electronically with the SEC, including us. We also maintain a website at www.osg.com that contains information concerning us, including the reports we file with the SEC. The information contained or referred to on our website is not incorporated by reference in this prospectus and is not a part of this prospectus.
We also make available on our website, our corporate governance guidelines, code of business conduct, insider trading policy, anti-bribery and corruption policy and charters of the audit committee, human resources and compensation committee and corporate governance and risk assessment committee of our board of directors. Information on, or accessible through, our website is not part of this prospectus. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate“incorporate by reference"reference” the information we file with them,the SEC, which means that we can disclose important information to you by referring you to those filed documents. The information incorporated by reference is considered to be part of this prospectus, and later information filed with the SEC will update and supersede this information. prospectus.
We incorporate by reference the documents listed below, andexcept to the extent that any futureinformation contained in such filings is deemed “furnished” in accordance with SEC rules:
· | Our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on March 1, 2016 (except Item 6, Item 8 and Schedule I – Condensed Financial Information of Parent Company as listed in Item 15, which have been superseded and replaced in their entirety by our Current Report on Form 8-K filed with the SEC on July 14, 2016); |
· | The information specifically incorporated by reference into our Annual Report from our definitive proxy statement on Schedule 14A, filed with the SEC on April 29, 2016; |
· | Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed with the SEC on May 10, 2016 (except the condensed consolidated financial statements, which have been superseded and replaced in their entirety by our Current Report on Form 8-K filed with the SEC on July 14, 2016) and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed with the SEC on August 9, 2016; |
· | Our Current Reports on Form 8-K filed with the SEC on January 25, 2016, February 12, 2016, February 16, 2016, March 2, 2016 (excluding Item 2.02 and Exhibit 99.1), April 5, 2016, May 4, 2016, June 7, 2016, June 9, 2016, June 23, 2016 (excluding Item 7.01 and Exhibit 99.1), July 14, 2016, July 20, 2016, July 22, 2016 and August 9, 2016 (Form 8-K filing with respect to amended employment agreements); and |
· | The description of our Class A Common Stock contained in our Registration Statement on Form 8-A filed with the SEC on June 23, 2016. |
We also incorporate by reference any filings made with the SEC underin accordance with Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act on or after the date of 1934this prospectus and until the date all of the securities offered hereby are sold or the offering is completed.otherwise terminated, with the exception of any information contained in such filings that is deemed “furnished” in accordance with SEC rules, unless such information is expressly incorporated herein by a reference in such filings. Any such filings shall be deemed to be incorporated by reference and to be a part of this prospectus from the respective dates of filing of those documents.
The documents listed aboveincorporated by reference in this prospectus contain important information about us and our finances. The more detailed informationfinancial condition. Information contained in the Form 10-K and the Form 10-Q qualify this entire prospectus. Statements in this prospectus may modify or supersede statements in the Form 10-K, and the Form 10-Q. When that happens, the modified or superseded part of the original statement is not part of this prospectus.
You may request a copy of the documents listed above at no cost, by writing or calling us at the following address and telephone number:
Corporate SecretaryOverseas Shipholding Group, Inc.511 Fifth AvenueNew York, New York 10017(212) 953-4100
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You should rely only on thesupersedes information incorporated by reference that we have filed with the SEC prior to the date of this prospectus, while information included in any accompanying prospectus supplement or providedpost-effective amendment will supersede this information.
Statements contained in this prospectus. We have not authorized anyoneregistration statement or any accompanying prospectus supplement as to provide you with different information. The selling stockholders named in this prospectus are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate ascontents of any datecontract or other than the date on the front of the document.
The validity of the shares of common stock offered hereby will be passed upon for us and the selling stockholdersdocument that is filed or incorporated by Robert N. Cowen, Esq., our Senior Vice President, Chief Operating Officer and General Counsel. Certain other legal matters will be passed upon for us and the selling stockholders by Proskauer Rose LLP, New York, New York. Certain legal matters will be passed upon for the Underwriters by Cravath, Swaine & Moore, New York, New York.
Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000, as set forth in their report, which is included in this prospectus. We have included our financial statements in this prospectus and elsewhere in the registration statement of which this prospectus is a part in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.
With respect to the unaudited condensed consolidated balance sheets at March 31, 2001 and December 31, 2000, and the related unaudited condensed consolidated statements of income, cash flows and changes in shareholders' equity for the three month periods ended March 31, 2001 and 2000 included in this prospectus and elsewhere in the registration statement of which this prospectus is a part, Ernst & Young LLP have reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report, which is included in this prospectus, states that they did not audit and they do not express an opinion on that interim information. Accordingly, the degree of reliance on their report on such information should be restricted considering the limited nature of the review procedures applied. The independent auditors are not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited interim financial information, because that report is not a "report" or a "part" of the registration statement prepared or certified by the auditors within the meaning of Sections 7 and 11 of that Act.
The section in this prospectus entitled "The International Tanker Industry" has been reviewed by Maritime Strategies International Ltd. (MSI), which has confirmed to us that it accurately describes the international tanker industry, subject to the availability and reliability of the data supporting the statistical and graphical information presented in this prospectus, as indicated in the consent of MSI filedreference as an exhibit to the registration statement are not necessarily complete and we refer you to the full text of the contract or other document filed or incorporated by reference as an exhibit to the registration statement.
Our filings are available on Form S-3 under the Securities Actour website at www.osg.com. Information on, or accessible through, our website is not part of 1933 of whichthis prospectus. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website. We will provide without charge to each person to whom this prospectus and any accompanying prospectus supplement is delivered, upon written or oral request of such person, a part.
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FINANCIAL STATEMENTS
F–1
Ernst & Young LLP787 Seventhcopy of any or all of the documents referred to above that have been incorporated by reference into this prospectus and any accompanying prospectus supplement. Requests for such documents should be directed to Overseas Shipholding Group, Inc., 600 Third Avenue,
39th Floor, New York, New York 1001910016, Attention: Investor Relations, (212) 578-1699.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders
Overseas Shipholding Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet
33,350,136 Shares of Overseas Shipholding Group, Inc. and subsidiaries as of March 31, 2001 and the related condensed consolidated statements of income, cash flows and changes in shareholders' equity for the three month periods ended March 31, 2001 and 2000. 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.Class 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, 2000, and the related consolidated statements of operations, cash flows and changes in shareholders' equity for the year then ended, and in our report dated February 14, 2001 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, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
New York, New YorkMay 7, 2001
F–2
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETSIN THOUSANDS
| MARCH 31, 2001 | DECEMBER 31, 2000 | |||||
---|---|---|---|---|---|---|---|
| (UNAUDITED) | | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash, including interest-bearing deposits of $13,313 and $12,686 | $ | 15,710 | $ | 15,781 | |||
Investments in marketable securities | 107,814 | 54,985 | |||||
Receivables | 53,475 | 56,954 | |||||
Prepaid expenses | 13,439 | 9,315 | |||||
Total Current Assets | 190,438 | 137,035 | |||||
Capital Construction Fund | 219,119 | 213,440 | |||||
Vessels, at cost, less accumulated depreciation of $410,338 and $397,373—Note G | 1,266,005 | 1,250,171 | |||||
Vessels Under Capital Leases, less accumulated amortization of $79,648 and $78,303 | 42,442 | 43,787 | |||||
Investments in Bulk Shipping Joint Ventures—Note E | 98,151 | 84,742 | |||||
Other Assets | 95,552 | 94,738 | |||||
$ | 1,911,707 | $ | 1,823,913 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 2,085 | $ | 3,451 | |||
Sundry liabilities and accrued expenses | 46,120 | 31,083 | |||||
48,205 | 34,534 | ||||||
Current installments of long-term debt | 10,650 | 8,700 | |||||
Current obligations under capital leases | 5,666 | 5,594 | |||||
Total Current Liabilities | 64,521 | 48,828 | |||||
Long-term Debt—Note G | 783,377 | 770,869 | |||||
Obligations Under Capital Leases | 64,808 | 65,628 | |||||
Deferred Federal Income Taxes ($131,009 and $117,749), Deferred Credits and Other Liabilities—Note H | 202,089 | 188,421 | |||||
Shareholders' Equity—Notes H and I | 796,912 | 750,167 | |||||
Commitments and Per Share Amounts—Note L | |||||||
$ | 1,911,707 | $ | 1,823,913 | ||||
(See Accompanying Notes)
F–3
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOMEDOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS(UNAUDITED)
| THREE MONTHS ENDED | |||||||
---|---|---|---|---|---|---|---|---|
| MARCH 31, 2001 | MARCH 31, 2000 | ||||||
Net Shipping Revenues: | ||||||||
Revenues from voyages | $ | 106,235 | $ | 77,990 | ||||
Net voyage revenues of vessels operating in certain pools | 42,302 | 6,051 | ||||||
Voyage expenses | (22,995 | ) | (22,975 | ) | ||||
125,542 | 61,066 | |||||||
Shipping Expenses: | ||||||||
Vessel expenses, including drydock amortization of $2,577 and $4,212 | 22,213 | 23,251 | ||||||
Time and bareboat charter hire expenses | 14,306 | 9,231 | ||||||
Depreciation of vessels and amortization of capital leases | 14,309 | 13,056 | ||||||
General and administrative | 9,874 | 10,253 | ||||||
Restructuring charge—Note J | 8,545 | — | ||||||
69,247 | 55,791 | |||||||
Income from Vessel Operations | 56,295 | 5,275 | ||||||
Equity in Results of Bulk Shipping Joint Ventures | 5,308 | 788 | ||||||
Operating Income | 61,603 | 6,063 | ||||||
Other Income (net)—Note K | 10,189 | 5,321 | ||||||
71,792 | 11,384 | |||||||
Interest Expense | 11,199 | 10,323 | ||||||
Income before Federal Income Taxes and Cumulative Effect of Change in Accounting Principle | 60,593 | 1,061 | ||||||
Provision for Federal Income Taxes, reflecting deferred provision/(credit) of $10,030 and $(300)—Note H | 20,230 | 200 | ||||||
Income before Cumulative Effect of Change in Accounting Principle | 40,363 | 861 | ||||||
Cumulative Effect of Change in Accounting Principle, net of income taxes of $1,800—Note B | — | 4,152 | ||||||
Net Income | $ | 40,363 | $ | 5,013 | ||||
Per Share Amounts—Note L2: | ||||||||
Basic income before cumulative effect of change in accounting principle | $ | 1.19 | $ | .03 | ||||
Diluted income before cumulative effect of change in accounting principle | $ | 1.17 | $ | .03 | ||||
Cumulative effect of change in accounting principle, net of income taxes | — | $ | .12 | |||||
Basic net income | $ | 1.19 | $ | .15 | ||||
Diluted net income | $ | 1.17 | $ | .15 | ||||
Cash Dividends Declared | $ | .15 | $ | .15 | ||||
(See Accompanying Notes)
F–4
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSIN THOUSANDS(UNAUDITED)
| THREE MONTHS ENDED | |||||||
---|---|---|---|---|---|---|---|---|
| MARCH 31, 2001 | MARCH 31, 2000 | ||||||
Net cash provided by Operating Activities | $ | 71,883 | $ | 7,239 | ||||
Cash Flows from Investing Activities: | ||||||||
Purchases of marketable securities | (65,906 | ) | (3,064 | ) | ||||
Proceeds from sales of marketable securities | 23,511 | 59 | ||||||
Additions to vessels, including $28,562 and $6,977 related to vessels under construction | (28,798 | ) | (7,044 | )* | ||||
Investments in and advances to bulk shipping joint ventures | (16,286 | ) | (4,392 | ) | ||||
Distributions from bulk shipping joint ventures | 6,957 | 7,050 | ||||||
Purchases of other investments | (64 | ) | (2,520 | ) | ||||
Proceeds from dispositions of other investments | 111 | 2,150 | ||||||
Other—net | (226 | ) | 3,968 | |||||
Net cash (used in) investing activities | (80,701 | ) | (3,793 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Issuance of long-term debt | 13,000 | — | * | |||||
Payments on long-term debt and obligations under capital leases | (748 | ) | (24,528 | ) | ||||
Issuance of common stock upon exercise of stock options | 1,596 | 829 | ||||||
Cash dividends paid | (5,109 | ) | (5,051 | ) | ||||
Other—net | 8 | (479 | ) | |||||
Net cash provided by/(used in) financing activities | 8,747 | (29,229 | ) | |||||
Net decrease in Cash | (71 | ) | (25,783 | ) | ||||
Cash, including interest-bearing deposits, at beginning of period | 15,781 | 56,727 | ||||||
Cash, including interest-bearing deposits, at end of period | $ | 15,710 | $ | 30,944 | ||||
(See Accompanying Notes)
F–5
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYDOLLARS IN THOUSANDS(UNAUDITED)
| | | | Treasury Stock | Accumulated Other Comprehensive Income/(Loss)** | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Common Stock* | Paid-in Additional Capital | Retained Earnings | | |||||||||||||||||
| Shares | Amount | Total | ||||||||||||||||||
Balance at January 1, 2001 | $ | 39,591 | $ | 99,009 | $ | 688,528 | 5,604,275 | $ | (76,857 | ) | $ | (104 | ) | $ | 750,167 | ||||||
Cumulative Effect of Change in Accounting Principle, net of taxes of $1,861—Note A | 3,455 | 3,455 | |||||||||||||||||||
Net Income | 40,363 | 40,363 | |||||||||||||||||||
Unrealized Gain on Available-For-Sale Securities | 8,443 | 8,443 | |||||||||||||||||||
Unrealized Gains on Derivative Instruments | (2,949 | ) | (2,949 | ) | |||||||||||||||||
Comprehensive Income | 49,312 | ||||||||||||||||||||
Cash Dividends Declared | (5,109 | ) | (5,109 | ) | |||||||||||||||||
Deferred Compensation Related to Options Granted | 566 | 566 | |||||||||||||||||||
Options Exercised and Employee Stock Purchase Plan | 218 | (102,099 | ) | 1,378 | 1,596 | ||||||||||||||||
Tax Benefit Related to Options Exercised | 380 | 380 | |||||||||||||||||||
Balance at March 31, 2001 | $ | 39,591 | $ | 100,173 | $ | 723,782 | 5,502,176 | $ | (75,479 | ) | $ | 8,845 | $ | 796,912 | |||||||
Balance at January 1, 2000 | $ | 39,591 | $ | 96,156 | $ | 618,453 | 5,918,462 | $ | (81,098 | ) | $ | (12,044 | ) | $ | 661,058 | ||||||
Net Income | 5,013 | 5,013 | |||||||||||||||||||
Unrealized (Loss) on Available-For-Sale Securities | (1,590 | ) | (1,590 | ) | |||||||||||||||||
Comprehensive Income | 3,423 | ||||||||||||||||||||
Cash Dividends Declared | (5,051 | ) | (5,051 | ) | |||||||||||||||||
Options Exercised | 97 | (102,708 | ) | 1,387 | 1,484 | ||||||||||||||||
Tax Benefit Related to Options Exercised | 302 | 302 | |||||||||||||||||||
Balance at March 31, 2000 | $ | 39,591 | $ | 96,555 | $ | 618,415 | 5,815,754 | $ | (79,711 | ) | $ | (13,634 | ) | $ | 661,216 | ||||||
(See Accompanying Notes)
F–6
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
General— As contemplated by the Securities and Exchange Commission, the accompanying financial statements and footnotes have been condensed and therefore do not contain all disclosures required by accounting principles generally accepted in the United States. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. Reference should be made to the Company's Annual Report to Shareholders for the year ended December 31, 2000.
The statements as of and for the three month period ended March 31, 2001, and for the three month period ended March 31, 2000 are unaudited. In the opinion of the Company, all adjustments (which were of a normal recurring nature) have been made to present fairly the results for such unaudited interim periods.
The results of operations for the three month period ended March 31, 2001 are not necessarily indicative of those for a full fiscal year.
Note A—Summary of Significant Accounting Policies:
Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its amendments Statement Nos. 137 and 138, ("FAS133") in June 1999 and June 2000, respectively. FAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, a change in the fair value of the derivative is either offset against the change in fair value of the hedged item and reflected in earnings (fair value hedge), or recognized in other comprehensive income until the hedged item is reflected in earnings (cash flow hedge). The ineffective portion (that is, the change in fair value of the derivative that does not offset the change in fair value of the hedged item) of a derivative's change in fair value will be immediately recognized in earnings. The adoption of FAS 133 on January 1, 2001, resulted in the cumulative effect of an accounting change of $3,455,000, net of taxes of $1,861,000 being recognized as a gain in other comprehensive income. The cumulative effect of such accounting change on net income was insignificant.
The Company uses derivatives to moderate the market risks of its operations. The Company has entered into interest rate swaps to effectively convert a portion of its debt either from a fixed to floating rate basis, which swaps are designated and qualify as fair value hedges, or from floating to fixed rate, which swaps are designated and qualify as cash flow hedges. The Company has entered into foreign currency swaps, which are designated and qualify as cash flow hedges, with respect to future charter revenues receivable in Japanese yen to minimize the effect of foreign exchange rate fluctuations on reported income. The Company has also entered into forward freight agreements and fuel (bunker) swaps from time to time in order to reduce its exposure to the spot (voyage) charter market for specified trade routes by creating synthetic time charters for the terms of the agreements. The forward freight agreements with a large international commodity trading company involve contracts to provide a fixed number of theoretical voyages at agreed rates. The fuel swaps are designated and qualify as cash flow hedges.
For interest rate swaps, the Company assumes no ineffectiveness as each interest rate swap meets the short-cut method conditions required under FAS 133. Accordingly, no gains or losses were recorded in income relative to the Company's debt and interest rate swaps. For foreign currency swaps, effectiveness is assessed based on changes in forward rates and, accordingly, there is no hedge ineffectiveness.
F–7
Note B—Change in Accounting for Voyage Revenue:
Prior to 2000, net voyage revenues for vessels operating on voyage charters were accounted for using the completed voyage method, with voyages being calculated on a load-to-load basis. Under that method, the net revenue of a voyage was included in operating results in the period in which that voyage was deemed completed, that is, its arrival at the subsequent voyage's initial load port.
Effective January 1, 2000, the Company changed its accounting policy for the recognition of net voyage revenues of vessels operating on voyage charters to the percentage of completion method, with voyages being calculated on a discharge-to-discharge basis. Under this method, net voyage revenue is recognized evenly over the period from a vessel's departure from its last discharge port to the projected departure from its next discharge port. The change in revenue recognition policy eliminates fluctuations in income from vessel operations attributable solely to the timing of completion of voyages. Further, the discharge-to-discharge basis is deemed by management to be a more reliable method of recognizing net voyage revenues under the percentage of completion method, since it eliminates uncertainty associated with predicting the actual location of the next load port. The cumulative effect of this change is shown separately in the condensed consolidated statement of income for the three months ended March 31, 2000, and resulted in income, net of taxes, of $4,152,000.
Note C—Segment Reporting:
The Company has five reportable segments: foreign flag VLCCs (Very Large Crude Carriers), Aframaxes and products carriers, and U. S. flag tankers and dry bulk carriers. Information about the Company's reportable segments as of and for the three month periods ended March 31, 2001 and 2000 follows:
| Foreign flag | U.S. flag | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands | VLCCs | Aframaxes | Products carriers | Tankers | Dry bulk carriers | All other | Totals | ||||||||||||||||
Three months ended March 31, 2001: | |||||||||||||||||||||||
Shipping revenues | $ | 38,033 | $ | 49,493 | $ | 27,831 | $ | 7,013 | $ | 8,216 | $ | 17,951 | $ | 148,537 | |||||||||
Income/(loss) from vessel operations | 26,385 | 28,053 | 16,739 | 3,891 | (3,613 | ) | 3,259 | 74,714 | * | ||||||||||||||
Total assets at March 31, 2001 | 782,764 | 402,191 | 111,884 | 2,116 | 18,235 | 175,794 | 1,492,984 | ||||||||||||||||
Three months ended March 31, 2000: | |||||||||||||||||||||||
Shipping revenues | 17,502 | 24,323 | 14,823 | 9,904 | 7,276 | 10,213 | 84,041 | ||||||||||||||||
Income/(loss) from vessel operations | 5,593 | 3,579 | 2,257 | 3,317 | (509 | ) | 1,291 | 15,528 | * | ||||||||||||||
Total assets at March 31, 2000 | 690,718 | 351,251 | 112,687 | 6,919 | 17,395 | 188,810 | 1,367,780 |
F–8
Reconciliations of total assets of the segments to amounts included in the condensed consolidated balance sheets follow:
| In thousands as of | |||||
---|---|---|---|---|---|---|
| March 31, 2001 | March 31, 2000 | ||||
Total assets of all segments | $ | 1,492,984 | $ | 1,367,780 | ||
Corporate cash and securities, including capital construction fund | 342,328 | 247,427 | ||||
Other unallocated amounts | 76,395 | 83,189 | ||||
Consolidated total assets | $ | 1,911,707 | $ | 1,698,396 | ||
Note D—Foreign Subsidiaries:
A condensed summary of the combined assets and liabilities of the Company's foreign (incorporated outside the U.S.) subsidiaries, whose operations are principally conducted in U.S. dollars, follows:
| In thousands as of | |||||
---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | ||||
Current assets | $ | 52,864 | $ | 44,451 | ||
Vessels, net | 1,214,685 | 1,198,027 | ||||
Other assets | 126,555 | 108,499 | ||||
1,394,104 | 1,350,977 | |||||
Current installments of long-term debt, including intercompany of $66,800 in 2001 and 2000 | 77,450 | 75,500 | ||||
Other current liabilities | 12,292 | 11,108 | ||||
Total current liabilities | 89,742 | 86,608 | ||||
Long-term debt (including intercompany of $50,100 and $66,800), deferred credits and other liabilities | 349,134 | 397,075 | ||||
438,876 | 483,683 | |||||
Net assets | $ | 955,228 | $ | 867,294 | ||
Note E—Bulk Shipping Joint Ventures:
In early 2001, the Company entered into an agreement, whereby companies in which the Company holds a 49.9% interest acquired two 1993-built VLCCs. Such acquisitions were financed by the joint ventures through long-term bank financing and approximately $32,450,000 in subordinated shareholder loans. In connection with the bank financing, the shareholders have severally issued guaranties that aggregated $22,500,000 at March 31, 2001. The amount of these guaranties reduces proportionately as the principal amount of the loan is paid down.
F–9
Note F—Derivatives
As of March 31, 2001, the Company is a party to fixed to floating interest rates swaps with various major financial institutions covering notional amounts aggregating $60,000,000, pursuant to which it pays LIBOR and receives fixed rates of approximately 6.1% calculated on the notional amounts. As of March 31, 2001, the Company has recorded an asset of $1,450,000 related to the fair market values of these fair value hedges. The carrying amount of the debt to which the hedges apply has been increased by a comparable amount. Interest expense for the three months ended March 31, 2001, was reduced by $101,000 of benefits arising from these fair value hedges. The Company is also a party to floating to fixed interest rate swaps with various major financial institutions covering notional amounts aggregating approximately $273,000,000, pursuant to which it pays fixed rates ranging from 5.1% to 7.1% and receives LIBOR (4.7% to 4.9% as of March 31, 2001, for a term equal to the swaps' reset periods). These agreements contain no leverage features and have various maturity dates from mid 2002 to 2008. As of March 31, 2001 the Company has recorded a liability of $2,230,000 related to the fair market values of these swaps.
As of March 31, 2001, the Company has recorded an asset of $3,141,000 related to the fair market value of the Japanese yen foreign currency swaps entered into with a major financial institution that will result in the Company receiving approximately $15,000,000 for such foreign currency from April 1, 2001 through March 31, 2002.
Note G—Long-term Debt:
Agreements relating to long-term debt provide for prepayment privileges (in certain instances with penalties), a limitation on the amount of total borrowings, and acceleration of payment under certain circumstances, including failure to satisfy the financial covenants contained in certain of such agreements.
Approximately 14% of the net carrying amount of the Company's vessels and vessels under capital leases, representing two foreign flag and four U.S. flag vessels, is pledged as collateral for certain long-term debt.
Interest paid approximated $8,048,000 (three months ended March 31, 2001) and $6,698,000 (three months ended March 31, 2000), excluding capitalized interest.
Note H—Taxes:
Effective from January 1, 1987, earnings of the foreign shipping companies are subject to U.S. income taxation currently; post-1986 taxable income may be distributed to the U.S. parent without further tax. Prior thereto, 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 $69,637,000 (three months ended March 31, 2001) and $5,538,000 (three months ended March 30, 2000), 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, since such undistributed earnings 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.
Federal income taxes paid during the three months ended March 31, 2001 amounted to $3,100,000, all of which related to 2000. Federal income taxes paid during the three months ended March 31, 2000 amounted to $875,000, of which $700,000 related to 1999.
F–10
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note I—Accumulated Other Comprehensive Income:
The components of accumulated other comprehensive income, net of related taxes, as of March 31, 2001 and December 31, 2000 are as follows:
| In thousands as of | ||||||
---|---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | |||||
Unrealized gain/(loss) on available-for-sale securities | $ | 8,339 | $ | (104 | ) | ||
Unrealized gain on derivative instruments | 506 | — | |||||
$ | 8,845 | $ | (104 | ) | |||
The components of the change in the accumulated unrealized gain on derivative instruments, net of related taxes, for the three months ended March 31, 2001 follows (in thousands):
Cumulative effect of change in accounting principle | $ | 3,455 | |||
Reclassification adjustments for (gains) included in net income, net: | |||||
Interest expense | (176 | ) | |||
Revenues from voyages | (239 | ) | |||
Other income | (2,902 | ) | |||
Change in unrealized gain on derivative instruments | 368 | ||||
$ | 506 | ||||
The amount included in other income relates to a foreign currency swap and was reclassified upon receipt of notice that the charter extension to which such swap applied would not be exercised.
Note J—Restructuring Charge:
In the first quarter of 2001, the Company completed a review of its ship management and administrative functions and adopted a plan to transfer a major portion of such functions to its subsidiary in Newcastle, United Kingdom by year end. The resulting headquarters staff reductions (numbering approximately 80, or 50%) together with other operating cost initiatives are expected to result in annualized savings by 2002 of approximately $20,000,000. In connection with such staff reductions, the Company recorded a pre-tax restructuring charge of $8,545,000. The charge includes $6,902,000 related to employee termination and severance costs associated with the reduction in workforce and $1,643,000 for the write off of certain assets. Estimated additional charges related to this restructuring that will be recognized over the remainder of 2001, in accordance with existing accounting pronouncements, are as follows: $260,000 in each of the second and third quarters, and $825,000 in the fourth quarter. The liability for restructuring costs is included in sundry liabilities in the condensed consolidated balance sheet as of March 31, 2001.
F–11
Note K—Other Income—net:
Other income—net consists of the following:
| In thousands for the Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||
Investment income: | |||||||
Interest and dividends | $ | 3,344 | $ | 2,455 | |||
Gain on sale of securities—net | 1,135 | 2,186 | |||||
Foreign currency exchange loss on available-for-sale securities | (1,023 | ) | — | ||||
3,456 | 4,641 | ||||||
Gain on derivative transactions | 5,658 | — | |||||
Miscellaneous—net | 1,075 | 680 | |||||
$ | 10,189 | $ | 5,321 | ||||
Note L—Commitments and Per Share Amounts:
1. As of March 31, 2001, the Company has commitments for the construction of eight double-hulled foreign flag tankers, scheduled for delivery between August 2001 and early-January 2004, with an aggregate unpaid cost of approximately $216,400,000. Unpaid costs are net of $201,000,000 of progress payments. The progress payments are covered by refundment guaranties, principally from major U.S. insurance companies.
2. Basic net income per share is based on the following weighted average number of common shares outstanding during each period: 33,982,000 shares (three months ended March 31, 2001) and 33,699,000 shares (three months ended March 31, 2000). Diluted net income per share, which gives effect to stock options, is based on the following weighted average number of shares during each period: 34,531,000 shares (three months ended March 31, 2001) and 33,914,000 shares (three months ended March 31, 2000).
F–12
REPORT OF INDEPENDENT AUDITORS
To the ShareholdersOverseas Shipholding Group, Inc.
We have audited the accompanying consolidated balance sheets of Overseas Shipholding Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, cash flows, and changes in shareholders' equity for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Overseas Shipholding Group, Inc. and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
As discussed in Note B to the consolidated financial statements, in 2000 the Company changed its method of accounting for net voyage revenues for vessels operating on voyage charters.
New York, New YorkFebruary 14, 2001
F–13
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
| 2000 | 1999 | |||||||
---|---|---|---|---|---|---|---|---|---|
| In thousands at December 31, | ||||||||
Assets | |||||||||
Current Assets: | |||||||||
Cash, including interest-bearing deposits of $12,686 and $53,451 | $ | 15,781 | $ | 56,727 | |||||
Investments in marketable securities—Note F | 54,985 | 32,266 | |||||||
Voyage receivables, including unbilled of $37,378 and $4,034 | 51,805 | 12,492 | |||||||
Other receivables | 5,149 | 5,964 | |||||||
Prepaid expenses | 9,315 | 13,534 | |||||||
Total Current Assets | 137,035 | 120,983 | |||||||
Capital Construction Fund—Notes F and J | 213,440 | 181,933 | |||||||
Vessels, at cost, less accumulated depreciation—Notes A3, G and O1 | 1,250,171 | 1,188,348 | |||||||
Vessels Under Capital Leases, less accumulated amortization—Notes A4 and O1 | 43,787 | 49,165 | |||||||
Investments in Bulk Shipping Joint Ventures—Note E | 84,742 | 75,914 | |||||||
Other Assets—Note A3 | 94,738 | 104,602 | |||||||
$ | 1,823,913 | $ | 1,720,945 | ||||||
Liabilities and Shareholders' Equity | |||||||||
Current Liabilities: | |||||||||
Accounts payable | $ | 3,451 | $ | 3,073 | |||||
Sundry liabilities and accrued expenses—Note N2 | 26,178 | 26,388 | |||||||
Federal income taxes, including deferred income taxes of $300 in 2000 and 1999—Note J | 4,905 | 800 | |||||||
34,534 | 30,261 | ||||||||
Current installments of long-term debt—Note G | 8,700 | 9,870 | |||||||
Current obligations under capital leases—Note O1 | 5,594 | 5,077 | |||||||
Total Current Liabilities | 48,828 | 45,208 | |||||||
Long-term Debt—Notes G and O1 | 770,869 | 755,904 | |||||||
Obligations Under Capital Leases—Note O1 | 65,628 | 71,468 | |||||||
Deferred Federal Income Taxes ($117,749 and $77,877), Deferred Credits and Other Liabilities—Notes J and O1 | 188,421 | 187,307 | |||||||
Shareholders' Equity—Notes G, J and P: | |||||||||
Common stock | 39,591 | 39,591 | |||||||
Paid-in additional capital | 99,009 | 96,156 | |||||||
Retained earnings | 688,528 | 618,453 | |||||||
827,128 | 754,200 | ||||||||
Cost of treasury stock | 76,857 | 81,098 | |||||||
750,271 | 673,102 | ||||||||
Accumulated other comprehensive income/(loss) | (104 | ) | (12,044 | ) | |||||
Total Shareholders' Equity | 750,167 | 661,058 | |||||||
Commitments, Leases and Other Matters—Notes N and O | |||||||||
$ | 1,823,913 | $ | 1,720,945 | ||||||
See notes to consolidated financial statements.
F–14
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share amounts, for the year ended December 31, | 2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Net Shipping Revenues: | ||||||||||
Revenues from voyages—Note C | $ | 359,045 | $ | 350,545 | $ | 412,384 | ||||
Net voyage revenues of vessels operating in certain pools—Note E | 108,573 | — | — | |||||||
Voyage expenses—Note H | (97,537 | ) | (97,328 | ) | (85,865 | ) | ||||
370,081 | 253,217 | 326,519 | ||||||||
Shipping Expenses: | ||||||||||
Vessel expenses | 96,841 | 110,400 | 150,194 | |||||||
Time and bareboat charter hire expenses—Note E | 41,326 | 22,288 | 18,289 | |||||||
Depreciation of vessels and amortization of capital leases | 55,226 | 57,855 | 70,806 | |||||||
General and administrative—Note H | 42,622 | 39,308 | 46,180 | |||||||
236,015 | 229,851 | 285,469 | ||||||||
Income from Vessel Operations | 134,066 | 23,366 | 41,050 | |||||||
Equity in Results of Bulk Shipping Joint Ventures—Note E | 11,449 | 7,132 | (3,600 | ) | ||||||
Operating Income | 145,515 | 30,498 | 37,450 | |||||||
Other Income (Net)—Note K | 34,141 | 21,870 | 32,312 | |||||||
179,656 | 52,368 | 69,762 | ||||||||
Interest Expense | 47,470 | 45,257 | 62,200 | |||||||
132,186 | 7,111 | 7,562 | ||||||||
Gain on Sale of Investment in Cruise Business—Note N3 | — | — | 42,288 | |||||||
Gain/(Provision for Loss) on Planned Vessel Dispositions—Note M | — | 12,404 | (85,072 | ) | ||||||
Income/(Loss) before Federal Income Taxes, Extraordinary Gain/(Loss) and Cumulative Effect of Change in Accounting Principle | 132,186 | 19,515 | (35,222 | ) | ||||||
Provision/(Credit) for Federal Income Taxes—Note J | 46,520 | 6,213 | (10,950 | ) | ||||||
Income/(Loss) before Extraordinary Gain/(Loss) and Cumulative Effect of Change in Accounting Principle | 85,666 | 13,302 | (24,272 | ) | ||||||
Extraordinary Gain/(Loss) on Early Extinguishment of Debt, net of (income taxes)/tax benefit of $(230), $(787) and $7,350—Note G | 573 | 1,462 | (13,648 | ) | ||||||
Cumulative Effect of Change in Accounting Principle, net of income taxes of $1,800—Note B | 4,152 | — | — | |||||||
Net Income/(Loss) | $ | 90,391 | $ | 14,764 | $ | (37,920 | ) | |||
Per Share Amounts—Note P: | ||||||||||
Basic net income/(loss) before extraordinary gain/(loss) and cumulative effect of change in accounting principle | $ | 2.53 | $ | 0.37 | $ | (0.66 | ) | |||
Diluted net income/(loss) before extraordinary gain/(loss) and cumulative effect of change in accounting principle | $ | 2.49 | $ | 0.37 | $ | (0.66 | ) | |||
Extraordinary gain/(loss) | $ | 0.02 | $ | 0.04 | $ | (0.37 | ) | |||
Cumulative effect of change in accounting principle | $ | 0.12 | — | — | ||||||
Basic net income/(loss) | $ | 2.67 | $ | 0.41 | $ | (1.03 | ) | |||
Diluted net income/(loss) | $ | 2.63 | $ | 0.41 | $ | (1.03 | ) | |||
Cash dividends declared and paid | $ | 0.60 | $ | 0.60 | $ | 0.60 | ||||
See notes to consolidated financial statements.
F–15
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands for the year ended December 31, | 2000 | 1999 | 1998 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Flows from Operating Activities: | ||||||||||||
Net income/(loss) | $ | 90,391 | $ | 14,764 | $ | (37,920 | ) | |||||
Items included in net income/(loss) not affecting cash flows: | ||||||||||||
Cumulative effect of change in accounting principle | (5,952 | ) | — | — | ||||||||
Depreciation of vessels and amortization of capital leases | 55,226 | 57,855 | 70,806 | |||||||||
Amortization of deferred gain on sale and leaseback | (17,353 | ) | (6,674 | ) | — | |||||||
Deferred compensation relating to stock option grants | 1,282 | — | — | |||||||||
(Gain)/provision for loss on planned vessel dispositions | — | (12,404 | ) | 85,072 | ||||||||
Provision/(credit) for deferred federal income taxes | 35,040 | 7,668 | (32,530 | ) | ||||||||
Equity in results of bulk shipping joint ventures | (10,807 | ) | (7,132 | ) | 3,600 | |||||||
Other—net | (10,851 | ) | (13,421 | ) | 1,897 | |||||||
Items included in net income/(loss) related to investing and financing activities: | ||||||||||||
(Gain) on sale of investment in cruise business | — | — | (42,288 | ) | ||||||||
(Gain) on sale of securities — net | (3,513 | ) | (1,884 | ) | (21,789 | ) | ||||||
(Gain)/loss on disposal of other vessels | (21,064 | ) | (1,824 | ) | 1,288 | |||||||
Extraordinary (gain)/loss on early extinguishment of debt | (803 | ) | (2,249 | ) | 20,998 | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Decrease/(increase) in receivables | (23,695 | ) | 18,344 | (360 | ) | |||||||
Net change in prepaid items, accounts payable and sundry liabilities and accrued expenses | 12,391 | (16,010 | ) | 7,522 | ||||||||
Net cash provided by operating activities | 100,292 | 37,033 | 56,296 | |||||||||
Cash Flows from Investing Activities: | ||||||||||||
Proceeds from sale of investment in cruise business | — | — | 198,474 | |||||||||
Purchases of marketable securities | (38,968 | ) | (23,309 | ) | (836 | )(b) | ||||||
Proceeds from sales of marketable securities | 15,148 | 3,847 | 29,490 | |||||||||
Purchases of vessels under capital leases (a) | — | — | (7,700 | ) | ||||||||
Additions to vessels, including $105,037 (2000), $173,056 (1999) and $3,811 (1998) related to vessels under construction (c) | (106,858 | ) | (177,334 | ) | (11,376 | ) | ||||||
Proceeds from sale and leaseback | — | 169,949 | — | |||||||||
Proceeds from sale of vessels held for disposal | — | 53,043 | 47,306 | |||||||||
Proceeds from disposal of other vessels | 8,148 | — | 2,527 | |||||||||
Investments in and advances to bulk shipping joint ventures | (6,845 | ) | — | — | ||||||||
Distributions from bulk shipping joint ventures | 8,824 | 23,222 | — | |||||||||
Purchases of other investments | (3,912 | ) | (1,849 | ) | (1,838 | ) | ||||||
Proceeds from dispositions of other investments | 6,475 | 3,072 | 1,754 | |||||||||
Other—net | (3,096 | ) | (7,517 | ) | (5,950 | ) | ||||||
Net cash provided by/(used in) investing activities | (121,084 | ) | 43,124 | 251,851 | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Purchases of treasury stock | — | (39,229 | ) | — | ||||||||
Issuance of long-term debt (c) | 74,000 | 64,000 | — | |||||||||
Payments on long-term debt and obligations under capital leases | (75,885 | ) | (77,800 | ) | (349,101 | ) | ||||||
Cash dividends paid | (20,316 | ) | (21,443 | ) | (22,076 | ) | ||||||
Issuance of common stock upon exercise of stock options | 4,795 | — | — | |||||||||
Other—net | (2,748 | ) | 37 | 840 | ||||||||
Net cash used in financing activities | (20,154 | ) | (74,435 | ) | (370,337 | ) | ||||||
Net increase/(decrease) in cash | (40,946 | ) | 5,722 | (62,190 | ) | |||||||
Cash, including interest-bearing deposits, at beginning of year | 56,727 | 51,005 | 113,195 | |||||||||
Cash, including interest-bearing deposits, at end of year | $ | 15,781 | $ | 56,727 | $ | 51,005 | ||||||
See notes to consolidated financial statements.
F–16
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES INSHAREHOLDERS' EQUITY
| | | | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Common Stock* | Paid-in Additional Capital | Retained Earnings | | |||||||||||||||||
| Shares | Amount | Total | ||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
Balance at December 31, 1997 | $ | 39,591 | $ | 96,149 | $ | 685,128 | 2,798,196 | $ | (41,719 | ) | $ | 648 | $ | 779,797 | |||||||
Net (Loss) | (37,920 | ) | (37,920 | ) | |||||||||||||||||
Other Comprehensive (Loss), net of tax: | |||||||||||||||||||||
Net unrealized losses on available-for-sale securities** | (12,036 | ) | (12,036 | ) | |||||||||||||||||
Comprehensive (Loss) | (49,956 | ) | |||||||||||||||||||
Cash Dividends Declared and Paid | (22,076 | ) | (22,076 | ) | |||||||||||||||||
Common Stock Acquired | 13,700 | (188 | ) | (188 | ) | ||||||||||||||||
Options Exercised | 7 | (2,834 | ) | 38 | 45 | ||||||||||||||||
Balance at December 31, 1998 | 39,591 | 96,156 | 625,132 | 2,809,062 | (41,869 | ) | (11,388 | ) | 707,622 | ||||||||||||
Net Income | 14,764 | 14,764 | |||||||||||||||||||
Other Comprehensive (Loss), net of tax: | |||||||||||||||||||||
Net unrealized losses on available-for-sale securities** | (656 | ) | (656 | ) | |||||||||||||||||
Comprehensive Income | 14,108 | ||||||||||||||||||||
Cash Dividends Declared and Paid | (21,443 | ) | (21,443 | ) | |||||||||||||||||
Common Stock Acquired | 3,109,400 | (39,229 | ) | (39,229 | ) | ||||||||||||||||
Balance at December 31, 1999 | 39,591 | 96,156 | 618,453 | 5,918,462 | (81,098 | ) | (12,044 | ) | 661,058 | ||||||||||||
Net Income | 90,391 | 90,391 | |||||||||||||||||||
Other Comprehensive Income, net of tax: | |||||||||||||||||||||
Net unrealized gains on available-for-sale securities** | 11,940 | 11,940 | |||||||||||||||||||
Comprehensive Income | 102,331 | ||||||||||||||||||||
Cash Dividends Declared and Paid | (20,316 | ) | (20,316 | ) | |||||||||||||||||
Deferred Compensation Related to Options Granted | 1,282 | 1,282 | |||||||||||||||||||
Options Exercised and Employee Stock Purchase Plan | 554 | (314,187 | ) | 4,241 | 4,795 | ||||||||||||||||
Tax Benefit Related to Options Exercised | 1,017 | 1,017 | |||||||||||||||||||
Balance at December 31, 2000 | $ | 39,591 | $ | 99,009 | $ | 688,528 | 5,604,275 | $ | (76,857 | ) | $ | (104 | ) | $ | 750,167 | ||||||
See notes to consolidated financial statements.
F–17
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A—Summary of Significant Accounting Policies:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Depreciation of vessels is computed for financial reporting purposes based on cost, less estimated salvage value, by the straight-line method primarily using a vessel life of 25 years. Accumulated depreciation was $397,373,000 and $368,745,000 at December 31, 2000 and 1999, respectively.
Expenditures for maintenance and repairs incurred during a drydocking are deferred and amortized on a straight-line basis over the period until the next scheduled drydocking. Such amortization, which is included in vessel expenses in the consolidated statements of operations, amounted to $14,912,000 (2000), $18,005,000 (1999) and $19,525,000 (1998). The unamortized portion of deferred drydocking expenditures, which is included in other assets in the consolidated balance sheets, was $13,706,000 and $25,846,000 at December 31, 2000 and 1999, respectively.
F–18
marketable securities in the consolidated balance sheets reflects management's view with respect to the portfolio's availability for use in current operations.
Changes in the value of currency swaps (designated as hedges against contracted future charter revenues receivable in a foreign currency) are deferred and are offset against corresponding changes in the value of the charter hire, over the related charter periods (see Note O2). Any gain or loss realized upon the termination of foreign currency swaps would be recognized as an adjustment of voyage revenues over the remaining term of the related charter.
Note B—Change in Accounting for Voyage Revenue:
Prior to 2000, net voyage revenues for vessels operating on voyage charters were accounted for using the completed voyage method, with voyages being calculated on a load-to-load basis. Under that method, the net revenue of a voyage was included in operating results in the period in which that voyage was deemed completed, that is, its arrival at the subsequent voyage's initial load port.
Effective January 1, 2000, the Company changed its accounting policy for the recognition of net voyage revenues of vessels operating on voyage charters to the percentage of completion method, with voyages being calculated on a discharge-to-discharge basis. Under this method, net voyage revenue is recognized evenly over the period from a vessel's departure from its last discharge port to the projected departure from its next discharge port. The change in revenue recognition policy eliminates fluctuations in income from vessel operations attributable solely to the timing of completion of voyages. Further, the discharge-to-discharge basis is deemed by management to be a more reliable method of recognizing net voyage revenues under the percentage of completion method, since it eliminates uncertainty associated with predicting the actual location of the next load port. The cumulative effect of this change is shown separately in the consolidated statement of operations for 2000, and resulted in income, net of taxes, of $4,152,000 in the first quarter. The cumulative effect of this change in accounting principle as of January 1, 2000 on the Company's consolidated balance sheet was to increase total assets by $3,749,000, to reduce total liabilities by $403,000 and to increase shareholders' equity by $4,152,000.
Assuming the above percentage of completion method had been applied retroactively, the pro forma income before cumulative effect of change in accounting principle for 1999 would have been
F–19
reduced by $1,314,000 to $13,450,000, or $.37 per basic and diluted share. The pro forma loss before cumulative effect of change in accounting principle for 1998 would have been increased by $2,860,000 to $40,780,000, or $1.11 per basic and diluted share.
Note C—Business and Segment Reporting:
The Company is principally engaged in the ocean transportation of liquid and dry bulk cargoes in both the worldwide markets and the self-contained U.S. markets through the ownership and operation of a diversified fleet of bulk cargo vessels. The bulk shipping industry has many markets that have distinct characteristics and are subject to different market forces. The primary markets for individual vessels are determined to a large degree by their types, sizes and flags. Unlike container or liner ships, which the Company does not own, bulk vessels are not bound to specific ports or schedules and, therefore, can respond to market opportunities by moving between trades and geographical areas. The Company's subsidiaries charter their vessels to commercial shippers and U.S. and foreign governmental agencies primarily on time and voyage charters and occasionally on bareboat charters (see Note O2).
The Company has five reportable segments: foreign flag VLCCs (very large crude carriers), Aframaxes and products carriers, and U.S. flag tankers and dry bulk carriers. Following the disposal of certain older tonnage in 1999, the Company revised its reportable segments in the first quarter of 2000. Segment information as of December 31, 1999 and 1998 and for the years then ended has been reclassified to conform to the revised presentation. Segment results are evaluated based on income from vessel operations before general and administrative expenses. The accounting policies followed by the reportable segments are the same as those followed in the preparation of the Company's consolidated financial statements.
F–20
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note C—Business and Segment Reporting: (Continued)
Information about the Company's reportable segments for the three years ended December 31, 2000 follows:
| Foreign flag | U.S. flag | | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands | VLCCs | Aframaxes | Products carriers | Tankers | Dry bulk carriers | All other | Totals | |||||||||||||||
2000 | ||||||||||||||||||||||
Shipping revenues | $ | 120,549 | † | $ | 132,006 | $ | 76,655 | $ | 37,486 | $ | 47,490 | *** | $ | 53,432 | $ | 467,618 | ||||||
Depreciation and amortization | 19,799 | 15,655 | 7,244 | — | 2,034 | 10,494 | 55,226 | |||||||||||||||
Income from vessel operations | 74,229 | ** | 49,233 | 24,938 | 12,843 | 3,015 | 12,430 | 176,688 | * | |||||||||||||
Equity in results of bulk shipping joint ventures | 2,736 | 4,016 | — | 5,248 | — | (551 | ) | 11,449 | ||||||||||||||
Total assets at December 31, 2000 | 764,118 | 374,288 | 110,666 | 6,628 | 28,739 | 179,707 | 1,464,146 | |||||||||||||||
Investments in bulk shipping joint ventures at December 31, 2000 | 72,703 | 5,879 | — | 4,644 | — | 1,516 | 84,742 | |||||||||||||||
Expenditures for vessels | 86,126 | 31,317 | 174 | — | 145 | 212 | 117,974 | |||||||||||||||
1999 | ||||||||||||||||||||||
Shipping revenues | 66,772 | 77,977 | 47,506 | 51,078 | 37,475 | 69,737 | 350,545 | |||||||||||||||
Depreciation and amortization | 15,686 | 15,826 | 7,200 | 6,472 | 2,057 | 10,614 | 57,855 | |||||||||||||||
Income from vessel operations | 15,267 | ** | 3,016 | 5,032 | 22,080 | 5,986 | 11,293 | 62,674 | * | |||||||||||||
Gain on planned vessel dispositions | — | — | — | — | — | 12,404 | 12,404 | |||||||||||||||
Equity in results of bulk shipping joint ventures | 4,336 | — | — | 1,750 | — | 1,046 | 7,132 | |||||||||||||||
Total assets at December 31, 1999 | 685,386 | 355,565 | 117,255 | 10,013 | †† | 17,705 | 198,984 | 1,384,908 | ||||||||||||||
Investments in bulk shipping joint ventures at December 31, 1999 | 72,329 | — | — | 1,787 | — | 1,798 | 75,914 | |||||||||||||||
Expenditures for vessels | 121,170 | 53,043 | 2,339 | — | 262 | 520 | 177,334 | |||||||||||||||
1998 | ||||||||||||||||||||||
Shipping revenues | 91,573 | 87,941 | 54,088 | 93,731 | 13,706 | 71,345 | 412,384 | |||||||||||||||
Depreciation and amortization | 16,747 | 15,535 | 8,777 | 14,709 | 1,751 | 13,287 | 70,806 | |||||||||||||||
Income/(loss) from vessel operations | 35,708 | ** | 6,925 | 9,994 | 25,237 | (1,739 | ) | 11,105 | 87,230 | * | ||||||||||||
Provision for loss on planned vessel dispositions | — | — | (6,908 | ) | (2,015 | ) | — | (76,149 | ) | (85,072 | ) | |||||||||||
Equity in results of bulk shipping joint ventures | (2,959 | ) | — | — | — | — | (641 | ) | (3,600 | ) | ||||||||||||
Total assets at December 31, 1998 | 587,807 | 315,419 | 129,006 | 89,759 | 15,020 | 242,986 | 1,379,997 | |||||||||||||||
Investments in bulk shipping joint ventures at December 31, 1998 | 81,968 | — | — | — | — | 9,974 | 91,942 | |||||||||||||||
Expenditures for vessels, including purchase of vessels under capital leases | 108,532 | — | 1,420 | 13,263 | 666 | 79 | 123,960 | |||||||||||||||
F–21
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note C—Business and Segment Reporting: (Continued)
Reconciliations of total assets of the segments to amounts included in the consolidated balance sheets follow:
In thousands at December 31, | 2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Total assets of all segments | $ | 1,464,146 | $ | 1,384,908 | $ | 1,379,997 | ||||
Corporate cash and securities, including capital construction fund | 283,774 | 270,526 | 237,520 | |||||||
Other unallocated amounts | 75,993 | 65,511 | 77,998 | |||||||
Consolidated total assets | $ | 1,823,913 | $ | 1,720,945 | $ | 1,695,515 | ||||
Certain additional information about the Company's operations for the three years ended December 31, 2000 follows:
In thousands | Consolidated | Foreign flag* | U.S. flag | ||||||
---|---|---|---|---|---|---|---|---|---|
2000 | |||||||||
Shipping revenues | $ | 467,618 | $ | 355,397 | $ | 112,221 | |||
Vessels and vessels under capital leases at December 31, 2000 | 1,293,958 | 1,224,004 | ** | 69,954 | |||||
1999 | |||||||||
Shipping revenues | 350,545 | 223,468 | 127,077 | ||||||
Vessels and vessels under capital leases at December 31, 1999 | 1,237,513 | 1,160,495 | ** | 77,018 | |||||
1998 | |||||||||
Shipping revenues | 412,384 | 271,669 | 140,715 | ||||||
Vessels and vessels under capital leases at December 31, 1998† | $ | 1,229,110 | $ | 1,069,704 | ** | $ | 159,406 | ||
The Company had one charterer (BP Amoco p.l.c.—"BP Amoco") during 1999 and 1998 from which revenues exceeded 10% of the sum of revenues from voyages and net revenues of vessels operating in certain pools. Revenues from such charterer amounted to $35,193,000 in 1999 and $98,625,000 in 1998. The decrease in 1999 reflects the conversion of long-term time charters on five U.S. flag tankers to bareboat charters to Alaska Tanker Company, LLC (see Note E) in the second quarter.
See Note J for information relating to taxation of income and undistributed earnings of foreign companies.
F–22
Note D—Assets and Liabilities of Foreign Subsidiaries:
A condensed summary of the combined assets and liabilities of the Company's foreign (incorporated outside the United States) subsidiaries, whose operations are principally conducted in U.S. dollars, follows:
In thousands at December 31, | 2000 | 1999 | ||||
---|---|---|---|---|---|---|
Current assets | $ | 44,451 | $ | 26,179 | ||
Vessels, net | 1,198,027 | 1,132,973 | ||||
Other assets | 108,499 | 105,759 | ||||
1,350,977 | 1,264,911 | |||||
Current installments of long-term debt, including intercompany of $66,800 in 2000 and 1999 | 75,500 | 76,670 | ||||
Other current liabilities | 11,108 | 13,487 | ||||
Total current liabilities | 86,608 | 90,157 | ||||
Long-term debt (including intercompany of $66,800 and $133,600), deferred credits and other liabilities | 397,075 | 425,388 | ||||
483,683 | 515,545 | |||||
Net assets | $ | 867,294 | $ | 749,366 | ||
Note E—Bulk Shipping Joint Ventures and Certain Pooling Arrangements:
In the first quarter of 1999, the Company, BP Amoco and Keystone Shipping Company ("Keystone") completed the formation of Alaska Tanker Company, LLC ("ATC"). ATC, which is owned 37.5% by the Company, 37.5% by Keystone and 25% by BP Amoco, provides marine transportation services in the environmentally sensitive Alaskan crude oil trade. Each member in ATC is entitled to receive its respective share of any incentive charter hire payable, if certain conditions are met, by BP Amoco to ATC. ATC currently manages the vessels carrying BP Amoco's Alaskan crude oil, including five of the Company's vessels through mid-October 2000 and four thereafter (reflecting the sale of the vessel discussed in the following paragraph). The long-term charters to BP Amoco covering these five vessels were converted in the second quarter of 1999 to bareboat charters to ATC, with BP Amoco guarantees, through their expiry dates (2005/2006 for four of these vessels and 2003 for the other) under the U.S. Oil Pollution Act of 1990. Hire under the bareboat charters out is included in revenue from voyages (payments required to be made by the Company in connection with its related August 1999 sale and leaseback of these five vessels are included in time and bareboat charter hire expenses) and the Company's share of incentive hire earned by ATC is included in equity in results of bulk shipping joint ventures in the consolidated statements of operations.
In October 2000, the Company disposed of one of its U.S. flag tankers included in the August 1999 sale and leaseback transaction. This resulted in a gain (representing the unamortized balance of the previously deferred gain, net of the vessel's unamortized deferred drydocking expenditures) of approximately $19,700,000 in the fourth quarter of 2000, which is included in other income in the consolidated statement of operations.
F–23
In December 1999, the Company and five other leading tanker companies established Tankers International LLC ("TI") to pool their VLCC fleets. TI, which commenced operations in February 2000, commercially manages a fleet of exclusively modern VLCCs. TI was formed to meet the global transportation requirements of international oil companies and other major charterers. As of December 31, 2000, six of the Company's VLCCs participate in the TI pool. The Company's four VLCC newbuildings are scheduled to enter the pool upon their delivery within the next two years.
In March 2000, the Company acquired a 30% interest in a single-purpose company that purchased a 1993-built VLCC, which also participates in the TI pool. The vessel acquisition was financed by the joint venture through long-term bank financing and approximately $9,750,000 in subordinated shareholder loans. In connection with the bank financing, the shareholders have severally issued guarantees aggregating $6,000,000.
During the first quarter of 2000, the Company and two other major vessel owners agreed to pool their modern Capesize dry bulk carriers. The pool currently commercially manages a fleet of 50 vessels, including the Company's two foreign flag dry bulk carriers. The Company and other pool members have interests in a number of short-term time charters-in that participate in the pool. OSG's share of the cost of such charters-in in 2000 was $8,868,000. The Company's share of such charter-in obligations as of December 31, 2000 is $19,657,000 (2001), or $18,600 per day, and $868,000 (2002), or $17,200 per day.
The earnings of VLCCs and Capesize dry bulk carriers, including the Company's share of the results of the chartered-in vessels referred to in the preceding paragraph, operating in pools are reported on a time charter equivalent (voyage revenues less voyage expenses) basis. For periods prior to the commencement of pool operations, revenues from voyages and voyage expenses of these vessels are separately reflected.
In May 2000, a subsidiary of the Company invested $1,500,000 for a 50% interest in a newly formed joint venture that bareboat chartered-in a 1992-built Aframax tanker, which is being accounted for as a capital lease. Such subsidiary has provided certain charter guarantees to the joint venture; daily time charter equivalent earnings in excess of an agreed amount are for the Company's benefit. Certain other subsidiaries have investments in other bulk shipping joint ventures, which are also 50% owned.
In early 2001, the Company entered into a joint venture agreement, whereby companies in which OSG holds an approximate 49% interest will acquire two 1993-built VLCCs that will participate in the TI pool. Such acquisitions, which are expected to close in the first quarter of 2001, will be financed by the joint ventures substantially through long-term bank financing.
F–24
Note F—Investments in Marketable Securities:
Certain information concerning the Company's marketable securities (including securities in the capital construction fund), which consist of available-for-sale securities, follows:
| | Gross unrealized | Approximate market and carrying amount | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands at December 31, | | |||||||||||
Cost | Gains | Losses | ||||||||||
2000 | ||||||||||||
Equity securities | $ | 85,531 | $ | 6,352 | $ | 6,738 | $ | 85,145 | ||||
U.S. Treasury securities and obligations of U.S. government agencies | 14,772 | 640 | 13 | 15,399 | ||||||||
Mortgage-backed securities | 55,808 | 252 | 179 | 55,881 | ||||||||
Other debt securities | 20,731 | 165 | 659 | 20,237 | ||||||||
$ | 176,842 | $ | 7,409 | $ | 7,589 | $ | 176,662 | |||||
1999 | ||||||||||||
Equity securities | $ | 111,588 | $ | 1,174 | $ | 16,993 | $ | 95,769 | ||||
U.S. Treasury securities and obligations of U.S. government agencies | 5,712 | 17 | 104 | 5,625 | ||||||||
Mortgage-backed securities | 30,771 | — | 1,181 | 29,590 | ||||||||
Other debt securities | 26,779 | — | 1,332 | 25,447 | ||||||||
$ | 174,850 | $ | 1,191 | $ | 19,610 | $ | 156,431 | |||||
At February 14, 2001, the aggregate market quotation of the above marketable securities was approximately $181,000,000.
The cost and approximate market value of debt securities held by the Company as of December 31, 2000, by contractual maturity, follow:
In thousands | Cost | Approximate market | ||||
---|---|---|---|---|---|---|
Due in one year or less | $ | 2,718 | $ | 2,704 | ||
Due after one year through five years | 13,543 | 13,684 | ||||
Due after five years through ten years | 9,099 | 9,393 | ||||
Due after ten years | 10,143 | 9,855 | ||||
35,503 | 35,636 | |||||
Mortgage-backed securities | 55,808 | 55,881 | ||||
$ | 91,311 | $ | 91,517 | |||
F–25
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note G—Debt:
Long-term debt, exclusive of current installments, follows:
In thousands at December 31, | 2000 | 1999 | ||||
---|---|---|---|---|---|---|
Unsecured revolving credit agreements with banks | $ | 493,000 | $ | 457,000 | ||
8.75% Debentures due 2013, net of unamortized discount of $177 and $191 | 84,798 | 84,784 | ||||
8% Notes due 2003, net of unamortized discount of $49 and $80 | 69,671 | 84,820 | ||||
Floating rate secured Term Loans, due through 2008 | 102,950 | 102,046 | ||||
Floating rate unsecured Promissory Note, due through 2005 | 20,450 | 24,350 | ||||
Other | — | 2,904 | ||||
$ | 770,869 | $ | 755,904 | |||
In April 2000, the Company concluded an unsecured revolving credit agreement that provides for borrowings of up to $350,000,000, on a revolving credit basis, through April 2005. In connection therewith, the Company's existing long-term credit facility, which terminates in August 2002 and bears interest at a spread (currently 70 basis points) above the London interbank offered rate ("LIBOR"), was reduced from $600,000,000 to $425,000,000. Amounts outstanding under this new facility bear interest at a spread (currently 112.5 basis points) above LIBOR. The financial covenants contained in this agreement are substantially equivalent to those contained in existing debt agreements.
Agreements related to long-term debt provide for prepayment privileges (in certain instances with penalties), a limitation on the amount of total borrowings, and acceleration of payment under certain circumstances, including failure to satisfy the financial covenants contained in certain of such agreements. The most restrictive of these covenants requires the Company to maintain net worth as of December 31, 2000 of approximately $680,000,000 (increasing quarterly by an amount related to net income).
The Company has used interest rate swaps to effectively convert a portion of its debt either from a fixed to floating rate basis or from floating to fixed rate, reflecting management's interest rate outlook at various times. As of December 31, 2000, the Company is a party to fixed to floating interest rate swaps with various major financial institutions covering notional amounts aggregating $60,000,000, pursuant to which it pays LIBOR and receives fixed rates of approximately 6.1% calculated on the notional amounts. The Company is also a party to floating to fixed interest rate swaps with various major financial institutions covering notional amounts aggregating approximately $278,000,000, pursuant to which it pays fixed rates ranging from 5.1% to 7.1% and receives LIBOR (6.2% to 6.4% as of December 31, 2000, for a term equal to the swaps' reset frequency). These agreements contain no leverage features and have various maturity dates from mid 2002 to 2008. In December 2000, the Company terminated fixed to floating interest rate swaps (which were designated as hedges against certain debt) expiring in late 2003 and 2008, covering a notional amount of $140,000,000.
In June 2000, the Company repurchased 8% Notes with an aggregate principal amount of $15,180,000, at a discount of $803,000. During 1999, the Company repurchased 8.75% Debentures and 8% Notes with an aggregate principal amount of $23,875,000, at a $2,249,000 discount. Such discounts have been reported in the Company's consolidated statements of operations as extraordinary gains.
F–26
During the fourth quarter of 1998, the Company repurchased Unsecured Senior Notes, due from 2000 through 2013 with coupons averaging 8.7%, with an aggregate principal amount of $310,000,000, at a $21,000,000 premium net of gains from the termination of related interest rate swaps (fixed rate interest on the Unsecured Senior Notes had been converted to a floating rate basis by these interest rate swaps). The premium net of the swap termination gain has been reported in the Company's consolidated statement of operations as an extraordinary charge. The Company borrowed the amount needed for the purchase under a long-term revolving credit agreement, effectively reducing interest by approximately $5,000,000 per year, based on the interest rates and the amount of notes outstanding at the time of the transaction.
Approximately 14% of the net book amount of the Company's vessels and vessels under capital leases, representing two foreign flag and four U.S. flag vessels, is pledged as collateral for certain long-term debt.
The aggregate annual principal payments required to be made on long-term debt for the five years subsequent to December 31, 2000 are $8,700,000 (2001), $431,600,000 (2002), $82,271,000 (2003), $12,600,000 (2004) and $91,450,000 (2005).
The Company also has a $15,000,000 committed short-term line of credit facility with a bank, all of which was unused as of December 31, 2000.
Note H—Agency Fees and Brokerage Commissions:
On October 30, 1998, the Company assumed direct management and operation of its bulk shipping fleet, terminating its arrangements (see below), by mutual consent, with Maritime Overseas Corporation ("Maritime"). The Company employed the staff of Maritime, acquired certain employee benefit plan assets and assumed related obligations of Maritime, and acquired certain of Maritime's other assets for consideration that was not material.
All subsidiaries with vessels and certain joint ventures were parties to agreements with Maritime that provided, among other matters, for Maritime and its subsidiaries to render services related to the chartering and operation of the vessels and certain general and administrative services for which Maritime and its subsidiaries received specified compensation. General and administrative expenses include $26,263,000 (January 1 to October 30, 1998) of such agency fees. Voyage expenses include $4,859,000 (January 1 to October 30, 1998) of brokerage commissions to Maritime. By agreement, Maritime's compensation for any year was limited to the extent Maritime's consolidated net income from shipping operations would exceed a specified amount (approximately $1,014,000 for January 1 to October 30, 1998). Maritime was owned by a director of the Company; directors or officers of the Company constituted all four of the directors and the majority of the principal officers of Maritime until October 1998, at which time the owner of Maritime became its sole director, and officers of the Company resigned as officers of Maritime in connection with the transaction referred to in the preceding paragraph.
F–27
Note I—Disclosures About Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and interest-bearing deposits—The carrying amounts reported in the consolidated balance sheet for interest-bearing deposits approximate their fair value.
Investment securities—The fair value for marketable securities is based on quoted market prices or dealer quotes.
Debt, including capital lease obligations—The carrying amounts of the borrowings under the revolving credit agreements and the other floating rate loans approximate their fair value. The fair values of the Company's fixed rate debt are estimated using discounted cash flow analyses, based on the rates currently available for debt with similar terms and remaining maturities.
Interest rate swaps—The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swaps at the reporting date.
Foreign currency swaps—The fair value of foreign currency swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swaps at the reporting date.
The estimated fair values of the Company's financial instruments follow:
In thousands at December 31, | Carrying amount 2000 | Fair value 2000 | Carrying amount 1999 | Fair value 1999 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets (liabilities) | |||||||||||||
Cash and interest bearing deposits | $ | 15,781 | $ | 15,781 | $ | 56,727 | $ | 56,727 | |||||
Interest-bearing deposits in capital construction fund | 91,763 | 91,763 | 57,768 | 57,768 | |||||||||
Investments in marketable securities | 176,662 | 176,662 | 156,431 | 156,431 | |||||||||
Debt, including capital lease obligations | (850,791 | ) | (847,074 | ) | (842,319 | ) | (826,404 | ) | |||||
Interest rate swaps | — | 3,411 | — | 6,124 | |||||||||
Foreign currency swaps | — | 2,782 | — | (6,740 | ) |
Note J—Taxes:
Effective from January 1, 1987, earnings of the foreign shipping companies are subject to U.S. income taxation currently; post-1986 taxable income may be distributed to the U.S. parent without further tax. The foreign companies' shipping income earned from January 1, 1976 through December 31, 1986 ("Deferred Income") is excluded from U.S. income taxation to the extent that such income is reinvested in foreign shipping operations, and the foreign shipping income earned before 1976 is not subject to tax unless distributed to the U.S. parent. A determination of the amount of qualified investments in foreign shipping operations, as defined, is made at the end of each year and such amount is compared with the corresponding amount at December 31, 1986. If, during any determination period, there is a reduction of qualified investments in foreign shipping operations, Deferred Income, limited to the amount of such reduction, would become subject to tax. The Company believes that it will be reinvesting sufficient amounts in foreign shipping operations
F–28
so that any significant U.S. income taxes on the undistributed income of its foreign companies accumulated through December 31, 1986 will be postponed indefinitely. U.S. income taxes on the income of its foreign companies accumulated through December 31, 1986 will be provided at such time as it becomes probable that a liability for such taxes will be incurred and the amount thereof can reasonably be estimated. No provision for U.S. income taxes on the income of the foreign shipping companies accumulated through December 31, 1986 was required at December 31, 2000 since undistributed earnings of foreign shipping companies have been reinvested or are intended to be reinvested in foreign shipping operations. As of December 31, 2000, such undistributed earnings aggregated approximately $475,000,000, including $114,000,000 earned prior to 1976; the unrecognized deferred U.S. income tax attributable to such undistributed earnings approximated $165,000,000.
Pursuant to the Merchant Marine Act of 1936, as amended, the Company is a party to an agreement that permits annual deposits, related to taxable income of certain of its domestic subsidiaries, into a capital construction fund. Payments of federal income taxes on such deposits and earnings thereon are deferred until, and if, such funds are withdrawn for nonqualified purposes or termination of the agreement; however, if withdrawn for qualified purposes (acquisition of vessels or retirement of debt on vessels), such funds remain tax-deferred and the federal income tax basis of any such vessel is reduced by the amount of such withdrawals. Under the agreement, the general objective is (by use of assets accumulated in the fund) for three vessels to be constructed or acquired by the end of 2004. Monies can remain tax-deferred in the fund for a maximum of 25 years (commencing January 1, 1987 for deposits prior thereto).
The significant components of the Company's deferred tax liabilities and assets follow:
In thousands at December 31, | 2000 | 1999 | |||||
---|---|---|---|---|---|---|---|
Deferred tax liabilities: | |||||||
Excess of tax over statement depreciation—net | $ | 69,739 | $ | 47,092 | |||
Tax benefits related to the capital construction fund | 64,493 | 54,228 | |||||
Costs capitalized and amortized for statement, expensed for tax | 6,457 | 5,624 | |||||
Other—net | 17,710 | 19,207 | |||||
Total deferred tax liabilities | 158,399 | 126,151 | |||||
Deferred tax assets: | |||||||
Capital leases | 1,494 | 1,678 | |||||
Alternative minimum tax credit carryforwards, which can be carried forward indefinitely | 38,856 | 29,774 | |||||
Net operating loss carryforwards, expiring between 2010 and 2012 | — | 16,522 | |||||
Total deferred tax assets | 40,350 | 47,974 | |||||
Net deferred tax liabilities | $ | 118,049 | $ | 78,177 | |||
Federal income taxes paid amounted to $9,850,000 in 2000 ($950,000 of which related to 1999) and $17,500,000 in 1998 ($7,000,000 of which related to a prior period). A federal income tax refund of approximately $7,900,000, all of which related to prior years, was received in 1999.
F–29
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note J—Taxes: (Continued)
The components of income/(loss) before federal income taxes, extraordinary gain/(loss) and cumulative effect of change in accounting principle follow:
In thousands for the year ended December 31, | 2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Foreign | $ | 117,105 | $ | 9,528 | $ | 4,592 | ||||
Domestic | 15,081 | 9,987 | (39,814 | ) | ||||||
$ | 132,186 | $ | 19,515 | $ | (35,222 | ) | ||||
Substantially all of the above foreign income resulted from the operations of companies that were not subject to income taxes in their countries of incorporation.
The components of the provision/(credit) for federal income taxes follow:
In thousands for the year ended December 31, | 2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Current | $ | 14,299 | $ | (1,455 | ) | $ | 21,580 | |||
Deferred | 32,221 | 7,668 | (32,530 | ) | ||||||
$ | 46,520 | $ | 6,213 | $ | (10,950 | ) | ||||
The income tax expense/(benefit) allocated to each component of other comprehensive income/(loss) follows:
In thousands for the year ended December 31, | 2000 | 1999 | 1998 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Unrealized gains on available-for-sale securities | $ | 7,945 | $ | 800 | $ | 1,194 | ||||
Reclassification adjustment for (gains) included in net income/(loss) | (1,645 | ) | (1,075 | ) | (7,294 | ) | ||||
$ | 6,300 | $ | (275 | ) | $ | (6,100 | ) | |||
Reconciliations of the actual federal income tax rate attributable to pretax income/(loss) before extraordinary gain/(loss) and cumulative effect of change in accounting principle and the U.S. statutory income tax rate follow:
In thousands for the year ended December 31, | 2000 | 1999 | 1998 | |||||
---|---|---|---|---|---|---|---|---|
Actual federal income tax provision/(credit) rate | 35.2 | % | 31.8 | % | (31.1 | %) | ||
Adjustments due to: | ||||||||
Dividends received deduction | 0.1 | % | 2.1 | % | 1.2 | % | ||
Prior years' undistributed earnings of cruise business—see Note N3 | — | — | (2.7 | %) | ||||
Income not subject to U.S. income taxes | 0.7 | % | — | — | ||||
Other | (1.0 | %) | 1.1 | % | (2.4 | %) | ||
U.S. statutory income tax provision/(credit) rate | 35.0 | % | 35.0 | % | (35.0 | %) | ||
F–30
Note K—Other Income (Net):
Other income (net) consists of:
In thousands for the year ended December 31, | 2000 | 1999 | 1998 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Investment Income: | |||||||||||
Interest | $ | 9,766 | $ | 12,239 | $ | 7,761 | |||||
Dividends | 1,280 | 1,343 | 2,303 | ||||||||
Gain on sale of securities—net (based on first-in, first-out method) | 3,513 | 1,884 | 21,789 | ||||||||
14,559 | 15,466 | 31,853 | |||||||||
Gain on early termination of interest rate swaps | — | 2,804 | — | ||||||||
Gain/(loss) on disposal of vessels—net | 21,064 | 1,824 | (1,288 | ) | |||||||
Miscellaneous—net | (1,482 | ) | 1,776 | 1,747 | |||||||
$ | 34,141 | $ | 21,870 | $ | 32,312 | ||||||
Gross realized gains on sales of securities were $22,318,000 (2000), $9,597,000 (1999) and $25,895,000 (1998), and gross realized losses were $18,805,000 (2000), $7,713,000 (1999) and $4,106,000 (1998).
Note L—Pension and Other Postretirement Benefit Plans:
Since October 31, 1998 (see Note H), the Company is the sponsor of a noncontributory defined benefit pension plan covering substantially all of its domestic shore-based employees. Retirement benefits are based primarily on years of service and final average compensation, as defined. The Company's policy is to fund pension costs accrued, but not in excess of amounts allowable under income tax regulations. The Company has an unfunded, nonqualified supplemental pension plan covering certain employees, which provides for additional benefits that would otherwise have been payable to such employees under the Company's pension plan in the absence of limitations imposed by income tax regulations. The accrued benefit liabilities for this supplemental plan were $7,983,000 and $6,213,000 at December 31, 2000 and 1999, respectively, and have been reflected in the accrued benefit costs shown in the table below.
Certain of the Company's foreign subsidiaries have pension plans that, in the aggregate, are not significant to the Company's consolidated financial position.
The Company also provides certain postretirement health care and life insurance benefits to qualifying domestic retirees and their eligible dependents. The health care plan is contributory; the life insurance plan is noncontributory. In general, postretirement medical coverage is provided to employees who retire and have met minimum age and service requirements, under a formula related to total years of service. The Company does not currently fund these benefit arrangements and has the right to amend or terminate the health care benefits at any time.
F–31
Certain information as of December 31, 2000 and 1999 and for the three years ended December 31, 2000 with respect to the above domestic plans follows (amounts applicable to periods prior to October 31, 1998 were not material):
| Pension benefits | Other benefits | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands at December 31, | |||||||||||||||
2000 | 1999 | 2000 | 1999 | ||||||||||||
Change in benefit obligation: | |||||||||||||||
Benefit obligation at beginning of year | $ | 33,234 | $ | 42,935 | $ | 4,636 | $ | 5,440 | |||||||
Cost of benefits earned (service cost) | 908 | 1,150 | 135 | 164 | |||||||||||
Interest cost on benefit obligation | 2,361 | 2,552 | 324 | 374 | |||||||||||
Plan participants' contributions | — | — | 58 | 50 | |||||||||||
Amendments | 356 | 448 | — | — | |||||||||||
Benefits paid | (3,586 | ) | (10,467 | ) | (360 | ) | (351 | ) | |||||||
Curtailments and settlements | — | (1,287 | ) | — | (285 | ) | |||||||||
Benefit obligation at December 31 | 33,273 | 35,331 | 4,793 | 5,392 | |||||||||||
Change in plan assets: | |||||||||||||||
Fair value of plan assets at beginning of year | 37,274 | 42,880 | — | — | |||||||||||
Actual return on plan assets | 2,668 | 2,377 | — | — | |||||||||||
Benefits paid | (2,966 | ) | (7,203 | ) | — | — | |||||||||
Curtailments and settlements | — | (780 | ) | — | — | ||||||||||
Fair value of plan assets at December 31 | 36,976 | 37,274 | — | — | |||||||||||
Funded status at December 31 (unfunded) | 3,703 | 1,943 | (4,793 | ) | (5,392 | ) | |||||||||
Unrecognized prior-service costs | 1,080 | 305 | — | — | |||||||||||
Unrecognized net actuarial (gain)/loss | (1,676 | ) | 974 | (935 | ) | (231 | ) | ||||||||
Unrecognized transition obligation | — | (261 | ) | 2,562 | 2,745 | ||||||||||
Additional minimum liability | (1,171 | ) | (457 | ) | — | — | |||||||||
Prepaid/(accrued) benefit cost at December 31 | $ | 1,936 | $ | 2,504 | $ | (3,166 | ) | $ | (2,878 | ) | |||||
F–32
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note L—Pension and Other Postretirement Benefit Plans: (Continued)
For the years ended December 31, 2000 and 1999 and for the period from October 31 to December 31, 1998 | Pension benefits | Other benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 1998 | 2000 | 1999 | 1998 | |||||||||||||||
Components of expense: | ||||||||||||||||||||
Cost of benefits earned | $ | 908 | $ | 1,150 | $ | 245 | $ | 135 | $ | 164 | $ | 52 | ||||||||
Interest cost on benefit obligation | 2,361 | 2,552 | 499 | 324 | 374 | 77 | ||||||||||||||
Expected return on plan assets | (3,314 | ) | (3,540 | ) | (646 | ) | — | — | — | |||||||||||
Amortization of prior-service costs | 757 | 224 | 37 | 7 | — | — | ||||||||||||||
Amortization of transition obligation | (261 | ) | (261 | ) | (43 | ) | 176 | 197 | 48 | |||||||||||
Recognized net actuarial loss/(gain) | 23 | 190 | 24 | (52 | ) | (6 | ) | (7 | ) | |||||||||||
Net periodic benefit cost | 474 | 315 | 116 | 590 | 729 | 170 | ||||||||||||||
(Gain)/loss on curtailments and settlements | — | (527 | ) | — | — | 247 | — | |||||||||||||
Net periodic benefit cost after curtailments and settlements | $ | 474 | $ | (212 | ) | $ | 116 | $ | 590 | $ | 976 | $ | 170 | |||||||
The weighted average discount rate and assumed rate of future compensation increases used in determining the benefit obligation at December 31, 2000 were 7% and 4%, respectively. The expected long-term return on plan assets was 9%. The assumed health care cost trend rate for measuring the benefit obligation included in Other Benefits above is 4%.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects:
In thousands | 1% increase | 1% decrease | |||||
---|---|---|---|---|---|---|---|
Effect on total of service and interest cost components in 2000 | $ | 64 | $ | (52 | ) | ||
Effect on postretirement benefit obligation as of December 31, 2000 | $ | 538 | $ | (450 | ) |
The Company also has a 401(k) employee savings plan covering all eligible employees, as defined. Contributions are limited to amounts allowable for income tax purposes. Employer matching contributions to the plan are at the discretion of the Company. Certain subsidiaries make contributions to union-sponsored multi-employer pension plans covering seagoing personnel. The Employee Retirement Income Security Act of 1974 requires employers who are contributors to domestic multi-employer plans to continue funding their allocable share of each plan's unfunded vested benefits in the event of withdrawal from or termination of such plans. The Company has been advised by the trustees of such plans that it has no withdrawal liability as of December 31, 2000. Certain other seagoing personnel of U.S. flag vessels are covered under a subsidiary's defined contribution plan, the cost of which is funded as accrued. The costs of these plans were not material during the three years ended December 31, 2000.
Note M—Planned Vessel Dispositions:
At the end of the third quarter of 1997, the Company established a reserve of $26,536,000 ($17,200,000 after tax) for the reduction of the carrying amount (approximately $163,000,000) of its ten older and less competitive dry cargo vessels held for disposal to their then estimated fair value (less disposal costs) and for costs in connection with the elimination of related overhead. As a
F–33
result of continued weakness in world dry bulk markets, reflecting, in particular, the Asian economic downturn, the Company, during 1998, decided to extend the period over which it expected to dispose of such dry cargo vessels and recorded a charge of $65,400,000 ($42,500,000 after tax), representing an increase in the reserve. During 1999, the Company completed its dry bulk disposal program and, in connection therewith, recognized a gain of $12,404,000.
In the fourth quarter of 1998, the Company established a reserve of $19,700,000 ($12,800,000 after tax), which excluded the Company's share of the provision with respect to vessels held by certain joint ventures, to reduce the carrying amount (approximately $36,600,000) of certain older and less efficient crude oil and products tonnage, which it expected to dispose of in 1999, to their estimated fair value. During 1999, the Company sold eight of these tankers, including the three held in joint ventures. The two remaining tankers are now participating in the U.S. grain trade program and, accordingly, were reclassified from vessels held for disposal to vessels as of December 31, 1999.
Note N—Commitments and Other Matters:
In thousands at December 31, | 2000 | 1999 | ||||
---|---|---|---|---|---|---|
Payroll and benefits | $ | 7,266 | $ | 3,248 | ||
Interest | 4,291 | 4,209 | ||||
Insurance | 2,999 | 5,978 | ||||
Other | 11,622 | 12,953 | ||||
$ | 26,178 | $ | 26,388 | |||
F–34
Note O—Leases:
The minimum commitments under capital leases for four U.S. flag vessels were:
In thousands at December 31, 2000 | | ||
---|---|---|---|
2001 | $ | 12,751 | |
2002 | 12,751 | ||
2003 | 12,751 | ||
2004 | 9,312 | ||
2005 | 9,691 | ||
Beyond 2005 | 55,754 | ||
Net minimum lease payments | 113,010 | ||
Less amount representing interest | 41,788 | ||
Present value of net minimum lease payments | $ | 71,222 | |
During 1998, a subsidiary of the Company purchased a vessel that was under a capital lease. The excess, $5,044,000, of the purchase price, including the assumption of debt to which the vessel was subject, over the carrying amount of the lease obligation (which was removed from the consolidated balance sheet) was recorded as an adjustment to the carrying amount of the vessel.
In August 1999, the Company completed the sale and leaseback of certain U.S. flag crude carriers that are bareboat chartered-out through their OPA 90 expiry dates. The net proceeds received, approximately $170,000,000, were applied to reduce amounts then outstanding under its long-term credit facility. The gains on the sale and leaseback of these vessels, under operating leases, were deferred and are being amortized over the remaining periods of the respective leases as a reduction in lease expense. The unamortized balance of the deferred gain as of December 31, 2000 and 1999 was $55,578,000 and $93,893,000, respectively. The decrease in 2000 reflects scheduled amortization and the recognition of $22,330,000 in connection with the sale of one of these vessels. Payments required to be made under the above operating leases as of December 31, 2000 are $28,052,000 (2001 to 2003), $18,715,000 (2004), $15,059,000 (2005) and $1,064,000 (2006); such payment obligations are satisfied through the assignments of the hire receivable under the bareboat charters-out of such vessels (see Note O2).
The Company has chartered-in a foreign flag VLCC from a 50%-owned joint venture with a remaining term of four years, under an operating lease, at an annual time charter rental of approximately $8,000,000. OSG, in turn, has time-chartered the vessel for the same period to the joint venture partner at an annual rental of approximately $13,500,000 (see Note O2).
The total rental expense for charters accounted for as operating leases amounted to $51,053,000 in 2000 (including the $8,868,000 referred to in Note E), $25,908,000 in 1999 and $19,799,000 in 1998.
Revenues from a time charter are not generally received when a vessel is off-hire, including time required for normal periodic maintenance of the vessel.
F–35
The minimum future revenues expected to be received subsequent to December 31, 2000 on noncancelable time charters and bareboat charters are $80,533,000 (2001), $63,434,000 (2002), $60,542,000 (2003), $51,008,000 (2004), $17,253,000 (2005) and $1,312,000 (2006). The foregoing amounts do not purport to be an estimate of aggregate voyage revenues for any of the years. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
The Company has hedged its exchange rate risk with respect to contracted future charter revenues receivable in Japanese yen to minimize the effect of foreign exchange rate fluctuations on reported income by entering into currency swaps with a major financial institution to deliver such foreign currency at fixed rates that will result in the Company receiving approximately $60,000,000 for such foreign currency from 2001 through 2004.
Note P—Capital Stock and Per Share Amounts:
The Company's Board of Directors ("Board"), has authorized the repurchase of up to 6,000,000 shares of the Company's common stock from time to time in the open market. Such purchases will be made at the Company's discretion and take into account such factors as price and prevailing market conditions. To date, a total of 3,123,100 shares have been repurchased.
The Company's 1989 nonqualified stock option plan, as amended, covered 570,000 treasury shares. Options were granted to certain officers of the Company and a subsidiary for the purchase of all the shares covered by the amended plan, at $14.00 per share. Outstanding options remain exercisable until October 2003.
The Company has granted options under its 1990 nonqualified stock option plan, as amended, including options granted to employees of Maritime and assumed by the Company (see Note H), at prices ranging from $14.00 to $19.50 per share (the market prices at dates of grant). Outstanding options remain exercisable until December 2002.
In February 2000, the Board amended the 1998 stock option plan, subject to stockholder approval, to increase the number of shares available for grant pursuant to options under such plan from 1,300,000 to 2,800,000. The stockholders approved the amendment to the plan in June 2000. The 1998 plan provides for options to be granted at exercise prices of at least market value at the date of grant. Options granted vest and become exercisable over a three-year period and expire ten years from the date of grant. Options covering 1,974,016 shares have been granted to employees (including senior officers) at prices ranging from $12.50 to $16.00 per share (the market prices at dates of grant).
In February 1999, the Board adopted the 1999 Non-Employee Director (as defined) Stock Option Plan, making available up to 150,000 shares of the Company's stock. The plan provides for the grant of an initial option for 7,500 shares and an annual option for 1,000 shares thereafter to each non-employee director at an exercise price equal to market value at the date of the grant. Initial options vest and become exercisable over a three-year period; annual options vest and become exercisable one year from the date of the grant. All options expire ten years from the date of grant. Options covering 87,000 shares have been granted at prices ranging from $13.30 to $24.81 per share (the market prices at dates of grant).
F–36
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note P—Capital Stock and Per Share Amounts: (Continued)
Stock option activity under all plans is summarized as follows:
The weighted average remaining contractual life of the above stock options at December 31, 2000 was 8 years.
The Company follows APB 25 and related interpretations in accounting for its employee stock options. Compensation cost for the Company's stock option plans determined using the fair value method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), for grants made subsequent to 1994, would have reduced net income for 2000 and 1999 by $1,382,000 ($.04 per share) and $1,437,000 ($.04 per share), respectively, and increased the net loss for 1998 by $169,000 ($.01 per share). For purposes of applying FAS 123, the fair values of the options granted were estimated on the dates of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2000, 1999 and 1998: risk free interest rates of 5.0%, 6.8% and 5.2%, dividend yields of 4.1%, 4.7% and 3.7%, expected stock price volatility factors of .37, .42 and .31, and expected lives of 7.7, 7.8 and 7.7 years. The weighted average grant-date fair values of options granted in 2000, 1999 and 1998 were $4.41, $4.17 and $4.48, respectively.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Basic net income/(loss) per share is based on the following weighted average number of common shares outstanding during each year: 33,870,154 shares (2000), 35,711,705 shares (1999) and 36,793,590 shares (1998). Diluted net income/(loss) per share, which gives effect to the aforementioned stock options in 2000 and 1999, is based on the following weighted average
F–37
number of shares during each year: 34,315,257 shares (2000), 35,724,725 shares (1999) and 36,793,590 shares (1998). Such stock options have not been included in the computation of diluted net (loss) per share in 1998 since their effect thereon would be antidilutive.
In October 1998, the Board adopted a Stockholder Rights Plan, and declared a rights distribution under the plan of one common stock purchase right on each outstanding share of common stock of the Company. The rights plan is designed to guard against attempts to take over the Company for a price that does not reflect the Company's full value, or that are conducted in a manner or on terms not approved by the Board as being in the best interests of the Company and the stockholders. The rights are preventative in nature and were not distributed in response to any known attempt to acquire control of the Company.
Note Q—2000 and 1999 Quarterly Results of Operations (Unaudited):
Results of Operations for Quarter Ended (in thousands, except per share amounts) | March 31, | June 30, | Sept. 30, | Dec. 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | |||||||||||||
Revenues from voyages* | $ | 84,041 | $ | 103,203 | $ | 129,535 | $ | 150,839 | |||||
Income from vessel operations | 5,275 | 25,749 | 46,402 | 56,640 | |||||||||
Gain on disposal of vessels—net | — | — | — | 21,064 | |||||||||
Income before extraordinary gain | 5,013 | ** | 10,406 | 26,765 | 47,634 | ||||||||
Net income | $ | 5,013 | $ | 10,979 | $ | 26,765 | $ | 47,634 | |||||
Basic net income per share | $ | 0.15 | $ | 0.32 | $ | 0.79 | $ | 1.40 | |||||
Diluted net income per share | $ | 0.15 | $ | 0.32 | $ | 0.78 | $ | 1.38 | |||||
1999 | |||||||||||||
Revenues from voyages | $ | 96,616 | $ | 91,209 | $ | 84,770 | $ | 77,950 | |||||
Income/(loss) from vessel operations | 12,655 | 13,056 | 3,528 | (5,873 | ) | ||||||||
Gain on disposal of vessels—net | 258 | — | — | 1,566 | |||||||||
Income/(loss) before extraordinary gain | 3,058 | 8,433 | 1,993 | (182 | ) | ||||||||
Net income | $ | 3,058 | $ | 8,433 | $ | 3,026 | $ | 247 | † | ||||
Basic and diluted net income per share | $ | 0.08 | $ | 0.23 | $ | 0.09 | $ | 0.01 | † | ||||
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No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
5,000,000 Shares
Overseas ShipholdingGroup, Inc.
Common Stock
Goldman, Sachs & Co.Merrill Lynch & Co.ABN AMRO Rothschild LLCRepresentatives17,719,598 Class A Warrants, Each to Purchase 0.190 Shares of the Underwriters
PROSPECTUS
, 2016
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Item 14. | Other Expenses of Issuance and Distribution. |
The following table sets forth the estimated fees and expenses other than underwriting discounts and commissions,payable by the registrant in connection with the offering and sale of our Class A Common Stock and Class A Warrants, other than any estimated underwriting discounts and commissions:
SEC registration fee | $ | 41,912.32 | ||
Printing and engraving expenses | * | |||
Blue sky fees and expenses (including related legal fees) | – | |||
Legal fees and expenses | * | |||
Accounting fees and expenses | * | |||
Miscellaneous | * | |||
Total | $ | * |
* To be completed by amendment.
In the event securities being offered under this registration statement are distributed in an underwritten offering, we anticipate that additional expenses will be incurred. An estimate of the common stock,aggregate expenses in connection with the issuance and distribution of securities being offered will be included in the applicable prospectus supplement.
We will bear all of the expenses shown above. All amounts are as follows:
Registration Fee—Securities and Exchange Commission | $ | 50,988 | ||
Filing Fee—NASD | 20,895 | |||
Printing Expenses | 250,000 | |||
Legal Fees and Expenses | 500,000 | |||
Accounting Fees and Expenses | 50,000 | |||
Miscellaneous | 100,000 | |||
Total | $ | 971,883 | ||
Item 15. Indemnification of Directors and Officers.estimates except for the SEC registration fee.
We are incorporated in Delaware. Under
Item 15. | Indemnification of Directors and Officers. |
Section 145 of the Delaware General Corporation Law, or the DGCL provides that a corporation has the power, under specified circumstances, tomay indemnify its directors and officers as well as other employees and agentsindividuals of such corporation against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement in connection with specified actions, suits and proceedings whether civil, criminal, administrative, or proceedings brought against theminvestigative, other than a derivative action by a third party or in the right of the corporation, by reasonif they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the factcorporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that they were or are such directors, officers, employees or agents, againstindemnification extends only to expenses, including attorneys’ fees, incurred in connection with the defense or settlement of such action and the statute requires court approval before there can be any action, suitindemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation’s certificate of incorporation, bylaws, disinterested director vote, stockholder vote, agreement or proceeding. Article Tenth of ourotherwise.
Our Amended and Restated Certificate of Incorporation providesand Amended and Restated By-Laws provide for indemnification of directors and officers to the fullest extent permitted by law, including payment of expenses in advance of resolution of any such matter. Our Amended and Restated Certificate of Incorporation eliminates the potential personal monetary liability of our directors to the Company or its stockholders for breaches of their duties as directors except as otherwise required under the DGCL. We also
In addition, we have entered into separate indemnification agreements with certain of our directors and officers liability insurance policies.officers. Each indemnification agreement provides, among other things, for indemnification to the fullest extent permitted by law against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements also provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law.
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Section 102(b)(7)145(g) of the DGCL provides that a certificatecorporation shall have the power to purchase and maintain insurance on behalf of incorporation may contain a provision eliminatingany person who is or limiting the personal liability ofwas a director toor officer of the corporation against any liability asserted against the person in any such capacity, or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director:
Article Tenth of our Certificate of Incorporation containsperson against such a provision.
Item 16. Exhibits.
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Item 17. Undertakings.
Item 16. | Exhibits and Financial Statement Schedules. |
(a) Exhibits: The list of the Securities Exchange Actexhibits is set forth beginning on page II-6 of 1934 (and, where applicable, each filingthis Registration Statement and is incorporated herein by reference.
(b) Financial Statement Schedules: I – Condensed Financial Information of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) thatParent Company is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein,Overseas Shipholding Group. Inc. Annual Report on Form 10-K for the year ended December 31, 2015 (which has been superseded and replaced in its entirety by Overseas Shipholding Group, Inc.’s Current Report on Form 8-K filed with the offeringSEC on July 14, 2016, which is incorporated by reference herein). All other schedules of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Item 17. | Undertakings. |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of determining any liability under the Securities ActAct;
(ii) To reflect in the prospectus any facts or events arising after the effective date of 1933,this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information omittedset forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering price may be reflected in the form of prospectus filed as partwith the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuantor any material change to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part ofsuch information in this registration statement as of the time it was declared effective.
(b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(d) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(2) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Citycity of New York, Statestate of New York, on June 15, 2001.August 9, 2016.
OVERSEAS SHIPHOLDING GROUP, INC. | |||
/s/ Ian T. Blackley | |||
Ian T. Blackley | |||
President, Chief Executive Officer and Director |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director of Overseas Shipholding Group, Inc. whose signature appears below constitutes and appoints Ian T. Blackley, Rick F. Orrichio, Douglas D. Wheat and James D. Small III, his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any or all amendments including any post-effective amendments and supplements to this Registration Statement, and any additional Registration Statement filed pursuant to Rule 462(b), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, amendment no. 1 toas amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/ Ian T. Blackley | President, Chief Executive | August 9, 2016 | ||
Ian T. Blackley | Officer and Director | |||
(principal executive officer) | ||||
/s/ Rick F. Oricchio | Senior Vice President and | August 9, 2016 | ||
Rick F. Oricchio | Chief Financial Officer | |||
(principal financial and accounting officer) | ||||
/s/ Douglas D. Wheat | Chairman | |||
Director | ||||
/s/ Joseph I. Kronsberg | Director | |||
Joseph I. Kronsberg | ||||
/s/ Samuel H. Norton | Senior Vice President and Director | August 9, 2016 | ||
Samuel H. Norton |
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Name | Date | |||
Director | ||||
Director | ||||
/s/ Chad L. Valerio | Director |
/s/ | Director | August 9, 2016 | ||
Ty E. Wallach | ||||
/s/ Gregory A. Wright | Director | August 9, 2016 | ||
Gregory A. Wright |
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EXHIBIT INDEX
Exhibit Number | Description | |
4.1 | Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and incorporated herein by reference). | |
4.2 | Amended and Restated By-Laws of the Registrant (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on August 8, 2014 and incorporated herein by reference). | |
4.3 | Indenture, dated as of March 7, 2003, between the Registrant and Wilmington Trust Company, as trustee, providing for the issuance of debt securities of the Registrant from time to time (filed as Exhibit 4(e)(1) to the Registrant’s Registration Statement on Form S-4 filed on May 5, 2003 and incorporated herein by reference). Such Indenture is hereby modified, effective as of January 13, 2004, by deleting all references therein to “Wilmington Trust Company,” “March 7, 2003” and any specific day, month and/or year and substituting therefore blank spaces. | |
4.4 | Form of First Supplemental Indenture, dated as of February 19, 2004, relating to the 7.50% Senior Notes due 2024, between the Registrant and Wilmington Trust Company, as trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated February 18, 2004 and incorporated herein by reference). | |
4.5 | Form of 7.50% Senior Notes due 2024 of the Registrant (included in Exhibit 4.2). | |
4.6 | Indenture, dated as of March 29, 2010, relating to the 8 1/8% Senior Notes due 2018, between the Registrant and the Bank of New York Mellon, as trustee, for the issuance of debt securities of the Registrant from time to time (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 29, 2010 and incorporated herein by reference). | |
4.7 | Form of 8 1/8% Senior Notes due 2018 of the Registrant (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated March 29, 2010 and incorporated herein by reference). | |
4.8 | Registration Rights Agreement, dated as of May 2, 2014, between the Registrant and certain securityholders party thereto (filed as Exhibit 4.5 to the Registrant’s Registration Statement on Form S-1 filed on August 20, 2014 and incorporated herein by reference). | |
4.9 | Amendment to Registration Rights Agreement, dated as of May 26, 2014, between the Registrant and certain securityholders party thereto (filed as Exhibit 4.6 to the Registrant’s Registration Statement on Form S-1 filed on August 20, 2014 and incorporated herein by reference). | |
4.10 | Class A Warrant Agreement, dated as of August 5, 2014, between the Registrant, Computershare Inc. and Computershare Trust Company, N.A., as Warrant Agent (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 8, 2014 and incorporated herein by reference). | |
4.11 | Form of Class A Warrant Certificate (included in Exhibit 4.8). | |
4.12 | Second Supplemental Indenture, dated as of August 5, 2014, relating to the 7.50% Senior Notes I due 2021, between the Registrant and Wilmington Trust Company, as trustee (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated August 8, 2014 and incorporated herein by reference). | |
4.13 | Third Supplemental Indenture, dated as of August 5, 2014, relating to the 7.50% Senior Notes II due 2021, between the Registrant and Wilmington Trust Company, as trustee (filed as Exhibit 4.4 to the Registrant’s Current Report on Form 8-K dated August 8, 2014 and incorporated herein by reference). | |
4.14 | First Supplemental Indenture, dated as of December 16, 2015, relating to the 8 1/8% Senior Notes due 2018, between the Registrant and The Bank of New York Mellon, as Trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated December 16, 2015 and incorporated herein by reference). | |
4.15 | Fifth Supplemental Indenture, dated as of December 16, 2015, relating to the 7.50% Senior Notes I due 2021, between the Registrant and Wilmington Trust Company, as Trustee (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated December 16, 2015 and incorporated herein by reference). |
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Exhibit Number | Description | |
4.16 | Sixth Supplemental Indenture, dated as of December 16, 2015, relating to the 7.50% Senior Notes II due 2021, between the Registrant and Wilmington Trust Company, as Trustee (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated December 16, 2015 and incorporated herein by reference). | |
5.1* | Opinion of Cleary Gottlieb Steen & Hamilton LLP. | |
23.1* | Consent of PricewaterhouseCoopers LLP. | |
23.2* | Consent of Cleary Gottlieb Steen & Hamilton LLP (included in Exhibit 5.1). | |
24.1* | Power of Attorney (included on signature page). |
* | Filed herewith. |
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