June 1, 2006
Mail Stop 3561
Via US Mail and Facsimile
Mr. Miles R. Itkin
Senior Vice President, Chief Financial Officer and Treasurer
666 Third Avenue
New York, New York 10017
Re: Overseas Shipholding Group, Inc.
Form 10-K for the year ended December 31, 2005
Form 10-Q for the quarter ended March 31, 2006
Commission file #: 001-06479
Dear Mr. Itkin:
We have reviewed your May 17, 2006 response letter and have
the
following comments. Unless otherwise indicated, we think you
should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional
comments. We look forward to working with you in these respects
and
welcome any questions you may have about any aspects of our
review.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We
look forward to working with you in these respects. We welcome
any
questions you may have about our comments or any other aspect of
our
review. Feel free to call us at the telephone numbers listed at
the
end of this letter.
Please respond to confirm that such comments will be
complied
with, or, if certain of the comments are deemed inappropriate,
advise
the staff of your reason. Your response should be submitted in
electronic form, under the label "corresp" with a copy to the
staff.
Please respond within ten (10) business days.
* * * * * * * * * * * * * * * * * * * * * * *
Form 10-K for the year ended December 31, 2005
Risk Factors
OSG`s vessels call on ports located in countries that are subject
to
restrictions..., page 37
1. We note your response to comment 3 in our letter dated April
13,
2006. Please confirm to us, if true, that you do not participate
in
the management of any of your foreign subsidiaries that own
vessels
that have called or call upon Iranian ports.
2. With respect to the vessels you have contributed to pools, it
is
not clear to us from your response whether you maintain ownership
of
those vessels, or the vessels are owned by one or more of your
foreign
subsidiaries. If you maintain ownership of the vessels, it would
appear to us that you maintain managerial responsibility for the
vessels, and have simply delegated that responsibility to the pool
operators, pursuant to a contractual arrangement. If you own the
vessels, please address for us the issue of whether such
delegation of
managerial responsibility pursuant to a contractual arrangement
under
the terms of which your vessels may call on Iranian ports is
consistent with the requirement under the OFAC Iran sanctions that
U.S. persons not participate in transactions with Iran. If the
vessels are owned by one or more of your foreign subsidiaries,
please
confirm to us, if true, that you do not participate in the
management
of those foreign subsidiaries.
Item 6. Selected Financial Data, page 41
3. We note from your response to our prior comments 6 and 10 that
you
believe your current presentation of time charter equivalent
revenues
in the table of selected financial data is appropriate. As
explained
below, our current position is that time charter equivalent
revenue
should not be presented on the face of the financial statements
and
should be included in an "other data" section at the bottom of the
table of selected financial data. Also, a reconciliation of this
measure to the appropriate GAAP measure should be included in a
footnote reference. Please revise your selected financial data
for
all periods presented accordingly.
Management`s Discussion and Analysis
Income from Vessel Operations, page 52
4. We note from your responses to our prior comments 7 and 10 that
you
do not believe you need to include a reconciliation of "TCE
Revenues"
in Note D to the financial statements and therefore do not intend
to
revise MD&A to include a cross reference to the reconciliation of
the
measure. As discussed below in our other comment on Note D, we
believe a reconciliation of "TCE Revenues" should be included in
Note
D and continue to believe that your MD&A section should be revised
to
include a cross reference to the note in which the reconciliation
of
these measures to the related GAAP measure will be included.
Please
revise your filing accordingly.
Financial Statements
Statements of Operations, page 70
5. We note from your response to our prior comment 10 that you
believe
your current presentation of Time Charter Equivalent Revenues on
the
face of the Statements of Operations is appropriate. It is our
current position that presentation of a measure such as Time
Charter
Equivalent Revenue on the face of the income statement is not in
accordance with generally accepted accounting principles or
Regulation
S-X. We continue to believe that there is no basis for
classifying
voyage expenses differently than other ship operating expenses
such as
vessel expenses and time and bareboat charter hire expenses which
are
included in ship operating expenses in your financial statements.
Also, since there appears to be no basis for classifying revenues
net
of voyage expenses pursuant to EITF 99-19, as previously
requested,
please revise your financial statements to reflect revenues on a
gross
basis and to classify voyage expense as a component of ship
operating
expenses. Please note that we will not object to management`s use
of
the measure "time charter equivalent revenues" for purposes of
assessing the operating performance of the Company`s segments or
for
purposes of the Company`s MD&A discussion if this measure is used
by
management in evaluating the Company`s operating performance.
Statements of Cash Flows, page 71
6. We note from your response to our prior comment 12 that you
believe
your presentation of payments for drydocking as an investing
activity
in the statements of cash flows is appropriate. We continue to
believe, however, that you should present the cash flows related
to
drydocking payments as an operating activity. There are currently
two
allowable methods for companies to use in accounting for dry
docking
costs; expense as incurred or capitalize and amortize over the
drydocking cycle. There should not be a benefit regarding
presentation in the statement of cash flows for choosing one
method
over the other, and if you had chosen to expense these costs as
incurred they would be included in cash flow from operations.
Accordingly, please revise to present the cash flows related to
drydocking payments as an operating activity.
Notes to the Financial Statements
Note A. Summary of Significant Accounting Policies
9. Revenue and Expense Recognition
7. We note from your response to our prior comment 13 that you
believe
your expense recognition policy for voyage expenses is in
compliance
with EITF 91-9. However, we continue to believe that your expense
recognition policy for voyage expenses does not comply with this
guidance, since voyage expenses should be expensed as incurred not
recognized ratably over the voyage. There does not appear to be a
basis under GAAP or more specifically under EITF 91-9 for
accounting
voyage expenses differently than other ship operating expenses
such as
vessel expenses and time and bareboat charter hire expenses.
Please
revise your financial statements for all periods presented to
recognize voyage expenses as incurred.
Note C. Acquisition of Stelmar Shipping Ltd.
8. We note from your response to our prior comment 15 that you do
not
intend to comply with our comment and remove the pro forma time
charter equivalent revenue information from this note. We
continue to
believe that the GAAP revenue measure (i.e., gross revenues),
rather
than the non-GAAP measure, TCE revenues, should be presented in
this
note to be consistent you`re your revised financial statement
presentation. Also, see our related comment above relative to
your
statement of operations.
Note D. Business and Segment Reporting
9. We note from your response to our prior comment 16 that you
will
include a reconciliation of "income from vessel operations" for
the
reportable segments to the amount of "income from vessel
operations"
as shown in the consolidated statements of operations. As
required by
paragraph 32 of SFAS No. 131, the total of the reportable
segments`
measures of profit or loss should be reconciled to the
consolidated
income before income taxes, extraordinary items, discontinued
operations, and the cumulative effect of changes in accounting
principles. Because "income from vessel operations" is your only
segment measure of profit or loss, it should be reconciled in Note
D
to income before taxes rather than the corresponding "income from
vessel operations" line item on the statement of operations.
Also, as
previously requested, a reconciliation of the measure "time
charter
equivalent revenues" to the Company`s consolidated total revenues
will
be required as result of changes required in your statements of
operations as a result of our prior comment outlined above.
Note F. Joint Ventures, Equity Method Investments and Pooling
Arrangements
10. We note from your response to our previous comment 18 that
distributions from Panamax International are made relative to the
earnings capabilities of the vessels and are not based on
ownership
interest. However, we are still unclear as to why you are not
accounting for the results of operations of Panamax International
using the equity method of accounting. Please provide us your
basis,
including the relevant technical accounting literature, for not
accounting for this 50% owned entity using the equity method of
accounting. Include in your response an explanation of how the
Panamax International pool is managed, including the nature of
each of
your responsibilities for the pool. Also, we note your disclosure
in
Note F states that nine of your Panamax vessels are included in
the
thirteen vessel pool, whereas your response to comment 18
indicates
that the pool includes only five of your vessels. Please resolve
this
inconsistency.
Note N. Leases
- - Charters-out
11. We have reviewed your responses to our prior comment numbers
21
and 22 in which you explain your rationale for capitalizing the
payments made to cancel the purchase options associated with
certain
vessels during 2005. However, given that the payments were made to
terminate past contractual arrangements and do not improve the
vessels
in any manner or extend their useful lives, we continue to believe
these payments should have been expensed rather than capitalized
as
part of the costs of the vessel. Furthermore, we do not believe
that
the fact that the book values of the vessels at the time the
payments
were made plus the amounts paid to cancel the options, were less
than
the related fair values of the vessels, provides justification for
the
treatment used. Furthermore, we are unclear as to "probable future
benefit obtained" as a result of making these payments, since one
of
these vessels was sold shortly after making the related option
termination payment. As a result, we do not believe recognition of
an
asset in accordance with the guidance in Concept Statement No. 6
is
appropriate. Accordingly, please revise to reflect the $2,485,000
and
$5,500,000 payments made during 2005 as expenses rather than as
additions to the costs of the related vessels.
Quarterly Report on Form 10-Q for the Quarter ended March 31, 2006
Management`s Discussion and Analysis
General and Administrative Expenses
12. We note the disclosure indicating that general and
administrative
expenses increased by approximately $3,400,000 during the first
quarter of 2006 due to the recognition of targeted cash incentive
compensation ratably over 2006 whereas in prior years such
incentive
compensation was recognized in the fourth quarter. Please tell us
why
you changed your expense recognition policy with respect to these
compensation arrangements and explain why you believe both your
prior
and current treatment are appropriate. As part of your response,
please indicate the terms of the arrangements under which these
cash
compensation payments are required and tell us the amount of
compensation expense that was recognized in the fourth quarter of
2005
in connection with these compensation arrangements. We may have
further comment upon receipt of your response.
Form 8-K furnished March 1, 2006, November 3, 2005, August 5, 2005
and
May 5, 2005
13. We note from your response to our prior comment 26 that you
have
included a reconciliation of income from vessel operations for the
reportable segments to the directly comparable financial measure
included in the statements of operations. Please revise your
reconciliation in future filings to reconcile to consolidated
income
before income taxes, extraordinary items, discontinued operations,
and
the cumulative effect of changes in accounting principles.
Additionally, consistent with our comment on removing TCE Revenue
from
the face of the statements of operations, please include a
reconciliation of the measure "time charter equivalent revenues"
to
the Company`s consolidated total revenues in future earnings
releases
filed on Form 8-K.
* * * * * * * * * * * * * * * * * * * * * * *
You may contact Claire Erlanger at 202-551-3301 or me at 202-551-
3813
if you have questions, except for comments 1-2 relating to the
Risk
Factors section for which you should contact Pradip Bhaumik at
202-
551-3333.
Sincerely,
Linda Cvrkel
Branch Chief
Mr. Miles R. Itkin
Overseas Shipholding Group, Inc.
June 1, 2006
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