October 27, 2004

OSG to get huge boost from tax change

Overseas Shipholding Group, Inc. (NYSE:OSG) reported record net income for the first nine months of 2004 of $190,113,000, or $4.87 per share, an increase of 90% compared with net income of $100,111,000, or $2.89 per share, for the first nine months of 2003. President & CEO Morten Arntzen also spelled out some of the benefits the company expects to derive from the signing into law of the Jobs Creation Act.

Net income for the quarter ended September 30, 2004 was $68,521,000, or $1.74 per share, rising 388% compared with net income of $14,036,000, or $0.40 per share, in the third quarter of 2003. EBITDA for the third quarter rose to $145,398,000 from $57,946,000 in the third quarter of 2003 (

"OSG has extended its run of consecutive record earnings announcements with the highest third quarter income and the highest first nine months income in the company's history,'' saidArntzen "Continued strong demand for tankers has resulted in very high tanker rates throughout the third quarter, traditionally a weak period for the industry, and has lifted tanker rates to record levels in the early weeks of the fourth quarter.''

He also commented that the Jobs Creation Act , signed into law October 22. "will place OSG's U.S. based international tanker fleet on a level playing field with its offshore competitors for the first time since 1986 and will allow us to compete more aggressively. It represents a major step forward in creating economic conditions for U.S. companies to invest in the international shipping business. The new tax law will effectively restore the pre-1987 tax treatment of foreign shipping income beginning in 2005 and will permit indefinite deferral of taxation on such income until it is repatriated to the U.S. as dividends. Had the tax deferral on foreign shipping income contained in the Jobs Creation Act been effective for 2004, our provision for federal income taxes of $95,100,000 for the first nine months would have been essentially eliminated. In addition, because of the enactment of the Jobs Creation Act, the Company expects to reverse approximately $70,000,000 of net deferred tax liabilities and take them into income in the fourth quarter of 2004.''


OSG is not alone in hailing the advantages of the new tax law. On Monday, Seacor Holdings, Inc NYSE:CKH) said that, as a result of the legislation, it believed it would be in the position to repatriate accumulated foreign earnings at an effective federal tax rate of 5.25% "which, in most cases, is significantly less than the Company's provision for deferred tax liabilities."

On October 12, Tidewater Inc. (NYSE: TDW) said the legislation could have a significant positive effect on its future earnings and cash flows.

"Under its current operating structure," said Tidewater, "the Act will afford Tidewater the ability to omit the majority of future international operating income from then current U.S. taxable income. The particular relevant provision, to be effective for Tidewater as of April 1, 2005, would thus enhance future cash flow as well as reported financial earnings by removing such international income from being subjected to the current United States statutory tax rate of 35%. However, such international income has historically been taxed in the relevant foreign jurisdictions at a rate that approximates 18-19% annually, which should remain unaffected by the passage of this legislation. In recent fiscal years, substantially all of Tidewater's income has been generated by its international operations.

"The Act," said Chairman and Chief Executive Officer of Tidewater, Dean E. Taylor, "will go a long way toward achieving the goal of putting worldwide competition for United States shipping companies on a level playing field by instituting a taxing scheme similar to that enjoyed by most of our international competitors."


Law firm Blank Rome has prepared a briefing on the new tax law that you can access by clicking http://www.blankrome.com/publications/BusTax/alert1004.asp


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