UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| ☐ | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission File Number:
001-06479OVERSEAS SHIPHOLDING GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 13-2637623 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 302 Knights Run Avenue, Tampa, Florida | 33602 | |
| (Address of principal executive office) | (Zip Code) |
(813)209-0600
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Class A Common Stock (par value $0.01 per share) | OSG | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-TS–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer’s Class A common stock, par value $0.01, as of November 6, 2017: Class A common stock, par value $0.01–75,043,166May 4, 2023: shares. Excluded from these amountsthis amount are penny warrants which were outstanding as of November 6, 2017May 4, 2023 for the purchase of 12,711,5103,490,468 shares of Class A common stock without consideration of any withholding pursuant to the cashless exercise procedures.
TABLE OF CONTENTS
Page # | |||
| Part I—FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | ||
| 3 | |||
| 4 | |||
| 5 | |||
| 6 | |||
| 7 | |||
| 8 | |||
| 21 | |||
| 2 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
| September 30, 2017 | December 31, 2016 | ||||||
| (unaudited) | |||||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and cash equivalents | $ | 199,729 | $ | 191,089 | |||
| Restricted cash | 3,856 | 7,272 | |||||
| Voyage receivables, including unbilled of $9,900 and $12,593 | 20,773 | 23,456 | |||||
| Income tax receivable | 563 | 877 | |||||
| Receivable from INSW | 506 | 683 | |||||
| Other receivables | 2,030 | 2,696 | |||||
| Inventories, prepaid expenses and other current assets | 12,056 | 12,243 | |||||
| Total Current Assets | 239,513 | 238,316 | |||||
| Restricted cash - non current | — | 8,572 | |||||
| Vessels and other property, less accumulated depreciation of $215,431 and $213,173 | 647,660 | 684,468 | |||||
| Deferred drydock expenditures, net | 23,759 | 31,172 | |||||
| Total Vessels, Other Property and Deferred Drydock | 671,419 | 715,640 | |||||
| Investments in and advances to affiliated companies | 38 | 3,694 | |||||
| Intangible assets, less accumulated amortization of $49,833 and $46,383 | 42,167 | 45,617 | |||||
| Other assets | 22,711 | 18,658 | |||||
| Total Assets | $ | 975,848 | $ | 1,030,497 | |||
| LIABILITIES AND EQUITY | |||||||
| Current Liabilities: | |||||||
| Accounts payable, accrued expenses and other current liabilities | $ | 29,286 | $ | 57,528 | |||
| Current installments of long-term debt | 71,554 | — | |||||
| Total Current Liabilities | 100,840 | 57,528 | |||||
| Reserve for uncertain tax positions | 3,198 | 3,129 | |||||
| Long-term debt | 420,098 | 525,082 | |||||
| Deferred income taxes, net | 142,827 | 141,457 | |||||
| Other liabilities | 49,615 | 48,969 | |||||
| Total Liabilities | 716,578 | 776,165 | |||||
| Equity: | |||||||
| Common stock | 753 | 702 | |||||
| Paid-in additional capital | 584,940 | 583,526 | |||||
| Accumulated deficit | (319,402 | ) | (321,736 | ) | |||
| 266,291 | 262,492 | ||||||
| Accumulated other comprehensive loss | (7,021 | ) | (8,160 | ) | |||
| Total Equity | 259,270 | 254,332 | |||||
| Total Liabilities and Equity | $ | 975,848 | $ | 1,030,497 | |||
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 104,091 | $ | 78,732 | ||||
| Voyage receivables, including unbilled of $3,936 and $11,364, net of reserve for credit losses | 10,917 | 19,698 | ||||||
| Income tax receivable | 682 | 1,914 | ||||||
| Other receivables | 2,905 | 5,334 | ||||||
| Inventories, prepaid expenses and other current assets | 5,662 | 2,668 | ||||||
| Total Current Assets | 124,257 | 108,346 | ||||||
| Vessels and other property, less accumulated depreciation | 715,660 | 726,179 | ||||||
| Deferred drydock expenditures, net | 36,940 | 38,976 | ||||||
| Total Vessels, Other Property and Deferred Drydock | 752,600 | 765,155 | ||||||
| Intangible assets, less accumulated amortization | 16,867 | 18,017 | ||||||
| Operating lease right-of-use assets, net | 196,573 | 206,797 | ||||||
| Investment security to be held to maturity | 14,851 | 14,803 | ||||||
| Other assets | 25,702 | 25,945 | ||||||
| Total Assets | $ | 1,130,850 | $ | 1,139,063 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable, accrued expenses and other current liabilities | $ | 57,197 | $ | 54,906 | ||||
| Current portion of operating lease liabilities | 63,798 | 63,288 | ||||||
| Current portion of finance lease liabilities | 4,012 | 4,000 | ||||||
| Current installments of long-term debt | 24,517 | 23,733 | ||||||
| Total Current Liabilities | 149,524 | 145,927 | ||||||
| Reserve for uncertain tax positions | 177 | 175 | ||||||
| Noncurrent operating lease liabilities | 138,816 | 149,960 | ||||||
| Noncurrent finance lease liabilities | 15,788 | 16,456 | ||||||
| Long-term debt | 393,300 | 399,630 | ||||||
| Deferred income taxes, net | 73,518 | 70,233 | ||||||
| Other liabilities | 10,325 | 16,997 | ||||||
| Total Liabilities | 781,448 | 799,378 | ||||||
| Equity: | ||||||||
| Common stock - Class A ($ par value; shares authorized; and shares issued; and shares outstanding) | 892 | 883 | ||||||
| Paid-in additional capital | 597,078 | 597,455 | ||||||
| Accumulated deficit | (220,884 | ) | (233,023 | ) | ||||
| Treasury stock, and shares, at cost | (30,902 | ) | (29,040 | ) | ||||
| Stockholder’s Equity Subtotal | 346,184 | 336,275 | ||||||
| Accumulated other comprehensive loss | 3,218 | 3,410 | ||||||
| Total Equity | 349,402 | 339,685 | ||||||
| Total Liabilities and Equity | $ | 1,130,850 | $ | 1,139,063 | ||||
See notes to condensed consolidated financial statements
| 3 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Shipping Revenues: | |||||||||||||||
| Time and bareboat charter revenues | $ | 56,911 | $ | 90,507 | $ | 208,794 | $ | 286,610 | |||||||
| Voyage charter revenues | 36,359 | 23,673 | 88,817 | 61,034 | |||||||||||
| 93,270 | 114,180 | 297,611 | 347,644 | ||||||||||||
| Operating Expenses: | |||||||||||||||
| Voyage expenses | 8,388 | 4,531 | 19,329 | 11,041 | |||||||||||
| Vessel expenses | 33,159 | 36,839 | 101,332 | 107,353 | |||||||||||
| Charter hire expenses | 23,053 | 23,083 | 68,486 | 68,809 | |||||||||||
| Depreciation and amortization | 14,390 | 22,905 | 46,100 | 68,701 | |||||||||||
| General and administrative | 6,493 | 10,241 | 21,081 | 34,610 | |||||||||||
| Severance costs | — | 2,238 | 16 | 2,238 | |||||||||||
| Loss on disposal of vessels and other property, including impairments | 7,353 | 97,782 | 7,353 | 97,909 | |||||||||||
| Total operating expenses | 92,836 | 197,619 | 263,697 | 390,661 | |||||||||||
| Operating income/(loss) | 434 | (83,439 | ) | 33,914 | (43,017 | ) | |||||||||
| Other expense | (423 | ) | (2,832 | ) | (1,053 | ) | (2,096 | ) | |||||||
| Income/(loss) before interest expense, reorganization items and income taxes | 11 | (86,271 | ) | 32,861 | (45,113 | ) | |||||||||
| Interest expense | (9,474 | ) | (10,607 | ) | (28,277 | ) | (33,386 | ) | |||||||
| (Loss)/income before reorganization items and income taxes | (9,463 | ) | (96,878 | ) | 4,584 | (78,499 | ) | ||||||||
| Reorganization items, net | 46 | (5,732 | ) | (198 | ) | 11,318 | |||||||||
| (Loss)/income from continuing operations before income taxes | (9,417 | ) | (102,610 | ) | 4,386 | (67,181 | ) | ||||||||
| Income tax benefit/(provision) from continuing operations | 3,110 | 49,755 | (2,052 | ) | 1,445 | ||||||||||
| (Loss)/income from continuing operations | (6,307 | ) | (52,855 | ) | 2,334 | (65,736 | ) | ||||||||
| (Loss)/income from discontinued operations | — | (45,884 | ) | — | 47,597 | ||||||||||
| Net (loss)/income | $ | (6,307 | ) | $ | (98,739 | ) | $ | 2,334 | $ | (18,139 | ) | ||||
| Weighted Average Number of Common Shares Outstanding: | |||||||||||||||
| Basic - Class A | 87,822,274 | 89,363,106 | 87,832,949 | 92,108,745 | |||||||||||
| Diluted - Class A | 87,822,274 | 89,363,106 | 88,031,375 | 92,108,745 | |||||||||||
| Basic and Diluted - Class B | — | — | — | 712,976 | |||||||||||
| Per Share Amounts: | |||||||||||||||
| Basic and diluted net income/(loss) - Class A from continuing operations | $ | (0.07 | ) | $ | (0.59 | ) | $ | 0.03 | $ | (0.79 | ) | ||||
| Basic and diluted net income - Class A from discontinued operations | $ | — | $ | (0.51 | ) | $ | — | $ | 0.57 | ||||||
| Basic and diluted net income - Class A | $ | (0.07 | ) | $ | (1.10 | ) | $ | 0.03 | $ | (0.22 | ) | ||||
| Basic and diluted net income/(loss) - Class B from continuing operations | $ | — | $ | — | $ | — | $ | 9.93 | |||||||
| Basic and diluted net income - Class B from discontinued operations | $ | — | $ | — | $ | — | $ | (6.60 | ) | ||||||
| Basic and diluted net income - Class B | $ | — | $ | — | $ | — | $ | 3.32 | |||||||
| Cash dividends declared - Class A | $ | — | $ | — | $ | — | $ | 0.48 | |||||||
| Cash dividends declared - Class B | $ | — | $ | — | $ | — | $ | 1.56 | |||||||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Shipping Revenues: | ||||||||
| Time and bareboat charter revenues | $ | 84,140 | $ | 57,236 | ||||
| Voyage charter revenues | 29,651 | 46,763 | ||||||
| Total shipping revenues | 113,791 | 103,999 | ||||||
| Operating Expenses: | ||||||||
| Voyage expenses | 9,056 | 10,074 | ||||||
| Vessel expenses | 42,571 | 40,798 | ||||||
| Charter hire expenses | 15,737 | 21,996 | ||||||
| Depreciation and amortization | 16,048 | 16,493 | ||||||
| General and administrative | 7,843 | 6,938 | ||||||
| Total operating expenses | 91,255 | 96,299 | ||||||
| Operating income | 22,536 | 7,700 | ||||||
| Other income, net | 1,080 | 97 | ||||||
| Income before interest expense and income taxes | 23,616 | 7,797 | ||||||
| Interest expense | (8,156 | ) | (8,365 | ) | ||||
| Income/(loss) before income taxes | 15,460 | (568 | ) | |||||
| Income tax (expense)/benefit | (3,321 | ) | 59 | |||||
| Net income/(loss) | $ | 12,139 | $ | (509 | ) | |||
| Weighted Average Number of Common Shares Outstanding: | ||||||||
| Basic - Class A | 82,006,666 | 90,856,688 | ||||||
| Diluted - Class A | 85,340,906 | 90,856,688 | ||||||
| Per Share Amounts: | ||||||||
| Basic net income/(loss) - Class A | $ | 0.15 | $ | (0.01 | ) | |||
| Diluted net income/(loss) - Class A | $ | 0.14 | $ | (0.01 | ) | |||
See notes to condensed consolidated financial statements
| 4 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)/INCOME
DOLLARS IN THOUSANDS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net (loss)/income | $ | (6,307 | ) | $ | (98,739 | ) | $ | 2,334 | $ | (18,139 | ) | ||||
| Other comprehensive income, net of tax: | |||||||||||||||
| Net change in unrealized gains/(losses) on cash flow hedges | 415 | 6,329 | 616 | (1,143 | ) | ||||||||||
| Defined benefit pension and other postretirement benefit plans: | |||||||||||||||
| Net change in unrecognized prior service costs | (38 | ) | (3 | ) | (105 | ) | (14 | ) | |||||||
| Net change in unrecognized actuarial losses | 226 | 353 | 628 | 1,363 | |||||||||||
| Other comprehensive income | 603 | 6,679 | 1,139 | 206 | |||||||||||
| Comprehensive (loss)/income | $ | (5,704 | ) | $ | (92,060 | ) | $ | 3,473 | $ | (17,933 | ) | ||||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income/(loss) | $ | 12,139 | $ | (509 | ) | |||
| Other comprehensive (loss)/income, net of tax: | ||||||||
| Defined benefit pension and other postretirement benefit plans: | ||||||||
| Net change in unrecognized prior service costs | (208 | ) | (180 | ) | ||||
| Net change in unrecognized actuarial losses | 16 | - | ||||||
| Other comprehensive loss | (192 | ) | (180 | ) | ||||
| Comprehensive income/(loss) | $ | 11,947 | $ | (689 | ) | |||
See notes to condensed consolidated financial statements
| 5 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
(UNAUDITED)
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Cash Flows from Operating Activities: | |||||||
| Net income/(loss) | $ | 2,334 | $ | (18,139 | ) | ||
| Income from discontinued operations | — | 47,597 | |||||
| Income/(loss) from continuing operations | 2,334 | (65,736 | ) | ||||
| Items included in net income/(loss) from continuing operations not affecting cash flows: | |||||||
| Depreciation and amortization | 46,100 | 68,701 | |||||
| Loss on write-down of vessels | 7,353 | — | |||||
| Amortization of debt discount and other deferred financing costs | 3,971 | 4,637 | |||||
| Compensation relating to restricted stock/stock unit and stock option grants | 2,526 | 3,768 | |||||
| Deferred income tax provision/(benefit) | 1,423 | (5,624 | ) | ||||
| Reorganization items, non-cash | (25 | ) | 5,392 | ||||
| Other – net | 2,361 | 1,732 | |||||
| Loss on repurchase of debt, net | 1,999 | 2,531 | |||||
| Distributions from INSW | — | 202,000 | |||||
| Distributed earnings of affiliated companies | 3,656 | 3,789 | |||||
| Payments for drydocking | (4,833 | ) | (5,307 | ) | |||
| SEC, Bankruptcy and IRS claim payments | (5,000 | ) | (7,136 | ) | |||
| Changes in operating assets and liabilities | (25,025 | ) | 8,177 | ||||
| Net cash provided by operating activities | 36,840 | 216,924 | |||||
| Cash Flows from Investing Activities: | |||||||
| Change in restricted cash | 11,988 | 5,011 | |||||
| Expenditures for other property | (11 | ) | (583 | ) | |||
| Net cash provided by investing activities | 11,977 | 4,428 | |||||
| Cash Flows from Financing Activities: | |||||||
| Cash dividends paid | — | (31,910 | ) | ||||
| Payments on debt | — | (52,667 | ) | ||||
| Extinguishment of debt | (39,115 | ) | (102,902 | ) | |||
| Repurchases of common stock and common stock warrants | — | (119,343 | ) | ||||
| Tax withholding on share-based awards | (1,062 | ) | — | ||||
| Net cash used in financing activities | (40,177 | ) | (306,822 | ) | |||
| Net increase/(decrease) in cash and cash equivalents from continuing operations | 8,640 | (85,470 | ) | ||||
| Cash and cash equivalents at beginning of period | 191,089 | 193,978 | |||||
| Cash and cash equivalents at end of period | $ | 199,729 | $ | 108,508 | |||
| Cash flows from discontinued operations: | |||||||
| Cash flows provided by operating activities | $ | — | $ | 131,148 | |||
| Cash flows provided by investing activities | — | 25,839 | |||||
| Cash flows used in financing activities | — | (355,686 | ) | ||||
| Net decrease in cash and cash equivalents from discontinued operations | $ | — | $ | (198,699 | ) | ||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income/(loss) | $ | 12,139 | $ | (509 | ) | |||
| Items included in net income not affecting cash flows: | ||||||||
| Depreciation and amortization | 16,048 | 16,493 | ||||||
| Amortization of debt discount and other deferred financing costs | 282 | 274 | ||||||
| Compensation relating to restricted stock awards and stock option grants | 800 | 656 | ||||||
| Deferred income tax expense/(benefit) | 3,287 | (86 | ) | |||||
| Interest on finance lease liabilities | 370 | 416 | ||||||
| Non-cash operating lease expense | 15,892 | 22,317 | ||||||
| Payments for drydocking | (1,918 | ) | (3,236 | ) | ||||
| Operating lease liabilities | (16,292 | ) | (22,846 | ) | ||||
| Changes in operating assets and liabilities, net | 5,088 | (11,694 | ) | |||||
| Net cash provided by operating activities | 35,696 | 1,785 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Expenditures for vessels and vessel improvements | (454 | ) | (1,058 | ) | ||||
| Net cash used in investing activities | (454 | ) | (1,058 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on debt | (5,787 | ) | (5,420 | ) | ||||
| Tax withholding on share-based awards | (1,168 | ) | (370 | ) | ||||
| Payments on principal portion of finance lease liabilities | (1,026 | ) | (1,026 | ) | ||||
| Deferred financing costs paid for debt amendments | (40 | ) | (261 | ) | ||||
| Purchases of treasury stock | (1,862 | ) | — | |||||
| Net cash used in financing activities | (9,883 | ) | (7,077 | ) | ||||
| Net increase/(decrease) in cash and cash equivalents | 25,359 | (6,350 | ) | |||||
| Cash and cash equivalents at beginning of period | 78,732 | 83,253 | ||||||
| Cash and cash equivalents at end of period | $ | 104,091 | $ | 76,903 | ||||
See notes to condensed consolidated financial statements
| 6 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
DOLLARS IN THOUSANDS
(UNAUDITED)
| Common Stock (1) | Paid-in Additional Capital (2) | Accumulated Deficit | Accumulated Other Comprehensive Loss (3) | Total | |||||||||||||||
| Balance at December 31, 2016 | $ | 702 | $ | 583,526 | $ | (321,736 | ) | $ | (8,160 | ) | $ | 254,332 | |||||||
| Net Income | — | — | 2,334 | — | 2,334 | ||||||||||||||
| Other comprehensive income | — | — | — | 1,139 | 1,139 | ||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | 5 | (1,066 | ) | — | — | (1,061 | ) | ||||||||||||
| Compensation related to Class A options granted and restricted stock awards | — | 2,526 | — | — | 2,526 | ||||||||||||||
| Conversion of Class A warrants to common stock | 46 | (46 | ) | — | — | — | |||||||||||||
| Balance at September 30, 2017 | $ | 753 | $ | 584,940 | $ | (319,402 | ) | $ | (7,021 | ) | $ | 259,270 | |||||||
| Common Stock (1) | Paid-in Additional Capital (2) | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Income (3) | Total | |||||||||||||||||||
| Balance at December 31, 2021 | $ | 872 | $ | 594,386 | $ | (259,587 | ) | $ | — | $ | 2,943 | $ | 338,614 | |||||||||||
| Beginning Balance | $ | 872 | $ | 594,386 | $ | (259,587 | ) | $ | — | $ | 2,943 | $ | 338,614 | |||||||||||
| Net loss | — | — | (509 | ) | — | — | (509 | ) | ||||||||||||||||
| Other comprehensive loss | — | — | — | — | (180 | ) | (180 | ) | ||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | 5 | (375 | ) | — | — | — | (370 | ) | ||||||||||||||||
| Compensation related to Class A restricted stock awards | — | 656 | — | — | — | 656 | ||||||||||||||||||
| Balance at March 31, 2022 | $ | 877 | $ | 594,667 | $ | (260,096 | ) | $ | — | $ | 2,763 | $ | 338,211 | |||||||||||
| Ending Balance | $ | 877 | $ | 594,667 | $ | (260,096 | ) | $ | — | $ | 2,763 | $ | 338,211 | |||||||||||
| Balance at December 31, 2022 | $ | 883 | $ | 597,455 | $ | (233,023 | ) | $ | (29,040 | ) | $ | 3,410 | $ | 339,685 | ||||||||||
| Beginning Balance | $ | 883 | $ | 597,455 | $ | (233,023 | ) | $ | (29,040 | ) | $ | 3,410 | $ | 339,685 | ||||||||||
| Net income | — | — | 12,139 | — | — | 12,139 | ||||||||||||||||||
| Net income loss | — | — | 12,139 | — | — | 12,139 | ||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (192 | ) | (192 | ) | ||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | 8 | (1,176 | ) | — | — | — | (1,168 | ) | ||||||||||||||||
| Compensation related to Class A restricted stock awards | — | 800 | — | — | — | 800 | ||||||||||||||||||
| Conversion of Class A warrants to Class A common stock | 1 | (1 | ) | — | — | — | — | |||||||||||||||||
| Purchases of treasury stock | — | — | — | (1,862 | ) | — | (1,862 | ) | ||||||||||||||||
| Balance at March 31, 2023 | $ | 892 | $ | 597,078 | $ | (220,884 | ) | $ | (30,902 | ) | $ | 3,218 | $ | 349,402 | ||||||||||
| Ending Balance | $ | 892 | $ | 597,078 | $ | (220,884 | ) | $ | (30,902 | ) | $ | 3,218 | $ | 349,402 | ||||||||||
| (1) | Par value |
| (2) | Includes |
| (3) | Amounts are net of tax. |
See notes to condensed consolidated financial statements
| 7 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Note 1 — Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements include the accounts of Overseas Shipholding Group, Inc., a Delaware corporation (the “Parent Company”), and its wholly owned subsidiaries (collectively, the “Company” or “OSG”, “we”, “us” or “our”). The Company owns and operates a fleet of oceangoing vessels engaged primarily in the transportation of crude oil and refined petroleum products in the U.S. Flag trades. The Company manages the operations of its fleet through its wholly owned subsidiary, OSG Bulk Ships, Inc. (“OBS”), a New York corporation.
These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles in the United States.States (“GAAP”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results for the three and nine months ended September 30, 2017,March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
The condensed consolidated balance sheet as of December 31, 20162022 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles in the United StatesGAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“Form2022 (the “Form 10-K”).
Note 2 — Chapter 11 FilingRecently Issued Accounting Standards
In November 2019, the Financial Accounting Standards Board issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Emergence from Bankruptcy:
Bucket 1— All public business entities (“PBEs”) that are SEC filers (as defined in GAAP), excluding smaller reporting companies (“SRCs”) (as defined by the Securities and Exchange Commission (“SEC”). This standard became effective January 1, 2020.
Bucket 2— All other entities, including SRCs, other PBEs that are not SEC filers, private companies, not-for-profit organizations, and employee benefit plans. This standard became effective January 1, 2023.
At June 30, 2019, the evaluation date for purposes of determining the applicability of the Bucket 2 credit losses standard, the Company disclosedmet the SEC definition of a smaller reporting company. The Company adopted that its Audit Committee,standard on January 1, 2023. The adoption of the standard did not have a material impact on the recommendationCompany’s consolidated financial statements.
Note 3 - Revenue Recognition
Disaggregated Revenue
The Company has disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of management, concludedrevenue and cash flows are affected by economic factors. Consequently, the disaggregation below is based on contract type. Since the terms within these contract types are generally standard in nature, the Company does not believe that further disaggregation would result in increased insight into the economic factors impacting revenue and cash flows.
The following table shows the Company’s previously issued financial statementsshipping revenues disaggregated by nature of the charter arrangement for at least the three years ended December 31, 2011 and associated interim periods, and for the fiscal quartersmonths ended March 31, 20122023 and June 30, 2012, should no longer be relied upon. Shortly thereafter several putative class action suits2022:
Schedule of Disaggregation of Revenue
| 2023 | 2022 | |||||||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Time and bareboat charter revenues | $ | 84,140 | $ | 57,236 | ||||
| Voyage charter revenues (1) | 13,789 | 35,895 | ||||||
| Contracts of affreightment (“COA”) revenues | 15,862 | 10,868 | ||||||
| Total shipping revenues | $ | 113,791 | $ | 103,999 | ||||
| (1) | For the three months ended March 31, 2023 and 2022, voyage charter revenues include revenue related to short-term time charter contracts of $119 and $16,599, respectively. |
Voyage Receivables
As of March 31, 2023 and December 31, 2022, contract balances from contracts with customers consisted of voyage receivables of $8,586 and $9,258, respectively, net of reserves for credit losses for voyage charters and lightering contracts, which were filed in the United States District Court for the Southern District of New York againstnot material.
| 8 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Transaction Price Allocated to the Company. Also named as defendants were its then President and Chief Executive Officer, its then Chief Financial Officer, its then current and certain former membersRemaining Performance Obligations
As of its BoardMarch 31, 2023, the Company expects to recognize revenue of the Directors, and certain Company representatives.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Trustee fees | $ | — | $ | 30 | $ | 5 | $ | 90 | |||||||
| Professional fees | (46 | ) | 822 | 193 | 1,849 | ||||||||||
| Litigation settlement, net | — | — | — | (20,359 | ) | ||||||||||
| Litigation settlement due to class action plaintiffs | — | — | — | 2,136 | |||||||||||
| Litigation settlement due to Class B warrant holders | — | — | — | 86 | |||||||||||
| Provision for claims | — | 4,880 | $ | — | $ | 4,880 | |||||||||
| $ | (46 | ) | $ | 5,732 | $ | 198 | $ | (11,318 | ) | ||||||
Basic earnings per common share is computed by dividing earnings after the deduction of dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. As management deemeddeems the exercise price for the Class A and B warrants of $0.01$0.01 per share to be nominal, warrant proceeds are ignored, and the shares issuable upon Class A and B warrant exerciseexercises are included in the calculation of Class A and B basic weighted average common shares outstanding for all periods.
The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units. Participating securities are defined by
ASC 260, Earnings Per Share, as unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.Class A
As of September 30, 2017,March 31, 2023, there were 430,633 shares of Class A common stock issuable under outstanding restricted stock units and 384,084 shares of Class A common stock issuable under outstanding options, outstandingboth of which wereare considered to be potentially dilutive securities. As of September 30, 2016,March 31, 2022, there were 602,454 shares of Class A common stock issuable under outstanding restricted stock units and 718,227 shares of Class A common stock issuable under outstanding options, outstandingboth of which wereare considered to be potentially dilutive securities.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Income/(loss) from continuing operations | $ | (6,307 | ) | $ | (52,855 | ) | $ | 2,334 | $ | (65,736 | ) | ||||
| Income/(loss) from discontinued operations | — | (45,884 | ) | — | 47,597 | ||||||||||
| Net income | $ | (6,307 | ) | $ | (98,739 | ) | $ | 2,334 | $ | (18,139 | ) | ||||
| Weighted average common shares outstanding: | |||||||||||||||
| Class A common stock - basic | 87,822,274 | 89,363,106 | 87,832,949 | 92,108,745 | |||||||||||
| Class A common stock - diluted | 87,822,274 | 89,363,106 | 88,031,375 | 92,108,745 | |||||||||||
| Class B common stock - basic and diluted | — | — | — | 712,976 | |||||||||||
Schedule of Earnings Per Share
| 2023 | 2022 | |||||||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income/(loss) | $ | 12,139 | $ | (509 | ) | |||
| Weighted average common shares outstanding: | ||||||||
| Class A common stock - basic | 82,006,666 | 90,856,688 | ||||||
| Class A common stock - diluted | 85,340,906 | 90,856,688 | ||||||
For the ninethree months ended September 30, 2017,March 31, 2023, there were 198,426 dilutive equity awards outstanding.outstanding covering shares. Awards of 547,452 and 759,100 (which includes restricted shares (related to stock units and stock options) for the three and nine months ended September 30, 2017 were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.
Note 5 — Discontinued Operations:
In July 2022, the Company completedpurchased a $15,000 U.S. Treasury Note for $14,794, with a maturity date of August 15, 2024. The U.S. Treasury Note is classified as investment in security to be held to maturity and is carried at amortized cost on the separationcondensed consolidated balance sheets, as the Company has the intent and ability to hold until maturity. The amortized cost, gross unrealized loss, and fair value of its business into two independent publicly-traded companies through the spin-offU.S. Treasury Note at March 31, 2023 and December 31, 2022 was as follows:
Schedule of INSW. In connectionFair Value Of The U.S. Treasury Note
| March 31, 2023 | Amortized Cost | Gross Unrealized Loss | Fair Value | |||||||||
| U.S. Treasury Note | $ | 14,851 | $ | (252 | ) | $ | 14,599 | |||||
| $ | 14,851 | $ | (252 | ) | $ | 14,599 | ||||||
| December 31, 2022 | Amortized Cost | Gross Unrealized Loss | Fair Value | |||||||||
| U.S. Treasury Note | $ | 14,803 | $ | (328 | ) | $ | 14,475 | |||||
| $ | 14,803 | $ | (328 | ) | $ | 14,475 | ||||||
Other-Than-Temporarily Impaired (“OTTI”)
The Company performed a quarterly review of the U.S. Treasury Note in order to determine whether the decline in fair value below the amortized cost basis was considered other-than-temporary in accordance with applicable guidance. At March 31, 2023, the spin-off, OSG and INSW entered into a number of agreementsCompany determined that provide a framework for governing the relationships betweenunrealized loss on the parties going forward.U.S. Treasury Note was primarily due to increases in interest rates. Therefore, there was no OTTI loss recognized during the three months ended March 31, 2023.
| 9 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | ||||||
| Shipping revenues: | |||||||
| Pool revenues | $ | 42,854 | $ | 200,088 | |||
| Time and bareboat charter revenues | 24,011 | 74,355 | |||||
| Voyage charter revenues | 13,905 | 38,066 | |||||
| 80,770 | 312,509 | ||||||
| Operating expenses: | |||||||
| Voyage expenses | 3,605 | 9,679 | |||||
| Vessel expenses | 35,403 | 104,941 | |||||
| Charter hire expenses | 9,612 | 26,422 | |||||
| Depreciation and amortization | 20,303 | 60,183 | |||||
| General and administrative | 6,872 | 16,012 | |||||
| Spin-off related costs | 1,963 | 3,186 | |||||
| Gain on disposal of vessels and other property, including impairments | 49,640 | 49,468 | |||||
| Total operating expenses | 127,398 | 269,891 | |||||
| (Loss)/income from vessel operations | (46,628 | ) | 42,618 | ||||
| Equity in income of affiliated companies | 12,487 | 36,093 | |||||
| Operating (loss)/income | (34,141 | ) | 78,711 | ||||
| Other expense | (2,244 | ) | (1,006 | ) | |||
| (Loss)/income before interest expense and taxes | (36,385 | ) | 77,705 | ||||
| Interest expense | (9,519 | ) | (29,951 | ) | |||
| (Loss)/income before income taxes | (45,904 | ) | 47,754 | ||||
| Income tax benefit/(provision) | 20 | (157 | ) | ||||
| Net (loss)/income | $ | (45,884 | ) | $ | 47,597 | ||
Note 6 — Vessels:
The following methods and assumptions wereare used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents and restricted cash—
The carrying amounts reported in the condensed consolidated balance sheet for interest-bearing deposits approximateU.S. Treasury Note — The fair value of the U.S. Treasury Note is based on a quoted market price in an active market.
Debt—
The fair values of theASC 820,
Fair Value Measurements and Disclosures, relating to fair value measurements, defines fair value andThe levels of the fair value hierarchy established by ASC 820 are as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities
Level 2 - Quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The estimated fair values of the Company’s financial instruments other than derivatives, that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:
Schedule of Hierarchy Categorized on Fair Value
| Carrying | Fair Value | |||||||||||
| Value | Level 1 | Level 2 | ||||||||||
| March 31, 2023: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | 104,091 | $ | 104,091 | $ | — | ||||||
| U.S. Treasury Note | 14,851 | 14,599 | — | |||||||||
| Total | $ | 118,942 | $ | 118,690 | $ | — | ||||||
| Liabilities | ||||||||||||
| Term loan, due 2024, net | $ | 19,973 | $ | — | $ | 19,209 | ||||||
| Alaska tankers term loan, due 2025, net | 24,010 | — | 22,403 | |||||||||
| OSG 204 LLC term loan, due 2025, net | 24,686 | — | 23,494 | |||||||||
| OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | 43,810 | — | 40,703 | |||||||||
| Term loan, due 2028, net | 304,948 | — | 298,514 | |||||||||
| Unsecured senior notes, net | 390 | — | 387 | |||||||||
| Total | $ | 417,817 | $ | — | $ | 404,710 | ||||||
| 10 |
Carrying Value | Fair Value | ||||||||||
| Level 1 | Level 2 | ||||||||||
| September 30, 2017: | |||||||||||
| Assets | |||||||||||
Cash (1) | $ | 203,585 | $ | 203,585 | $ | — | |||||
| Total | $ | 203,585 | $ | 203,585 | $ | — | |||||
| Liabilities | |||||||||||
| 8.125% notes due 2018 | $ | 43,765 | $ | — | $ | 45,074 | |||||
| OBS Term loan | 447,202 | — | 434,527 | ||||||||
| 7.5% Election 2 notes due 2021 | 301 | — | 307 | ||||||||
| 7.5% notes due 2024 | 384 | — | 380 | ||||||||
| Total | $ | 491,652 | $ | — | $ | 480,288 | |||||
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Carrying Value | Fair Value | ||||||||||
| Level 1 | Level 2 | ||||||||||
| December 31, 2016: | |||||||||||
| Assets | |||||||||||
Cash (1) | $ | 206,933 | $ | 206,933 | $ | — | |||||
| Total | $ | 206,933 | $ | 206,933 | $ | — | |||||
| Liabilities | |||||||||||
| 8.125% notes due 2018 | $ | 80,213 | $ | — | $ | 84,935 | |||||
| OBS Term loan | 444,186 | — | 442,199 | ||||||||
| 7.5% Election 2 notes due 2021 | 293 | — | 303 | ||||||||
| 7.5% notes due 2024 | 390 | — | 392 | ||||||||
| Total | $ | 525,082 | $ | — | $ | 527,829 | |||||
| Carrying | Fair Value | |||||||||||
| Value | Level 1 | Level 2 | ||||||||||
| December 31, 2022: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | 78,732 | $ | 78,732 | $ | — | ||||||
| U.S. Treasury Note | 14,803 | 14,475 | — | |||||||||
| Total | $ | 93,535 | $ | 93,207 | $ | — | ||||||
| Liabilities | ||||||||||||
| Term loan, due 2024, net | $ | 20,330 | $ | — | $ | 19,296 | ||||||
| Alaska tankers term loan, due 2025, net | 25,289 | — | 23,195 | |||||||||
| OSG 204 LLC term loan, due 2025, net | 25,006 | — | 23,448 | |||||||||
| OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | 44,342 | — | 40,331 | |||||||||
| Term loan, due 2028, net | 308,006 | — | 295,320 | |||||||||
| Unsecured senior notes, net | 390 | — | 385 | |||||||||
| Total | $ | 423,363 | $ | — | $ | 401,975 | ||||||
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel and Intangible Assets Impairments
During the thirdfirst quarter of 2017,2023, the Company gave consideration as toconsidered whether events or changes in circumstances had occurred since December 31, 2022 that could indicate thatwhether the carrying amounts of the vessels, including operating right-of-use assets, in the Company'sCompany’s fleet, may not be recoverable. The Company concluded that the decline in previously forecasted cash flows on one of the eight ATBs, due to a change in its expected deployment, constituted an impairment triggering event as of September 30, 2017. Based on the Company's analysis, an impairment charge of $7,353 was recorded to write downand whether the carrying value of the ATB to its estimated fair valueCompany’s intangible assets, may not be recoverable as of September 30, 2017.
| Three Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Interest Rate Cap of continuing operations | $ | (265 | ) | $ | (65 | ) | |
| Interest Rate Cap of discontinued operations | — | 65 | |||||
| Interest rate swaps of discontinued operations | — | 2,303 | |||||
| Total | $ | (265 | ) | $ | 2,303 | ||
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Interest Rate Cap of continuing operations | $ | 403 | $ | 1,142 | |||
| Interest Rate Cap of discontinued operations | — | (1,242 | ) | ||||
| Interest rate swaps of discontinued operations | — | (13,367 | ) | ||||
| Total | $ | 403 | $ | (13,467 | ) | ||
Note 12, “Accumulated Other Comprehensive Loss,” for disclosures relating to the impact of derivative instruments on accumulated other comprehensive loss.
For the three months ended September 30, 2017March 31, 2023 and 2016,2022, the Company recorded income tax benefits(expense)/benefit of $3,110$(3,321) and $49,755,$59, respectively, which representrepresented effective tax rates of 33%21.5% and 48%10.4%, respectively. ForThe increase in the nineeffective tax rate for the three months ended September 30, 2017March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to the tonnage tax exclusion and 2016, the Company recorded incomecurrent state tax (provision)/benefit of $(2,052) and $1,445, respectively, which represent effective tax rates of 47% and 2%, respectively.expense. The effective tax rate for the ninethree months ending September 30, 2017 is greaterended March 31, 2023 was more than the statutory rate primarily due to an income tax provision resulting from stock compensation pursuant to ASU 2016-09 offset in part by the non-taxability of income subject to U.S. tonnage tax.state expense. The effective tax rate for the ninethree months ending September 30, 2016 isended March 31, 2022 was less than the statutory rate primarily as a result of non-deductible professional fees in 2016 in preparation of the separation of the domestic and international business units.
Share and Warrant Repurchases
On March 17, 2023, the nineCompany’s Board of Directors authorized a program to purchase up to $10,000 of the Company’s common stock. Under the program, the Company may repurchase shares from time to time in open market transactions or in privately negotiated transactions. For the three months ended September 30, 2016,March 31, 2023, the Company repurchased 106,350 shares of its Class A common stock in open-market purchases on the NYSE MKTfor $1,862 at an average price of $12.23$ per share, for a total cost of $1,301. In addition, duringshare.
During the ninethree months ended September 30, 2016, the Company repurchased 55,306,351 Class A warrantsMarch 31, 2023 and 2022, in private transactions with non-affiliates at an average per share equivalent cost of $11.31 for a total cost of $118,041.
Warrant Conversions
During the ninethree months ended September 30, 2017,March 31, 2023 and 2022, the Company issued 4,477,726 and , respectively, shares of Class A common stock as a result of the exercise of 23,625,925679,642 and 59,124, respectively, Class A warrants. During the nine months ended September 30, 2016, the Company issued 8,164,351 shares of Class A common stock and 7,833 shares of Class B common stock as a result of the exercise of 43,395,528 Class A warrants and 46,997 Class B warrants, respectively.
Stock Compensation
The Company accounts for stock compensation expense in accordance with the fair value basedvalue-based method required by ASC 718,
| 11 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Management Compensation
— Restricted Stock UnitsDuring the three and nine months ended September 30, 2017,March 31, 2023 and 2022, the Company respectively granted 0 and 165,010 time-based restricted stock units (“RSUs”)RSUs to its employees, including senior officers.officers, covering and shares, respectively. The average grant date fair valuevalues of these awards was $4.04were $ and $ per RSU.RSU, respectively. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award of RSUs will vestvests in approximately equal installments on each of the first three anniversaries of the grant date.
During the three and nine months ended September 30, 2017,March 31, 2023 and 2022, the Company respectively awarded 0 and 63,532 performance-based RSUs to its senior officers.officers covering and shares, respectively (which amounts may be increased up to a maximum of and shares, respectively, based upon performance). Each performance stock unitperformance-based RSU represents a contingent right to receive RSUs based upon continuous employment, subject to the achievement of performance metrics through the end of thea three-year performance period commencing on January 1, 2017 and ending on December 31, 2019 (the “Performance Period”) and shall vest as follows: (i) one-halfperiod. The grant date fair values of the target RSUs shall vestawards, which performance conditions, were determined to be $ and become nonforfeitable subject to OSG’s return on invested capital (“ROIC”) performance in$ per RSU, respectively.
During the three-year ROIC performance period relative to a target rate (the “ROIC Target”) set forth in the award agreements (the formula for ROIC is net operating profit after taxes divided by the net of total debt plus shareholders equity less cash); and (ii) one-half of the target RSUs will be subject to OSG’s three-year total shareholder return (“TSR”) performance relative to that of a performance peer group over a three-year TSR performance period (“TSR Target”). The peer group will consist of companies that comprise the Standard and Poor’s Transportation Select Index during the performance Period. Vesting is subject in each case to the Human Resources and Compensation Committee’s (“HRC”) certification of achievement of the performance measures and targets no later thanthree months ended March 31, 2020.
Note 129 — Accumulated Other Comprehensive Loss:
The components of accumulated other comprehensive loss,income, net of related taxes, in the condensed consolidated balance sheets follow:
Schedule of Components of Accumulated Other Comprehensive Loss
| As of | March 31, 2023 | December 31, 2022 | ||||||
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans) | $ | 3,218 | $ | 3,410 | ||||
| Accumulated other comprehensive income | $ | 3,218 | $ | 3,410 | ||||
| 12 |
| As of | September 30, 2017 | December 31, 2016 | ||||||
| Unrealized losses on derivative instruments | $ | (403 | ) | $ | (1,019 | ) | ||
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans) | (6,618 | ) | (7,141 | ) | ||||
| Accumulated other comprehensive loss | $ | (7,021 | ) | $ | (8,160 | ) | ||
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
The following table presentpresents the changes in the balances of each component of accumulated other comprehensive loss,income, net of related taxes, during the three and nine months ended September 30, 2017March 31, 2023 and 2016:
Unrealized losses on cash flow hedges | Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | Total | |||||||||
| Balance as of June 30, 2017 | $ | (669 | ) | $ | (6,806 | ) | $ | (7,475 | ) | ||
| Current period change, excluding amounts reclassified from accumulated other comprehensive income | (149 | ) | 188 | 39 | |||||||
| Amounts reclassified from accumulated other comprehensive income | 415 | — | 415 | ||||||||
| Total change in accumulated other comprehensive income | 266 | 188 | 454 | ||||||||
| Balance as of September 30, 2017 | $ | (403 | ) | $ | (6,618 | ) | $ | (7,021 | ) | ||
| Balance as of June 30, 2016 | $ | (1,206 | ) | $ | (8,206 | ) | $ | (9,412 | ) | ||
| Current period change, excluding amounts reclassified from | |||||||||||
| accumulated other comprehensive income | (36 | ) | — | (36 | ) | ||||||
| Amounts reclassified from accumulated other comprehensive income | 101 | — | 101 | ||||||||
| Total change in accumulated other comprehensive loss | 65 | — | 65 | ||||||||
| Balance as of September 30, 2016 | $ | (1,141 | ) | $ | (8,206 | ) | $ | (9,347 | ) | ||
Unrealized losses on cash flow hedges | Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | Total | |||||||||
| Balance as of December 31, 2016 | $ | (1,019 | ) | $ | (7,141 | ) | $ | (8,160 | ) | ||
| Current period change, excluding amounts reclassified from | |||||||||||
| accumulated other comprehensive loss | (348 | ) | 523 | 175 | |||||||
| Amounts reclassified from accumulated other comprehensive loss | 964 | — | 964 | ||||||||
| Total change in accumulated other comprehensive loss | 616 | 523 | 1,139 | ||||||||
| Balance as of September 30, 2017 | $ | (403 | ) | $ | (6,618 | ) | $ | (7,021 | ) | ||
| Balance as of December 31, 2015 | $ | (54,620 | ) | $ | (18,841 | ) | $ | (73,461 | ) | ||
| Current period change, excluding amounts reclassified from | |||||||||||
| accumulated other comprehensive loss | (11,322 | ) | — | (11,322 | ) | ||||||
| Amounts reclassified from accumulated other comprehensive loss | 4,438 | — | 4,438 | ||||||||
| Capital effects of INSW spin - discontinued operations | 60,363 | 10,635 | 70,998 | ||||||||
| Total change in accumulated other comprehensive loss | 53,479 | 10,635 | 64,114 | ||||||||
| Balance as of September 30, 2016 | $ | (1,141 | ) | $ | (8,206 | ) | $ | (9,347 | ) | ||
Schedule of Changes in Balances of Component of Accumulated Other Comprehensive Loss
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | ||||
| Balance as of December 31, 2022 | $ | 3,410 | ||
| Current period change, excluding amounts reclassified from accumulated other comprehensive income | — | |||
| Amounts reclassified from accumulated other comprehensive income | (192 | ) | ||
| Total change in accumulated other comprehensive income | (192 | ) | ||
| Balance as of March 31, 2023 | $ | 3,218 | ||
| Balance as of December 31, 2021 | $ | 2,943 | ||
| Current period change, excluding amounts reclassified from accumulated other comprehensive loss | — | |||
| Amounts reclassified from accumulated other comprehensive loss | (180 | ) | ||
| Total change in accumulated other comprehensive loss | (180 | ) | ||
| Balance as of March 31, 2022 | $ | 2,763 | ||
The Company includes the service cost component for net periodic benefit cost/(income) in vessel expenses and general and administrative expenses and other components in other (expense)/income, tax benefit allocated to unrealized lossesnet on cash flow hedges for the three and nine months ended September 30, 2017 was $150 and $349, respectively, and was $36 and $18 for the three and nine months ended September 30, 2016. These amounts reflected the current period change, excluding amounts reclassified from accumulated other comprehensive loss.
Note 10 — Leases
In March 2023, the Company extended its lease on the Alaskan Frontier for an additional lease term of three years, expiring in March 2026. The lease is accounted for as an operating lease. The future minimum commitments under the lease are $275 for the remainder of 2023, $366 in 2024, $365 in 2025, and related number$71 in 2026. For the three months ended March 2023, the Company had non-cash operating activity of approximately $1,000 for obtaining an operating days under these operating leases areright-of-use asset and liability as follows:
| At September 30, 2017 | Amount | Operating Days | ||||
| 2017 | $ | 23,067 | 920 | |||
| 2018 | 91,457 | 3,650 | ||||
| 2019 | 111,819 | 3,470 | ||||
| 2020 | 9,168 | 366 | ||||
| 2021 | 9,143 | 365 | ||||
| Thereafter | 31,989 | 1,277 | ||||
| Net minimum lease payments | $ | 276,643 | 10,048 | |||
Charters-out
The Company is the lessor under its time charter contracts. Total time charter revenue was equal to income from lease payments of $84,434 less straight-line adjustments of $294 for the payment of profit share tothree months ended March 31, 2023. For the owners of the vessels calculated in accordance with the respective charter agreements. Due to reserve funding requirements and current rate forecasts, no profits are currently expected to be paid to the owners in respect of the charter term through Decemberthree months ended March 31, 2019. Certain of the charters in the above table also provide the Company with renewal and purchase options.
| At September 30, 2017 | Amount | Revenue Days | ||||
| 2017 | $ | 57,238 | 957 | |||
| 2018 | 150,529 | 2,147 | ||||
| 2019 | 78,488 | 938 | ||||
| 2020 | 43,658 | 531 | ||||
| 2021 | 26,624 | 324 | ||||
| Thereafter | 108,050 | 1,250 | ||||
| Net minimum lease receipts | $ | 464,587 | 6,147 | |||
Note 1411 — Contingencies:
The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries (including without limitation exposure to asbestos and other toxic materials), wrongful death, collision or other casualty and to claims arising under charter parties. A substantial majority of such personal injury, wrongful death, collision or other casualty claims against the Company are covered by insurance (subject to deductibles not material in amount). Each of the claims involves an amount which, inIn the opinion of management, none of these claims, individually or in the aggregate, are not expected to be material to the Company’s financial position, results of operations and cash flows.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q including this MD&A section, contains "forward-looking statements"“forward-looking statements” within the meaning of the federal securities laws.Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "target," "goal,"“may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the section titled “Forward-Looking Statements” and Item 1A. Risk Factors of our 2016 Report on Form 10-K, as updated in our subsequent quarterly reports filed on Form 10-Q, and in our other filings made from time to time with the SEC after the date of this report.
| ● | the inability to attract or retain qualified mariners, as a result of labor shortages, competition to hire mariners, and other influences on the labor pool and associated costs; | |
| ● | volatility in supply and demand in the |
| ● | increasing operating costs, unexpected drydock costs, and/or increasing capital expenses as a result of supply chain limitations, lack of availability of materials and of qualified contractors and technical experts, the consolidation of suppliers, and inflation; | |
| ● | challenges associated with compliance with complex environmental laws and regulations, including those relating to the emission of greenhouse gases and ballast water treatment, and corresponding increases in expenses; | |
| ● | work stoppages or other labor disruptions by the unionized employees of the Company or other companies in related industries, or the impact of any potential liabilities resulting from withdrawal from participation in multiemployer plans; | |
| ● | public health |
| ● | the inability to clear oil majors’ risk assessment processes; | |
| ● | |
| the effect of the Company’s indebtedness on its ability to finance operations, pursue desirable business |
| ● | the highly cyclical nature of OSG’s industry and significant fluctuations in the market value of our vessels; | |
| ● | the Company’s |
| changes in credit risk with respect to the Company’s |
| counterparties on contracts, or the failure of |
| the Company’s compliance with 46 U.S.C. sections 50501 and 55101 (commonly known as the “Jones Act”) and heightened exposure to Jones Act market fluctuations, as well as stockholder citizenship requirements imposed on us by the Jones Act, which result in restrictions on foreign ownership of the Company’s common stock; | ||
| ● | limitations on U.S. coastwise trade, the waiver, modification or repeal of the Jones Act limitations, or changes in international trade agreements; and |
| the Company’s ability to use its net operating loss |
The Company assumes no obligation to update or revise any forward looking statements. Forward lookingforward-looking statements, except as may be required by law. Forward-looking statements in this Quarterly Report on Form 10-Q and written and oral forward lookingforward-looking statements attributable to the Company or its representatives after the date of this Quarterly Report on Form 10-Q are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports hereafter filed by the Company with the SEC.
Business Overview:
OSG is a publicly traded tanker company providing energy transportation services for crude oil and petroleum products in the U.S. Flag markets. OSG is a major operator of tankers and ATBs in the Jones Act industry. OSG’s 24-vesselIn January 2023, the Overseas Sun Coast was converted to U.S. Flag status, joining the rest of OSG’s U.S. Flag fleet. OSG’s U.S. Flag vessel fleet consists of eightthree crude oil tankers doing business in Alaska, three conventional ATBs, twoone lightering ATBs, threeATB, two shuttle tankers, nineeight MR tankers, and twothree non-Jones Act MR tankers, thattwo of which participate in the U.S. Maritime Security Program (“MSP”), and one tanker in cold layup. In April 2023, OSG’s three non-Jones Act MR tankers were all accepted into the U.S. Tanker Security Program (“TSP”). Once the tankers entry into the TSP is complete, the two non-Jones Act U.S. Flag Product Carriers participating in the MSP will transfer to the TSP and no longer participate in the MSP. OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world’s most customer-focused marine transportation companies and is headquartered in Tampa, FL. Our revenues are derived predominantly from time charter agreements for specific periods of time at fixed daily amounts. We also charter-out vessels for specific voyages where we typically we earn freight revenue at spot market rates.
The following is a discussion and analysis of our financial condition as of September 30, 2017 and results of operations for the three and nine months ended September 30, 2017March 31, 2023 and 2016. You should consider the foregoing when reviewing the condensed consolidated financial statements and this discussion and analysis. You should read this section together with the condensed consolidated financial statements, including the notes thereto.2022. This Quarterly Report on Form 10-Q includes industry data and forecasts that we have prepared based in part on information obtained from industry publications and surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from internal market studies and research reports. Unless we state otherwise, statements about the Company’s relative competitive position in this report are based on management'smanagement’s beliefs, internal studies and management'smanagement’s knowledge of industry trends.
All dollar amounts are in thousands, except daily dollar amounts and per share amounts.
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Operations and Oil Tanker Markets:
Our revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by us and the trades in which those vessels operate. Rates for the transportation of crude oil and refined petroleum products are determined by market forces such as the supply and demand for oil, the distance that cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported.
The Russia/Ukraine conflict has resulted in economic sanctions against Russia, including the stabilitybanning or limitation of cash flow offeredoil imports from Russia by certain countries and self-sanctioning by many oil companies and traders. In December 2022, the EU banned waterborne crude oil imports from Russia and the G7 nations implemented a price cap limiting the global price paid for Russian oil. Some countries have taken advantage of the current availability of Russian crude oil sold at a discount to world prices. These circumstances have resulted in the redirection of oil (crude and refined product) trade flows, which are apt to continue, reflecting the needs of countries that were large consumers of Russian oil to obtain other supply sources. Although the United States was not a major importer of Russian oil, it is impacted by these global events. Crude and refined products that were previously imported into the United States from non-Russian sources may not be available in prior quantities. Another potential impact is more movement from domestic producing locations via pipeline and marine assets, which would increase vessel demand. An increase in demand could result in higher utilization levels and potentially higher rates for Jones Act vessels.
Renewable diesel produces less carbon dioxide and nitrogen oxide than conventional diesel. As it is chemically identical to regular diesel, it can be used on its own or blended with conventional diesel. Production of renewable diesel increased in 2022 and is expected to grow significantly by 2025 as governments implement policies to encourage further growth of this fuel, including California’s Low Carbon Fuel Standard. The U.S. Gulf Coast currently produces a significant proportion of U.S renewable diesel, and California has been a large consumer of renewable diesel. Marine transportation provides the most cost effective solution to move finished product to the West Coast. The length of the trip to California creates a significant increase in ton mile demand, creating a large new market for Jones Act shipping.
Having our vessels committed on time charters to beis a fundamental characteristic of the objectivesobjective of our chartering approach. As such, westrategy. We seek over time, to pursue an overall chartering strategy that covers thehave a majority of available vessel operating days covered with medium termtime charters or contracts of affreightment. Medium-termaffreightment, but if such charters mayare not always be remunerative, noror prove achievableunachievable under certain market conditions. As such, during periods of uncertainty in our markets, moreconditions, some of our vessels could be exposed tomay operate in the spot market, which is more volatile and less predictable. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, we manage our vessels based on time charter equivalent ("TCE")TCE revenues and TCE rates, which are non-GAAP measures and represents GAAP shipping revenues, less voyage expenses and TCE revenues divided by revenue days, respectively. These measuresmeasures.
Charterers are used because management makes economic decisions based on anticipated TCE rates and evaluates financial performance based on TCE rates achieved.
Our vessels (one Product Carrier and three large ATBs). We do not have anywere employed for 99% of available days during the first quarter of 2023, with 22 of a total 1,603 available days (excluding 12 days vessels that were off-hire due to drydock requirements) seeing vessels idle without employment. Industry-wide, there were no firm Jones Act vessels on order.
Delaware Bay lightering volumes averaged 170,00082,000 b/d in the thirdfirst quarter of 20172023 compared with 156,00071,000 b/d in the thirdfirst quarter of 2016. The increase primarily resulted from increased demand from one customer.2022. We have contract minimums with our refinery customers that compensate us for barrels not lightered below minimum amounts.
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Critical Accounting Policies:
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States,GAAP, which requirerequires the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. For a description of all ofThere have been no changes to the Company’s materialcritical accounting policies, seeestimates disclosed in Note 3,2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2016.
Results of Vessel Operations:
During the three and nine months ended September 30, 2017,March 31, 2023, shipping revenues decreasedincreased by $20,910 and $50,033$9,792, or 18.3% and 14.4%9.4%, respectively, compared to the same period in 2016.2022. The decreaseincrease primarily resulted from weakening market conditionsa 255-day decrease in layup days. We had no vessels in layup during the first quarter of 2023. During the first quarter of 2022, we had two vessels in layup for the full quarter and reduced charter rates.
Reconciliation of TCE revenues, a non-GAAP measure, to shipping revenues as reported in the consolidated statements of operations follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Time charter equivalent revenues | $ | 84,882 | $ | 109,649 | $ | 278,282 | $ | 336,603 | ||||||||
| Add: Voyage expenses | 8,388 | 4,531 | 19,329 | 11,041 | ||||||||||||
| Shipping revenues | $ | 93,270 | $ | 114,180 | $ | 297,611 | $ | 347,644 | ||||||||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Time charter equivalent revenues | $ | 104,735 | $ | 93,925 | ||||
| Add: Voyage expenses | 9,056 | 10,074 | ||||||
| Shipping revenues | $ | 113,791 | $ | 103,999 | ||||
The following tables providetable provides a breakdown of TCE rates achieved for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022 between spot and fixed earnings and the related revenue days.
| 2017 | 2016 | |||||||||||||||
| Three Months Ended September 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 24,466 | $ | 64,553 | $ | 28,416 | $ | 65,175 | ||||||||
| Revenue days | 367 | 732 | 92 | 995 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 35,054 | $ | — | $ | 37,214 | $ | — | ||||||||
| Revenue days | 179 | — | 181 | — | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | 8,360 | $ | 25,331 | $ | — | $ | 33,876 | ||||||||
| Revenue days | 280 | 355 | — | 729 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 59,857 | $ | — | $ | 58,387 | $ | — | ||||||||
| Revenue days | 184 | — | 184 | — | ||||||||||||
| 2017 | 2016 | |||||||||||||||
| Nine Months Ended September 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 25,224 | $ | 63,737 | $ | 27,952 | $ | 64,825 | ||||||||
| Revenue days | 612 | 2,621 | 116 | 3,131 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 32,543 | $ | 14,031 | $ | 33,798 | $ | 18,452 | ||||||||
| Revenue days | 382 | 159 | 397 | 148 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | 10,378 | $ | 27,159 | $ | — | $ | 36,240 | ||||||||
| Revenue days | 662 | 1,367 | — | 2,149 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 67,998 | $ | — | $ | 65,965 | $ | — | ||||||||
| Revenue days | 546 | — | 548 | — | ||||||||||||
| 2023 | 2022 | |||||||||||||||
| Three Months Ended March 31, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 55,522 | $ | 64,417 | $ | 57,368 | $ | 58,228 | ||||||||
| Revenue days | 40 | 847 | 411 | 545 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 41,384 | $ | 33,319 | $ | 44,075 | $ | 17,469 | ||||||||
| Revenue days | 246 | 14 | 180 | 90 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | — | $ | 42,479 | $ | — | $ | 34,731 | ||||||||
| Revenue days | — | 265 | — | 178 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 104,512 | $ | — | $ | 74,553 | $ | — | ||||||||
| Revenue days | 90 | — | 90 | — | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 60,115 | $ | — | $ | 58,996 | ||||||||
| Revenue days | — | 270 | — | 269 | ||||||||||||
a) Excludes one Alaska vessel currently in layup.
During the first quarter of 2023, TCE revenues minus vessel expenses and charter hire expenses.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Niche Market Activities | $ | 26,724 | $ | 25,372 | $ | 79,500 | $ | 76,678 | |||||||
| Jones Act Handysize Tankers | (2,962 | ) | 7,419 | 7,162 | 29,603 | ||||||||||
| ATBs | 4,927 | 16,840 | 21,860 | 54,032 | |||||||||||
| Vessel Operating Contribution | $ | 28,689 | $ | 49,631 | $ | 108,522 | $ | 160,313 | |||||||
Voyage expenses decreased by $24,767,$1,018, or 22.6%10.1%, in the first quarter of 2023 to $84,882$9,056 compared to $109,649$10,074 in the thirdfirst quarter of 2016. This decrease reflected weakening market conditions2022, primarily due to decreases in fuel and a growing proportionport expenses, as our vessels performed fewer voyage charters during the first quarter of our fleet becoming exposed2023 compared to the spot markets. While the total numberfirst quarter of revenue days remained relatively consistent from 2,181 days in 2016 to 2,097 days in 2017, the number of revenue days on spot voyages, which earned significantly lower average TCE daily rates, almost doubled from 2016 to 2017. For the third quarter, the average daily spot rate decreased from $43,968 in 2016 to $28,325 in 2017.Vessel2022.
Vessel expenses decreased 10.0%,increased by $1,773, or $3,680, to $33,1594.3%, in the thirdfirst quarter of 2017 from $36,8392023 to $42,571 compared to $40,798 in the thirdfirst quarter of 20162022, primarily due to cost reductionsan increase in spares and repair costs.
Charter hire expenses decreased by $6,259, or 28.5%, to $15,737 in 2023 from $21,996 in 2022. The decrease primarily resulted from less charter hire expense paid during 2017 as well as2023 compared to 2022 due to the Omnibus Appropriations Actredelivery of 2017, signed by the Presidentthree conventional tankers leased from American Shipping Company in May 2017, which approved increases in the MSP subsidy from $3.5 million per vessel per year to $5.0 million per vessel per year. MSP subsidies are recorded as an offset to vessel expenses. December 2022.
Depreciation and amortization decreased by $8,515 to $14,390 in the third quarter of 2017 from $22,905 in the third quarter of 2016 primarily resulting from impairment charges recorded in prior years which reduced the carrying value and related depreciation expense of the rebuilt Jones Act ATBs that operate in the U.S. Gulf coastwise trade.
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Two of our reflagged U.S. Flag Product Carriers participateparticipated in the U.S. Maritime Security Program (the “Program”),MSP during the first quarter of 2023, which ensuresis designed to ensure that militarily usefulprivately-owned, military-useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. We receiveEach of the vessel-owning companies receives an annual subsidy,stipend, subject in each case to annual congressional appropriations, which is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. For fiscal year 2017, we will receive $5.0 millionSuch stipend was $5,300 on one vessel and $3,952 on the other vessel in 2022. During the three months ended March 2023, such stipend was $1,325 for each vessel. This funding
In April 2023, three of our vessels were accepted into the TSP. The program is designed to ensure that militarily useful U.S. Flag tank vessels are available to the U.S. Department of Defense in the event of war or national emergency. The initial program calls for 10 tankers to participate. Under the TSP, participants receive an annual stipend designed to reduce vessel expenses to a level that will continue through 2020,allow them to compete for international business. We will transfer the two non-Jones Act U.S. Flag Product Carriers participating in the MSP to the TSP and $5.2 million beginningadd the Overseas Sun Coast, which was converted to U.S. Flag status in 2021, subject January 2023, to congressional funding. During fiscal year 2016, we received $2.7 million and $3.5 millionparticipate in the program. We expect to receive an annual subsidystipend of $6,000 for each vessel respectively. We do not receive a subsidy for any days for which either ofunder the two vessels operate under a time charter to a U.S. government agency.
General and Administrative Expenses:
General and administrative expenses decreased by $3,748 to $6,493 from $10,241 inwere $7,843 for the third quarter of 2016. This decrease isthree months ended March 31, 2023 compared with $6,938 for the three months ended
March 31, 2022. The increase was primarily driven by lowerhigher compensation and benefitbenefits costs duerelated to a decreasean increase in headcount incentiveand higher compensation and salary related expenses as well as reduced legal, accounting and consulting fees.
Interest Expense:
Interest expense was $9,474 and $28,277$8,156 for the three and nine months ended September 30, 2017March 31, 2023 compared with $10,607 and $33,386$8,365 for the three and nine months ended September 30, 2016.March 31, 2022. The decrease in interest expense iswas primarily associated withdue to a lower average balance of debt outstanding during the impactfirst quarter of repurchases2023 compared to the first quarter of the Company's Unsecured Senior Notes during 2017 and 2016 for $37,537 and $37,345, respectively, as well as prepayments of $59,000 during 2016 for the Company’s Exit Financing Facilities.
Income Taxes:
For the three months ended September 30, 2017March 31, 2023 and 2016, the Company2022, we recorded income tax benefits(expense)/benefit of $3,110$(3,321) and $49,755,$59, respectively, which represent an effective tax rate of 33% and 48%, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded income tax provision/(benefit) of $2,052 and $(1,445), respectively, which representsrepresented effective tax rates of 47%21.5% and 2%10.4%, respectively. The increase in the effective tax rate for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to the tonnage tax exclusion and current state discrete expense. The effective tax rate for the ninethree months ended September 30, 2017 is greaterMarch 31, 2023 was more than the statutory tax rate primarily as a result of an income tax provision resulting from stock compensation pursuantdue to ASU 2016-09 offset in part by the non-taxability of income subject to U.S. tonnage tax.state expense. The effective tax rate for the ninethree months ended September 30, 2016 isMarch 31, 2022 was less than the statutory rate primarily as a result of non-deductible professional fees in 2016 in preparation ofdue to the separation of the domestictonnage tax exclusion and international business units.
Liquidity and Sources of Capital:
Our business is capital intensive. Our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business to meet near-term and long-term debt repayment obligations is dependent on maintaining sufficient liquidity.
Liquidity
Working capital at September 30, 2017March 31, 2023 was approximately $139,000$(25,000) compared with approximately $181,000$(38,000) at December 31, 2016.2022. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $43,000 at March 31, 2023 compared to $30,000 at December 31, 2022. The decreaseincrease in working capital iswas primarily due to an increase in cash and cash equivalents as the Company generated cash flow from operations during the current year. The increase in working capital was partially offset by a decrease in receivables related to the reclassification of $71,554 of long-term debt to short-term at September 30, 2017 offset by increases to working capital as a result of a reduction in accounts payable, accrued expenses and other current liabilities related to payments made during the nine months ended September 30, 2017 primarily related to the SEC settlement and the payout of the 2016 annual incentive plan. Current assets are highly liquid, consisting principally of cash, interest-bearing deposits and receivables. The Company’s total cash (including restricted cash) decreased by $3,348 during the nine months ended September 30, 2017. This decrease is related to timing of accounts receivable collections and accounts payable payments at September 30, 2017 compared to December 31, 2016.
As of September 30, 2017,March 31, 2023, we had total liquidity on a consolidated basis of $278,585, comprised of $203,585$104,091 of cash (including $3,856 of restricted cash) and $75,000 of undrawn revolver capacity.cash equivalents. We manage our cash in accordance with our intercompany cash management system subject to the requirements of our Exit Financing Facilities.system. Our cash and cash equivalents, as well as our restricted cash balances, generally exceed Federal Deposit Insurance Corporation insuredinsurance limits. We place our cash, cash equivalents and restricted cash in what we believe to be credit-worthy financial institutions. In addition, certain of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government or its agencies.
As of September 30, 2017,March 31, 2023, we had total debt outstanding (net of original issue discount and deferred financing costs) of $491,652$417,817 and a total debt to total capitalization of 65.5%54.5%, compared to 67.4%$423,363 and 55.5%, respectively, at December 31, 2016.2022.
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Sources, Uses and Management of Capital
We generate significant cash flows through our complementary mix of time charters, voyage charters and contracts of affreightment. Net cash provided by operating activities induring the three months ended September 30, 2017March 31, 2023 was $36,840. $35,696. In addition to operating cash flows, our other current potential sources of funds may include additional borrowings as permitted under the Exit Financing Facilities,are proceeds from additional issuances of equity securities, additional borrowings, and proceeds from the opportunistic sales of our vessels. In the past, we have also have been able to obtainobtained funds from the issuance of long-term debt securities. WeHowever, we can give no assurance as to whether or the terms on which we may in the future complete transactions consistent with achieving the objectives of our business plan.
We use capital to fund working capital requirements, maintain the quality of our vessels, comply with U.S. and international shipping standards, and repay our outstanding loan facilities. We also use capital to comply with environmental laws and regulations, repay or repurchase our outstanding debt and to repurchase our common stock from time to time. The OBS Term Loan requireswe expect that a portion of Excess Cash Flow (as defined in the term loan agreement) be used to prepay the outstanding principal balancecosts of such loan. Tocompliance will continue to increase; while it is not possible to determine the extent permitted under the termsamounts of the Exit
In March 2023, we used $1,862 of available cash to repurchase any497,906 shares of our company stock during the three and nine months ended September 30, 2017. Underat an October 2015 Board resolution, the Company is authorized to repurchase up to $200,000 worthaverage price of the Company’s Class A and Class B common stock and warrants. The remaining buyback authorization as of September 30, 2017 was approximately $77,025.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Not applicable due to the nine months ended September 30, 2017, there were no material changes to our disclosures about market risk. For an in-depth discussion of our market risks, see “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2016.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s current disclosure controls and procedures were effective as of September 30, 2017March 31, 2023 to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There waswere no changechanges in the Company’s internal control over financial reporting during the three monthsquarter ended September 30, 2017March 31, 2023 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.
Legal ProceedingsWe are party to lawsuits and claims arising out of the normal course of business. In management'smanagement’s opinion, there isare no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on our consolidated results of operations, financial position, or cash flows.
Item 1A.
Risk FactorsIn addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 20162022 Form 10-K, and as may be updated in our subsequent quarterly reports. The risks described in our 20162022 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes in our risk factors from those disclosed in our 20162022 Form 10-K, except for the following:
Item 2.
Unregistered Sales of Equity Securities and Use of ProceedsOn March 17, 2023, the Company’s Board of Directors authorized a program to the accompanying condensed consolidated financial statements for a description of Class A and Class B warrants exercised in exchange for Class A and Class B common stock, which is incorporated by reference in this Part II, Item 2.
During the three and nine months ended September 30, 2017. The remaining buyback authorizationMarch 31, 2023, purchases of our common stock under the share repurchase program were as follows:
| Period | Total Number Shares of Class A Purchased | Average Price Paid per Share of Class A | ||||||
| January 1, 2023 through January 31, 2023 | — | $ | — | |||||
| February 1, 2023 through February 28, 2023 | — | $ | — | |||||
| March 1, 2023 through March 31, 2023 | 497,906 | $ | 3.74 | |||||
| 497,906 | $ | 3.74 | ||||||
During the three months ended March 31, 2023, in connection with the vesting of September 30, 2017 was approximately $77,025.
| Period | Total Number Shares of Class A Withheld | Average Price Paid per Share of Class A | ||||||
| January 1, 2023 through January 31, 2023 | — | $ | — | |||||
| February 1, 2023 through February 28, 2023 | 85,322 | $ | 2.89 | |||||
| March 1, 2023 through March 31, 2023 | 247,763 | $ | 3.72 | |||||
| 333,085 | $ | 3.51 | ||||||
Item 3
. Defaults upon senior securitiesNone.
Item 4
. Mine Safety DisclosuresNot applicable.
Item 5
. Other informationNone.
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Item 6
. Exhibits| 20 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OVERSEAS SHIPHOLDING GROUP, INC. | |
| (Registrant) | |
| Date: | /s/ Samuel H. Norton |
| Samuel H. Norton | |
| Chief Executive Officer | |
| Date: | /s/ Richard Trueblood |
| Richard Trueblood | |
| Chief Financial Officer | |
| (Mr. Trueblood is the Principal Financial Officer and has been duly authorized to sign on behalf of the Registrant) |
| 21 |