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 September 30,March 31, 20232024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____to_____

 

Commission File Number: 001-06479

OVERSEAS 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’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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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 filerNon-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 ☐ No No

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 2, 2023:May 6, 2024: 72,371,47672,030,977 shares. Excluded from this amount are warrants outstanding as of November 2, 2023May 6, 2024 for the purchase of 809,575507,797 shares of Class A common stock for nominal consideration.

 

 

 

 

 

TABLE OF CONTENTS

 

  

Page

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Part I—FINANCIAL INFORMATION
  
Item 1.Financial Statements
  
 Condensed Consolidated Balance Sheets as of September 30, 2023March 31, 2024 (Unaudited) and December 31, 202220233
  
 Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30,March 31, 2024 and 2023 and 20224
  
 Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30,March 31, 2024 and 2023 and 20225
  
 Condensed Consolidated Statements of Cash Flows (Unaudited) for the ninethree months ended September 30,March 31, 2024 and 2023 and 20226
  
 Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three and nine months ended September 30,March 31, 2024 and 2023 and 20227
  
 Notes to Condensed Consolidated Financial Statements (Unaudited)8
  
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1514
  
Item 3.Quantitative and Qualitative Disclosures about Market Risk18
Item 4.Controls and Procedures18
Part II—OTHER INFORMATION
Item 1ARisk Factors19
Item 2Unregistered Sales of Equity Securities and Use of Proceeds19
Item 3Defaults upon Senior Securities19
Item 4Mine Safety Disclosure19
Item 5Other Information19
Item 6.Exhibits20
  
Item 4.Controls and ProceduresSignatures20
Part II—OTHER INFORMATION
Item 1ARisk Factors21
Item 2Unregistered Sales of Equity Securities and Use of Proceeds21
Item 3Defaults upon Senior Securities21
Item 4Mine Safety Disclosure21
Item 5Other Information21
Item 6.Exhibits22
Signatures23

 

2

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

DOLLARS IN THOUSANDS

 

 September 30, 2023  December 31, 2022  March 31, 2024  December 31, 2023 
 (unaudited)     (unaudited)    
ASSETS                
Current Assets:                
Cash and cash equivalents $97,598  $78,732  $82,203  $76,257 
Investment security to be held to maturity  14,900      14,950   14,900 
Voyage receivables, including unbilled of $4,862 and $11,364, net of reserve for credit losses  12,522   19,698 
Income tax receivable  696   1,914 
Voyage receivables, including unbilled of $4,081 and $4,976, net of reserve for credit losses  9,415   17,362 
Income tax recoverable  447   407 
Other receivables  2,227   5,334   2,275   3,140 
Inventories, prepaid expenses and other current assets  3,237   2,668   6,682   2,522 
Total Current Assets  131,180   108,346   115,972   114,588 
Vessels and other property, less accumulated depreciation  679,399   726,179 
Vessels and other property, less accumulated depreciation and amortization  695,633   699,032 
Deferred drydock expenditures, net  41,703   38,976   45,680   44,827 
Total Vessels, Other Property and Deferred Drydock  721,102   765,155 
Total Vessels, Deferred Drydock and Other Property  741,313   743,859 
Intangible assets, less accumulated amortization  14,567   18,017   12,267   13,417 
Operating lease right-of-use assets, net  187,135   206,797 
Investment security to be held to maturity     14,803 
Operating lease right-of-use assets  192,636   172,703 
Other assets  27,188   25,945   34,652   34,317 
Total Assets $1,081,172  $1,139,063  $1,096,840  $1,078,884 
LIABILITIES AND EQUITY                
Current Liabilities:                
Accounts payable, accrued expenses and other current liabilities $49,061  $54,906  $53,165  $60,911 
Current installments of long-term debt  56,205   43,305 
Current portion of operating lease liabilities  67,320   63,288   64,779   65,272 
Current portion of finance lease liabilities     4,000 
Current installments of long-term debt  43,183   23,733 
Total Current Liabilities  159,564   145,927   174,149   169,488 
Reserve for uncertain tax positions  212   175   295   285 
Long-term debt, net  338,215   357,406 
Deferred income taxes, net  82,511   79,373 
Noncurrent operating lease liabilities  127,266   149,960   128,191   107,911 
Noncurrent finance lease liabilities     16,456 
Long-term debt  363,327   399,630 
Deferred income taxes, net  79,263   70,233 
Other liabilities  8,893   16,997   10,605   10,368 
Total Liabilities  738,525   799,378   733,966   724,831 
Equity:                
Common stock - Class A ($0.01 par value; 166,666,666 shares authorized; 89,496,512 and 88,297,439 shares issued; 72,322,453 and 78,297,439 shares outstanding)  895   883 
Common stock - Class A ($0.01 par value; 166,666,666 shares authorized; 90,323,906 and 89,545,535 shares issued; 71,724,847 and 70,946,476 shares outstanding)  903   895 
Paid-in additional capital  587,447   597,455   587,087   588,361 
Accumulated deficit  (190,989)  (233,023)  (164,534)  (174,825)
Treasury stock, 17,174,059 and 10,000,000 shares, at cost  (57,540)  (29,040)
Treasury stock, 18,599,059 shares at cost  (64,380)  (64,380)
Stockholder’s Equity Subtotal  339,813   336,275   359,076   350,051 
Accumulated other comprehensive income  2,834   3,410   3,798   4,002 
Total Equity  342,647   339,685   362,874   354,053 
Total Liabilities and Equity $1,081,172  $1,139,063  $1,096,840  $1,078,884 

 

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)

 

 2023  2022  2023  2022  2024  2023 
 Three Months Ended
September 30,
  Nine Months Ended
September 30,
  Three Months Ended
March 31,
 
 2023  2022  2023  2022  2024  2023 
Shipping Revenues:                        
                        
Time and bareboat charter revenues $93,224  $92,730  $264,621  $232,934  $95,931  $84,140 
Voyage charter revenues  22,211   30,329   71,230   112,108   21,566   29,651 
Total shipping revenues  115,435   123,059   335,851   345,042   117,497   113,791 
Operating Expenses:                        
Voyage expenses  6,858   7,997   22,413   32,813   6,805   9,056 
Vessel expenses  39,969   45,430   123,337   130,380   42,038   42,571 
Charter hire expenses  16,233   22,743   47,988   67,089   16,818   15,737 
Depreciation and amortization  17,003   17,902   49,500   51,058   17,994   16,048 
General and administrative  7,173   6,556   21,614   20,929   10,354   7,843 
Total operating expenses  87,236   100,628   264,852   302,269   94,009   91,255 
Operating income  28,199   22,431   70,999   42,773   23,488   22,536 
Other income, net  1,643   568   4,184   649   1,235   1,080 
Income before interest expense and income taxes  29,842   22,999   75,183   43,422   24,723   23,616 
Interest expense  (7,779)  (8,229)  (24,019)  (24,869)
Interest expense, net  (6,782)  (8,156)
Income before income taxes  22,063   14,770   51,164   18,553   17,941   15,460 
Income tax expense  (4,471)  (1,522)  (9,131)  (2,074)  (3,300)  (3,321)
Net income $17,592  $13,248  $42,033  $16,479  $14,641  $12,139 
                        
Weighted Average Number of Common Shares Outstanding:                        
Basic - Class A  78,263,667   88,174,640   80,544,607   87,579,624   71,901,503   82,006,666 
Diluted - Class A  80,700,618   90,349,567   83,233,332   89,211,983   75,159,109   85,340,906 
Per Share Amounts:                        
Basic net income - Class A $0.22  $0.15  $0.52  $0.19  $0.20  $0.15 
Diluted net income - Class A $0.22  $0.15  $0.51  $0.18  $0.19  $0.14 

 

See notes to condensed consolidated financial statements.

 

4

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

DOLLARS IN THOUSANDS

(UNAUDITED)

 

 2023  2022  2023  2022  2024  2023 
 Three Months Ended
September 30,
  Nine Months Ended
September 30,
  Three Months Ended
March 31,
 
 2023  2022  2023  2022  2024  2023 
Net income $17,592  $13,248  $42,033  $16,479  $14,641  $12,139 
Other comprehensive loss, net of tax:                        
Defined benefit pension and other postretirement benefit plans:                        
Net change in unrecognized prior service costs  (181)  (180)  (542)  (541)  (179)  (208)
Net change in unrecognized actuarial losses  (11)     (34)     (25)  16 
Other comprehensive loss  (192)  (180)  (576)  (541)  (204)  (192)
Comprehensive income $17,400  $13,068  $41,457  $15,938  $14,437  $11,947 

 

See notes to condensed consolidated financial statements.

 

5

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

DOLLARS IN THOUSANDS

(UNAUDITED)

 

 2023  2022  2024  2023 
 Nine Months Ended
September 30,
  Three Months Ended
March 31,
 
 2023  2022  2024  2023 
Cash Flows from Operating Activities:                
Net income $42,033  $16,479  $14,641  $12,139 
Items included in net income not affecting cash flows:                
Depreciation and amortization  49,500   51,058   17,994   16,048 
Amortization of debt discount and other deferred financing costs  855   840   283   282 
Compensation relating to restricted stock awards and stock option grants  2,556   3,237   918   800 
Deferred income tax expense  9,068   1,998   3,148   3,287 
Interest on finance lease liabilities  917   1,228      370 
Non-cash operating lease expense  48,970   67,769   16,986   15,892 
Payments for drydocking  (12,862)  (13,896)  (5,456)  (1,918)
Operating lease liabilities  (50,257)  (69,368)  (17,133)  (16,292)
Changes in operating assets and liabilities, net  (7,730)  (18,166)  (6,638)  5,088 
Net cash provided by operating activities  83,050   41,179   24,743   35,696 
Cash Flows from Investing Activities:                
Expenditures for vessels and vessel improvements  (2,593)  (4,519)  (5,782)  (454)
Purchase of investment security to be held to maturity     (14,794)
Net cash used in investing activities  (2,593)  (19,313)  (5,782)  (454)
Cash Flows from Financing Activities:                
Payments on debt  (17,522)  (16,530)  (6,571)  (5,787)
Tax withholding on share-based awards  (1,168)  (496)  (2,184)  (1,168)
Dividends paid  (4,256)   
Deferred financing costs paid for debt amendments  (4)  (40)
Payments on principal portion of finance lease liabilities  (2,964)  (3,124)     (1,026)
Deferred financing costs paid for debt amendments  (53)  (261)
Purchases of treasury stock and Class A warrants  (39,884)  (11,026)     (1,862)
Net cash used in financing activities  (61,591)  (31,437)  (13,015)  (9,883)
Net increase/(decrease) in cash and cash equivalents  18,866   (9,571)
Net increase in cash and cash equivalents  5,946   25,359 
Cash and cash equivalents at beginning of period  78,732   83,253   76,257   78,732 
Cash and cash equivalents at end of period $97,598  $73,682  $82,203  $104,091 

 

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
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income (3)
  Total 
Balance at December 31, 2021 $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 
Net income        3,740         3,740 
Other comprehensive loss              (181)  (181)
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net  3   (3)            
Compensation related to Class A restricted stock awards     1,735            1,735 
Purchases under the stock repurchase program           (310)     (310)
Balance at June 30, 2022  880   596,399   (256,356)  (310)  2,582   343,195 
Net income        13,248         13,248 
Other comprehensive loss              (180)  (180)
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net  3   (128)           (125)
Compensation related to Class A restricted stock awards     846            846 
Purchases under the stock repurchase program           (10,716)     (10,716)
Balance at September 30, 2022 $883  $597,117  $(243,108) $(11,026) $2,402  $346,268 
                         Common
 Stock (1)
  Paid-in
 Additional
Capital (2)
  Accumulated
 Deficit
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income (3)
  Total 
Balance at December 31, 2022 $883  $597,455  $(233,023) $(29,040) $3,410  $339,685  $883  $597,455  $(233,023) $(29,040) $3,410  $339,685 
Net income        12,139         12,139         12,139         12,139 
Other comprehensive loss              (192)  (192)              (192)  (192)
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net  8   (1,176)           (1,168)  8   (1,176)           (1,168)
Compensation related to Class A restricted stock awards     800            800      800            800 
Conversion of Class A warrants to Class A common stock  1   (1)              1   (1)            
Purchases of treasury stock           (1,862)     (1,862)           (1,862)     (1,862)
Balance at March 31, 2023  892   597,078   (220,884)  (30,902)  3,218   349,402  $892  $597,078  $(220,884) $(30,902) $3,218  $349,402 
                        
Balance at December 31, 2023 $895  $588,361  $(174,825) $(64,380) $4,002  $354,053 
Balance $895  $588,361  $(174,825) $(64,380) $4,002  $354,053 
Net income        12,303         12,303         14,641         14,641 
Other comprehensive loss              (192)  (192)              (204)  (204)
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net  3   (3)              8   (2,192)           (2,184)
Compensation related to Class A restricted stock awards     862            862      918            918 
Conversion of Class A warrants to Class A common stock                  
Purchases of treasury stock           (7,985)     (7,985)
Balance at June 30, 2023  895   597,937   (208,581)  (38,887)  3,026   354,390 
Net income        17,592         17,592 
Other comprehensive loss              (192)  (192)
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net                  
Compensation related to Class A restricted stock awards     894            894 
Conversion of Class A warrants to Class A common stock                  
Purchases of treasury stock           (18,653)     (18,653)
Purchase of Class A warrants     (11,384)           (11,384)
Balance at September 30, 2023 $895  $587,447  $(190,989) $(57,540) $2,834  $342,647 
Dividends declared        (4,350)        (4,350)
Balance at March 31, 2024 $903  $587,087  $(164,534) $(64,380) $3,798  $362,874 
Balance $903  $587,087  $(164,534) $(64,380) $3,798  $362,874 

 

(1)Par value $0.01 per share; 166,666,666 Class A shares authorized; 89,496,51290,323,906 and 88,297,43989,191,275 Class A shares issued as of September 30,March 31, 2024 and 2023, and 2022, respectively, and 72,322,45371,724,847 and 84,518,55278,693,369 Class A shares outstanding as of September 30,March 31, 2024 and 2023, and 2022, respectively.
(2)Includes 4,519,5044,229,904 and 19,051,77818,372,136 outstanding Class A warrants as of September 30,March 31, 2024 and 2023, and 2022, respectively.
(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 trade.

 

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 (“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, 2023March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 20232024 or for any other period.

 

The condensed consolidated balance sheet as of December 31, 20222023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by GAAP 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, 20222023 (the “Form 10-K”).

 

Note 2 — Recently Adopted and Issued Accounting Standards

In November 2019,2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-10, Financial Instruments – Credit Losses2023-07, Segment Reporting (Topic 326), Derivatives280): Improvements to Reportable Segment Disclosure. The amendments require a public entity to disclose significant segment expenses and Hedging (Topic 815)other segment items on an annual and Leases (Topic 842): Effective Dates, which allowsinterim basis and to provide in interim periods all disclosures about a two-bucket approach for determining the effective dates of these accounting standards. Under this approach, the buckets would be defined as follows:

Bucket 1— All public business entities (“PBEs”)reportable segment’s profit or loss and assets that are SEC filers (as definedcurrently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under Accounting Standards Codification (“ASC”) 280. The guidance is effective for all public entities for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The enhanced segment disclosure requirements apply retrospectively to all prior periods presented in GAAP), excluding smaller reporting companies (“SRCs”) (as defined by the Securitiesfinancial statements. The significant segment expense and Exchange Commission (“SEC”). Thisother segment item amounts disclosed in prior periods shall be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company will adopt 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,for its 2024 Form 10-K. Management is currently reviewing the evaluation date for purposes of determining the applicabilityimpact of the Bucket 2 credit losses standard, the Company met the SEC definition of a smaller reporting company. The Company adopted that standard on January 1, 2023. The adoption of thethis accounting standard did not have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. The Company will adopt this standard on January 1, 2025. Management is currently reviewing the impact of the adoption of this accounting standard on the Company’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 revenue and cash flows are affected by economic factors. 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 shipping revenues disaggregated by nature of the charter arrangement for the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:

 

Schedule of Disaggregation of Revenue

 2023  2022  2023  2022  2024  2023 
 Three Months Ended
September 30,
  Nine Months Ended
September 30,
  Three Months Ended
March 31,
 
 2023  2022  2023  2022  2024  2023 
Time and bareboat charter revenues $93,224  $92,730  $264,621  $232,934  $95,931  $84,140 
Voyage charter revenues (1)  8,421   17,665   28,864   73,036   3,558   13,789 
Contracts of affreightment (“COA”) revenues  13,790   12,664   42,366   39,072   18,008   15,862 
Total shipping revenues $115,435  $123,059  $335,851  $345,042  $117,497  $113,791 

 

(1)For the three months ended September 30, 2023,March 31, 2024, the Company did not have any revenue related to short-term time charter contracts, which are time charter contracts for periods of less than 90 days, included in voyage charter revenues. For the ninethree months ended September 30,March 31, 2023, voyage charter revenues include $119 of revenue related to short-term time charter contracts. For the three and nine months ended September 30, 2022, voyage charter revenues include revenue related to short-term time charter contracts of $11,406 119and $28,004., respectively.

Voyage Receivables

As of September 30, 2023 and December 31, 2022, contract balances from contracts with customers consisted of voyage receivables of $9,317 and $9,258, respectively, net of reserves for credit losses for voyage charters and lightering contracts, which were not material.

 

8

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Voyage Receivables

As of March 31, 2024 and December 31, 2023, contract balances from contracts with customers consisted of voyage receivables of $4,386 and $7,768, respectively, net of reserves for credit losses for voyage charters and lightering contracts, which were not material.

Transaction Price Allocated to the Remaining Performance Obligations

As of September 30, 2023,March 31, 2024, the Company expects to recognize revenue of approximately $11,77936,653 for the remainder of 2023, $47,578 for 2024 and $14,608 for 2025 under COAs. These estimated amounts relate to the fixed consideration of contractual minimums within the contracts based on the Company’s estimate of future services.

Note 4 — Earnings per Common Share

Basic earnings per common share is computed by dividing earnings by the weighted average number of common shares outstanding during the period. As management deems the exercise price for the Class A warrants of $0.01 per share to be nominal, warrant proceeds are ignored, and the shares issuable upon exercises of Class A warrants are included in the calculation of 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.units (“RSUs”). 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, 2023,March 31, 2024, there were 3,180,7282,630,665 shares of Class A common stock issuable under outstanding restricted stock unitsRSUs and 1,478,756 shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities. As of September 30, 2022,March 31, 2023, there were 3,677,9423,307,804 shares of Class A common stock issuable under outstanding restricted stock unitsRSUs and 1,478,756 shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities.

 

The components of the calculation of basic earnings per share and diluted earnings per share are as follows:

 

Schedule of Earnings Per Share

 2023  2022  2023  2022  2024  2023 
 Three Months Ended
September 30,
  Nine Months Ended
September 30,
  Three Months Ended
March 31,
 
 2023  2022  2023  2022  2024  2023 
Net income $17,592  $13,248  $42,033  $16,479  $14,641  $12,139 
                        
Weighted average common shares outstanding:                        
Class A common stock - basic  78,263,667   88,174,640   80,544,607   87,579,624   71,901,503   82,006,666 
Class A common stock - diluted  80,700,618   90,349,567   83,233,332   89,211,983   75,159,109   85,340,906 

 

For the three and nine months ended September 30,March 31, 2024 and 2023, there were dilutive equity awards outstanding covering 2,436,9513,257,606 and 2,688,7253,334,240 shares, respectively. For the three months ended March 31, 2024, there were no anti-dilutive shares. Awards of 297,818 and 322,510shares (related to RSUs and stock options), respectively, were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive for the three and nine months ended September 30,March 31, 2023. For the three and nine months ended September 30, 2022, there were dilutive equity awards outstanding covering 2,174,927 and 1,632,359 shares, respectively. Awards of 371,893 and 609,956 shares (related to restricted stock units and stock options), respectively, were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive for the three and nine months ended September 30, 2022.

 

9

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Note 5 — Investment in Security to be Held to Maturity

 

In July 2022, the Company purchased 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 condensed 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 the U.S. Treasury Note at September 30, 2023March 31, 2024 and December 31, 20222023 was as follows:

Schedule of Fair Value of the U.S. Treasury Note

September 30, 2023 Amortized
Cost
  Gross Unrealized
Loss
  Fair Value 
March 31, 2024 Amortized Cost  Gross Unrealized Loss  Fair Value 
U.S. Treasury Note $14,900  $(298) $14,602  $14,950  $(114) $14,836 
 $14,900  $(298) $14,602  $14,950  $(114) $14,836 

 

December 31, 2022 Amortized
Cost
  Gross Unrealized
Loss
  Fair Value 
December 31, 2023 Amortized Cost  Gross Unrealized Loss  Fair Value 
U.S. Treasury Note $14,803  $(328) $14,475  $14,900  $(148) $14,752 
 $14,803  $(328) $14,475  $14,900  $(148) $14,752 

 

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 September 30, 2023,March 31, 2024, the Company determined that the unrealized loss on the U.S. Treasury Note was primarily due to increases in interest rates. Therefore, there was no OTTI loss recognized during the three and nine months ended September 30, 2023March 31, 2024 or three monthsfor the year ended December 31, 2022.2023.

 

Note 6 — Fair Value Measurements and Fair Value Disclosures

The following methods and assumptions are 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 approximate fair value. Investments in trading securities consist of equity securities and were measured using quoted market prices at the reporting date.

U.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 the publicly traded and non-public debt held by the Company are estimated based on similar instruments.

 

ASC 820, Fair Value Measurements and Disclosures, relating to fair value measurements, defines fair value and establishes a framework for measuring fair value. The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions, based on the available information deemed best in the circumstances. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, which for the liabilities described below includes the Company’s own credit risk.

 

The 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 of the assets or liabilities

 

10

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Financial Instruments that are not Measured at Fair Value on a Recurring Basis

 

The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:

 

Schedule of Financial Instruments notNot Measured at Fair Value on a Recurring Basis 

 Carrying Fair Value  Carrying Fair Value 
 Value  Level 1  Level 2  Value  Level 1  Level 2 
September 30, 2023:            
March 31, 2024:            
Assets                        
Cash and cash equivalents $97,598  $97,598  $  $82,203  $82,203  $ 
U.S. Treasury Note  14,900   14,602      14,950   14,836    
Total $112,498  $112,200  $  $97,153  $97,039  $ 
Liabilities                        
Term loan, due 2024, net $19,291  $  $18,596  $18,587  $  $18,292 
Alaska tankers term loan, due 2025, net  21,413      20,030   18,751      18,027 
OSG 204 LLC term loan, due 2025, net  24,032      22,735   23,357      22,587 
OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net  42,721      38,444   41,597      38,504 
Term loan, due 2028, net  298,663      280,111   292,128      281,008 
Unsecured senior notes, net  390      387 
Total $406,510  $  $380,303  $394,420  $  $378,418 

 

 Carrying Fair Value  Carrying Fair Value 
 Value  Level 1  Level 2  Value  Level 1  Level 2 
December 31, 2022:            
December 31, 2023:            
Assets                        
Cash and cash equivalents $78,732  $78,732  $  $76,257  $76,257  $ 
U.S. Treasury Note  14,803   14,475      14,900   14,752    
Total $93,535  $93,207  $  $91,157  $91,009  $ 
Liabilities                        
Term loan, due 2024, net $20,330  $  $19,296  $18,942  $  $18,546 
Alaska tankers term loan, due 2025, net  25,289      23,195   20,091      19,203 
OSG 204 LLC term loan, due 2025, net  25,006      23,448   23,697      22,875 
OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net  44,342      40,331   42,163      39,350 
Term loan, due 2028, net  308,006      295,320   295,428      287,918 
Unsecured senior notes, net  390      385   390      389 
Total $423,363  $  $401,975  $400,711  $  $388,281 

Derivatives

During the fourth quarter of 2023, the Company entered into contracts for the purchase and installation of equipment related to engine life cycle upgrades on the Company’s four Alaska class vessels. The contracts are denominated in euros and the Company is party to forward contracts and options to fix the dollar cost of the project. The maturity dates and amounts of the forward contracts and options correspond to the scheduled payments due under the contracts. For the three months ended March 31, 2024, the Company concluded that the forward contracts and options were effective at hedging the scheduled payments.

 

Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis

Vessel and Intangible Assets Impairments

During the thirdfirst quarter of 2023,2024, the Company considered whether events or changes in circumstances had occurred since December 31, 20222023 that could indicate whether the carrying amounts of the vessels, including operating right-of-use assets, in the Company’s fleet, and whether the carrying value of the Company’s intangible assets, may not be recoverable as of September 30, 2023.March 31, 2024. The Company concluded that no such events or changes in circumstances had occurred.

 

Note 7 — Taxes

For the three months ended September 30,March 31, 2024 and 2023, and 2022, the Company recorded income tax expense of $4,4713,300 and $1,5223,321, respectively, which represented effective tax rates of 20.318.4%% and 10.321.5%%, respectively. The increasedecrease in the effective tax rate for the three months ended September 30, 2023March 31, 2024 compared to the three months ended September 30, 2022March 31, 2023 was primarily due to the tonnage tax exclusion. For the nine months ended September 30, 2023a benefit related to stock compensation and 2022, the Company recorded income tax expense of $9,131 and $2,074, respectively, which represented effective tax rates of 17.9% and 11.2%, respectively.changes in state apportionment. The increase in the effective tax rate for the ninethree months ended September 30, 2023 compared toMarch 31, 2024 was less than the nine months ended September 30, 2022 was primarilystatutory rate due to thea benefit related to stock compensation and tonnage tax exclusion. The effective tax rate for the ninethree months ended September 30,March 31, 2023 was less than the statutory rate due to a favorable Louisiana law change and the tonnage tax exclusion. The effective tax rate for the nine months ended September 30, 2022 was lessmore than the statutory rate due to the tonnagestate tax exclusion.expense.

11

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Note 8 — Capital Stock and Stock Compensation

Share and Warrant Repurchases

In September 2023, the Company purchased 13,851,382 warrants for the Company’s common stock from entities managed by Cyrus Capital Partners, L.P. (“Cyrus”), a major stockholder of the Company, for total consideration of $11,384. The warrants purchased, which were exercisable for 2,631,763 shares of the Company’s Class A common stock and represented all of the warrants held by Cyrus, were cancelled subsequent to the purchase. At September 30, 2023, the Company had 4,519,504 warrants outstanding convertible into 858,706 shares.

On March 17, 2023, the Company’s Board of Directors (the “Board”) authorized a program (the “program”) to purchase up to $10,000 of the Company’s common stock. In June 2023, the Board authorized the repurchase of an additional $10,000 of common stock, raising the total value of the program to $20,000. Under the program, the Company may repurchase shares from time to time in open market transactions or in privately negotiated transactions.

In August 2023, the Company purchased 3,788,639 shares of the Company’s common stock from entities managed by Cyrus at a price of $4.05 per share for total consideration of $15,344. Including these transactions, for the three and nine months ended September 30, 2023, the Company repurchased 4,580,921 and 7,174,059 shares, respectively, for $18,653 and $28,499, respectively, at an average price of $4.07 and $3.97 per share, respectively. At September 30, 2023, the Company had a remaining authorization under the program of $6,844 for share repurchases.

 

Warrant Conversions

During the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, the Company issued 128,9435,884 and 11,179128,706 shares of Class A common stock, respectively, as a result of the exercise of 680,89231,015 and 59,124 679,642Class A warrants, respectively.

 

Dividends

In March 2024 the Company’s Board of Directors declared a cash dividend of $0.06 per share on its Class A common stock. Pursuant to such dividend declaration, the Company made dividend payments in April 2024 totaling $4,350, which is included in accounts payable, accrued expenses and other current liabilities on the condensed consolidated balance sheet as of March 31, 2024.

Stock Compensation

The Company accounts for stock compensation expense in accordance with the fair value-based method required by ASC 718, Compensation – Stock Compensation. This method requires share-based payment transactions to be measured based on the fair value of the equity instruments issued.

 

Director Compensation — Restricted Stock Units

On June 15, 2023 and June 1, 2022, the Company awarded 195,800 and 305,000 time-based RSUs, respectively, to its non-employee directors. The grant date fair values of these awards were $3.83 and $2.09 per RSU, respectively. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. These RSUs vest in full on the first anniversary of the grant date, subject to each director continuing to provide services to the Company through such date.

Management Compensation — Restricted Stock Units

 

During the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, the Company granted RSUs to its employees, including senior officers, covering 584,922350,252 and 718,360584,922 shares, respectively. The grant date fair values of these awards were $2.905.05 and $2.092.90 per RSU, respectively. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award vests in approximately equal installments on each of the first three anniversaries of the grant date.

 

During the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, the Company awarded performance-based RSUs to its senior officers covering 416,832240,850 and 518,600416,832 shares, respectively (which amounts may be increased up to a maximum of 625,248361,275 and 777,900625,248 shares, respectively, based upon performance). Each performance-based RSU represents a contingent right to receive RSUs based upon continuous employment, subject to the achievement of performance metrics through the end of a three-year performance period. The grant date fair values of the awards, which are subject to performance conditions, were determined to be $2.905.05 and $2.092.90 per RSU, respectively.

 

During the ninethree months ended September 30, 2022, the Company awarded RSUs to its senior officers covering 576,981 shares. The grant date fair value of these awards was $2.09. Each award of RSUs vest as follows: 20% vests on the first anniversary of the grant date, 30% vests on the second anniversary of the grant date,March 31, 2024 and 50% vests on the third anniversary of the grant date. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting.

During the nine months ended September 30, 2023, and 2022, in connection with the vesting of restricted stock units (“RSUs”),RSUs, the Company withheld 333,085362,171 and 179,040333,085, respectively, shares of Class A common stock respectively, at an average priceprices of $3.516.03 and $2.073.51 per share (based on the market prices on the dates of vesting), respectively, from certain members of management to cover withholding taxes.

 

12

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Note 9 — Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, net of related taxes, in the condensed consolidated balance sheets follow:

 

Schedule of Components of Accumulated Other Comprehensive LossIncome

As of September 30, 2023  December 31, 2022  March 31, 2024  December 31, 2023 
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans) $2,834  $3,410  $3,798  $4,002 
Accumulated other comprehensive income $2,834  $3,410  $3,798  $4,002 

 

The following tables presenttable presents the changes in the balances of each component of accumulated other comprehensive income, net of related taxes, during the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:

 

Schedule of Changes in Balances of Component of Accumulated Other Comprehensive LossIncome

  

Items not

yet recognized

as a component

of net periodic

benefit cost
(pension and other postretirement plans)

 
    
Balance as of June 30, 2023 $3,026 
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 September 30, 2023 $2,834 
     
Balance as of June 30, 2022 $2,582 
Current period change, excluding amounts reclassified from accumulated other comprehensive loss   
Amounts reclassified from accumulated other comprehensive income  (180)
Total change in accumulated other comprehensive income  (180)
Balance as of September 30, 2022 $2,402 

 

Items not

yet recognized

as a component

of net periodic

benefit cost

(pension and other postretirement plans)

  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 
Balance as of December 31, 2023 $4,002 
Current period change, excluding amounts reclassified from accumulated other comprehensive income      
Amounts reclassified from accumulated other comprehensive income  (576)  (204)
Total change in accumulated other comprehensive income  (576)  (204)
Balance as of September 30, 2023 $2,834 
Balance as of March 31, 2024 $3,798 
        
Balance as of December 31, 2021 $2,943 
Balance as of December 31, 2022 $3,410 
Current period change, excluding amounts reclassified from accumulated other comprehensive loss      
Amounts reclassified from accumulated other comprehensive income  (541)  (192)
Total change in accumulated other comprehensive income  (541)  (192)
Balance as of September 30, 2022 $2,402 
Balance as of March 31, 2023 $3,218 

 

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, net on the condensed consolidated statements of operations.

 

13

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

Note 10 — Leases

In October 2023, the Company entered into new bareboat charter agreements in respect of the seven vessels comprising OSG’s Veteran Class products tanker fleet, all of which are now indirectly owned by a private fund (the “MP Fund”) managed by Maritime Partners, LLC. The economic terms of the bareboat charters remain the same as the previous bareboat charters. Prior to their recent acquisition by a Jones Act qualified subsidiary of the MP Fund, these seven vessels were previously owned indirectly by AMSC ASA (“AMSC”). The previous charters with AMSC for two of the seven chartered-in vessels contained a deferred payment obligation (“DPO”), which was $6,514 at September 30, 2023, related to charter hire expense incurred by the Company in prior years and was payable to AMSC in future periods. As part of the new agreements, the Company prepaid, at a discount, $5,602 to the MP Fund, representing all of its remaining outstanding DPO.

In August 2023, the Company extended its lease on the Overseas Key West for an additional lease term of two months to April 2029. Upon reassessment, the lease is accounted for as an operating lease. It was previously accounted for as a finance lease. The future minimum commitments under the lease are $1,550 for 2023, $4,172 for 2024, $4,161 for 2025, $4,161 for 2026, $4,161 for 2027, and $5,449 thereafter. For the nine months ended September 30, 2023, the non-cash activity for obtaining an operating right-of-use asset and liability was not material as a result of the lease extension.

In March 2023, 2024, the Company extendedexercised its lease onfirst option to extend the bareboat charter of the Alaskan FrontierOverseas Tampa with its vessel owner for an additional lease term of three years,a five-year option period commencing in June 2025 and ending in June 2030. Additional options to March 2026.extend remain. The leasecharter is accounted for as an operating lease. The future minimum commitments under the leasecharter are $92 7,061for the remainder of 2023, $366 in 2024, $365 9,371in 2025, $9,371 in 2026, $9,371 in 2027, $9,397 in 2028 and $71 14,019in 2026. thereafter. For the ninethree months ended September 30, 2023,March 2024, the Company had non-cash operating activity of approximately $1,000 34,003for obtaining an operating right-of-use asset and liability as a result of the lease extension. Subsequently, the Company entered into an agreement with BP Oil Shipping Company, USA, in October 2023, to purchase the Alaskan Frontier for $20,000. The purchase is expected to be completed in November 2023. OSG intends to reactivate the 1.3-million-barrel capacity tanker which has been in cold layup in Malaysia since 2019. OSG plans to make investments in the vessel for it to begin commercial trade by the fourth quarter of 2024.

Charters-out

 

The Company is the lessor under its time charter contracts. Total time charter revenue for the three and nine months ended September 30, 2023March 31, 2024 was equal to income from lease payments of $90,80195,566 and $262,087, respectively, plus straight-line adjustments of $2,423365 and $2,534, respectively.. For the three and nine months ended September 30, 2022,March 31, 2023, total time charter revenue was equal to income from lease payments of $92,53984,434 and $232,360, respectively, plusless straight-line adjustments of $191294. The net book value of owned vessels on noncancelable time charters was equal to $450,907 and $574448,663, at March 31, 2024 and 2023, respectively.

The future minimum revenues, including rent escalations, which is equal to lease payments expected to be received over the noncancelable time charters term are as follows:

Schedule of Future Minimum Commitments Operating Leases

At March 31, 2024 Amount 
2024 $294,428 
2025  306,517 
2026  171,306 
2027  64,559 
2028   
Thereafter   
Net minimum lease receipts $836,810 

Revenues from a time charter are not generally received when a vessel is off-hire, including time required for normal periodic maintenance of the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although it cannot be assured that such estimate will be reflective of the actual off-hire in the future.

 

Note 11 — 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 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). In the opinion of management, none of these claims, individually or in the aggregate, are expected to be material to the Company’s financial position, results of operations and cash flows.

 

1413

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the 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,” 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 Form 10-K. Other factors besides those listed in our Form 10-K and in our quarterly reports also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. The following highlights some of these risk factors:

 

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 crude oil and refined product markets worldwide or in the specialized markets in which the Company currently trades, which could also affect the nature and severity of certain factors listed below;
uncertain economic, political and governmental conditions in the United States or abroad, and conditions in the oil and natural gas industry, such as the Russia/Ukraine war, recent developmentscurrent conditions in the Middle East involving Israel and the Gaza Strip, the Russia/Ukraine war, other geopolitical developments, or otherwise;
challenges associated with compliance with complex environmental laws and regulations, including those relating to the emission of greenhouse gases and protections to the quality of water and sealife, and corresponding increases in expenses;
unionization, 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;
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 threats such as the COVID-19 pandemic, which can impact the Company in many ways, including increasing operating costs to protect the health and safety of the Company’s crew members and others in the industry;
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 operations and successfully run its business in the future or to generate sufficient cash to service its indebtedness and to comply with debt covenants, allowing it to maintain capital availability;
the highly cyclical nature of OSG’s industry and significant fluctuations in the market value of our vessels;
the Company’s ability to renew its time charters when they expirecost and effects of cybersecurity incidents or to enter into new time charters, to replace its operating leases on favorable terms,other failures, interruptions, or to compete effectively for charters;security breaches of our systems or those of our customers or third-party providers;
the loss of or reduction in business with any one of our large customers, changes in credit risk with respect to the Company’s counterparties on contracts, or the failure of counterparties to meet their obligations;
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 carryforwards.

 

The Company assumes no obligation to update or revise any forward-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-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 filed by the Company with the SEC.

 

Business Overview

OSG is a publicly traded company providing liquid bulk and energy transportation services for crude oil and petroleum products in the U.S. Flag markets. In 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 fleet consists of Suezmax crude oil tankers, doing business in Alaska, conventional and lightering ATBs,articulated tug barges (“ATBs”), shuttle and conventional MR tankers, and non-Jones Act MR tankers that participate in the U.S. Tanker Security Program (“TSP”) or are on time charter to the U.S. Military Sealift Command. In October 2023, the Company entered into an agreement with BP Oil Shipping Company, USA to purchase the Alaskan Frontier. The purchase is expected to be completed in November 2023. OSG intends to reactivate the 1.3-million-barrel capacity tanker which has been in cold layup in Malaysia since 2019. OSG plans to make significant investments in the vessel for it to begin commercial trade by the fourth quarter of 2024. 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 earn freight revenue at spot market rates.

 

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The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023. 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’s beliefs, internal studies and management’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 cargoes need to be transported. In the Jones Act trades within which the substantial majority of our vessels operate, demand factors for transportation are affected almost exclusively by supply and distribution decisions of oil producers, refiners and distributors based in the United States. Further, the demand for U.S. domestic oil shipments is significantly affected by the state of the U.S. and global economies, the level of imports into the U.S. from OPEC and other foreign producers, oil production in the United States, and the relative price differentials of U.S. produced crude oil and refined petroleum products as compared with comparable products sourced from or destined for foreign markets, including the cost of transportation on international flag vessels to or from those markets. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally through storage, layup, deletions, or conversions. Our revenues are also affected by the mix of charters between spot (voyage charters which include short-term time charters) and long-term (time or bareboat charters).

 

The Russia/Ukraine conflict has resulted in economic sanctions against Russia, including the banningfollowing principal developments have directly or limitation of oil imports from Russia by certain countriesindirectly impacted our business recently 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 aptexpected 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.do so:

 

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.

Geopolitical tensions outside of the US have severely disrupted historical trading patterns for crude oil and its refined products. Since December 2022, the EU has, in response to the war in Ukraine, banned waterborne crude oil imports from Russia, and the G7 nations have implemented price caps limiting the global price paid for Russian oil and its refined products. Other countries have stepped in to purchase these commodities at a discount to world prices. More recently, vessels transiting the Red Sea have been the target of Houthi missile and drone attacks, causing many vessels to avoid Red Sea transits and to instead make longer voyages around the Cape of Good Hope. These circumstances have collectively resulted in the redirection of crude oil and refined product trade flows and increased aggregate ton-mile demand. Although the United States was not a major importer of Russian or Persian Gulf oil, its markets have nonetheless been impacted by these global events. Historically high international freight costs have resulted from disrupted trade patterns. Supply constraints now exist in markets that were alternative supply sources competing against domestic product shipped on Jones Act tonnage. As a result, traders now seem to favor domestic product sources over overseas alternatives, giving strong support for the use of Jones Act vessels. This increase in demand has resulted in higher utilization levels and higher rates for Jones Act vessels.
The continued impact of government policies encouraging the use of renewable fuels has driven strong demand growth for transporting renewable diesel and its feedstock components from production sources along the U.S. Gulf Coast to markets along the West Coast. California’s low carbon fuel standard regulations in particular have stimulated the use of renewable diesel, which is chemically identical to regular diesel, can be used on its own or blended with conventional diesel, and produces less carbon dioxide and nitrogen oxide than conventional diesel. The Gulf Coast currently produces a significant proportion of renewable diesel, and California has been the largest consumer of this product. Marine transportation is 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 and has created a large new market for Jones Act tankers.
The Biden Administration in 2023 approved ConocoPhillips’ “Willow Project” in Alaska. This project, together with a previously permitted project to develop the “Pikka” discovery operated by Santos, are expected to bring on nearly 250,000 barrels per day of new crude oil production in Alaska by 2027. The promise of significant increased future production bodes well for the prospective demand for OSG’s Alaska Class tankers, which provide the most cost-effective means for delivery of North Slope crude oil to refineries located in California and Washington state. Anticipating this increase in demand, in late 2023 OSG acquired the Alaskan Frontier, sister to the other three Alaska class vessels, and contracted with engine manufacturer MAN B&W to perform life cycle upgrades on each of the engines on all four vessels. The life cycle upgrades will improve performance and fuel efficiency and also prepare the engines for possible use of methanol fuel in the future. It is expected that the fuel efficiency gain will result in 15-20% fuel savings as compared to the original engine design leading to a meaningful reduction in carbon output. The significant capital investment in the four Alaska class vessels should permit OSG to operate the vessels for a longer period of time and with lower maintenance costs for their remaining lives.
In December 2023, OSG was awarded a $400 thousand grant from the U.S. Department of Energy (“DOE”) to study the development of its proposed Tampa Regional Intermodal Carbon Hub (“T-RICH”). The study is an important step towards realizing the potential for participating in an emerging market for managing the transport and sequestration of captured carbon dioxide (“CO2”). The study will evaluate the commercial feasibility of developing an intermediate storage hub at Port Tampa Bay for CO2 captured from industrial emitters across the State of Florida. As conceived, T-RICH would receive, store, and process, initially, two million metric tons of CO2 per year, which would be transported by OSG vessels across the Gulf of Mexico for permanent underground storage. T-RICH would be the first of its kind in the nation and could be scaled in the future to meet expanded volumes of captured CO2.
In April 2024, OSG was awarded a $3.0 million grant from the DOE for the engineering and design of a new vessel that will transport liquified CO2. The award will be used to develop the design of an ATB to provide a marine transport solution for captured CO2 aggregated at the T-RICH hub terminal in Tampa, to be shipped in liquified form to developed, approved sequestration sites in the northern Gulf of Mexico region.

 

Having our vessels committed on time charters is a fundamental objective of our chartering strategy. We seek to have a majority of available vessel operating days covered with time charters or contracts of affreightment, but if such charters are not remunerative, or prove unachievable under certain market conditions, some of our vessels may 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 TCEtime charter equivalent (“TCE”) revenues and rates, which are non-GAAP measures.

 

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Continued lack of available tonnage throughoutin the thirdfirst quarter of 20232024 contributed to minimal spot activity for Jones Act tankers and ATBs. Charterers arehave been increasing the duration of some new time charter contracts to secure tonnage for multi-year periods. There arewere few vessels available in the spot market and total spot activity wasdecreased from 11 spot fixtures in the thirdfirst quarter of 2023. For the 112023 to seven spot fixtures two were performed by tankers andin the othersfirst quarter of 2024. All seven spot fixtures were performed by ATBs.

 

Our vessels were employed for 100%97% of available days during the thirdfirst quarter of 2023,2024, with 45 of a total of 1,5901,503 available days (excluding 5744 days for vessels that were off-hire due to drydock requirements) seeing no vessels idle without employment. Industry-wide, there were no firm Jones Act vesselconstruction orders as of September 30, 2023.March 31, 2024.

 

Delaware Bay lightering volumes averaged 61,00090,000 b/d in in the first quarter of 2024 compared with 82,000 b/d in the thirdfirst quarter of 2023 compared with 65,000 b/d in the third quarter of 2022.2023. 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 GAAP, which requires the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. There have been no changes to the Company’s critical accounting estimates disclosed in Note 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 2022.2023.

 

Results of Vessel Operations

 

In December 2022 we redelivered three conventional tankers leased from American Shipping Company. The reduction in the number of vessels we operated in 2023 were the primary reasons for decreases in our revenues in 2023 compared to the comparable periods in 2022. There were additional items that impacted our revenues both positively and negatively which are described below.

During the three months ended September 30, 2023,March 31, 2024, shipping revenues decreasedincreased by $7,624,$3,706, or 6.2%3.3%, compared to the same period in 2022. In addition to the changes in the number of vessels we operate, there was an 8-day2023. The increase in drydock days and a decrease in Delaware Bay lightering volumes. The decrease was partially offset by an increase in average daily rates earned by our fleet and one full Government of Israel voyage and one partial Government of Israel voyage that began during the third quarter of 2023 and overlapped into the fourth quarter compared to two partial Government of Israel voyages in the third quarter of 2022.

For the nine months ended September 30, 2023, shipping revenues decreased by $9,191, or 2.7%, compared to the nine months ended September 30, 2022. In addition to the changes in the number of vessels we operate, there were fewer Military Sealift Command (“MSC”) voyages during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, which were longer international voyages. The decrease in shipping revenues was partially offset by a 337-day decrease in layup days. We had no vessels in layup during the nine months ended September 30, 2023. During the first quarter of 2022, we had two vessels in layup for the full quarter and two additional vessels that came out of layup in January 2022 and late February 2022. Our remaining two vessels in layup returned to service in May 2022. Additionally, the decrease was partially offset byprimarily resulted from (a) an increase in average daily rates earned by our fleet, (b) an increase in Delaware Bay lightering volumes and (c) a 5-day decrease in drydock days and (d) an 8-day decreaserepair days. The increase was moderated by a 22-day increase in repairdrydock days.

 

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,
  Three Months Ended
March 31,
 
 2023  2022  2023  2022  2024  2023 
Time charter equivalent revenues $108,577  $115,062  $313,438  $312,229  $110,692  $104,735 
Add: Voyage expenses  6,858   7,997   22,413   32,813   6,805   9,056 
Shipping revenues $115,435  $123,059  $335,851  $345,042  $117,497  $113,791 

 

The following tables providetable provides a breakdown of TCE rates achieved for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 between spot and fixed earnings and the related revenue days. Prior period amounts have been updated to conform to current period presentation.

 

  2023  2022 
Three months ended September 30, Spot Earnings  Fixed Earnings  Spot Earnings  Fixed Earnings 
Jones Act Handysize Product Carriers:                
Average rate $  $67,694  $38,296  $60,923 
Revenue days     903   55   1,086 
Non-Jones Act Handysize Product Carriers:                
Average rate $43,834  $68,875  $47,779  $38,911 
Revenue days  189   60   184   92 
ATBs:                
Average rate $  $44,354  $41,117  $35,590 
Revenue days     247   85   99 
Lightering:                
Average rate $89,255  $  $71,086  $46,906 
Revenue days  94      135   49 
Alaska (a):                
Average rate $  $61,016  $  $60,438 
Revenue days     254      250 

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 2023  2022  2024  2023 
Nine months ended September 30, Spot Earnings  Fixed Earnings  Spot Earnings  Fixed Earnings 
Jones Act Handysize Product Carriers:                
Three months ended March 31, Spot Earnings  Fixed Earnings  Spot Earnings  Fixed Earnings 
Jones Act MR Product Carriers:                
Average rate $60,505  $65,807  $53,710  $60,067  $  $70,975  $55,522  $64,417 
Revenue days  40   2,658   585   2,574      866   40   847 
Non-Jones Act Handysize Product Carriers:                
Non-Jones Act MR Product Carriers:                
Average rate $36,622  $63,239  $44,720  $29,632  $27,391  $53,451  $41,384  $33,319 
Revenue days  677   74   546   273   182   91   246   14 
ATBs:                                
Average rate $  $43,511  $41,048  $35,059  $  $47,992  $  $42,479 
Revenue days     737   85   458      273      265 
Lightering:                                
Average rate $91,900  $  $65,758  $46,906  $126,069  $  $104,512  $ 
Revenue days  275      363   49   91      90    
Alaska (a):                
Alaska (a):                
Average rate $  $60,355  $  $59,799  $  $64,937  $  $60,115 
Revenue days     797      785      228      270 

 

a) Excludes one Alaska vessel currently in layup.

 

During the thirdfirst quarter of 2023,2024, TCE revenues decreasedincreased by $6,485,$5,957, or 5.6%5.7%, to $108,577$110,692 from $115,062$104,735 in the thirdfirst quarter of 2022.2023. The decreaseincrease in TCE revenues was primarily driven by the decrease in shipping revenues explained above.

Voyage expenses decreased by $1,139, or 14.2%, in the third quarter of 2023 to $6,858 compared to $7,997 in the third quarter of 2022, primarily due to decreases in fuel expenses, as our vessels performed fewer voyage charters during the third quarter of 2023 compared to the third quarter of 2022.

Vessel expenses decreased by $5,461, or 12.0%, in the third quarter of 2023 to $39,969 compared to $45,430 in the third quarter of 2022, primarily due to a decrease in crewing costs related to fewer vessels in our fleet, as we redelivered three conventional tankers leased from American Shipping Company in December 2022.

Charter hire expenses decreased by $6,510, or 28.6%, to $16,233 in 2023 from $22,743 in 2022. The decrease primarily resulted from the redelivery of three conventional tankers leased from American Shipping Company in December 2022.

Depreciation and amortization decreased by $899, or 5.0%, to $17,003 in the third quarter of 2023 compared to $17,902 in the third quarter of 2022. The decrease primarily resulted from a decrease in amortization of drydock costs.

During the nine months ended September 30, 2023, TCE revenues increased $1,209, or 0.4%, to $313,438 from $312,229 during the nine months ended September 30, 2022. The increase primarily resulted from the decrease in shipping revenues explained above offset byand the decrease in voyage expenses explained below.

 

Voyage expenses decreased by $10,400,$2,251, or 31.7%24.9%, duringin the nine months ended September 30, 2023first quarter of 2024 to $22,413$6,805 compared to $32,813 during$9,056 in the nine months ended September 30, 2022,first quarter of 2023, primarily due to decreases in fuelport and portfuel expenses, as our vessels performed fewer voyage charters during the nine months ended September 30, 2023first quarter of 2024 compared to the nine months ended September 30, 2022.first quarter of 2023.

 

Vessel expenses decreased by $7,043,$533, or 5.4%1.3%, forin the nine months ended September 30, 2023first quarter of 2024 to $123,337$42,038 compared to $130,380 for$42,571 in the nine months ended September 30, 2022,first quarter of 2023, primarily due to a decrease in crewing costs related to fewer vessels in our fleet as we redelivered three conventional tankers leased from American Shipping Company in December 2022.repair and spares costs.

 

Charter hire expenses decreasedincreased by $19,101,$1,081, or 28.5%6.9%, to $47,988 for the nine months ended September 30, 2023$16,818 in 2024 from $67,089 for the nine months ended September 30, 2022.$15,737 in 2023. The decreaseincrease primarily resulted from the redeliverychange in accounting treatment due to the reclassification of three conventional tankers leasedthe Overseas Key West lease as an operating lease from American Shipping Company in December 2022.a finance lease.

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Depreciation and amortization decreasedincreased by $1,558,$1,946, or 3.1%12.1%, to $49,500 during$17,994 in the nine months ended September 30, 2023first quarter of 2024 compared to $51,058 during$16,048 in the nine months ended September 30, 2022.first quarter of 2023. The decreaseincrease primarily resulted from a decreasean increase in amortization of drydock costs.

Two of our U.S. Flag Product Carriers participated in the Maritime Security Program (“MSP”) during the first quarter of 2023. The stipend received was $1,325 for each vessel.

 

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 allow them to compete for international business.Tanker Security Program (“TSP”). We transferred the two non-Jones Act U.S. Flag Product Carriers that had been participating in the U.S. Maritime Security Program toMSP into the TSP and added the Overseas Sun Coast, which was converted to U.S. Flag status in January 2023,, to participate in the program. We expect to receive an annual stipend of $6,000 for each vessel under the TSP.

 

In June 2023, the MSCMilitary Sealift Command (“MSC”) awarded one of ourthe vessels that had been in the TSP, the Overseas Mykonos,a time charter contract to provide ongoing fuel transportation services to MSC in support of our nation’s defense. The time charter awarded is for a one-year base period with the MSC holding additional option periods to extend the contract out to a maximum period of five- and one-half years. The Overseas Mykonos was transferred out of the TSP and delivered to MSC in August 2023.

 

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During the three months ended March 31, 2024, we received $3,000 under the TSP. Under the terms of the TSP, we expect to receive up to $6,000 for each vessel in 2024. We do not receive a stipend for any days exceeding 180 days for which the vessels operate under a time charter to a U.S. government agency.

 

General and Administrative Expenses

 

General and administrative expenses increased by $617,$2,511, or 9.4%32.0%, to $7,173$10,354 during the three months ended September 30, 2023March 31, 2024 compared to $6,556$7,843 for the three months ended September 30, 2022.March 31, 2023. The increase was primarily driven by higher compensation and benefits costs related to an increase in headcount and higher compensation levels. Additionally, general and administrative expenses increased primarily due to increased travel, training andan increase in legal expenses during the three months ended September 30, 2023March 31, 2024 compared to the same period in 2022.2023.

 

For the nine months ended September 30, 2023, general and administrative expenses increased by $685 or 3.3% at $21,614 compared to $20,929 for the nine months ended September 30, 2022. The increase was primarily driven by higher compensation and benefits costs related to an increase in headcount and higher compensation levels.

Other Income, Net

 

Other income, net was $1,643 and $4,184$1,235 for the three and nine months ended September 30, 2023, respectively,March 31, 2024 compared with $568 and $649$1,080 for the three and nine months ended September 30, 2022, respectively.March 31, 2023. The increase in other income, net was primarily due to investment income earned on our investment accounts at higher interest rates year over year.

Interest Expense

Interest expense was $7,779 and $24,019$6,782 for the three and nine months ended September 30, 2023, respectively,March 31, 2024 compared with $8,229 and $24,869$8,156 for the three and nine months ended September 30, 2022.March 31, 2023. The decrease in interest expense was primarily due to a lower average balance of debt outstanding during the three and nine months ended September 30, 2023March 31, 2024 compared to the same periodsperiod in 2022.2023 and an increase in interest capitalized due to vessel improvement projects.

 

Income Taxes

For the three months ended September 30,March 31, 2024 and 2023, and 2022, wethe Company recorded income tax expense of $4,471$3,300 and $1,522,$3,321, respectively, which represented effective tax rates of 20.3%18.4% and 10.3%21.5%, respectively. The increasedecrease in the effective tax rate for the three months ended September 30, 2023March 31, 2024 compared to the three months ended September 30, 2022March 31, 2023 was substantiallyprimarily due to the tonnage tax exclusion. For the nine months ended September 30, 2023a benefit related to stock compensation and 2022, we recorded income tax expense of $9,131 and $2,074, respectively, which represented effective tax rates of 17.9% and 11.2%, respectively. The increasechanges in the effective tax rate for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was substantially due to the tonnage tax exclusion.state apportionment. The effective tax rate for the ninethree months ended September 30, 2023March 31, 2024 was less than the statutory rate due to a favorable Louisiana law changebenefit related to stock compensation and tonnage tax exclusion. The effective tax rate for the ninethree months ended September 30, 2022March 31, 2023 was lessmore than the statutory rate due to the tonnagestate tax exclusion.expense.

 

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, 2023March 31, 2024 was approximately $(28,000)$(58,000) compared with approximately $(38,000)$(55,000) at December 31, 2022.2023. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $38,936$7,000 at September 30, 2023March 31, 2024 compared to $30,000approximately $10,000 at December 31, 2022.2023. The increasedecrease in working capital was primarily due to an increase in cash and cash equivalents,current installments of long-term debt as our Alaska tankers term loan, due 2025, matures on March 12, 2025. This loan, along with our term loan, due 2024, which matures on September 30, 2024, totaling $37,519, are included in current installments of long-term debt at March 31, 2024. Also, working capital decreases due to a decrease in receivables related to the Company generated cash flowtiming of collections from operations during the current year, andour customers. The decrease in working capital was partially offset by a decrease in accounts payable, accrued expenses and other current liabilities as a result of our payout of the Alaska Tanker Company deferred compensation plan of $6,661 and timing of accounts payable payments made through September 30, 2023during the three months ended March 31, 2024 compared to Decemberthe three months ended March 31, 2022. The increase in working capital was partially offset by a decrease in receivables related to the timing of collections from our customers2023 and an increase in cash and cash equivalents as we generated cash flow from operations during the current installments of long-term debt as our term loan, due 2024, matures on September 30, 2024.year.

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As of September 30, 2023,March 31, 2024, we had total liquidity on a consolidated basis comprised of $97,598$97,153 of cash and cash equivalents. We manage our cash in accordance with our intercompany cash management system. Our cash and cash equivalents as well as our restricted cash balances, generally exceed Federal Deposit Insurance Corporation insurance limits. We place our cash and 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, 2023,March 31, 2024, we had total debt outstanding (net of deferred financing costs) of $406,510$394,420 and a total debt to total capitalization of 54.3%52.1%, compared to $423,363$400,711 and 55.5%53.1%, respectively, at December 31, 2022.2023.

 

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 during the ninethree months ended September 30, 2023March 31, 2024 was $83,050.$24,743. In addition to operating cash flows, our other current potential sources of funds 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 obtained funds from the issuance of long-term debt securities. However, we can give no assurance as to whether or the terms on which we may be able to issue equity or debt securities, obtain additional borrowings, or sell vessels.

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, and we expect that the costs of such compliance will continue to increase; while it is not possible to determine the amounts of such costs for any future period, we believe that they are likely to be substantial. We may also use cash generated by operations to finance capital expenditures to modernize and grow our fleet.

 

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In October 2023,March 2024 the Company’s Board of Directors declared a cash dividend of $0.06 per share on its Class A common stock. Pursuant to such dividend declaration, the Company entered into an agreement with BP Oil Shipping Company, USA to purchasemade dividend payments in April 2024 totaling $4,350, which is included in accounts payable, accrued expenses and other current liabilities on the Alaskan Frontier, for $20,000, which the Company had been leasing. The purchase is expected to be completed in November 2023. OSG intends to reactivate the 1.3-million-barrel capacity tanker which has been in cold layup in Malaysia since 2019. OSG plans to make investments in the vessel for it to begin commercial trade by the fourth quartercondensed consolidated balance sheet as of March 31, 2024.

 

Additionally,Also, in October 2023,March 2024, we exercised our first option to extend the bareboat charter of the Overseas Tampa with its vessel owner for a five-year option period commencing in June 2025 and ending in June 2030. Additional options to extend remain. The charter is accounted for as an operating lease. The future minimum commitments under the charter are $7,061 for the remainder of 2024, $9,371 in 2025, $9,371 in 2026, $9,371 in 2027, $9,397 in 2028 and $14,019 thereafter. For the three months ended March 2024, the Company entered into new bareboat charter agreements in respecthad non-cash operating activity of approximately $34,003 for obtaining an operating right-of-use asset and liability as a result of the seven vessels comprising OSG’s Veteran Class products tanker fleet, all of which are now indirectly owned by a private fund (the “MP Fund”) managed by Maritime Partners, LLC. The economic terms of the bareboat charters remain the same as the previous bareboat charters. Prior to their recent acquisition by a Jones Act qualified subsidiary of the MP Fund, these seven vessels were owned indirectly by AMSC ASA (“AMSC”). The previous charters with AMSC for two of the seven chartered-in vessels contained a deferred payment obligation (“DPO”), which was $6,514 at September 20, 2023, related to charter hire expense incurred by the Company in prior years and was payable to AMSC in future periods. As part of the new agreements, the Company prepaid, at a discount, $5,602 to the MP Fund, representing all of its remaining outstanding DPO.extension.

In September 2023, we purchased, using available cash, 13,851,382 warrants for our common stock from entities managed by Cyrus for total consideration of $11,384. The warrants purchased, which were exercisable for 2,631,763 shares of our Class A common stock and represented all of the warrants held by Cyrus, were cancelled subsequent to the purchase.

In August 2023, we purchased 3,788,639 shares of our common stock from entities managed by Cyrus at a price of $4.05 per share for total consideration of $15,344. Including these transactions, for the three and nine months ended September 30, 2023, we used $18,652 and $28,499, respectively, of available cash to repurchase 4,580,921 and 7,174,059 shares, respectively, of our common stock at an average price of $4.07 and $3.97 per share, respectively.

 

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Not applicable dueFor 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, 2023. During the three months ended March 31, 2024, there were no material changes to the Company’s status as a smaller reporting company.our disclosures about market risk.

 

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, 2023March 31, 2024 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 were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

2018

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

We are party to lawsuits and claims arising out of the normal course of business. In management’s opinion, there are 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 Factors

In 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 20222023 Form 10-K, and as may be updated in our subsequent quarterly reports. The risks described in our 20222023 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 or operating results. There have been no material changes in our risk factors from those disclosed in our 20222023 Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On March 17, 2023, the Company’s Board of Directors (the “Board”) authorized a program (the “program”) to purchase up to $10,000 of the Company’s common stock. In June 2023, the Board authorized the repurchase of an additional $10,000 of common stock, raising the total value of the program to $20,000. Under the program, the Company may repurchase shares from time to time in open market transactions or in privately negotiated transactions.

During the three months ended September 30, 2023, purchasesMarch 31, 2024, in connection with the vesting of our commonrestricted stock under the program were as follows:

Period 

Total Number Shares of

Class A Purchased

  

Average Price

Paid per
Share of Class A

 
July 1, 2023 through July 31, 2023  213,596  $4.03 
August 1, 2023 through August 31, 2023 (1)  4,050,847  $4.05 
September 1, 2023 through September 30, 2023  316,478  $4.32 
   4,580,921  $4.07 

(1)In August 2023, the Company purchased, using available cash, 3,788,639 shares of our common stock from entities managed by Cyrus at a price of $4.05 per share for total consideration of $15,344.

In September 2023,awards, the Company purchased, using available cash, 13,851,382 warrants forwithheld the Company’s common stock from entities managed by Cyrus for total considerationfollowing number of $11,384. The warrants purchased, which were exercisable for 2,631,763 shares of our Class A common stock and represented allfrom certain members of the warrants held by Cyrus, were cancelled subsequentmanagement to the purchase.cover withholding taxes.

Period Total Number Shares of Class A Withheld  Average Price Paid per Share of Class A  Total Number of Shares Purchased As Part of Publicly Announced Program  

Dollar Value of Shares Remaining Under the Program
($ in thousands)

 
January 1, 2024 through January 31, 2024    $     $25,000 
February 1, 2024 through February 29, 2024  92,465  $5.27     $25,000 
March 1, 2024 through March 31, 2024  269,706  $6.29     $25,000 
   362,171  $6.03     $25,000 

 

Item 3. Defaults upon senior securities

None.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other information

None.

None.

 

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Item 6. Exhibits

 

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
   
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
   
32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS Inline XBRL Instance Document.
   
101.SCH Inline XBRL Taxonomy Schema.
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase.
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase.
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase.
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase.
   
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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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: November 6, 2023May 10, 2024/s/ Samuel H. Norton
 Samuel H. Norton
 Chief Executive Officer
  
Date: November 6, 2023May 10, 2024/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)

 

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