UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____to_____
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive office) | (Zip Code) |
(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 | ||
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.
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).
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 ☐ | Non-accelerated filer ☐ | Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer’s Class A common stock, par value $0.01, as of May 4, 2023: shares. Excluded from this amount are warrants outstanding as of May 4, 2023 for the purchase of 3,490,468 shares of Class A common stock for nominal consideration.
TABLE OF CONTENTS
| 2 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Voyage receivables, including unbilled of $ | ||||||||
| Income tax receivable | ||||||||
| Other receivables | ||||||||
| Inventories, prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Vessels and other property, less accumulated depreciation | ||||||||
| Deferred drydock expenditures, net | ||||||||
| Total Vessels, Other Property and Deferred Drydock | ||||||||
| Intangible assets, less accumulated amortization | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Investment security to be held to maturity | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable, accrued expenses and other current liabilities | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current installments of long-term debt | ||||||||
| Total Current Liabilities | ||||||||
| Reserve for uncertain tax positions | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Noncurrent finance lease liabilities | ||||||||
| Long-term debt | ||||||||
| Deferred income taxes, net | ||||||||
| Other liabilities | ||||||||
| Total Liabilities | ||||||||
| Equity: | ||||||||
| Common stock - Class A ($ par value; shares authorized; and shares issued; and shares outstanding) | ||||||||
| Paid-in additional capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, and shares, at cost | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See notes to condensed consolidated financial statements
| 3 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Shipping Revenues: | ||||||||
| Time and bareboat charter revenues | $ | $ | ||||||
| Voyage charter revenues | ||||||||
| Operating Expenses: | ||||||||
| Voyage expenses | ||||||||
| Vessel expenses | ||||||||
| Charter hire expenses | ||||||||
| Depreciation and amortization | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating income | ||||||||
| Other income, net | ||||||||
| Income before interest expense and income taxes | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Income/(loss) before income taxes | ( | ) | ||||||
| Income tax (expense)/benefit | ( | ) | ||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||
| Basic - Class A | ||||||||
| Diluted - Class A | ||||||||
| Per Share Amounts: | ||||||||
| Basic net income/(loss) - Class A | $ | $ | ( | ) | ||||
| Diluted net income/(loss) - Class A | $ | $ | ( | ) | ||||
See notes to condensed consolidated financial statements
| 4 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
DOLLARS IN THOUSANDS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Other comprehensive (loss)/income, net of tax: | ||||||||
| Defined benefit pension and other postretirement benefit plans: | ||||||||
| Net change in unrecognized prior service costs | ( | ) | ( | ) | ||||
| Net change in unrecognized actuarial losses | ||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive income/(loss) | $ | $ | ( | ) | ||||
See notes to condensed consolidated financial statements
| 5 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Items included in net income not affecting cash flows: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount and other deferred financing costs | ||||||||
| Compensation relating to restricted stock awards and stock option grants | ||||||||
| Deferred income tax expense/(benefit) | ( | ) | ||||||
| Interest on finance lease liabilities | ||||||||
| Non-cash operating lease expense | ||||||||
| Payments for drydocking | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities, net | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Expenditures for vessels and vessel improvements | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on debt | ( | ) | ( | ) | ||||
| Tax withholding on share-based awards | ( | ) | ( | ) | ||||
| Payments on principal portion of finance lease liabilities | ( | ) | ( | ) | ||||
| Deferred financing costs paid for debt amendments | ( | ) | ( | ) | ||||
| Purchases of treasury stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase/(decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
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 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ( | ) | ||||||||||||||||||||
| Compensation related to Class A restricted stock awards | ||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ( | ) | ||||||||||||||||||||
| Compensation related to Class A restricted stock awards | ||||||||||||||||||||||||
| Conversion of Class A warrants to Class A common stock | ( | ) | ||||||||||||||||||||||
| Purchases of treasury stock | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||
| (1) | ||
| (2) | ||
| (3) |
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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other period.
The condensed consolidated balance sheet as of December 31, 2022 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, 2022 (the “Form 10-K”).
Note 2 — Recently Issued Accounting Standards
In November 2019, the Financial Accounting Standards Board issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which allows 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”) that are SEC filers (as defined in GAAP), excluding smaller reporting companies (“SRCs”) (as defined by the Securities and Exchange Commission (“SEC”). This standard became effective January 1, 2020.
Bucket 2— All other entities, including SRCs, other PBEs that are not SEC filers, private companies, not-for-profit organizations, and employee benefit plans. This standard became effective January 1, 2023.
At June 30, 2019, the evaluation date for purposes of determining the applicability of the Bucket 2 credit losses standard, the Company met the SEC definition of a smaller reporting company. The Company adopted that standard on January 1, 2023. The adoption of the standard did not have a material impact 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. Consequently, the disaggregation below is based on contract type. Since the terms within these contract types are generally standard in nature, the Company does not believe that further disaggregation would result in increased insight into the economic factors impacting revenue and cash flows.
The following table shows the Company’s shipping revenues disaggregated by nature of the charter arrangement for the three months ended March 31, 2023 and 2022:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Time and bareboat charter revenues | $ | $ | ||||||
| Voyage charter revenues (1) | ||||||||
| Contracts of affreightment (“COA”) revenues | ||||||||
| Total shipping revenues | $ | $ | ||||||
| (1) |
Voyage Receivables
As
of March 31, 2023 and December 31, 2022, contract balances from contracts with customers consisted of voyage receivables of $
| 8 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Transaction Price Allocated to the Remaining Performance Obligations
As
of March 31, 2023, the Company expects to recognize revenue of approximately $
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 $
The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units. Participating securities are defined by ASC 260, Earnings Per Share, as unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.
Class A
As of March 31, 2023, there were shares of Class A common stock issuable under outstanding restricted stock units and shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities. As of March 31, 2022, there were shares of Class A common stock issuable under outstanding restricted stock units and shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities.
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||
| Class A common stock - basic | ||||||||
| Class A common stock - diluted | ||||||||
For the three months ended March 31, 2023, there were dilutive equity awards outstanding covering shares. Awards of shares (related to stock options) were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive for the three months ended March 31, 2023. For the three months ended March 31, 2022, awards under which shares may be issued related to restricted stock units and stock options were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive due to a net loss during the period.
Note 5 — Investment in Security to be Held to Maturity
In
July 2022, the Company purchased a $
| March 31, 2023 | Amortized Cost | Gross Unrealized Loss | Fair Value | |||||||||
| U.S. Treasury Note | $ | $ | ( | ) | $ | |||||||
| $ | $ | ( | ) | $ | ||||||||
| December 31, 2022 | Amortized Cost | Gross Unrealized Loss | Fair Value | |||||||||
| U.S. Treasury Note | $ | $ | ( | ) | $ | |||||||
| $ | $ | ( | ) | $ | ||||||||
Other-Than-Temporarily Impaired (“OTTI”)
The Company performed a quarterly review of the U.S. Treasury Note in order to determine whether the decline in fair value below the amortized cost basis was considered other-than-temporary in accordance with applicable guidance. At March 31, 2023, the 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 months ended March 31, 2023.
| 9 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
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
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:
| Carrying | Fair Value | |||||||||||
| Value | Level 1 | Level 2 | ||||||||||
| March 31, 2023: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| U.S. Treasury Note | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Term loan, due 2024, net | $ | $ | $ | |||||||||
| Alaska tankers term loan, due 2025, net | ||||||||||||
| OSG 204 LLC term loan, due 2025, net | ||||||||||||
| OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | ||||||||||||
| Term loan, due 2028, net | ||||||||||||
| Unsecured senior notes, net | ||||||||||||
| Total | $ | $ | $ | |||||||||
| 10 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
| Carrying | Fair Value | |||||||||||
| Value | Level 1 | Level 2 | ||||||||||
| December 31, 2022: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| U.S. Treasury Note | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Term loan, due 2024, net | $ | $ | $ | |||||||||
| Alaska tankers term loan, due 2025, net | ||||||||||||
| OSG 204 LLC term loan, due 2025, net | ||||||||||||
| OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | ||||||||||||
| Term loan, due 2028, net | ||||||||||||
| Unsecured senior notes, net | ||||||||||||
| Total | $ | $ | $ | |||||||||
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel and Intangible Assets Impairments
During the first quarter of 2023, the Company considered whether events or changes in circumstances had occurred since December 31, 2022 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 March 31, 2023. The Company concluded that no such events or changes in circumstances had occurred.
Note 7 — Taxes
For
the three months ended March 31, 2023 and 2022, the Company recorded income tax (expense)/benefit of $(
Share Repurchases
On
March 17, 2023, the Company’s Board of Directors authorized a program to purchase up to $
During the three months ended March 31, 2023 and 2022, in connection with the vesting of restricted stock units (“RSUs”), the Company withheld and , respectively, shares of Class A common stock at average prices of $ and $ per share (based on the market prices on the dates of vesting), respectively, from certain members of management to cover withholding taxes.
Warrant Conversions
During
the three months ended March 31, 2023 and 2022, the Company issued and , respectively, shares of Class A common stock as
a result of the exercise of
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.
| 11 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Management Compensation — Restricted Stock Units
During the three months ended March 31, 2023 and 2022, the Company granted RSUs to its employees, including senior officers, covering and shares, respectively. The grant date fair values of these awards were $ and $ 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 three months ended March 31, 2023 and 2022, the Company awarded performance-based RSUs to its senior officers covering and shares, respectively (which amounts may be increased up to a maximum of and 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 performance conditions, were determined to be $ and $ per RSU, respectively.
During the three months ended March 31, 2022, the Company awarded RSUs to its senior officers covering shares. The grant date fair value of these awards was $. Each award of RSUs vest as follows: Each RSU represents a contingent right to receive one share of Class A common stock upon vesting.
Note 9 — Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of related taxes, in the condensed consolidated balance sheets follow:
| As of | March 31, 2023 | December 31, 2022 | ||||||
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans) | $ | $ | ||||||
| Accumulated other comprehensive income | $ | $ | ||||||
| 12 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
The following table presents the changes in the balances of each component of accumulated other comprehensive income, net of related taxes, during the three months ended March 31, 2023 and 2022:
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | ||||
| Balance as of December 31, 2022 | $ | |||
| Current period change, excluding amounts reclassified from accumulated other comprehensive income | ||||
| Amounts reclassified from accumulated other comprehensive income | ( | ) | ||
| Total change in accumulated other comprehensive income | ( | ) | ||
| Balance as of March 31, 2023 | $ | |||
| Balance as of December 31, 2021 | $ | |||
| Current period change, excluding amounts reclassified from accumulated other comprehensive loss | ||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | ||
| Total change in accumulated other comprehensive loss | ( | ) | ||
| Balance as of March 31, 2022 | $ | |||
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.
Note 10 — Leases
In
March 2023, the Company extended its lease on the Alaskan Frontier for an additional lease term of three years, expiring in March
2026. The lease is accounted for as an operating lease. The future minimum commitments under the lease are $
Charters-out
The
Company is the lessor under its time charter contracts. Total time charter revenue was equal to income from lease payments of $
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.
| 13 |
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, other geopolitical developments, or otherwise; | |
| ● | 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 expire or to enter into new time charters, to replace its operating leases on favorable terms, or to compete effectively for charters; | |
| ● | 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 tanker company providing energy transportation services for crude oil and petroleum products in the U.S. Flag markets. OSG is a major operator of tankers and ATBs in the Jones Act industry. 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 vessel fleet consists of three crude oil tankers doing business in Alaska, three conventional ATBs, one lightering ATB, two shuttle tankers, eight MR tankers, and three non-Jones Act MR tankers, two of which participate in the U.S. Maritime Security Program (“MSP”), and one tanker in cold layup. In April 2023, OSG’s three non-Jones Act MR tankers were all accepted into the U.S. Tanker Security Program (“TSP”). Once the tankers entry into the TSP is complete, the two non-Jones Act U.S. Flag Product Carriers participating in the MSP will transfer to the TSP and no longer participate in the MSP. OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world’s most customer-focused marine transportation companies and is headquartered in Tampa, FL. Our revenues are derived predominantly from time charter agreements for specific periods of time at fixed daily amounts. We also charter-out vessels for specific voyages where we typically earn freight revenue at spot market rates.
The following is a discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2023 and 2022. This Quarterly Report on Form 10-Q includes industry data and forecasts that we have prepared based in part on information obtained from industry publications and surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from internal market studies and research reports. Unless we state otherwise, statements about the Company’s relative competitive position in this report are based on management’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 banning or limitation of oil imports from Russia by certain countries and self-sanctioning by many oil companies and traders. In December 2022, the EU banned waterborne crude oil imports from Russia and the G7 nations implemented a price cap limiting the global price paid for Russian oil. Some countries have taken advantage of the current availability of Russian crude oil sold at a discount to world prices. These circumstances have resulted in the redirection of oil (crude and refined product) trade flows, which are apt to continue, reflecting the needs of countries that were large consumers of Russian oil to obtain other supply sources. Although the United States was not a major importer of Russian oil, it is impacted by these global events. Crude and refined products that were previously imported into the United States from non-Russian sources may not be available in prior quantities. Another potential impact is more movement from domestic producing locations via pipeline and marine assets, which would increase vessel demand. An increase in demand could result in higher utilization levels and potentially higher rates for Jones Act vessels.
Renewable diesel produces less carbon dioxide and nitrogen oxide than conventional diesel. As it is chemically identical to regular diesel, it can be used on its own or blended with conventional diesel. Production of renewable diesel increased in 2022 and is expected to grow significantly by 2025 as governments implement policies to encourage further growth of this fuel, including California’s Low Carbon Fuel Standard. The U.S. Gulf Coast currently produces a significant proportion of U.S renewable diesel, and California has been a large consumer of renewable diesel. Marine transportation provides the most cost effective solution to move finished product to the West Coast. The length of the trip to California creates a significant increase in ton mile demand, creating a large new market for Jones Act shipping.
Having our vessels committed on time charters 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 TCE revenues and rates, which are non-GAAP measures.
Charterers are increasing the duration of some new time charter contracts to secure tonnage for multi-year periods. There are few vessels available in the spot market, and spot activity decreased from 34 spot fixtures in the first quarter of 2022 to 11 in the first quarter of 2023. All 11 spot fixtures were performed by ATBs.
Our vessels were employed for 99% of available days during the first quarter of 2023, with 22 of a total 1,603 available days (excluding 12 days vessels that were off-hire due to drydock requirements) seeing vessels idle without employment. Industry-wide, there were no firm Jones Act vessel orders as of March 31, 2023.
Delaware Bay lightering volumes averaged 82,000 b/d in the first quarter of 2023 compared with 71,000 b/d in the first quarter of 2022. We have contract minimums with our refinery customers that compensate us for barrels not lightered below minimum amounts.
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Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with 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.
Results of Vessel Operations
During the three months ended March 31, 2023, shipping revenues increased by $9,792, or 9.4%, compared to the same period in 2022. The increase primarily resulted from a 255-day decrease in layup days. We had no vessels in layup during the first quarter of 2023. During the first quarter of 2022, we had two vessels in layup for the full quarter and two additional vessels that came out of layup in January 2022 and late February 2022. Additionally, the increase in revenues resulted from (a) an increase in average daily rates earned by our fleet, (b) a 27-day decrease in drydock days, (c) an increase in Delaware Bay lightering volumes and (d) one full Government of Israel voyage and one partial Government of Israel voyage that began during the first quarter of 2023 but was completed in the second quarter during the three months ended March 31, 2023 compared to one full voyage during the same period in 2022. The increase was partially offset by fewer vessels in our fleet as we returned three conventional tankers leased from American Shipping Company in December 2022.
Reconciliation of TCE revenues, a non-GAAP measure, to shipping revenues as reported in the consolidated statements of operations follows:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Time charter equivalent revenues | $ | 104,735 | $ | 93,925 | ||||
| Add: Voyage expenses | 9,056 | 10,074 | ||||||
| Shipping revenues | $ | 113,791 | $ | 103,999 | ||||
The following table provides a breakdown of TCE rates achieved for the three months ended March 31, 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 March 31, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 55,522 | $ | 64,417 | $ | 57,368 | $ | 58,228 | ||||||||
| Revenue days | 40 | 847 | 411 | 545 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 41,384 | $ | 33,319 | $ | 44,075 | $ | 17,469 | ||||||||
| Revenue days | 246 | 14 | 180 | 90 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | — | $ | 42,479 | $ | — | $ | 34,731 | ||||||||
| Revenue days | — | 265 | — | 178 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 104,512 | $ | — | $ | 74,553 | $ | — | ||||||||
| Revenue days | 90 | — | 90 | — | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 60,115 | $ | — | $ | 58,996 | ||||||||
| Revenue days | — | 270 | — | 269 | ||||||||||||
a) Excludes one Alaska vessel currently in layup.
During the first quarter of 2023, TCE revenues increased by $10,810, or 11.5%, to $104,735 from $93,925 in the first quarter of 2022. The increase in TCE revenues was primarily driven by the increase in shipping revenues explained above.
Voyage expenses decreased by $1,018, or 10.1%, in the first quarter of 2023 to $9,056 compared to $10,074 in the first quarter of 2022, primarily due to decreases in fuel and port expenses, as our vessels performed fewer voyage charters during the first quarter of 2023 compared to the first quarter of 2022.
Vessel expenses increased by $1,773, or 4.3%, in the first quarter of 2023 to $42,571 compared to $40,798 in the first quarter of 2022, primarily due to an increase in spares and repair costs.
Charter hire expenses decreased by $6,259, or 28.5%, to $15,737 in 2023 from $21,996 in 2022. The decrease primarily resulted from less charter hire expense paid during 2023 compared to 2022 due to the redelivery of three conventional tankers leased from American Shipping Company in December 2022.
Depreciation and amortization decreased by $445, or 2.7%, to $16,048 in the first quarter of 2023 compared to $16,493 in the first quarter of 2022. The decrease primarily resulted from a decrease in amortization of drydock costs.
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Two of our reflagged U.S. Flag Product Carriers participated in the MSP during the first quarter of 2023, which is designed to ensure that privately-owned, military-useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. Each of the vessel-owning companies receives an annual stipend, subject in each case to annual congressional appropriations, which is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. Such stipend was $5,300 on one vessel and $3,952 on the other vessel in 2022. During the three months ended March 2023, such stipend was $1,325 for each vessel.
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. We will transfer the two non-Jones Act U.S. Flag Product Carriers participating in the MSP to the TSP and add 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.
General and Administrative Expenses
General and administrative expenses were $7,843 for the three months ended March 31, 2023 compared with $6,938 for the three months ended
March 31, 2022. The increase was primarily driven by higher compensation and benefits costs related to an increase in headcount and higher compensation levels.
Interest Expense
Interest expense was $8,156 for the three months ended March 31, 2023 compared with $8,365 for the three months ended March 31, 2022. The decrease in interest expense was primarily due to a lower average balance of debt outstanding during the first quarter of 2023 compared to the first quarter of 2022.
Income Taxes
For the three months ended March 31, 2023 and 2022, we recorded income tax (expense)/benefit of $(3,321) and $59, respectively, which represented effective tax rates of 21.5% and 10.4%, respectively. The increase in the effective tax rate for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to the tonnage tax exclusion and current state discrete expense. The effective tax rate for the three months ended March 31, 2023 was more than the statutory rate due to state expense. The effective tax rate for the three months ended March 31, 2022 was less than the statutory rate due to the tonnage tax exclusion and state 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 March 31, 2023 was approximately $(25,000) compared with approximately $(38,000) at December 31, 2022. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $43,000 at March 31, 2023 compared to $30,000 at December 31, 2022. The increase in working capital was primarily due to an increase in cash and cash equivalents as the Company generated cash flow from operations during the current year. The increase in working capital was partially offset by a decrease in receivables related to the timing of collections from our customers.
As of March 31, 2023, we had total liquidity on a consolidated basis comprised of $104,091 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, 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 March 31, 2023, we had total debt outstanding (net of deferred financing costs) of $417,817 and a total debt to total capitalization of 54.5%, compared to $423,363 and 55.5%, respectively, at December 31, 2022.
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Sources, Uses and Management of Capital
We generate significant cash flows through our complementary mix of time charters, voyage charters and contracts of affreightment. Net cash provided by operating activities during the three months ended March 31, 2023 was $35,696. 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.
In March 2023, we used $1,862 of available cash to repurchase 497,906 shares of our company stock at an average price of $3.74.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Not applicable due to the Company’s status as a smaller reporting company.
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 March 31, 2023 to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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 2022 Form 10-K, and as may be updated in our subsequent quarterly reports. The risks described in our 2022 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 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 17, 2023, the Company’s Board of Directors authorized a program to purchase up to 10 million shares of the Company’s common stock. Under the program, the Company may repurchase shares from time to time in open market transactions or in privately negotiated transactions.
During the three months ended March 31, 2023, purchases of our common stock under the share repurchase program were as follows:
| Period | Total Number Shares of Class A Purchased | Average Price Paid per Share of Class A | ||||||
| January 1, 2023 through January 31, 2023 | — | $ | — | |||||
| February 1, 2023 through February 28, 2023 | — | $ | — | |||||
| March 1, 2023 through March 31, 2023 | 497,906 | $ | 3.74 | |||||
| 497,906 | $ | 3.74 | ||||||
During the three months ended March 31, 2023, in connection with the vesting of restricted stock awards, the Company withheld the following number of shares of Class A common stock from certain members of management to cover withholding taxes.
| Period | Total Number Shares of Class A Withheld | Average Price Paid per Share of Class A | ||||||
| January 1, 2023 through January 31, 2023 | — | $ | — | |||||
| February 1, 2023 through February 28, 2023 | 85,322 | $ | 2.89 | |||||
| March 1, 2023 through March 31, 2023 | 247,763 | $ | 3.72 | |||||
| 333,085 | $ | 3.51 | ||||||
Item 3. Defaults upon senior securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other information
None.
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Item 6. Exhibits
| 20 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OVERSEAS SHIPHOLDING GROUP, INC. | |
| (Registrant) | |
| Date: May 8, 2023 | /s/ Samuel H. Norton |
| Samuel H. Norton | |
| Chief Executive Officer | |
| Date: May 8, 2023 | /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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