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)
| Delaware | ||
| (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 | ||
| 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.
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 ☐ | 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant
has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a court.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. The number of shares outstanding of the issuer’s Class A common stock as of August 4, 2020: Class A common stock, par value $0.01 – shares. Excluded from these amounts are penny warrants, which were outstanding as of August 4, 2020 for the purchase of 3,654,890 shares of Class A common stock without consideration of any withholding pursuant to the cashless exercise procedures.
TABLE OF CONTENTS
| 2 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| 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 | ||||||||
| Restricted cash - non current | ||||||||
| Investments in and advances to affiliated companies | ||||||||
| Intangible assets, less accumulated amortization | ||||||||
| Operating lease right-of-use assets | ||||||||
| 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 outstanding) | ||||||||
| Paid-in additional capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stockholders Equity Subtotal | ||||||||
| 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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Shipping Revenues: | ||||||||||||||||
| Time and bareboat charter revenues | $ | $ | $ | $ | ||||||||||||
| Voyage charter revenues | ||||||||||||||||
| Total Shipping revenues | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||
| Voyage expenses | ||||||||||||||||
| Vessel expenses | ||||||||||||||||
| Charter hire expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Bad debt expense | ||||||||||||||||
| Loss/(gain) on disposal of vessels and other property, including impairments, net | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income from vessel operations | ||||||||||||||||
| Equity in income of affiliated companies | ||||||||||||||||
| Gain on termination of pre-existing arrangement | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other (expense)/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 and diluted net income - 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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net income/(loss) | $ | $ | ( | ) | $ | $ | ||||||||||
| Other comprehensive 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 income | ||||||||||||||||
| 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)
Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Items included in net income not affecting cash flows: | ||||||||
| Depreciation and amortization | ||||||||
| Bad debt expense | ||||||||
| Gain on termination of pre-existing arrangement | ( | ) | ||||||
| Loss on disposal of vessels and other property, including impairments, net | ||||||||
| 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 | ||||||||
| Loss on extinguishment of debt, net | ||||||||
| Distributed earnings of affiliated companies | ||||||||
| Payments for drydocking | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities, net | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Acquisition, net of cash acquired | ( | ) | ||||||
| Proceeds from disposals of vessels and other property | ||||||||
| Expenditures for vessels and vessel improvements | ( | ) | ( | ) | ||||
| Expenditures for other property | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on debt | ( | ) | ( | ) | ||||
| Extinguishment of debt | ( | ) | ( | ) | ||||
| Tax withholding on share-based awards | ( | ) | ( | ) | ||||
| Issuance of debt, net of issuance and deferred financing costs | ||||||||
| Payments on principal portion of finance lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by/(used in) financing activities | ( | ) | ||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash 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 | Accumulated Other Comprehensive Loss (3) | Total | ||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ( | ) | ||||||||||||||||
| Compensation related to Class A options granted and restricted stock awards | ||||||||||||||||||||
| Balance at March 31, 2019 | ( | ) | ( | ) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ( | ) | ||||||||||||||||
| Compensation related to Class A options granted and restricted stock awards | ||||||||||||||||||||
| Conversion of Class A warrants to common stock | ( | ) | ||||||||||||||||||
| Balance at June 30, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ( | ) | ||||||||||||||||
| Compensation related to Class A options granted and restricted stock awards | ||||||||||||||||||||
| Balance at March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ||||||||||||||||||
| Compensation related to Class A options granted and restricted stock awards | ||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| (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”), including Alaska Tanker Company (“ATC”) as of its March 12, 2020 acquisition date. 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.
The accompanying unaudited condensed consolidated 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. 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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any other interim period.
The condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles in the United States 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, 2019 (“Form 10-K”).
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic, which continues to spread throughout the United States and the world. The spread of COVID-19 has caused significant volatility in U.S. and international markets and there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies.
The COVID-19 pandemic is a dynamic and continuously evolving phenomenon and the ultimate severity of the outbreak, and its effect on the Company’s business in the future, is uncertain.
Note 2 — Recently Adopted and Issued Accounting Standards
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The new guidance was effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The new guidance is effective for fiscal years ending after December 15, 2020 and is required to be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company plans to adopt this standard on December 31, 2020. The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to maturity debt securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that a loss has been incurred. The revised guidance will remove all recognition thresholds and will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the entity expects to collect over the instrument’s contractual life. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards.
| 8 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
In November 2019, the FASB 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 U.S. GAAP), excluding smaller reporting companies (“SRCs”) (as defined by the SEC). The credit losses 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. The credit losses standard are to become effective January 1, 2023.
At the annual evaluation date on June 30, 2019, the Company met the SEC definition of a smaller reporting company. Accordingly, the Company plans to adopt the credit losses standard on January 1, 2023. Management is currently reviewing the impact of the adoption of this accounting standard on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The new guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. The Company will adopt this standard on January 1, 2021. Management is currently reviewing the impact of the adoption of this accounting standard on the Company’s consolidated financial statements.
Note 3 - Revenue Recognition
Shipping Revenues
Time Charter Revenues
The Company enters into time charter contracts under which a customer pays a fixed daily or monthly rate for a fixed period of time for use of a vessel. The Company recognizes revenues from time charters as operating leases ratably over the noncancellable contract term. Customers generally pay voyage expenses such as fuel, canal tolls and port charges. The Company also provides the charterer with services such as technical management expenses and crew costs. While there are lease and service (non-lease) components related to time charter contracts, the predominant component of the contract is the charterer’s lease of the vessel. The non-lease components of the contract have the same timing and pattern of transfer as the underlying lease component; therefore, the Company applies the practical expedient of combining lease and non-lease components and recognizes revenue related to this service ratably over the life of the contract term.
Voyage Charter Revenues
The
Company enters into voyage charter contracts, under which the customer pays a transportation charge (voyage freight) for the movement
of a specific cargo between two or more specified ports. The Company’s performance obligation under voyage charters, which
consists of moving cargo from a load port to a discharge port, is satisfied over time. Accordingly, under ASC 606, the Company
recognizes revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge basis.
The transaction price is in the form of a fixed fee at contract inception, which is the transportation charge. Voyage charter
contracts also include variable consideration primarily in the form of demurrage, which is additional revenue the Company receives
for delays experienced in loading or unloading cargo that are not deemed to be the responsibility of the Company. The Company
does not include demurrage in the transaction price for voyage charters since it is highly susceptible to factors outside the
Company’s influence. Examples of when demurrage is incurred include unforeseeable weather conditions and security regulations
at ports. The uncertainty related to this variable consideration is resolved upon the completion of the voyage, the duration of
which is generally less than
| 9 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
U.S. Maritime Security Program
Contracts of Affreightment
The Company enters into contracts of affreightment (each a “COA”) to provide transportation services between specified points for a stated quantity of cargo over a specific time period, but without designating voyage schedules. The Company has COA arrangements to provide for lightering services and other arrangements based on the number of voyages. These contracts are service contracts within the scope of ASC 606 for which the underlying performance obligation is satisfied as a series of distinct services.
The Company’s COAs include minimum purchase requirements from customers that are expressed in either fixed monthly barrels, annual minimum barrel volume requirements or annual minimum number of voyages to complete. The Company is required to transport and the charterer is required to provide the Company with a minimum volume requirement. These contract minimums represent fixed consideration within the contract which is recognized as the distinct services of delivering barrels or voyages are performed in the series over time. The Company will adjust revenue recognized for any minimum volume unexercised right.
COAs provide the charterer with the opportunity to purchase additional transportation services above the minimum. If this is not considered a material right, the Company recognizes revenue related to the additional services at the contractual rate as the product is transferred over time. If the additional transportation service is considered a material right, the Company applies the practical alternative of allocating the transaction price to the material right. As a result, the Company may recognize revenue related to COAs at an amount different from the invoiced amount if the Company’s estimated volume to be transported under the contract exceeds the contractual minimum.
At June 30, 2020, the Company did not have deferred revenue related to the Company’s COAs.
| 10 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
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 and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Time and bareboat charter revenues | $ | $ | $ | $ | ||||||||||||
| Voyage charter revenues(1) | ||||||||||||||||
| Contracts of affreightment revenues | ||||||||||||||||
| Total shipping revenues | $ | $ | $ | $ | ||||||||||||
| (1) |
Voyage Receivables
As
of June 30, 2020 and December 31, 2019, contract balances from contracts with customers consisted of voyage receivables, including
unbilled receivables, of $
Costs to Fulfill a Contract
Under ASC 606, for voyage charters and contracts of affreightment, the Company capitalizes the direct costs, which are voyage expenses, of relocating the vessel to the load port and amortizes those costs during transport of the cargo. At June 30, 2020, the costs related to voyages that were not yet completed were not material.
Additionally, these contracts include out-of-pocket expense (i.e. fuel, port charges, canal tolls) incurred by the Company in fulfilling its performance obligations, which are reimbursed by the charterer at cost. The reimbursement for these fulfillment costs are included in the Company’s estimated transaction price for the contract and recognized as revenue when performance obligations are satisfied.
| 11 |
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 June 30, 2020, there was an aggregate of $
Practical Expedients and Exemptions
The Company’s voyage charter contracts and some of the Company’s COAs have an original expected duration of one year or less; therefore, the Company has elected to apply the practical expedient, which permits the Company to not disclose the portion of the transaction price allocated to the remaining performance obligations within these COAs.
The Company expenses broker commissions for voyage charters, which are costs of obtaining a contract, as they are incurred because the amortization period is less than one year or are otherwise amortized as the underlying performance obligation is satisfied. The Company records these costs within voyage expenses in the consolidated statements of operations.
Basic
earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated
to participating securities, by the weighted average number of common shares outstanding during the period. As management 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 June 30, 2020, 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 June 30, 2019, 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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net income | $ | $ | ( | ) | $ | $ | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Class A common stock - basic | ||||||||||||||||
| Class A common stock - diluted | ||||||||||||||||
For the three months ended June 30, 2020, there were dilutive equity awards outstanding covering shares, and for the six months ended June 30, 2020 and 2019, there were dilutive equity awards outstanding covering and shares, respectively. Awards of shares (which are related to stock options) for both the three and six months ended June 30, 2020 were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive. For the six months ended June 30, 2019, awards of shares (which include 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.
| 12 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Note 5 — 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.
Debt— The fair values of the Company’s publicly traded and non-public debt are estimated based on quoted market prices.
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 developed based on the best information available 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
| 13 |
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:
| Carrying | Fair Value | |||||||||||
| Value | Level 1 | Level 2 | ||||||||||
| June 30, 2020: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents (1) | $ | $ | $ | |||||||||
| Total | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Term loan agreement, due 2023 | $ | $ | $ | |||||||||
| Term loan agreements, due 2024 | ||||||||||||
| Alaska Tankers term loan agreement, due 2025 | ||||||||||||
| OSG 204 LLC term loan agreement, due 2025 | ||||||||||||
| Term loan agreement, due 2026 | ||||||||||||
| Unsecured senior notes | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Carrying | Fair Value | |||||||||||
| Value | Level 1 | Level 2 | ||||||||||
| December 31, 2019: | ||||||||||||
| Assets | ||||||||||||
| Cash (1) | $ | $ | $ | |||||||||
| Total | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Term loan agreement, due 2023 | $ | $ | $ | |||||||||
| Term loan agreements, due 2024 | ||||||||||||
| Term loan agreement, due 2026 | ||||||||||||
| Unsecured senior notes | ||||||||||||
| Total | $ | $ | $ | |||||||||
| (1) |
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel and Intangible Assets Impairments
During the second quarter of 2020, the Company considered whether events or changes in circumstances had occurred since December 31, 2019 that could indicate the carrying amounts of the vessels in the Company’s fleet and the carrying value of the Company’s intangible assets may not be recoverable as of June 30, 2020.
| 14 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
The Company concluded that no such events or changes in circumstances had occurred for its intangible assets at June 30, 2020.
During the second quarter of 2020 the Company established basic terms to sell for scrap the OSG 244, one of the Company’s barges. Based on the negotiated sale terms, the Company recorded a loss, which was not material and included in loss on disposal of vessels and other property, including impairments, net on the condensed consolidated statements of operations, on the planned disposition of this barge.
Note 6 — Taxes
For
the three months ended June 30, 2020 and 2019, the Company recorded an income tax (provision)/benefit of $(
On
March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act”, was signed into
law. The CARES Act includes tax provisions relevant to businesses that will impact taxes related to 2018, 2019 and 2020.
As
of June 30, 2020 and December 31, 2019, the Company recorded a non-current reserve for uncertain tax positions of $
Note 7 — Investment in Alaska Tanker Company, LLC
At
December 31, 2019, the Company had a
In
December 2019, the Company entered into an agreement with BP to purchase three U.S.-flagged crude oil carrier vessels (Alaskan
Explorer, Alaskan Legend and Alaskan Navigator) for total cash consideration of $
| 15 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
The
Company accounted for the purchase of the three vessels and remaining equity ownership interest in ATC collectively as an asset
acquisition, with substantially all the fair value of the acquisition attributed to the three vessels purchased from BP. The pre-existing
ATC arrangements with a minimum term through December 2023 were terminated, and a non-cash gain equal to the value of the remaining
arrangement of $
As part of the acquisition of ATC, the
Company assumed liabilities of $
The Company also assumed liabilities
of $
Share and Warrant Repurchases
During the six months ended June 30, 2020, in connection with the vesting of restricted stock units (“RSUs”), the Company withheld shares of Class A common stock at an average price of $per share (based on the market prices on the dates of vesting) from certain members of management to cover withholding taxes.
Warrant Conversions
During
the six months ended June 30, 2020, the Company issued 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.
Director Compensation — Restricted Stock Units
On May 28, 2020, the Company awarded time-based RSUs to its non-employee directors. The grant date fair value of these awards was $ per RSU. 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 and Stock Options
During the six months ended June 30, 2020, the Company granted RSUs to its employees, including senior officers. The grant date fair value of these awards was $ per RSU. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award of RSUs will vest in equal installments on each of the first three anniversaries of the grant date.
During the six months ended June 30, 2020, the Company awarded performance-based RSUs to its senior officers. Each performance-based RSU represents a contingent right to receive RSUs based upon continuous employment through the end of a three-year performance period and will vest as follows: (i) one-half of the target RSUs will vest and become nonforfeitable subject to OSG’s return on invested capital (“ROIC”) performance in the three-year ROIC performance period relative to a target rate (the “ROIC Target”) set forth in the award agreements (which define ROIC as net operating profit after taxes divided by the net of total debt plus shareholders equity less cash); and (ii) one–half of the target RSUs will be subject to OSG’s three–year total shareholder return (“TSR Target”) performance relative to that of a performance index over a three–year TSR performance period. The index consists of companies that comprise a combination of the oil and gas storage and transportation and marine GICS sub-industries indexes during the performance period. Vesting is subject in each case to certification by the Human Resources and Compensation Committee of the Parent Company’s Board of Directors as to achievement of the performance measures and targets.
The ROIC Target RSU awards and the TSR Target RSU awards are subject to an increase of up to a maximum of target RSUs combined (RSUs in total) or decrease, depending on performance against the applicable measure and targets. The ROIC performance goal is a performance condition which, as of June 30, 2020, management believed was probable of being achieved. Accordingly, for financial reporting purposes, compensation costs have been recognized for these awards. The grant date fair value of the TSR based performance awards, which have a market condition, was determined to be $per RSU.
| 16 |
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 Loss
The components of accumulated other comprehensive loss, net of related taxes, in the condensed consolidated balance sheets follow:
| As of | June 30, 2020 | December 31, 2019 | ||||||
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans) | $ | ( | ) | $ | ( | ) | ||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
The following tables present the changes in the balances of each component of accumulated other comprehensive loss, net of related taxes, during the three and six months ended June 30, 2020 and 2019:
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | ||||
| Balance as of March 31, 2020 | $ | ( | ) | |
| 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 June 30, 2020 | $ | ( | ) | |
| Balance as of March 31, 2019 | $ | ( | ) | |
| 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 June 30, 2019 | $ | ( | ) | |
| 17 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | ||||
| Balance as of December 31, 2019 | $ | ( | ) | |
| 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 June 30, 2020 | $ | ( | ) | |
| Balance as of December 31, 2018 | $ | ( | ) | |
| 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 June 30, 2019 | $ | ( | ) | |
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
For
the six months ended June 30, 2020, the Company had non-cash operating activities of $
Charters-in
On
March 12, 2020, the Company commenced a bareboat charter for the Alaskan Frontier for a lease term of three years. Based
on the length of the lease term and the remaining economic life of the vessel, it is accounted for as an operating lease. The
lease contains a three-year renewal option and is available indefinitely. The future
minimum commitments under the lease are $
Charters-out
The
Company is the lessor under its time charter contracts. Total time charter revenue for the three and six months ended June 30,
2020 was equal to lease income from lease payments of $
| 18 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Note 11 — Vessels
At the end of May 2020, the Company took delivery of a 204,000 barrel capacity oil and chemical tank barge. The barge, named the OSG 204, has been paired with an existing tug within the Company’s fleet, the OSG Endurance. The ATB unit will be operating in the Jones Act trade and has entered into a one-year time charter.
In
May 2020, the Company sold for scrap one of its ATBs for $
On
March 12, 2020, the Parent Company’s subsidiaries completed the purchase of three U.S.-flagged crude oil carrier vessels,
the Alaskan Explorer, Alaskan Legend, and Alaskan
Navigator, from BP for total consideration of $
For
the six months ended June 30, 2020, the Company’s non-cash investing activities for the accrual of capital expenditures
related to the Company’s newbuilds were $
Note 12 — Debt
On
July 30, 2020, the Company used $
On
March 26, 2020, one of the Company’s subsidiaries, OSG 204 LLC, entered into a credit agreement with Wintrust Commercial
Finance and other syndicate lenders to finance a new 204,000 barrel U.S. Flag oil and chemical ATB barge, which was delivered
to the Company during the second quarter of 2020. The credit agreement included a construction loan, against which the Company
could make drawdowns to pay for construction costs, and a five-year term loan. The construction loan, which was guaranteed by
the Company, was for an aggregate principal amount of $
On
March 12, 2020, the Company entered into a loan with Banc of America Leasing & Capital, LLC and other syndicate lenders in
the aggregate principal amount of $
Note 13 — Commitments and Contingencies
The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries (including without limitation exposure to asbestos and other toxic materials), wrongful death, collision or other casualty and to claims arising under charter parties. A substantial majority of such personal injury, wrongful death, collision or other casualty claims against the Company are covered by insurance (subject to deductibles not material in amount). Each of the claims involves an amount which, in the opinion of management, are not expected to be material to the Company’s financial position, results of operations and cash flows.
| 19 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
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 2019 Annual Report on Form 10-K, as updated in our subsequent quarterly reports filed on Form 10-Q, in this Form 10-Q and in our other filings made from time to time with the SEC after the date of this report.
Other factors besides those listed in our Quarterly Report or in our Annual Report 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. Such factors include, but are not limited to:
| ● | public health threats, particularly the COVID-19 pandemic, that impose increases in operating costs to protect the health and safety of the Company’s crew members and others in the industry as a result; | |
| ● | volatile fluctuations in supply and demand in the crude oil market worldwide, which could also affect the nature and severity of certain factors listed below; | |
| ● | the Company’s ability to renew its time charters when they expire or to enter into new time charters, or to replace its operating leases on favorable terms; | |
| ● | the loss of or reduction in business with a large customer, should it be impacted by the COVID-19 pandemic or otherwise; | |
| ● | changing economic, political and governmental conditions in the United States or abroad and general conditions in the oil and natural gas industry, in particular in reaction to the COVID-19 pandemic; | |
| ● | changes in demand in certain specialized markets in which the Company currently trades; | |
| ● | changes in credit risk with respect to the Company’s counterparties on contracts or the failure of contract counterparties to meet their obligations; | |
| ● | the Company’s compliance with complex laws and regulations, in particular those seeking to reduce the spread of the COVID-19 virus, and environmental laws and regulations, including those relating to the emission of greenhouse gases and ballast water treatment; | |
| ● | the highly cyclical nature of OSG’s industry; | |
| ● | significant fluctuations in the market value of our vessels; | |
| ● | constraints on capital availability; | |
| ● | 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; | |
| ● | 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; | |
| ● | the Company’s ability to generate sufficient cash to service its indebtedness and to comply with debt covenants; | |
| ● | competition within the Company’s industry and OSG’s ability to compete effectively for charters; | |
| ● | the refusal of certain customers to use vessels of a certain age; |
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
| ● | increasing operating costs, unexpected drydock costs or increasing capital expenses as the Company’s vessels age, including increases due to limited shipbuilder warranties of the consolidation of suppliers; | |
| ● | work stoppages or other labor disruptions by the unionized employees of OSG or other companies in related industries or the impact of any potential liabilities resulting from withdrawal from participation in multiemployer plans; | |
| ● | limitations on U.S. coastwise trade, the waiver, modification or repeal of the Jones Act limitations or changes in international trade agreements; | |
| ● | the inability to clear oil majors’ risk assessment processes; | |
| ● | the Company’s ability to use its net operating loss carryforwards; | |
| ● | the market price of the Company’s securities fluctuates significantly; and | |
| ● | some provisions of Delaware law and the Company’s governing documents could influence its ability to effect a change of control. |
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 hereafter filed by the Company with the SEC.
Business Overview
OSG is a publicly traded tanker company providing energy transportation services for crude oil and petroleum products in the U.S. Flag markets. OSG is a major operator of tankers and ATBs in the Jones Act industry. OSG’s 24 active vessel fleet, of which 22 are U.S. Flag vessels, consists of three crude oil tankers doing business in Alaska, two conventional ATBs, two lightering ATBs, three shuttle tankers, ten MR tankers, and two non-Jones Act MR tankers that participate in the U.S. Maritime Security Program. OSG also owns and operates two Marshall Islands flagged MR tankers which trade internationally. In addition to the currently operating fleet, OSG has on order another Jones Act compliant barge which is scheduled for delivery in late 2020. 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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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
The following is a discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2020 and 2019. You should consider the foregoing when reviewing the condensed consolidated financial statements, including the notes thereto, and this discussion and analysis. 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.
Operations and Oil Tanker Markets
Our revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by us and the trades in which those vessels operate. Rates for the transportation of crude oil and refined petroleum products are determined by market forces such as the supply and demand for oil, the distance that cargoes must be transported and the number of vessels expected to be available at the time such cargoes need to be transported. 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 economy, 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, deletions, or conversions. Our revenues are also affected by the mix of charters between spot (voyage charter which includes short-term time charter) and long-term (time or bareboat charter).
Beginning in the 2020 first quarter, COVID-19 has resulted in disruptions in demand and oversupply of oil. Many analysts predict that gasoline and diesel demand will recover as 2020 progresses. These analysts predict that volume demand will be slightly below 2019 levels by the end of 2020. Jet fuel demand is anticipated to remain well below 2019 levels through at least the end of 2021. These estimates include estimates on the prevalence of COVID-19 and the recovery of the U.S. economy. While COVID-19 has presented our industry and markets with significant challenges, we believe that we have thus far managed its impact on our business well, with all of our Jones Act and internationally trading vessels able to load, transit and discharge cargo without material interruption.
As a result of the COVID-19 pandemic, we have implemented procedures to protect the health and safety of our employees, crew and contractors. These procedures and protocols are those mandated or recommended by the Centers of Disease Control and Prevention, the US Coast Guard, local ports and shipyards, and country and state specific requirements. They include such actions as providing personal protective equipment, minimizing crew changes, managing the locations where crew members board and depart from our vessels, requiring crew members to disclose symptoms and health of those they have been in contact with, sanitization of the vessels, mandating face coverings, social distancing and temperature checks, and requiring testing in certain instances. COVID-19 has also impacted planned shipyard maintenance and vetting activities resulting in delays, rescheduling and extensions. These additional procedures and delays have resulted in increased costs, which at this point in time, have not been material but are expected to continue.
Having our vessels committed on time charters is a fundamental objective of our chartering strategy. The majority of available vessel operating days are covered with medium-term charters or contracts of affreightment. However, medium-term charters may not always be remunerative, nor prove achievable under certain market conditions. As a result, some of our vessels operate in the spot market, which is more volatile and less predictable. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, we manage our vessels based on time charter equivalent (“TCE”) revenues and TCE rates, which are non-GAAP measures. TCE revenues equal GAAP shipping revenues, less voyage expenses. TCE rates are determined by dividing TCE revenues by revenue days. These measures are reported because management makes economic decisions based on anticipated TCE rates and evaluates financial performance based on TCE rates achieved.
TCE rates for Jones Act Product Carriers and large ATBs (defined as vessels having carrying capacities greater than 140,000 barrels) available for service in the spot market decreased during the second quarter of 2020 compared to second quarter of 2019 for all of our vessel classes. The decrease in rates can be attributed to lower demand for coastwise crude oil and refined product as a result of the impact of COVID-19. This has been partially offset by the tightening of vessel supply through scrapping, lay ups and sales out of Jones Act service versus one new delivery since 2018. There were few spot market voyages in the second quarter of 2020 due to charterers securing time charters over the past year. This has led to minimal vessels available for spot voyages other than charterers re-chartering the vessels to the spot market.
Our time charter coverage is substantial for the balance of this year. We contracted employment covering 89% of available operating days during the third quarter of 2020 and have 83% of available operating days contracted for the second half of the year, which includes the ATC vessels recently purchased. The deep book of time charters which we entered into is expected to provide some insulation from the current market turmoil that has followed not only the outbreak of COVID-19, but also the decline in transportation fuel demand affecting both crude oil and refined product pricing. Our vessels were employed for 93% of available days during the 2020 second quarter, with 132 of a total 1,816 available days seeing vessels idle without employment.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
The industry’s firm Jones Act orderbook as of June 30, 2020 consists of one large ATB with delivery scheduled in the fourth quarter of 2020, which is our order.
Delaware Bay lightering volumes averaged 38,000 b/d in the second quarter of 2020 compared with 163,000 b/d in the second quarter of 2019. Refinery demand for crude oil was significantly reduced in the second quarter of 2020 due to COVID-19, reducing the need for lightering services. We have contract minimums with our refinery customers that compensates us for barrels not lightered below those minimum amounts. In June 2019, one of our lightering customers, Philadelphia Energy Solutions (“PES”), suffered an explosion and fire at its refinery in the Delaware Bay. The refinery has been shut down since the fire. In July 2019, PES filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Due to the reduction in lightering volumes, we redeployed one of our two lightering ATBs to the U.S. Gulf of Mexico for alternative employment. In May 2020 the PES bankruptcy process resulted in the sale of the refinery complex which will be permanently closed.
At December 31, 2019, the Company had a 37.5% interest in Alaska Tanker Company, LLC (“ATC”), a joint venture that was formed in 1999 among OSG America Operating Co LLC, Keystone Shipping Company and BP plc to support BP plc’s Alaskan crude oil transportation requirements. Each member in ATC was entitled to receive its respective share of any incentive charter hire payable to ATC.
On December 26, 2019, the Company announced that its subsidiaries entered into agreements with BP Oil Shipping Company USA and BP AMI Leasing Inc. (“BP”) to purchase three U.S.-flagged crude oil carrier vessels operated by ATC for total consideration of $54,000. The Company made a $10,800 deposit upon execution of the vessel purchase agreements. Additionally, the Company acquired the remaining 62.5% interest of ATC, from its partners, that it did not own for approximately $19,100.
On March 12, 2020, our subsidiaries completed the purchase of the Alaskan Explorer, Alaskan Legend and Alaskan Navigator, and have entered into a bareboat charter with BP for a fourth vessel, the Alaskan Frontier. The Alaskan Frontier is currently in layup. In connection with these transactions, we also completed the acquisition of ATC, making ATC a wholly owned subsidiary of OSG. Operating results of these vessels are included from that date.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. For a description of all of the Company’s material accounting policies, see 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 2019.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Results of Vessel Operations
During the three and six months ended June 30, 2020, shipping revenues increased by $26,080 and $39,201, or 29.5% and 22.2%, respectively, compared to the same periods in 2019. The increases primarily resulted from the addition to our fleet of two Marshall Islands flagged MR tankers, Overseas Gulf Coast and Overseas Sun Coast, three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, and one ATB, OSG 204 and OSG Endurance, which was delivered at the end of May 2020.
Reconciliation of TCE revenues, a non-GAAP measure, to shipping revenues as reported in the consolidated statements of operations follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Time charter equivalent revenues | $ | 100,427 | $ | 82,106 | $ | 197,501 | $ | 164,860 | ||||||||
| Add: Voyage expenses | 14,112 | 6,353 | 17,897 | 11,337 | ||||||||||||
| Shipping revenues | $ | 114,539 | $ | 88,459 | $ | 215,398 | $ | 176,197 | ||||||||
The following tables provide a breakdown of TCE rates achieved for the three and six months ended June 30, 2020 and 2019 between spot and fixed earnings and the related revenue days.
| 2020 | 2019 | |||||||||||||||
| Three Months Ended June 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 31,120 | $ | 61,360 | $ | 37,356 | $ | 57,212 | ||||||||
| Revenue days | 89 | 1,088 | 157 | 959 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 27,051 | $ | 16,752 | $ | 17,347 | $ | 11,962 | ||||||||
| Revenue days | 156 | 181 | 99 | 83 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | 16,333 | $ | — | $ | 19,000 | $ | 21,610 | ||||||||
| Revenue days | 124 | — | 89 | 252 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 44,346 | $ | — | $ | 68,220 | $ | — | ||||||||
| Revenue days | 121 | — | 169 | — | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 58,538 | $ | — | $ | — | ||||||||
| Revenue days | — | 272 | — | — | ||||||||||||
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
| 2020 | 2019 | |||||||||||||||
| Six Months Ended June 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 46,830 | $ | 60,819 | $ | 33,920 | $ | 57,035 | ||||||||
| Revenue days | 181 | 2,140 | 247 | 1,941 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 27,387 | 16,770 | $ | 21,905 | $ | 12,023 | |||||||||
| Revenue days | 310 | 363 | 211 | 151 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | 21,213 | $ | 24,686 | $ | 19,979 | $ | 21,583 | ||||||||
| Revenue days | 217 | 89 | 175 | 518 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 51,388 | $ | 61,012 | $ | 70,634 | $ | — | ||||||||
| Revenue days | 243 | 87 | 349 | — | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 58,621 | $ | — | $ | — | ||||||||
| Revenue days | — | 330 | — | — | ||||||||||||
(a) Excludes one Alaska vessel currently in layup.
During the second quarter of 2020, TCE revenues increased by $18,321, or 22.3%, to $100,427 from $82,106 in the second quarter of 2019. The increase primarily resulted from the addition to our fleet of two Marshall Islands flagged MR tankers, Overseas Gulf Coast and Overseas Sun Coast, three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, and one ATB, OSG 204 and OSG Endurance, which was delivered at the end of May 2020, and two Government of Israel voyages during the second quarter of 2020 compared to one during the second quarter of 2019. The increase was offset by two fewer ATBs in our fleet and a decrease in Delaware Bay lightering volumes during the second quarter of 2020 compared to the second quarter of 2019.
Vessel expenses increased by $9,124, or 28.1%, in the second quarter of 2020 to $41,644 compared to $32,520 in the second quarter of 2019 primarily due to an increase in crewing costs. The increase in crewing costs was due to the addition of two Marshall Islands flagged MR tankers, Overseas Gulf Coast and Overseas Sun Coast, and three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, to our fleet, which was offset by two fewer ATBs in our fleet.
Depreciation and amortization increased by $1,133, or 8.7%, to $14,217 in the second quarter of 2020 compared to $13,084 in the second quarter of 2019. The increase primarily resulted from an increase in depreciation expense due to the Overseas Gulf Coast and Overseas Sun Coast, our two newbuild Marshall Islands flagged MR tankers, which entered service at the beginning of the fourth quarter of 2019. The increase was partially offset by a decrease due to drydock amortization.
During the first six months of 2020, TCE revenues increased by $32,641, or 19.8%, to $197,501 from $164,860 in the first six months of 2019. The increase primarily resulted from the addition to our fleet of two Marshall Islands flagged MR tankers, Overseas Gulf Coast and Overseas Sun Coast, three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, one MR tanker, Overseas Key West, which was added during the second quarter of 2019, and one ATB, OSG 204 and OSG Endurance, which was delivered at the end of May 2020 and an increase in average daily rates earned by our fleet. The increase was offset by (a) one less ATB in our fleet, (b) a 55-day increase in scheduled drydocking and (c) a decrease in Delaware Bay lightering volumes during the first six months of 2020 compared to the first six months of 2019.
Vessel expenses increased 19.2%, or $12,446, to $77,413 for the six months ended June 30, 2020 from $64,967 for the same period in 2019 primarily due to an increase in crewing costs. The increase in crewing costs was due to the addition to our fleet of two Marshall Islands flagged MR tankers, Overseas Gulf Coast and Overseas Sun Coast, three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, and one MR tanker, Overseas Key West, which was added during the second quarter of 2019, offset by one less ATB in our fleet.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
Depreciation and amortization increased by $2,675, or 10.5%, to $28,236 in the first six months of 2020 compared to $25,561 in the first six months of 2019. The increase primarily resulted from an increase in depreciation expense due to the Overseas Gulf Coast and Overseas Sun Coast, our two newbuild Marshall Islands flagged MR tankers, which entered service at the beginning of the fourth quarter of 2019.
Our two U.S. Flag Product Carriers participate in the MSP, which is designed to ensure that militarily useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. We receive an annual subsidy, subject in each case to annual congressional appropriations, which is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. For fiscal year 2020, we expect to receive $5,000 for each vessel and up to $5,200 for each vessel beginning in 2021. During fiscal year 2019, we received a $5,000 annual subsidy for each participating MSP vessel. We do not receive a subsidy for any days for which either of the two vessels operate under a time charter to a U.S. government agency.
General and Administrative Expenses
General and administrative expenses were $7,599 and $13,772 for the three and six months ended June 30, 2020, respectively, compared with $5,957 and $11,633 for the three and six months ended June 30, 2019, respectively. The increase was primarily driven by an increase in compensation and benefit costs due to our acquisition of ATC and the resulting increase in headcount. General and administrative expenses also increased primarily due to an increase in consulting fees.
Interest Expense
Interest expense was $6,167 and $12,241 for the three and six months ended June 30, 2020, respectively, compared with $6,571 and $13,077 for the three and six months ended June 30, 2019, respectively. The decrease in interest expense was primarily associated with the decrease in the 30-Day LIBOR rate on our term loans, due 2023 and 2026, from the same period in 2019 and interest capitalized due to vessels under construction.
Income Taxes
For the three months ended June 30, 2020 and 2019, the Company recorded an income tax (provision)/benefit of $(1,044) and $773, respectively, which represented effective tax rates of 14% and 31%, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded an income tax (provision)/benefit of $(7,404) and $381, respectively, which represented effective tax rates of 19% and (35)%, respectively. The decrease in the effective tax rate for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was substantially due to a significant reduction in state income tax, as well as, the tonnage tax exclusion. The increase in the effective tax rate for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to the establishment of deductible expenses related to Code Section 162(m) in the first quarter of 2019 causing a more favorable discrete adjustment compared to pretax income. The effective tax rate for the six months ended June 30, 2020 was less than the statutory rate due to discrete tax benefits recorded relating to state benefit resulting from the Alaska Tanker Company acquisition, interest related to an alternative minimum tax refund and the tonnage tax exclusion. The effective tax rate for the six months ended June 30, 2019 was less than the statutory rate due to the discrete tax benefit recorded in the first quarter of 2019 relating to Code Section 162(m) deductible expenses and the tonnage tax exclusion.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
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 June 30, 2020 was approximately $(86,000) compared with approximately $(104,000) at December 31, 2019. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $8,490 at June 30, 2020 compared to $(9,880) at December 31, 2019. The increase in working capital is primarily due to the proceeds we received from the OSG 204 LLC term loan discussed below and assets obtained as a result of the completed acquisition of ATC.
As of June 30, 2020, we had total liquidity on a consolidated basis comprised of $94,342 of cash and cash equivalents (including $20,150 of restricted cash). We manage our cash in accordance with our intercompany cash management system subject to the requirements of our debt facilities. 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. At June 30, 2020, $20,002 of restricted cash is in escrow to be applied as a prepayment on the term loan on the Overseas Gulf Coast, due 2024. On July 30, 2020, the $20,002 of restricted cash was used towards the payment in full of the Overseas Gulf Coast term loan, due 2024. See below for further details. The remaining $148 of restricted cash as of June 30, 2020 was related to the Company’s Unsecured Senior Notes.
As of June 30, 2020, we had total debt outstanding (net of original issue discount and deferred financing costs) of $437,284 and a total debt to total capitalization of 53.9%, compared to $368,047 and 51.9%, respectively, at December 31, 2019. Net debt at June 30, 2020 was $343,090 compared to $326,544 at December 31, 2019.
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 six months ended June 30, 2020 was $42,266. 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.
We use capital to fund working capital requirements, maintain the quality of our vessels, comply with U.S. and international shipping standards and environmental laws and regulations, repay or repurchase our outstanding loan facilities and to repurchase our common stock from time to time. We may also use cash generated by operations to finance capital expenditures to modernize and grow our fleet.
We are presently assessing the impact of the expected discontinuation of LIBOR in 2021.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
On July 30, 2020, the Company used $20,002 of restricted cash, along with a cash payment of $4,236, which included interest and other fees, to pay in full the Company’s term loan on the Overseas Gulf Coast, due 2024. At June 30, 2020, the principal amount of the term loan of $24,050 is included in current installments of long-term debt on the condensed consolidated balance sheets.
Off-Balance Sheet Arrangements
The Company did not have, during the periods presented, and does not currently have, any off-balance sheet arrangements.
Commitments
In 2019, the Company signed a binding contract for the construction of one approximately 204,000 BBL, oil and chemical tank barge. The anticipated delivery of the barge to the Company is during the fourth quarter of 2020. The Company’s commitments under the contract are $14,540 for the remainder of 2020.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Not applicable due to the Company’s status as a smaller reporting company.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
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 June 30, 2020 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 June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
PART II – OTHER INFORMATION
| 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 Annual Report on Form 10-K for 2019, and as may be updated in our subsequent quarterly reports. The risks described in our Annual Report on Form 10-K for 2019 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. In particular, the COVID-19 pandemic has impacted our industry and our business in significant ways, creating new risks and heightening existing risks. Such risks include:
| ● | Uncertainties in the oil trading market, with volatile and unpredictable oil pricing; | |
| ● | Drastic decreases in demand that are expected to have a long duration; | |
| ● | Heightened risk of off-hire periods resulting from managing virus-related delays; | |
| ● | Potential and as yet unknowable costs for testing, cleaning, quarantine, immunization and certifications; | |
| ● | Difficulty in easily accessing critical supplies - in particular face masks and other personal protective equipment; | |
| ● | Questionable reliability and effectiveness of testing methodologies and PPE; | |
| ● | Possible delays in receiving critical supplies and the services of specialized technicians; | |
| ● | Unavailability of inspectors and delays in vetting of the vessels; | |
| ● | The imposition of additional operational burdens on our crews; | |
| ● | Unavailability of airlines or other transportation to move our crews into position, and increased costs associated with such travel; | |
| ● | Compliance with mandates and recommendations of various regulatory agencies as they seek to react to continuously evolving information; | |
| ● | Health of our key employees to operate our vessels and executives to manage the business during this turbulent time; | |
| ● | Increased possibilities of refineries and other customers experiencing financial instability or going out of business; | |
| ● | Delayed receipt of payments owed to us; and | |
| ● | Increased costs to develop and implement policies and procedures to deal with all of these challenges. |
As a direct result of the COVID-19 pandemic, the environment within which we operate is under escalating stress, presenting new risks and vulnerabilities that have previously not affected our performance. The level of uncertainty about the extent, duration and ultimate impact of the forces that are currently unsettling our markets has never been greater and will impact how supply, demand and price of crude oil will unfold in the months ahead. We expect to incur increased costs to address these challenges.
Direct management and operational risks exist now and are likely to continue and increase in the future relating to our ability to effectively sustain operational readiness. We may encounter challenges getting crew to and from our vessels in a manner that both protects their personal safety and endeavors to assure that a joining crew member is not bringing COVID-19 onto a vessel or is otherwise affecting a vessel’s acceptability in service. Our ability to adapt and implement policies and procedures in this regard, and to anticipate associated costs, are subject to developing consensus with relevant constituencies, including regulatory authorities, health officials, unions, customers, and those in our industry and supply chain, to achieve consistency and a common approach to coping with the very real and very difficult problems presented by COVID-19. There are heightened risks in our ability to comply with what are evolving, and sometimes conflicting, logistical health and safety protocols.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
In addition, we see heightened risks of off-hire periods resulting from managing virus-related delays, and anticipate increased costs for testing, cleaning, quarantine, immunization and certifications. Difficulty in accessing critical supplies, such as face masks and other personal protective equipment, receiving spare parts, and obtaining timely services of specialized technicians, impose additional operational burdens. It is not certain whether testing methodologies and personal protective equipment will prove reliable as effective measures to protect against the virus, and compliance with mandates and recommendations of various regulatory agencies as they seek to react to continuously evolving information also pose significant risks. We face the potential for increased costs and claims in the event that an employee tests positive for COVID-19. While OSG has not found it necessary to lay-off or furlough employees as a result of the COVID-19 pandemic, others in our industry have done so or are considering it as a possibility.
Further risks relate to potential longer-term impacts of the virus on our Jones Act trade. We are experiencing reduced cargo volumes and increased idle times, derivatives of falling refinery runs and unprecedented demand destruction for transportation fuels arising out of stay-at-home policies in many populated regions. The models we typically use to forecast demand may not be reliable in the wake of this health emergency. A V-shaped recovery is not expected in transportation fuel demand, with uneven recovery predicted in various fuel sectors. The shape and speed of fuel demand recovery could have significant negative impacts on our key customers, refineries in particular, which would likely have a material impact on both domestic tank vessel demand as well as on OSG’s expected forward revenue streams. Our shuttle tankers rely on customers with wells and fields in the Gulf of Mexico. Customers with high cash production costs are likely to be vulnerable to production cuts. In the event that wells and fields are shut in response to persistently low oil prices, this could have a material adverse effect on the revenues generated by our shuttle tankers.
It should be anticipated that volatility in rates will continue. The overall level of crude oil production cuts in the U.S. over the coming months and the impact of these cuts on the relative price differentials between domestic and comparable international crude oil are significant factors for the U.S. trades. Declining crude oil production, coupled with the increase of tonnage released back into the market once product stored is delivered for consumption, will likely impact negatively on future rates. We have exposed risk to those of our vessels which come into the spot market, as rate and utilization assumptions for those vessels must cover a wide range of possible scenarios. The range of possible outcomes is wide and the possible impact on actual rates achieved unknowable at this time.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults upon senior securities |
None.
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other information |
None.
| 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. |
| 10.1 | |
| 10.2 | |
| 10.3 | |
| 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. |
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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: August 7, 2020 | /s/ Samuel H. Norton |
| Samuel H. Norton | |
| Chief Executive Officer | |
| Date: August 7, 2020 | /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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