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 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. YES
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer’s Class A common stock as of November 4, 2021: Class A common stock, par value $0.01 – shares. Excluded from these amounts are penny warrants, which were outstanding as of November 4, 2021 for the purchase of 3,631,071 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
| September 30, 2021 | December 31, 2020 | |||||||
| (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 | ||||||||
| Intangible assets, less accumulated amortization | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| 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 | ( | ) | ( | ) | ||||
| 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 | ||||||||||||||||
| Loss/(gain) on disposal of vessels and other property, including impairments, net | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| (Loss)/income from vessel operations | ( | ) | ( | ) | ||||||||||||
| Gain on termination of pre-existing arrangement | ||||||||||||||||
| Operating (loss)/income | ( | ) | ( | ) | ||||||||||||
| Loss on extinguishment of debt, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| (Loss)/income before interest expense and income taxes | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Loss)/income before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit/(expense) | ( | ) | ||||||||||||||
| Net (loss)/income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic - Class A | ||||||||||||||||
| Diluted - Class A | ||||||||||||||||
| Per Share Amounts: | ||||||||||||||||
| Basic and diluted net (loss)/income - Class A | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
See notes to condensed consolidated financial statements
| 4 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
DOLLARS IN THOUSANDS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net (loss)/income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| 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)/income | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss)/income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
See notes to condensed consolidated financial statements
| 5 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss)/income | $ | ( | ) | $ | ||||
| Items included in net income not affecting cash flows: | ||||||||
| Depreciation and amortization | ||||||||
| 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 (benefit)/expense | ( | ) | ||||||
| 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 (used in)/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 | ( | ) | ( | ) | ||||
| Net cash provided by/(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 | ( | ) | ( | ) | ||||
| Extinguishment of debt | ( | ) | ( | ) | ||||
| Extinguishment of debt costs paid | ( | ) | ||||||
| Deferred financing costs paid for debt amendments | ( | ) | ||||||
| Issuance of debt, net of issuance and deferred financing costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase 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, 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 | ( | ) | ( | ) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Compensation related to Class A options granted and restricted stock awards | ||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||
| 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, 2021 | ( | ) | ( | ) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||
| 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, 2021 | ( | ) | ( | ) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||
| Compensation related to Class A options granted and restricted stock awards | ||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| (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.
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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any other interim period.
The condensed consolidated balance sheet as of December 31, 2020 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, 2020 (“Form 10-K”).
The World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic in March 2020. The COVID-19 pandemic is a dynamic and continuously evolving phenomenon and our disclosures throughout describe its effects on our business.
Note 2 — Recently Adopted and Issued Accounting Standards
Recently Adopted Accounting Standards
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which contains amendments to improve the codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the disclosure section so that disclosure is not missed. The standard also clarifies various guidance so that an entity can apply the guidance more consistently. The new guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have an impact to the Company’s condensed 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 adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact to the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards
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.
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 is to become effective January 1, 2023.
At June 30, 2019, the evaluation date for purposes of determining the applicability of the credit losses standard, 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.
| 8 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
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 and nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Time and bareboat charter revenues | $ | $ | $ | $ | ||||||||||||
| Voyage charter revenues (1) | ||||||||||||||||
| Contracts of affreightment revenues | ||||||||||||||||
| Total shipping revenues | $ | $ | $ | $ | ||||||||||||
| (1) |
Voyage Receivables
As
of September 30, 2021 and December 31, 2020, contract balances from contracts with customers consisted of voyage receivables of $
Contracts of Affreightment
At September 30, 2021 and December 31, 2020, the Company did not have deferred revenue related to the Company’s contracts of affreightment (“COAs”).
Costs to Fulfill a Contract
At September 30, 2021 and December 31, 2020, the costs related to voyages that were not yet completed were not material.
Transaction Price Allocated to the Remaining Performance Obligations
As
of September 30, 2021, 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 September 30, 2021, 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 September 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.
| 9 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net (loss)/income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Class A common stock - basic | ||||||||||||||||
| Class A common stock - diluted | ||||||||||||||||
For the nine months ended September 30, 2020, there were dilutive equity awards outstanding covering shares. Awards of shares (which are related to stock options) for the nine months ended September 30, 2020 were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.
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
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 | ||||||||||
| September 30, 2021: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents (1) | $ | $ | $ | |||||||||
| 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, 2020: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents (1) | $ | $ | $ | |||||||||
| Total | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Term loan, due 2023, net | $ | $ | $ | |||||||||
| Term loan, due 2024, net | ||||||||||||
| Alaska tankers term loan, due 2025, net | ||||||||||||
| OSG 204 LLC term loan, due 2025, net | ||||||||||||
| Term loan, due 2026, net | ||||||||||||
| OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | ||||||||||||
| Unsecured senior notes, net | ||||||||||||
| Total | $ | $ | $ | |||||||||
| (1) |
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel and Intangible Assets Impairments
During the third quarter of 2021, the Company considered whether events or changes in circumstances had occurred since December 31, 2020 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 September 30, 2021.
The Company concluded that no such events or changes in circumstances had occurred for its intangible assets at September 30, 2021.
During the third quarter of
2021, the Company gave consideration as to whether events or changes in circumstances had occurred that could indicate that the carrying
amounts of the Company's operating lease right-of-use assets may not be fully recoverable. The Company concluded that the decline in
previously forecasted cash flows on two of the Company’s leased vessels, due to a change in the expected deployment, constituted
an impairment triggering event as of September 30, 2021. Based on the Company's analysis, an impairment charge of $
During
the first quarter of 2021 the Company received a firm offer for the sale of the Overseas Gulf Coast. Based on the negotiated sale
terms, the Company recorded a loss of $
Note 6 — Taxes
For
the three months ended September 30, 2021 and 2020, the Company recorded income tax benefits of $
Share and Warrant Repurchases
During the nine months ended September 30, 2021 and 2020, in connection with the vesting of restricted stock units (“RSUs”), the Company withheld and , respectively, shares of Class A common stock at an average price 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 nine months ended September 30 2021, the Company did not issue any shares of Class A common stock as a result of the exercise of Class A warrants. During the nine months ended September 30, 2020, the Company issued shares of Class A common stock as a result of the exercise of Class A warrants.
| 11 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
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 27, 2021 and May 28, 2020, the Company awarded time-based RSUs to its non-employee directors covering and shares, respectively. The grant date fair value of these awards was $and $per RSU, respectively. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. These RSUs vest in full on the first anniversary of the grant date, subject to each director continuing to provide services to the Company through such date.
Management Compensation — Restricted Stock Units and Stock Options
During the nine months ended September 30, 2021 and 2020, the Company granted RSUs to its employees, including senior officers, covering and shares, respectively. The grant date fair value of these awards was $and $per RSU, respectively. 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 nine months ended September 30, 2021 and 2020, the Company awarded performance-based RSUs to its senior officers covering and shares, respectively. Each performance-based RSU represents a contingent right to receive RSUs based upon continuous employment through the end of a three-year performance period.
The performance-based RSUs are subject to an increase of up to a maximum of and target RSUs combined, respectively, (and RSUs in total, respectively) or decrease, depending on performance against the applicable measure and targets. Accordingly, for financial reporting purposes, compensation costs have been recognized for these awards. The grant date fair value of the awards, which have a market condition, was determined to be $and $per RSU, respectively.
During the nine months ended September 30, 2021, the Company awarded performance-based RSUs to its senior officers covering shares. The grant date fair value of these awards was $per RSU. Each performance-based RSU represents a contingent right to receive RSUs based on performance criteria tied to specific operational and financial goals that must be achieved over an 18-month performance period. Vesting is subject to certification by the Compensation Committee as to achievement of the performance measures.
Note 8 — Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of related taxes, in the condensed consolidated balance sheets follow:
| As of | September 30, 2021 | December 31, 2020 | ||||||
| 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 nine months ended September 30, 2021 and 2020:
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | ||||
| Balance as of June 30, 2021 | $ | ( | ) | |
| 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 September 30, 2021 | $ | ( | ) | |
| Balance as of June 30, 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 September 30, 2020 | $ | ( | ) | |
| 12 |
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, 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 September 30, 2021 | $ | ( | ) | |
| 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 September 30, 2020 | $ | ( | ) | |
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 9 — Leases
Charters-out
The
Company is the lessor under its time charter contracts. Total time charter revenue for the three and nine months ended September 30,
2021 was equal to lease income from lease payments of $
Note 10 — Debt
On
September 29, 2021, certain subsidiaries (the “Borrowers”) of the Company entered
into a seven-year, $
The
Company also completed amendments to the loans on the OSG 205 and OSG Courageous, Overseas Sun Coast and the Alaskan
Explorer and Alaskan Navigator conforming the covenants with the Stonebriar $
On
November 5, 2021, subsidiaries of the Company entered into an agreement to amend the Company’s OSG 204 LLC
term loan, due 2025, to align the term loan’s financial covenants with the Company’s new term loan with Stonebriar. In
connection with the amendment, the Company made a prepayment 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 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). 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 quarterly reports or in our Form 10-K 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:
| ● | public health threats, particularly the COVID-19 pandemic, which has impacted and continues to impact the Company in many ways, including those noted below, as well as by increasing operating costs to protect the health and safety of the Company’s crew members and others in the industry; | |
| ● | volatility 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 conditions in the oil and natural gas industry, including in reaction to the COVID-19 pandemic; | |
| ● | the inability to attract or retain qualified mariners; | |
| ● | 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; | |
| ● | increasing operating costs, unexpected drydock costs or increasing capital expenses as the Company’s vessels age, including increases due to limited shipbuilder warranties or the consolidation of suppliers; | |
| ● | 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, allowing it to maintain capital availability; | |
| ● | the Company’s compliance with complex laws and regulations, including 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; | |
| ● | 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; | |
| ● | 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; | |
| ● | 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; | |
| ● | significant fluctuations in the market price of the Company’s securities; and | |
| ● | provisions of Delaware law and the Company’s governing documents that 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.
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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 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. The Company also owns and operates one Marshall Islands flagged MR tanker which trades internationally. 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.
On June 30, 2021, OSG received a non-binding indication of interest from Saltchuk Holdings, Inc to acquire all of the issued and outstanding shares of common stock of the Company for a price of $3.00 per share. On September 7, 2021, Saltchuk Holdings announced that, “in light of continued uncertainty with respect to the pace and trajectory of the global pandemic recovery and its effects on the Issuer’s business and operations, Saltchuk Holdings is suspending discussions with the Issuer regarding a possible acquisition of its outstanding common stock.”
The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2021 and 2020. 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 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, lay-up, 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).
Beginning in the 2020 first quarter, COVID-19 caused material disruptions in demand for and an oversupply of crude oil and refined products. During the second half 2020, large inventory builds around the world ensued. Managed reductions in both crude oil production levels and refinery utilization rates have combined to reduce inventory levels over the past year. As supply has been constrained, crude oil prices in particular have risen strongly in response. As a result, many analysts now consider market conditions to be favorable for increased oil production, and a corresponding rise in the demand for its transportation. These predictions reflect estimates on the prevalence of COVID-19 and the recovery of the global economy. Energy markets are global in nature and the pace and extent of COVID-19 and the changing state of its presence in all markets is an important factor in understanding the timing and extent of recovery of supply and consumption patterns within the U.S. 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 operations well, with all of our Jones Act and internationally trading vessels able to load, transit and discharge cargo without material interruption.
Despite the foregoing, the ongoing global coronavirus pandemic continues to weigh on demand and transport pricing dynamics in the global liquid bulk transportation markets. While demand for transportation fuels in the United States has recovered strongly from 2020 lows, weak international markets have contributed to increased imports of both crude oil and refined product into the U.S. when compared with prior periods. Import substitution for domestic supply has dampened demand, especially for conventional Jones Act tankers, and continues to create conditions of business uncertainty for our customers and, accordingly, for our business. Our customers’ reluctance to enter into longer-term transportation commitments has been a continuing condition since the onset of the pandemic. In the face of this soft demand environment, we have chosen to place and retain a number of vessels in lay-up. During the 2021 third quarter, we reactivated two vessels in response to increasing charterer demand. Four tankers and one ATB remain in lay-up as at the end of the quarter. Laying up vessels in times of limited near-term employment opportunities allows us to reduce the costs associated with vessels that are without charter.
While the recovery slope of domestic marine transportation demand levels has been flatter than what had been expected earlier in the year, we believe that, as our customers’ visibility and confidence in the future returns, the market will tighten and there will be a resumption of more typical customer behavior, and time charter activity will rebound. Timing of the reactivation of vessels remaining in lay-up is contingent upon increased demand from our domestic customer base. We anticipate that as consumption patterns for transportation fuels globally regains traction, demand for Jones Act tanker domestically should normalize. A normalization of fuel demand patterns consistent with historical levels of consumption is expected to stimulate more marine transportation demand, which in turn should lead to a reactivation of vessels from lay-up to meet any such increase in demand. The pace and trajectory of demand recovery continues to be influenced by many factors, including progress in resolving the pandemic, both within and outside of the US, and near-term uncertainty will continue to define a wide spectrum of possible vessel reactivation outcomes as we move through the balance of the year.
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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 for Disease Control and Prevention, the U.S. Coast Guard, local ports and shipyards, and country- and state-specific requirements. They include such actions as providing personal protective equipment, managing the locations where crew members board and depart from our vessels, requiring crew members to disclose symptoms and the health of those they have been in contact with, mandatory quarantine periods imposed prior to joining any vessel, sanitization of the vessels, mandating face coverings when non-crew are on board, social distancing 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 and may increase.
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 may operate in the spot market, which is more volatile and less predictable. In some cases, where neither time charter nor consistent spot market business is available, lay-up and removal of vessels from an actively available status is deemed necessary. 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.
COVID-19 induced demand destruction that started in March 2020 has resulted in minimal spot market activity since then. Industry-wide, spot activity decreased from the second quarter of 2021 with 18 spot fixtures in the third quarter of 2021 versus 30 spot fixtures in the second quarter of 2021. For the 18 spot fixtures, 7 were performed by tankers and the remaining were performed by ATBs.
Our vessels, excluding vessels in lay-up, were employed for 92% of available days during the third quarter of 2021, with 104 of a total 1,309 available days (available days excludes 22 days vessels were offhire due to drydock requirements) seeing vessels idle without employment. Two of our tankers, the Overseas Nikiski and the Overseas Key West, exited lay-up and returned to service in September 2021.
Industry-wide, there were no firm Jones Act vessel orders as of September 30, 2021.
Delaware Bay lightering volumes averaged 60,000 b/d in the third quarter of 2021 compared with 58,000 b/d in the third quarter of 2020. Refinery demand for crude oil has increased from the low demand levels in 2020 caused by COVID-19. We have contract minimums with our refinery customers that compensate us for barrels not lightered below those minimum amounts.
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 2020.
Results of Vessel Operations
During the three and nine months ended September 30, 2021, shipping revenues decreased by $11,781 and $57,547, or 11.1% and 17.9%, respectively, compared to the same periods in 2020. The decreases primarily resulted from a 498-day and 1,721-day, respectively, increase in lay-up days due to seven vessels in lay-up for most of 2021, a decision taken in light of the lack of demand due to the economic impact of COVID-19. Two of the seven vessels came out of lay-up in September 2021 and operated in the spot market. One of these two vessels will commence a 26 month time charter in mid-November 2021.
Reconciliation of TCE revenues, a non-GAAP measure, to shipping revenues as reported in the consolidated statements of operations follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Time charter equivalent revenues | $ | 75,365 | $ | 92,281 | $ | 212,569 | $ | 289,782 | ||||||||
| Add: Voyage expenses | 18,602 | 13,467 | 51,030 | 31,364 | ||||||||||||
| Shipping revenues | $ | 93,967 | $ | 105,748 | $ | 263,599 | $ | 321,146 | ||||||||
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The following tables provide a breakdown of TCE rates achieved for the three and nine months ended September 30, 2021 and 2020 between spot and fixed earnings and the related revenue days.
| 2021 | 2020 | |||||||||||||||
| Three Months Ended September 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 37,527 | $ | 66,704 | $ | 2,437 | $ | 61,418 | ||||||||
| Revenue days | 219 | 449 | 67 | 922 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 43,265 | $ | 9,083 | $ | 32,089 | $ | 15,778 | ||||||||
| Revenue days | 184 | 92 | 184 | 185 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | — | $ | 36,146 | $ | 2,786 | $ | 29,616 | ||||||||
| Revenue days | — | 182 | 60 | 86 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 60,063 | $ | — | $ | 79,214 | $ | — | ||||||||
| Revenue days | 92 | — | 94 | — | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 57,936 | $ | — | $ | 58,669 | ||||||||
| Revenue days | — | 276 | — | 276 | ||||||||||||
| 2021 | 2020 | |||||||||||||||
| Nine Months Ended September 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 32,380 | $ | 65,882 | $ | 34,806 | $ | 60,999 | ||||||||
| Revenue days | 548 | 1,380 | 248 | 3,061 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 30,684 | $ | 9,478 | $ | 29,137 | $ | 16,434 | ||||||||
| Revenue days | 551 | 428 | 494 | 548 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | — | $ | 33,529 | $ | 17,244 | $ | 27,119 | ||||||||
| Revenue days | — | 544 | 277 | 175 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 74,169 | $ | — | $ | 59,145 | $ | 61,012 | ||||||||
| Revenue days | 273 | — | 337 | 87 | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 58,446 | $ | — | $ | 58,643 | ||||||||
| Revenue days | — | 742 | — | 605 | ||||||||||||
(a) Excludes one Alaska vessel currently in layup.
During the third quarter of 2021, TCE revenues decreased by $16,916, or 18.3%, to $75,365 from $92,281 in the third quarter of 2020. The decrease was primarily a result of a 498-day increase in lay-up days due to vessels in lay-up during the third quarter of 2021 and one less MR tanker in our fleet, Overseas Gulf Coast, which was sold during the second quarter of 2021. The decrease was offset by (a) the addition to our fleet of one ATB, OSG 205 and OSG Courageous, which was delivered during the fourth quarter of 2020, (b) a 171-day decrease in scheduled drydocking and (c) an increase in Delaware Bay lightering volumes.
Voyage expenses increased by $5,135, or 38.1%, in the third quarter of 2021 to $18,602 compared to $13,467 in the third quarter of 2020, primarily related to increases in fuel and port expenses due to more voyage charters performed by our vessels compared to the same period in 2020.
Vessel expenses decreased by $7,038, or 16.3%, in the third quarter of 2021 to $36,006 compared to $43,044 in the third quarter of 2020, primarily due to a decrease in crewing costs. The decrease in crewing costs was related to six vessels in lay-up during the third quarter of 2021 compared to the same period in 2020.
Depreciation and amortization increased by $273, or 1.8%, to $15,526 in the third quarter of 2021 compared to $15,253 in the third quarter of 2020. The increase primarily resulted from an increase in amortization of drydock costs and an increase in depreciation expense due to the addition of our newbuild barge, OSG 205, which entered service in the fourth quarter of 2020.
During the nine months ended September 30, 2021, TCE revenues decreased by $77,213, or 26.6%, to $212,569 from $289,782 in the nine months ended September 30, 2020. The decrease was primarily a result of (a) 1,721-day increase in lay-up days due to seven vessels in lay-up for most of the nine months ended September 30, 2021, a decision taken in light of the lack of demand due to the economic impact of COVID-19, (b) one less ATB in our fleet compared to the same period in 2020 and (c) one less MR tanker in our fleet, Overseas Gulf Coast, which was sold during the second quarter of 2021. The decrease was offset by a 209-day decrease in scheduled drydocking and an increase in Delaware Bay lightering volumes. Two of seven vessels came out of lay-up in September 2021 and operated in the spot market.
Voyage expenses increased by $19,666, or 62.7%, for the nine months ended September 30, 2021 to $51,030 compared to $31,364 for the nine months ended September 30, 2020, primarily a result of an increase in expenses for oil pollution mitigation services for the Alaskan tankers as we acquired the vessels on March 12, 2020. These expenses are passed through to the charterer each month. Additionally, voyage expenses increased due to increases in fuel and port expenses related to more voyage charters performed by our vessels compared to the same period in 2020.
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Vessel expenses decreased by $18,641, or 15.5%, for the nine months ended September 30, 2021 to $101,815 compared to $120,456 for the nine months ended September 30, 2020, primarily due to a decrease in crewing costs. The decrease in crewing costs was due to seven vessels in lay-up for most of 2021, a decision taken in light of the lack of demand due to the economic impact of COVID-19.
Depreciation and amortization increased by $2,425, or 5.6%, to $45,913 for the nine months ended September 30, 2021 compared to $43,488 for the nine months ended September 30, 2020. The increase primarily resulted from an increase in depreciation expense due to the addition of three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, to our fleet in March 2020 and the addition of our newbuild barges, OSG 204 and OSG 205, which entered service during the end of the second quarter of 2020 and fourth quarter of 2020, respectively, and an increase in amortization of drydock costs.
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 stipend, subject in each case to annual congressional appropriations, which is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. For 2021, we expect to receive up to $5,200 for each vessel. During 2020, the stipend we received was $5,058 on one vessel and $4,607 on one vessel. We do not receive a stipend 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 $5,707 for the three months ended September 30, 2021 compared with $6,140 for the three months ended September 30, 2020. The decrease was primarily driven by lower compensation and benefits costs and lower consulting fees.
For the nine months ended September 30, 2021, general and administrative expenses were $18,076 compared with $19,915 for the nine months ended September 30, 2020. The decrease was primarily driven by lower compensation and benefits costs and lower consulting and accounting fees.
Loss/(gain) on Disposal of Vessels and Other Property, Including Impairments, Net
Loss/(gain) on disposal of vessels and other property, including impairments, net was $960 compared to $(151) for the three months ended September 30, 2020. The increase was a result of an impairment charge of $1,000 recorded on two of the Company's leased vessels. For the three months ended September 30, 2020, a gain was recorded due to the write-off of costs related to the sale of one ATB.
For the nine months ended September 30, 2021, loss/(gain) on disposal of vessels and other property, including impairments, net was $6,257 compared to $959 for the nine months ended September 30, 2020. The increase was a result of the sale of the Overseas Gulf Coast during the second quarter of 2021 for $32,128, net of broker commissions and other fees, resulting in a loss, and an impairment charge of $1,000 recorded on two of the Company's leased vessels. For the nine months ended September 30, 2020, losses were recognized due to the sale of two ATBs.
Gain on Termination of Pre-Existing Arrangement
Gain on termination of pre-existing arrangement was $0 for the nine months ended September 30, 2021 compared to $19,172 during the nine months ended September 30, 2020. The decrease for the nine months ended September 30, 2021 was due to our acquisition of ATC on March 12, 2020. Our pre-existing ATC arrangements with a minimum term through December 2023 were terminated at the time of acquisition and a non-cash gain equal to the value of the remaining arrangement of $19,172 was recognized.
Loss on Extinguishment of Debt, Net
Loss on extinguishment of debt, net was $7,961 for both the three and nine months ended September 30, 2021, respectively, compared to $488 and $503 for the three and nine months ended September 30, 2020, respectively. The increase was due to a $5,225 write-off of unamortized deferred financing costs and $2,736 of prepayment fees related to the pay off of our term loans, due 2023 and 2026, and a prepayment made on our Alaska tankers term loan, due 2025, during the third quarter of 2021. For the three and nine months ended September 30, 2020, losses were recognized due to a write-off of unamortized deferred financing costs related to mandatory prepayments on our term loan, due 2023, as a result of the sale of two of our ATBs.
Interest Expense
Interest expense was $7,052 for the three months ended September 30, 2021 compared with $5,902 for the three months ended September 30, 2020. The increase in interest expense was primarily related to the addition of the OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, in the fourth quarter of 2020 and less interest capitalized during the three months ended September 30, 2021 compared to the same period in 2020. The increase was offset by a decrease in interest expense due to the pay off of the term loan on the Overseas Gulf Coast during the third quarter of 2020.
For the nine months ended September 30, 2021, interest expense was $20,739 compared to $18,143 for the nine months ended September 30, 2020. The increase in interest expense was primarily related to the addition of the OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, in the fourth quarter of 2020 and less interest capitalized during the nine months ended September 30, 2021 compared to the same period in 2020. The increase was offset by a decrease in the 30-Day LIBOR rate on our term loans, due 2023 and 2026, from the same period in 2020 and a decrease due to the pay off of the term loan on the Overseas Gulf Coast during the third quarter of 2020.
Income Taxes
For the three months ended September 30, 2021 and 2020, the Company recorded income tax benefits of $4,515 and $192, respectively, which represented effective tax rates of 22% and 23%, respectively. For the nine months ended September 30, 2021 and 2020, the Company recorded an income tax benefit/(provision) of $13,195 and $(7,212), respectively, which represented effective tax rates of 24% and 19%, respectively. There was no significant change in the effective tax rate for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase in the effective tax rate for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to changes in state apportionment, the tonnage tax exclusion and interest related to an alternative minimum tax refund received in 2020. The effective tax rate for the nine months ended September 30, 2021 was more than the statutory rate due to the tonnage tax exclusion and state tax benefit. The effective tax rate for the nine months ended September 30, 2020 was less than the statutory rate due to a discrete tax benefit relating to state benefit resulting from the Alaska Tanker Company acquisition, interest related to an alternative minimum tax refund and the tonnage tax exclusion.
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Liquidity and Sources of Capital
Our business is capital intensive. Our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business to meet near-term and long-term debt repayment obligations is dependent on maintaining sufficient liquidity.
Liquidity
Working capital at September 30, 2021 was approximately $(42,000) compared with approximately $(93,000) at December 31, 2020. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $52,000 at September 30, 2021 compared to $1,700 at December 31, 2020. The increase in working capital was primarily due to (a) an increase in cash and cash equivalents from proceeds received on the term loan, due 2028, we entered into on September 29, 2021 as discussed below, (b) a decrease in current installments of long-term debt due to the replacement and pay off of our term loan, due 2023, and term loan, due 2026, with the term loan, due 2028, which reduced our principal payments, (c) an increase in receivables related to the timing of collection from our customers and (d) a decrease in accounts payable, accrued expenses and other current liabilities as a result of timing of accounts payable payments made at September 30, 2021 compared to December 31, 2020.
As of September 30, 2021, we had total liquidity on a consolidated basis comprised of $84,971 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. Restricted cash as of September 30, 2021 was related to requirements under the Unsecured Senior Notes.
As of September 30, 2021, we had total debt outstanding (net of deferred financing costs) of $451,785 and a total debt to total capitalization of 57.2%, compared to $429,120 and 53.0%, respectively, at December 31, 2020.
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 used in operating activities during the nine months ended September 30, 2021 was $20,428. 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 and repay or repurchase our outstanding loan facilities. We may also use cash generated by operations to finance capital expenditures to modernize and grow our fleet.
During the first quarter of 2021 we received a firm offer for the sale of the Overseas Gulf Coast. Based on the negotiated sale terms, we recorded a loss of $5,446 on the planned disposition of this tanker. In April 2021, we entered into a contract to sell the vessel for $31,850, net of broker commissions. The sale of the vessel was completed in June 2021 for $32,128, net of broker commissions and other fees, resulting in an immaterial gain recognized during the second quarter of 2021, which is included in loss/(gain) on disposal of vessels and other property, including impairments, net on the condensed consolidated statements of operations.
On September 29, 2021, certain subsidiaries (the “Borrowers”) of the Company entered into a seven-year, $325,000 term loan credit facility with Stonebriar Commercial Finance. Proceeds were used to pay off the Company’s term loan, due 2023, with The Prudential Insurance Company of America, as administrative agent, and certain other lenders, and the Company’s term loan, due 2026, with Wintrust Commercial Finance, for $237,983 and $20,298, respectively. Additionally, the Company used proceeds to make a prepayment of $16,000, to partially refinance a term loan with Banc of America Leasing & Capital, LLC, the Company’s Alaska tankers term loan, due 2025. The remaining proceeds will be used for general working capital purposes. The Company recognized an aggregate net loss of $7,961 on these transactions, which reflects a write-off of unamortized deferred financing costs and prepayment fees. The new term loan bears interest at a rate of 7.75% and matures on October 1, 2028. The performance of the Borrowers’ obligations under the term loan is guaranteed by the Company and certain other subsidiaries and are secured by the Borrowers’ assets, including five tankers, three tugs, and two barges, and by the Company’s equity interests in certain of its subsidiaries. The annual principal payments required to be made for the new term loan are $1,787 for the remainder of 2021, $12,100 in 2022, $13,072 in 2023 $14,122 in 2024, $15,257 in 2025 and $268,662 thereafter.
The Company also completed amendments to the loans on the OSG 205 and OSG Courageous, Overseas Sun Coast and the Alaskan Explorer and Alaskan Navigator conforming the covenants with the Stonebriar $325,000 loan.
On November 5, 2021, subsidiaries of the Company entered into an agreement to amend the Company’s OSG 204 LLC term loan, due 2025, to align the term loan’s financial covenants with the Company’s new term loan with Stonebriar. In connection with the amendment, the Company made a prepayment of $3,000 on the outstanding balance of the loan.
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Off-Balance Sheet Arrangements
The Company did not have, during the periods presented, and does not currently have, any off-balance sheet arrangements.
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 September 30, 2021 to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021 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 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 2020 Form 10-K, and as may be updated in our subsequent quarterly reports. The risks described in our 2020 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 2020 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon senior securities
None.
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. | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Schema. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OVERSEAS SHIPHOLDING GROUP, INC. | |
| (Registrant) | |
| Date: November 9, 2021 | /s/ Samuel H. Norton |
| Samuel H. Norton | |
| Chief Executive Officer | |
| Date: November 9, 2021 | /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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