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.
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer’s Class A common stock, par value $0.01, as of November 1, 2022: shares. Excluded from this amount are warrants outstanding as of November 1, 2022 for the purchase of 3,619,838 shares of Class A common stock for nominal consideration.
TABLE OF CONTENTS
| 2 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Voyage receivables, including unbilled of $ | ||||||||
| Income tax receivable | ||||||||
| Other receivables | ||||||||
| Inventories, prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Vessels and other property, less accumulated depreciation | ||||||||
| Deferred drydock expenditures, net | ||||||||
| Total Vessels, Other Property and Deferred Drydock | ||||||||
| Intangible assets, less accumulated amortization | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Investment security to be held to maturity | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable, accrued expenses and other current liabilities | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current installments of long-term debt | ||||||||
| Total Current Liabilities | ||||||||
| Reserve for uncertain tax positions | ||||||||
| Noncurrent operating lease liabilities | ||||||||
| Noncurrent finance lease liabilities | ||||||||
| Long-term debt | ||||||||
| Deferred income taxes, net | ||||||||
| Other liabilities | ||||||||
| Total Liabilities | ||||||||
| Equity: | ||||||||
| Common stock - Class A ($ par value; shares authorized; and shares issued; and shares outstanding) | ||||||||
| Paid-in additional capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, shares, at cost | ( | ) | ||||||
| Accumulated other comprehensive loss | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See notes to condensed consolidated financial statements
| 3 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 on disposal of vessels and other property, including impairments, net | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income/(loss) | ( | ) | ( | ) | ||||||||||||
| Loss on extinguishment of debt, net | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| Income/(loss) before interest expense and income taxes | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income/(loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax (expense)/benefit | ( | ) | ( | ) | ||||||||||||
| Net income/(loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
| Basic - Class A | ||||||||||||||||
| Diluted - Class A | ||||||||||||||||
| Per Share Amounts: | ||||||||||||||||
| Basic net income/(loss) - Class A | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted net income/(loss) - Class A | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See notes to condensed consolidated financial statements
| 4 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
DOLLARS IN THOUSANDS
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net income/(loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Other comprehensive (loss)/income, net of tax: | ||||||||||||||||
| Defined benefit pension and other postretirement benefit plans: | ||||||||||||||||
| Net change in unrecognized prior service costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net change in unrecognized actuarial losses | ||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income/(loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See notes to condensed consolidated financial statements
| 5 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
(UNAUDITED)
Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Items included in net income not affecting cash flows: | ||||||||
| Depreciation and amortization | ||||||||
| 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 | ||||||||
| Payments for drydocking | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities, net | ( | ) | ( | ) | ||||
| Net cash provided by/(used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Expenditures for vessels and vessel improvements | ( | ) | ( | ) | ||||
| Purchase of investment security to be held to maturity | ( | ) | ||||||
| Proceeds from disposals of vessels and other property | ||||||||
| Net cash (used in)/provided by investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on debt | ( | ) | ( | ) | ||||
| Tax withholding on share-based awards | ( | ) | ( | ) | ||||
| Payments on principal portion of finance lease liabilities | ( | ) | ( | ) | ||||
| Deferred financing costs paid for debt amendments | ( | ) | ( | ) | ||||
| Purchases of treasury stock under the stock repurchase program | ( | ) | ||||||
| Extinguishment of debt | ( | ) | ||||||
| Extinguishment of debt costs paid | ( | ) | ||||||
| Issuance of debt, net of issuance and deferred financing costs | ||||||||
| Net cash (used in)/provided by financing activities | ( | ) | ||||||
| Net (decrease)/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 | Treasury Stock | Accumulated Other Comprehensive (Loss)/Income (3) | Total | |||||||||||||||||||
| 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 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 restricted stock awards | ||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Compensation related to Class A restricted stock awards | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ( | ) | ||||||||||||||||||||
| Compensation related to Class A restricted stock awards | ||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ||||||||||||||||||||||
| Compensation related to Class A restricted stock awards | ||||||||||||||||||||||||
| Purchases under the stock repurchase program | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Forfeitures, cancellations, issuance and vesting of restricted stock awards, net | ( | ) | ( | ) | ||||||||||||||||||||
| Compensation related to Class A restricted stock awards | ||||||||||||||||||||||||
| Purchases under the stock repurchase program | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||
| (1) | ||
| (2) | ||
| (3) |
See notes to condensed consolidated financial statements
| 7 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Note 1 — Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Overseas Shipholding Group, Inc., a Delaware corporation (the “Parent Company”), and its wholly owned subsidiaries (collectively, the “Company” or “OSG”, “we”, “us” or “our”). The Company owns and operates a fleet of oceangoing vessels engaged primarily in the transportation of crude oil and refined petroleum products in the U.S. Flag trade.
These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.
The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”).
The Russian invasion of Ukraine has disrupted markets and, in particular, resulted in volatile oil prices and shifting petroleum product flows due to governmental sanctions as well as self-imposed sanctions by oil companies and traders. Our disclosures throughout describe its effects on our business.
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 Issued 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 GAAP), excluding smaller reporting companies (“SRCs”) (as defined by the Securities and Exchange Commission (“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 does not expect the adoption of this accounting standard to have a material impact on the Company’s consolidated financial statements.
Note 3 - Revenue Recognition
Disaggregated Revenue
The Company has disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Consequently, the disaggregation below is based on contract type. Since the terms within these contract types are generally standard in nature, the Company does not believe that further disaggregation would result in increased insight into the economic factors impacting revenue and cash flows.
The following table shows the Company’s shipping revenues disaggregated by nature of the charter arrangement for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Time and bareboat charter revenues | $ | $ | $ | $ | ||||||||||||
| Voyage charter revenues (1) | ||||||||||||||||
| Contracts of affreightment (“COA”) revenues | ||||||||||||||||
| Total shipping revenues | $ | $ | $ | $ | ||||||||||||
| (1) |
| 8 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Voyage Receivables
As
of September 30, 2022 and December 31, 2021, contract balances from contracts with customers consisted of voyage receivables of $
Transaction Price Allocated to the Remaining Performance Obligations
As
of September 30, 2022, 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, 2022, there were shares of Class A common stock issuable under outstanding restricted stock units and shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities. 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.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net income/(loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Class A common stock - basic | ||||||||||||||||
| Class A common stock - diluted | ||||||||||||||||
For the three and nine months ended September 30, 2022, there were dilutive equity awards outstanding covering and shares, respectively. Awards of and shares (related to restricted stock units and stock options) were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive for the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2021, awards under which shares and shares, respectively, may be issued related to restricted stock units and stock options were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive due to a net loss during the periods.
Note 5 — Investment in Security to be Held to Maturity
In
July 2022, the Company purchased a $
The amortized cost, gross unrealized loss, and fair value of the U.S. Treasury Note at September 30, 2022 is as follows:
| September 30, 2022 | Amortized Cost | Gross Unrealized Loss | Fair Value | |||||||||
| U.S. Treasury Note | $ | $ | ( | ) | $ | |||||||
| $ | $ | ( | ) | $ | ||||||||
| 9 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Other-Than-Temporarily Impaired (“OTTI”)
The Company performed a quarterly review of the U.S. Treasury Note in order to determine whether the decline in fair value below the amortized cost basis was considered other-than-temporary in accordance with applicable guidance. At September 30, 2022, the Company determined that the unrealized loss on the U.S. Treasury Note was primarily due to increases in interest rates. Therefore, there was no OTTI loss recognized during the three months ended September 30, 2022.
Note 6 — Fair Value Measurements and Fair Value Disclosures
The following methods and assumptions are used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents and restricted cash— The carrying amounts reported in the condensed consolidated balance sheet for interest-bearing deposits approximate fair value. Investments in trading securities consist of equity securities and were measured using quoted market prices at the reporting date.
U.S. Treasury Note — The fair value of the U.S. Treasury Note is based on a quoted market price in an active market.
Debt— The fair values of the Company’s publicly traded and non-public debt are estimated based on similar instruments.
ASC 820, Fair Value Measurements and Disclosures, relating to fair value measurements, defines fair value and establishes a framework for measuring fair value. The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions 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, 2022: | ||||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents (1) | $ | $ | $ | |||||||||
| U.S. Treasury Note | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Term loan, due 2024, net | $ | $ | $ | |||||||||
| Alaska tankers term loan, due 2025, net | ||||||||||||
| OSG 204 LLC term loan, due 2025, net | ||||||||||||
| OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | ||||||||||||
| Term loan, due 2028, net | ||||||||||||
| Unsecured senior notes, net | ||||||||||||
| Total | $ | $ | $ | |||||||||
| 10 |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
| Carrying | Fair Value | |||||||||||
| Value | Level 1 | Level 2 | ||||||||||
| December 31, 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 | $ | $ | $ | |||||||||
| (1) |
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel and Intangible Assets Impairments
During the third quarter of 2022, the Company considered whether events or changes in circumstances had occurred since December 31, 2021 that could indicate the carrying amounts of the vessels, including operating right-of-use assets, in the Company’s fleet, and whether the carrying value of the Company’s intangible assets, may not be recoverable as of September 30, 2022. The Company concluded that no such events or changes in circumstances had occurred.
Note 7 — Taxes
For
the three months ended September 30, 2022 and 2021, the Company recorded an income tax (provision)/benefit of $(
Share Repurchases
On
June 13, 2022, the Company’s Board of Directors authorized a program to purchase up to shares of the Company’s
common stock. Under the program, the Company repurchased shares from time to time in open market transactions (including the use of trading
plans under SEC Rule 10b5-1) or in privately negotiated transactions. For the three and nine months ended September 30, 2022, the Company
repurchased and shares, respectively, at average prices of $ and $ per share, respectively. In October
2022, the Company repurchased shares at an average price of $
During the three and nine months ended September 30, 2022, in connection with the vesting of restricted stock units (“RSUs”), the Company withheld and , respectively, shares of Class A common stock at average prices of $ and $ per share (based on the market prices on the dates of vesting), respectively, from certain members of management to cover withholding taxes. During the nine months ended September 30, 2021, in connection with the vesting of 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 nine months ended September 30, 2022, the Company issued shares of Class A common stock as a result of the exercise of
| 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 June 1, 2022 and May 27, 2021, the Company awarded and time-based RSUs, respectively, to its non-employee directors. The grant date fair values of these awards were $ and $ per RSU, respectively. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. These RSUs vest in full on the first anniversary of the grant date, subject to each director continuing to provide services to the Company through such date.
Management Compensation — Restricted Stock Units
During the nine months ended September 30, 2022 and 2021, the Company granted RSUs to its employees, including senior officers, covering and shares, respectively. The grant date fair values of these awards were $ and $ per RSU, respectively. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award vests in approximately equal installments on each of the first three anniversaries of the grant date.
During the nine months ended September 30, 2022 and 2021, the Company awarded performance-based RSUs to its senior officers of and shares, respectively, (which amounts may be increased up to a maximum of and shares, respectively, based upon performance). Each performance-based RSU represents a contingent right to receive RSUs based upon continuous employment, subject to the achievement of performance metrics through the end of a three-year performance period. The grant date fair values of the awards, which have a market condition, were determined to be $ and $ per RSU, respectively.
During the nine months ended September 30, 2022, the Company awarded RSUs to its senior officers covering shares. The grant date fair value of these awards was $. Each award of RSUs vest as follows: . Each RSU represents a contingent right to receive one share of Class A common stock upon vesting.
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 to be achieved over an 18-month performance period.
Note 9 — Accumulated Other Comprehensive Income/(Loss)
The components of accumulated other comprehensive income, net of related taxes, in the condensed consolidated balance sheets follow:
| As of | September 30, 2022 | December 31, 2021 | ||||||
| Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans) | $ | $ | ||||||
| Accumulated other comprehensive income | $ | $ | ||||||
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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
The following tables present the changes in the balances of each component of accumulated other comprehensive income/(loss), net of related taxes, during the three and nine months ended September 30, 2022 and 2021:
Items not yet recognized as a periodic benefit cost | ||||
| Balance as of June 30, 2022 | $ | |||
| Current period change, excluding amounts reclassified from accumulated other comprehensive income | ||||
| Amounts reclassified from accumulated other comprehensive income | ( | ) | ||
| Total change in accumulated other comprehensive income | ( | ) | ||
| Balance as of September 30, 2022 | $ | |||
| Balance as of June 30, 2021 | $ | ( | ) | |
| Current period change, excluding amounts reclassified from accumulated other comprehensive loss | ||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | ||
| Total change in accumulated other comprehensive loss | ( | ) | ||
| Balance as of September 30, 2021 | $ | ( | ) | |
Items not yet recognized as a periodic benefit cost | ||||
| Balance as of December 31, 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, 2022 | $ | |||
| Balance as of December 31, 2020 | $ | ( | ) | |
| Current period change, excluding amounts reclassified from accumulated other comprehensive loss | ||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | ||
| Total change in accumulated other comprehensive loss | ( | ) | ||
| Balance as of September 30, 2021 | $ | ( | ) | |
The Company includes the service cost component for net periodic benefit cost/(income) in vessel expenses and general and administrative expenses and other components in other (expense)/income, net on the condensed consolidated statements of operations.
Note 10 — Leases
In
September 2022, the Company extended its lease on the Company’s Tampa, Florida office space for an additional
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,
2022 was equal to income from lease payments of $
Note 11 — Contingencies
The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries (including exposure to asbestos and other toxic materials), wrongful death, collision or other casualty and to claims arising under charter parties. A substantial majority of such personal injury, wrongful death, collision or other casualty claims against the Company are covered by insurance (subject to deductibles not material in amount). In the opinion of management, none of these claims, individually or in the aggregate, are expected to be material to the Company’s financial position, results of operations and cash flows.
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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 Form 10-K and in our quarterly reports also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. The following highlights some of these risk factors:
| ● | the inability to attract or retain qualified mariners, as a result of labor shortages, competition to hire mariners, and other influences on the labor pool and associated costs; | |
| ● | volatility in supply and demand in the crude oil market worldwide or in the specialized markets in which the Company currently trades, which could also affect the nature and severity of certain factors listed below; | |
| ● | uncertain economic, political and governmental conditions in the United States or abroad, and conditions in the oil and natural gas industry, such as the Russia/Ukraine conflict, reactions to the COVID-19 pandemic, geopolitical developments, or otherwise; | |
| ● | 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; | |
| ● | increasing operating costs, unexpected drydock costs, and/or increasing capital expenses as a result of supply chain limitations, lack of availability of materials and of qualified contractors and technical experts, the consolidation of suppliers, inflation, the age of the Company’s vessels, including increases due to limited shipbuilder warranties, or the refusal of certain customers to use vessels of a certain age; | |
| ● | work stoppages or other labor disruptions by the unionized employees of the Company or other companies in related industries, or the impact of any potential liabilities resulting from withdrawal from participation in multiemployer plans; | |
| ● | the inability to clear oil majors’ risk assessment processes; | |
| ● | challenges associated with compliance with complex environmental laws and regulations, including those relating to the emission of greenhouse gases and ballast water treatment, and corresponding expected increases in expenses, which expenses cannot be predicted at this time but are expected to be substantial; | |
| ● | the effect of the Company’s indebtedness on its ability to finance operations, pursue desirable business operations and successfully run its business in the future or to generate sufficient cash to service its indebtedness and to comply with debt covenants, allowing it to maintain capital availability; | |
| ● | the highly cyclical nature of OSG’s industry; | |
| ● | significant fluctuations in the market value of our vessels; | |
| ● | the Company’s ability to renew its time charters when they expire or to enter into new time charters, to replace its operating leases on favorable terms, or to compete effectively for charters; | |
| ● | the loss of or reduction in business with any one of our large customers, changes in credit risk with respect to the Company’s counterparties on contracts, or the failure of counterparties to meet their obligations; | |
| ● | the Company’s compliance with 46 U.S.C. sections 50501 and 55101 (commonly known as the “Jones Act”) and heightened exposure to Jones Act market fluctuations, as well as stockholder citizenship requirements imposed on us by the Jones Act which result in restrictions on foreign ownership of the Company’s common stock; | |
| ● | limitations on U.S. coastwise trade, the waiver, modification or repeal of the Jones Act limitations, or changes in international trade agreements; and | |
| ● | the Company’s ability to use its net operating loss carryforwards. |
The Company assumes no obligation to update or revise any forward-looking statements, except as may be required by law. Forward-looking statements in this Quarterly Report on Form 10-Q and written and oral forward-looking statements attributable to the Company or its representatives after the date of this Quarterly Report on Form 10-Q are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports filed by the Company with the SEC.
Business Overview
OSG is a publicly traded tanker company providing energy transportation services for crude oil and petroleum products in the U.S. Flag markets. OSG is a major operator of tankers and ATBs in the Jones Act industry. 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 that trades internationally. As previously announced, in December 2022, the Company will redeliver three conventional tankers leased from American Shipping Company. OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world’s most customer-focused marine transportation companies and is headquartered in Tampa, FL. Our revenues are derived predominantly from time charter agreements for specific periods of time at fixed daily amounts. We also charter-out vessels for specific voyages where we typically earn freight revenue at spot market rates.
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The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2022 and 2021. 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, layup, deletions, or conversions. Our revenues are also affected by the mix of charters between spot (voyage charters which include short-term time charters) and long-term (time or bareboat charters).
The Russian Ukrainian conflict has resulted in economic sanctions against Russia which include the banning or limitation of oil imports from Russia by certain countries and self-sanctioning by many oil companies and traders. In December 2022, the EU is scheduled to ban waterborne crude oil imports from Russia. The G7 nations are working on a price capping scheme limiting the global price paid for Russian oil. Some countries have taken advantage of the current availability of Russian crude oil sold at a discount to world prices. The circumstances have resulted in the redirection of oil (crude and refined product) trade flows which are apt to continue, reflecting the need of countries that were large consumers of Russian oil to obtain other supply sources. Although the United States was not a major importer of Russian oil, it is impacted by these global events. Crude and refined products that were previously imported into the United States from non-Russian sources may not be available in prior quantities. A potential impact is more movement from domestic producing locations via pipeline and marine assets, which would have an impact on vessel demand. An increase in demand could result in higher utilization levels and potentially higher rates for Jones Act vessels.
During the COVID-19 pandemic we placed seven vessels in layup in order to allow us to reduce the operating costs associated with vessels that were without charter. As demand returned, in the fall of 2021 we began to bring vessels out of layup and operate them in the spot market. In January 2022 and late February 2022, two more vessels came out of layup. We continued to see an increase in demand during the first half of 2022 and as a result, our last two vessels in layup returned to service in May 2022. During 2022, we started to see a resumption of more typical customer behavior, with charterers entering into longer term time charter agreements.
During the pandemic and continuing today, we implemented procedures to protect the health and safety of our employees, crew and contractors, as 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. COVID-19 has continued to impact 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. We seek to have a majority of available vessel operating days covered with time charters or contracts of affreightment, but if such charters are not remunerative, or prove achievable under certain market conditions, some of our vessels may operate in the spot market, which is more volatile and less predictable. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, we manage our vessels based on TCE revenues and rates, which are non-GAAP measures.
The increase in demand for Jones Act tankers and ATBs that started in the fourth quarter of 2021 and continued into the third quarter of 2022 has caused charterers to secure time charter contracts rather than relying on the spot market. This resulted in fewer vessels available in the spot market, and spot activity decreased from 15 spot fixtures in the second quarter of 2022 to seven in the third quarter of 2022. For the seven spot fixtures, one was performed by a tanker and the remaining were performed by ATBs.
Our vessels were employed for 98% of available days during the third quarter of 2022, with 33 of a total 1,852 available days (excluding 76 days vessels that were off-hire due to drydock requirements) seeing vessels idle without employment. Industry-wide, there were no firm Jones Act vessel orders as of September 30, 2022.
Delaware Bay lightering volumes averaged 65,000 b/d in the third quarter of 2022 compared with 60,000 b/d in the third quarter of 2021. We have contract minimums with our refinery customers that compensate us for barrels not lightered below minimum amounts.
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Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with GAAP, which requires the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. There have been no changes to the Company’s critical accounting estimates disclosed in Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2021.
Results of Vessel Operations
During the three and nine months ended September 30, 2022, shipping revenues increased by $29,092 and $81,443, or 31.0% and 30.9%, respectively, compared to the same periods in 2021. The increases primarily resulted from 599-day and 1,522-day decreases, respectively, in layup days, as we had fewer vessels in layup compared to the same periods in 2021. During the first quarter of 2022, we had two vessels in layup for the full quarter and two additional vessels that came out of layup in January 2022 and late February 2022. Our remaining two vessels in layup returned to service in May 2022. We had seven vessels in layup for most of 2021 with two of seven vessels coming out of layup in September 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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Time charter equivalent revenues | $ | 115,062 | $ | 75,365 | $ | 312,229 | $ | 212,569 | ||||||||
| Add: Voyage expenses | 7,997 | 18,602 | 32,813 | 51,030 | ||||||||||||
| Shipping revenues | $ | 123,059 | $ | 93,967 | $ | 345,042 | $ | 263,599 | ||||||||
The following tables provide a breakdown of TCE rates achieved for the three and nine months ended September 30, 2022 and 2021 between spot and fixed earnings and the related revenue days.
| 2022 | 2021 | |||||||||||||||
| Three Months Ended September 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 38,296 | $ | 60,923 | $ | 37,527 | $ | 66,704 | ||||||||
| Revenue days | 55 | 1,086 | 219 | 449 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 47,779 | $ | 38,911 | $ | 43,265 | $ | 9,083 | ||||||||
| Revenue days | 184 | 92 | 184 | 92 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | 41,117 | $ | 35,590 | $ | — | $ | 36,146 | ||||||||
| Revenue days | 85 | 99 | — | 182 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 71,086 | $ | 46,906 | $ | 60,063 | $ | — | ||||||||
| Revenue days | 135 | 49 | 92 | — | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 60,438 | $ | — | $ | 57,936 | ||||||||
| Revenue days | — | 250 | — | 276 | ||||||||||||
| 2022 | 2021 | |||||||||||||||
| Nine Months Ended September 30, | Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | ||||||||||||
| Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 53,710 | $ | 60,067 | $ | 32,380 | $ | 65,882 | ||||||||
| Revenue days | 585 | 2,574 | 548 | 1,380 | ||||||||||||
| Non-Jones Act Handysize Product Carriers: | ||||||||||||||||
| Average rate | $ | 44,720 | $ | 29,632 | $ | 30,684 | $ | 9,478 | ||||||||
| Revenue days | 546 | 273 | 551 | 428 | ||||||||||||
| ATBs: | ||||||||||||||||
| Average rate | $ | 41,048 | $ | 35,059 | $ | — | $ | 33,529 | ||||||||
| Revenue days | 85 | 458 | — | 544 | ||||||||||||
| Lightering: | ||||||||||||||||
| Average rate | $ | 65,758 | $ | 46,906 | $ | 74,169 | $ | — | ||||||||
| Revenue days | 363 | 49 | 273 | — | ||||||||||||
| Alaska (a): | ||||||||||||||||
| Average rate | $ | — | $ | 59,799 | $ | — | $ | 58,446 | ||||||||
| Revenue days | — | 785 | — | 742 | ||||||||||||
a) Excludes one Alaska vessel currently in layup.
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During the third quarter of 2022, TCE revenues increased by $39,697, or 52.7%, to $115,062 from $75,365 in the third quarter of 2021. The increase primarily resulted from a 599-day decrease in layup days, as we did not have any vessels in layup during the third quarter of 2022 compared to seven vessels in layup for most of the third quarter of 2021, with two of seven vessels coming out of layup in September 2021. Additionally, the increase in TCE revenues resulted from an increase in average daily rates earned by our fleet and an increase in Delaware Bay lightering volumes. The increase was partially offset by a decrease related to a 54-day increase in scheduled drydocking.
Voyage expenses decreased by $10,605, or 57.0%, in the third quarter of 2022 to $7,997 compared to $18,602 in the third quarter of 2021, primarily related to an absence of expenses for oil pollution mitigation services for the Alaskan tankers in the third quarter of 2022 compared to $10,070 of these expenses during the third quarter of 2021. These expenses were previously passed through to the charterer each month; however, the charterer is now paying the expenses directly to the vendor. Additionally, the decrease in voyage expenses was due to decreases in port and fuel expenses, as our vessels performed fewer voyage charters during the third quarter of 2022 compared to the third quarter of 2021.
Vessel expenses increased by $9,424, or 26.2%, in the third quarter of 2022 to $45,430 compared to $36,006 in the third quarter of 2021, primarily due to an increase in crewing costs. The increase in crewing costs was related to not having any vessels in layup during the third quarter of 2022 compared to seven vessels in layup for most of the third quarter of 2021 with two of seven vessels coming out of layup in September 2021.
Depreciation and amortization increased by $2,376, or 15.3%, to $17,902 in the third quarter of 2022 compared to $15,526 in the third quarter of 2021. The increase primarily resulted from an increase in amortization of drydock costs.
During the nine months ended September 30, 2022, TCE revenues increased $99,660, or 46.9%, to $312,229 from $212,569 for the nine months ended September 20, 2021. The increase primarily resulted from a 1,522-day decrease in layup days as we had fewer vessels in layup during the nine months ended September 30, 2022 compared to the same period in 2021. During the first quarter of 2022, we had two vessels in layup for the full quarter and two additional vessels that came out of layup in January 2022 and late February 2022. Our remaining two vessels in layup returned to service in May 2022. We had seven vessels in layup for most of the nine months ended September 30, 2021 with two of seven vessels coming out of layup in September 2021. Additionally, the increase in TCE revenues resulted from (a) an increase in average daily rates earned by our fleet, (b) seven full Military Sealift Command voyages, which were longer international voyages, during the nine months ended September 30, 2022 compared to four such voyages during the same period in 2021 and (c) four full Government of Israel voyages and one partial Government of Israel voyage that overlapped into the fourth quarter during the nine months ended September 30, 2022 compared to three full and one partial of such voyages during the same period in 2021. The increase was partially offset by (a) one less MR tanker in our fleet, Overseas Gulf Coast, which was sold in mid-June 2021, (b) a 78-day increase in scheduled drydocking, (c) an 18-day increase in repair days and (d) a decrease in Delaware Bay lightering volumes.
Voyage expenses decreased by $18,217, or 35.7%, for the nine months ended September 30, 2022 to $32,813 compared to $51,030 for the nine months ended September 30, 2021, primarily related to an absence of expenses for oil pollution mitigation services for the Alaskan tankers during the nine months ended September 30, 2022 compared to $29,986 of these expenses during the nine months ended September 30, 2021. These expenses were previously passed through to the charterer each month; however, the charterer is now paying the expenses directly to the vendor. The decrease was partially offset by increases in fuel and port expenses related to higher fuel prices and more voyage charters performed by our vessels during the nine months ended September 30, 2022 compared to the same period in 2021 and an increase in freight brokerage fees due to removing vessels from layup during the nine months ended September 30, 2022.
Vessel expenses increased by $28,565, or 28.1%, for the nine months ended September 30, 2022 to $130,380 compared to $101,815 for the nine months ended September 30, 2021, primarily due to an increase in crewing costs. The increase in crewing costs was related to fewer vessels in layup during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
Depreciation and amortization increased by $5,145, or 11.2%, to $51,058 for the nine months ended September 30, 2022 compared to $45,913 for the nine months ended September 30, 2021. The increase primarily resulted from an increase in amortization of drydock costs.
Our two U.S. Flag Product Carriers participate in the Maritime Security Program, 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 2022, we expect to receive up to $5,300 for each vessel. During 2021, the stipend we received was $5,250 for each vessel. We do not receive a stipend for any days on which either of the two vessels operates under a time charter to a U.S. government agency.
General and Administrative Expenses
General and administrative expenses were $6,556 for the three months ended September 30, 2022 compared with $5,707 for the three months ended September 30, 2021. The increase was primarily driven by higher compensation and benefits costs related to an increase in headcount. General and administrative expenses also increased primarily due to an increase in consulting fees.
For the nine months ended September 30, 2022, general and administrative expenses were $20,929, compared with $18,076 for the nine months ended September 30, 2021. The increase was primarily driven by higher compensation and benefits costs related to the recognition of stock compensation costs for performance-based RSUs due to the fact that at the end of the second quarter of 2022 it became probable that some of the operational and financial goals specified in the RSUs were met.
Loss on Disposal of Vessels and Other Property, Including Impairments, Net
Loss on disposal of vessels and other property, including impairments, net was $0 for the three months ended September 30, 2022 compared to $960 for the three months ended September 30, 2021. The decrease was primarily related to an impairment charge of $1,000 recorded during the third quarter of 2021 on two of the Company’s leased vessels.
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For the nine months ended September 30, 2022, loss on disposal of vessels and other property, including impairments, net was $0 compared to $6,257 for the nine months ended September 30, 2021. The decrease 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 during the third quarter of 2021 on two of the Company’s leased vessels.
Interest Expense
Interest expense was $8,229 and $24,869 for the three and nine months ended September 30, 2022, respectively, compared with $7,052 and $20,739 for the three and nine months ended September 30, 2021, respectively. The increases in interest expense were primarily due to a higher rate of interest on our term loan, due 2028, which we entered into in September 2021 (the “New Term Loan”), during the three and nine months ended September 30, 2022 compared to the rate of interest we were paying on our prior term loan, due 2023, during the same period in 2021. The prior term loan, due 2023 was paid off with proceeds from the New Term Loan. The increases were partially offset by decreases in interest expense related to the replacement and payoff of our term loan, due 2026, with proceeds from the New Term Loan in September 2021 and a prepayment of $16,000 we made on the Alaska tankers term loan, due 2025, in September 2021.
Income Taxes
For the three months ended September 30, 2022 and 2021, we recorded an income tax (provision)/benefit of $(1,522) and $4,515, respectively, which represented effective tax rates of 10% and 22%, respectively. For the nine months ended September 30, 2022 and 2021, we recorded an income tax (provision)/benefit of $(2,074) and $13,195, respectively, which represented effective tax rates of 11% and 24%, respectively. The decrease in the effective tax rate for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 was substantially due to the tonnage tax exclusion. The effective tax rate for the nine months ended September 30, 2022 was less than the statutory rate due to the tonnage tax exclusion. 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.
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, 2022 was approximately $(42,000) compared with approximately $(67,000) at December 31, 2021. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $43,000 at September 30, 2022 compared to $37,000 at December 31, 2021. The increase in working capital was primarily due to an increase in receivables related to the timing of collections from our customers and a decrease in accounts payable, accrued expenses and other current liabilities as a result of timing of accounts payable payments made through September 30, 2022 compared to December 31, 2021. The increase in working capital was partially offset by a decrease in cash and cash equivalents related to our purchase of a U.S. Treasury Note for $14,794 as discussed below.
As of September 30, 2022, we had total liquidity on a consolidated basis comprised of $73,682 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.
In July 2022, we purchased a $15,000 U.S. Treasury Note for $14,794 with a maturity date of August 15, 2024. The U.S. Treasury Note is classified as investment in security to be held to maturity and is carried at amortized cost on the condensed consolidated balance sheets as we have the intent and ability to hold until maturity.
As of September 30, 2022, we had total debt outstanding (net of deferred financing costs) of $428,787 and a total debt to total capitalization of 55.3%, compared to $444,740 and 56.7%, respectively, at December 31, 2021.
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 nine months ended September 30, 2022 was $41,179. 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 repay our outstanding loan facilities. We also use capital to comply with environmental laws and regulations, and we expect that the costs of such compliance will continue to increase; while it is not possible to determine the amounts of such costs for any future period, we believe that they are likely to be substantial. We may also use cash generated by operations to finance capital expenditures to modernize and grow our fleet.
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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, 2022 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, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are party to lawsuits and claims arising out of the normal course of business. In management’s opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on our consolidated results of operations, financial position, or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2021 Form 10-K, and as may be updated in our subsequent quarterly reports. The risks described in our 2021 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 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 13, 2022, the Company’s Board of Directors authorized a program to purchase up to five million shares of the Company’s common stock. Under the program, the Company repurchased shares from time to time in open market transactions (including the use of trading plans under SEC Rule 10b5-1) or in privately negotiated transactions.
During the three months ended September 30, 2022, purchases of our common stock under the share repurchase program were as follows:
| Period | Total Number Shares of Class A Purchased | Average Price Paid per Share of Class A | ||||||
| July 1, 2022 through July 31, 2022 | 443,224 | $ | 2.18 | |||||
| August 1, 2022 through August 31, 2022 | 1,088,702 | $ | 2.82 | |||||
| September 1, 2022 through September 30, 2022 | 2,101,220 | $ | 3.13 | |||||
| 3,633,146 | $ | 2.92 | ||||||
During the three months ended September 30,2022, in connection with the vesting of restricted stock awards, the Company withheld the following number of shares of Class A common stock from certain members of management to cover withholding taxes.
| Period | Total Number Shares of Class A Withheld | Average Price Paid per Share of Class A | ||||||
| July 1, 2022 through July 31, 2022 | 60,646 | $ | 2.05 | |||||
| August 1, 2022 through August 31, 2022 | - | $ | - | |||||
| September 1, 2022 through September 30, 2022 | - | $ | - | |||||
| 60,646 | $ | 2.05 | ||||||
Item 3. Defaults upon senior securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other information
None.
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Item 6. Exhibits
| 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 3, 2022 | /s/ Samuel H. Norton |
| Samuel H. Norton | |
| Chief Executive Officer | |
| Date: November 3, 2022 | /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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