NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Note
1 — Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements include the accounts of Overseas Shipholding Group, Inc., a Delaware
corporation (the “Parent Company”), and its wholly owned subsidiaries (collectively, the “Company” or “OSG”,
“we”, “us” or “our”). The Company owns and operates a fleet of oceangoing vessels engaged primarily
in the transportation of crude oil and refined petroleum products in the U.S. Flag trade.
These
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required
by generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results
for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December
31, 2023 or for any other period.
The
condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited financial statements at that date but
does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer
to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2022 (the “Form 10-K”).
Note
2 — Recently Issued Accounting Standards
In
November 2019, the Financial Accounting Standards Board issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic
815) and Leases (Topic 842): Effective Dates, which allows a two-bucket approach for determining the effective dates of these accounting
standards. Under this approach, the buckets would be defined as follows:
Bucket
1— All public business entities (“PBEs”) that are SEC filers (as defined in GAAP), excluding smaller reporting companies
(“SRCs”) (as defined by the Securities and Exchange Commission (“SEC”). This standard became effective
January 1, 2020.
Bucket
2— All other entities, including SRCs, other PBEs that are not SEC filers, private companies, not-for-profit organizations, and
employee benefit plans. This standard became effective January 1, 2023.
At
June 30, 2019, the evaluation date for purposes of determining the applicability of the Bucket 2 credit losses standard, the Company
met the SEC definition of a smaller reporting company. The Company adopted that standard on January 1, 2023. The
adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
Note
3 - Revenue Recognition
Disaggregated
Revenue
The
Company has disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty
of revenue and cash flows are affected by economic factors. Consequently, the disaggregation below is based on contract type. Since the
terms within these contract types are generally standard in nature, the Company does not believe that further disaggregation would result
in increased insight into the economic factors impacting revenue and cash flows.
The
following table shows the Company’s shipping revenues disaggregated by nature of the charter arrangement for the three months ended
March 31, 2023 and 2022:
Schedule of Disaggregation of Revenue
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Time and bareboat charter revenues | |
$ | 84,140 | | |
$ | 57,236 | |
Voyage charter revenues (1) | |
| 13,789 | | |
| 35,895 | |
Contracts of affreightment (“COA”) revenues | |
| 15,862 | | |
| 10,868 | |
Total shipping revenues | |
$ | 113,791 | | |
$ | 103,999 | |
(1) |
For
the three months ended March 31, 2023 and 2022, voyage charter revenues include revenue related to short-term time charter contracts
of $119 and $16,599, respectively. |
Voyage
Receivables
As
of March 31, 2023 and December 31, 2022, contract balances from contracts with customers consisted of voyage receivables of $8,586 and
$9,258, respectively, net of reserves for credit losses for voyage charters and lightering contracts, which were not material.
OVERSEAS SHIPHOLDING
GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Transaction
Price Allocated to the Remaining Performance Obligations
As
of March 31, 2023, the Company expects to recognize revenue of approximately $18,279 for the remainder of 2023 under COAs. These estimated
amounts relate to the fixed consideration of contractual minimums within the contracts based on the Company’s estimate of future
services.
Note
4 —
Basic
earnings per common share is computed by dividing earnings by the weighted average number of common shares outstanding during the period.
As management deems the exercise price for the Class A warrants of $0.01 per share to be nominal, warrant proceeds are ignored, and the
shares issuable upon Class A warrant exercises are included in the calculation of basic weighted average common shares outstanding for
all periods.
The
computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted
stock units. Participating securities are defined by ASC 260, Earnings Per Share, as unvested share-based payment awards that
contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant
to the two-class method.
Class
A
As
of March 31, 2023, there were 3,307,804 shares of Class A common stock issuable under outstanding restricted stock units and 1,478,756
shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities.
As of March 31, 2022, there were 4,238,993 shares of Class A common stock issuable under outstanding restricted stock units and 1,478,756
shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities.
The
components of the calculation of basic earnings per share and diluted earnings per share are as follows:
Schedule of Earnings Per Share
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Net income/(loss) | |
$ | 12,139 | | |
$ | (509 | ) |
| |
| | | |
| | |
Weighted average common shares outstanding: | |
| | | |
| | |
Class A common stock - basic | |
| 82,006,666 | | |
| 90,856,688 | |
Class A common stock - diluted | |
| 85,340,906 | | |
| 90,856,688 | |
For
the three months ended March 31, 2023, there were dilutive equity awards outstanding covering 3,334,240 shares. Awards of 297,818 shares
(related to stock options) were not included in the computation of diluted earnings per share because inclusion of these awards would
be anti-dilutive for the three months ended March 31, 2023. For the three months ended March 31,
2022, awards under which 2,331,430 shares may be issued related to restricted stock units and stock options were not included in the
computation of diluted earnings per share because inclusion of these awards would be anti-dilutive due to a net loss during the period.
Note
5 — Investment in Security to be Held to Maturity
In
July 2022, the Company purchased a $15,000 U.S. Treasury Note for $14,794, with a maturity date of August 15, 2024. The U.S. Treasury
Note is classified as investment in security to be held to maturity and is carried at amortized cost on the condensed consolidated balance
sheets, as the Company has the intent and ability to hold until maturity. The amortized cost, gross unrealized loss, and fair value of
the U.S. Treasury Note at March 31, 2023 and December 31, 2022 was as follows:
Schedule
of Fair Value Of The U.S. Treasury Note
March 31, 2023 | |
Amortized
Cost | | |
Gross Unrealized
Loss | | |
Fair Value | |
U.S. Treasury Note | |
$ | 14,851 | | |
$ | (252 | ) | |
$ | 14,599 | |
| |
$ | 14,851 | | |
$ | (252 | ) | |
$ | 14,599 | |
December 31, 2022 | |
Amortized
Cost | | |
Gross Unrealized
Loss | | |
Fair Value | |
U.S. Treasury Note | |
$ | 14,803 | | |
$ | (328 | ) | |
$ | 14,475 | |
| |
$ | 14,803 | | |
$ | (328 | ) | |
$ | 14,475 | |
Other-Than-Temporarily
Impaired (“OTTI”)
The
Company performed a quarterly review of the U.S. Treasury Note in order to determine whether the decline in fair value below the amortized
cost basis was considered other-than-temporary in accordance with applicable guidance. At March 31, 2023, the Company determined that
the unrealized loss on the U.S. Treasury Note was primarily due to increases in interest rates. Therefore, there was no OTTI loss recognized
during the three months ended March 31, 2023.
OVERSEAS
SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS
Note
6 — Fair Value Measurements and Fair Value Disclosures
The
following methods and assumptions are used to estimate the fair value of each class of financial instrument:
Cash
and cash equivalents and restricted cash— The carrying amounts reported in the condensed consolidated balance sheet for interest-bearing
deposits approximate fair value. Investments in trading securities consist of equity securities and were measured using quoted market
prices at the reporting date.
U.S.
Treasury Note — The fair value of the U.S. Treasury Note is based on a quoted market price in an active market.
Debt— The
fair values of the publicly traded and non-public debt held by the Company are estimated based on similar instruments.
ASC
820, Fair Value Measurements and Disclosures, relating to fair value measurements, defines fair value and establishes a framework
for measuring fair value. The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market
data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant
assumptions, based on the available information deemed best in the circumstances. ASC 820 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, which for the liabilities
described below includes the Company’s own credit risk.
The
levels of the fair value hierarchy established by ASC 820 are as follows:
Level
1 - Quoted prices in active markets for identical assets or liabilities
Level
2 - Quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities
Financial
Instruments that are not Measured at Fair Value on a Recurring Basis
The
estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis, categorized
based upon the fair value hierarchy, are as follows:
Schedule of Hierarchy Categorized on Fair Value
| |
Carrying | | |
Fair Value | |
| |
Value | | |
Level 1 | | |
Level 2 | |
March 31, 2023: | |
| | |
| | |
| |
Assets | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 104,091 | | |
$ | 104,091 | | |
$ | — | |
U.S. Treasury Note | |
| 14,851 | | |
| 14,599 | | |
| — | |
Total | |
$ | 118,942 | | |
$ | 118,690 | | |
$ | — | |
Liabilities | |
| | | |
| | | |
| | |
Term loan, due 2024, net | |
$ | 19,973 | | |
$ | — | | |
$ | 19,209 | |
Alaska tankers term loan, due 2025, net | |
| 24,010 | | |
| — | | |
| 22,403 | |
OSG 204 LLC term loan, due 2025, net | |
| 24,686 | | |
| — | | |
| 23,494 | |
OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | |
| 43,810 | | |
| — | | |
| 40,703 | |
Term loan, due 2028, net | |
| 304,948 | | |
| — | | |
| 298,514 | |
Unsecured senior notes, net | |
| 390 | | |
| — | | |
| 387 | |
Total | |
$ | 417,817 | | |
$ | — | | |
$ | 404,710 | |
OVERSEAS
SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS
| |
Carrying | | |
Fair Value | |
| |
Value | | |
Level 1 | | |
Level 2 | |
December 31, 2022: | |
| | |
| | |
| |
Assets | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 78,732 | | |
$ | 78,732 | | |
$ | — | |
U.S. Treasury Note | |
| 14,803 | | |
| 14,475 | | |
| — | |
Total | |
$ | 93,535 | | |
$ | 93,207 | | |
$ | — | |
Liabilities | |
| | | |
| | | |
| | |
Term loan, due 2024, net | |
$ | 20,330 | | |
$ | — | | |
$ | 19,296 | |
Alaska tankers term loan, due 2025, net | |
| 25,289 | | |
| — | | |
| 23,195 | |
OSG 204 LLC term loan, due 2025, net | |
| 25,006 | | |
| — | | |
| 23,448 | |
OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net | |
| 44,342 | | |
| — | | |
| 40,331 | |
Term loan, due 2028, net | |
| 308,006 | | |
| — | | |
| 295,320 | |
Unsecured senior notes, net | |
| 390 | | |
| — | | |
| 385 | |
Total | |
$ | 423,363 | | |
$ | — | | |
$ | 401,975 | |
Nonfinancial
Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel
and Intangible Assets Impairments
During
the first quarter of 2023, the Company considered whether events or changes in circumstances had occurred since December 31, 2022
that could indicate whether the carrying amounts of the vessels, including operating right-of-use assets, in the Company’s
fleet, and whether the carrying value of the Company’s intangible assets, may not be recoverable as of March 31, 2023. The
Company concluded that no such events or changes in circumstances had occurred.
Note
7 — Taxes
For
the three months ended March 31, 2023 and 2022, the Company recorded income tax (expense)/benefit of $(3,321) and $59, respectively,
which represented effective tax rates of 21.5% and 10.4%, respectively. The increase in the effective tax rate for the three months ended
March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to the tonnage tax exclusion and current state tax
expense. The effective tax rate for the three months ended March 31, 2023 was more than the statutory rate due to state expense. The
effective tax rate for the three months ended March 31, 2022 was less than the statutory rate due to the tonnage tax exclusion and state
tax expense.
Note
8 — Capital Stock and Stock Compensation
Share
Repurchases
On
March 17, 2023, the Company’s Board of Directors authorized a program to purchase up to $10,000 of the Company’s
common stock. Under the program, the Company may repurchase shares from time to time in open market transactions or in privately negotiated
transactions. For the three months ended March 31, 2023, the Company repurchased 497,906 shares for $1,862 at an average price of $3.74
per share.
During
the three months ended March 31, 2023 and 2022, in connection with the vesting of restricted stock units (“RSUs”), the Company
withheld 333,085 and 179,040, respectively, shares of Class A common stock at average prices of $3.51 and $2.07 per share (based on the
market prices on the dates of vesting), respectively, from certain members of management to cover withholding taxes.
Warrant
Conversions
During
the three months ended March 31, 2023 and 2022, the Company issued 128,706 and 11,179, respectively, shares of Class A common stock as
a result of the exercise of 679,642 and 59,124, respectively, Class A warrants.
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.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Management
Compensation — Restricted Stock Units
During
the three months ended March 31, 2023 and 2022, the Company granted RSUs to its employees, including senior officers, covering 583,205
and 718,360 shares, respectively. The grant date fair values of these awards were $2.90 and $2.09 per RSU, respectively. Each RSU represents
a contingent right to receive one share of Class A common stock upon vesting. Each award vests in approximately equal installments on
each of the first three anniversaries of the grant date.
During
the three months ended March 31, 2023 and 2022, the Company awarded performance-based RSUs to its senior officers covering 416,832
and 518,600
shares, respectively (which amounts may be increased up to a maximum of 625,248
and 777,900
shares, respectively, based upon performance). Each performance-based RSU represents a contingent right to receive RSUs based upon
continuous employment, subject to the achievement of performance metrics through the end of a three-year performance period. The
grant date fair values of the awards, which performance conditions, were determined to be $2.90
and $2.09
per RSU, respectively.
During
the three months ended March 31, 2022, the Company awarded RSUs to its senior officers covering 576,981 shares. The
grant date fair value of these awards was $2.09. Each award of RSUs vest as follows: 20% vests on the first anniversary of the grant
date, 30% vests on the second anniversary of the grant date, and 50% vests on the third anniversary of the grant date. Each
RSU represents a contingent right to receive one share of Class A common stock upon vesting.
Note
9 — Accumulated Other Comprehensive Income
The
components of accumulated other comprehensive income, net of related taxes, in the condensed consolidated balance sheets follow:
Schedule of Components of Accumulated Other Comprehensive Loss
As of | |
March 31, 2023 | | |
December 31, 2022 | |
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans) | |
$ | 3,218 | | |
$ | 3,410 | |
Accumulated other comprehensive income | |
$ | 3,218 | | |
$ | 3,410 | |
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
The
following table presents the changes in the balances of each component of accumulated other comprehensive income, net of related taxes,
during the three months ended March 31, 2023 and 2022:
Schedule of Changes in Balances of Component of Accumulated Other Comprehensive Loss
| |
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans) | |
| |
| |
Balance as of December 31, 2022 | |
$ | 3,410 | |
Current period change, excluding amounts reclassified from accumulated other comprehensive income | |
| — | |
Amounts reclassified from accumulated other comprehensive income | |
| (192 | ) |
Total change in accumulated other comprehensive income | |
| (192 | ) |
Balance as of March 31, 2023 | |
$ | 3,218 | |
| |
| | |
Balance as of December 31, 2021 | |
$ | 2,943 | |
Current period change, excluding amounts reclassified from accumulated other comprehensive loss | |
| — | |
Amounts reclassified from accumulated other comprehensive loss | |
| (180 | ) |
Total change in accumulated other comprehensive loss | |
| (180 | ) |
Balance as of March 31, 2022 | |
$ | 2,763 | |
The
Company includes the service cost component for net periodic benefit cost/(income) in vessel expenses and general and administrative
expenses and other components in other (expense)/income, net on the condensed consolidated statements of operations.
Note
10 — Leases
In
March 2023, the Company extended its lease on the Alaskan Frontier for an additional lease term of three years, expiring in March
2026. The lease is accounted for as an operating lease. The future minimum commitments under the lease are $275 for the remainder of
2023, $366 in 2024, $365 in 2025, and $71 in 2026. For the three months ended March 2023, the Company had non-cash operating activity
of approximately $1,000 for obtaining an operating right-of-use asset and liability as a result of the lease extension.
Charters-out
The
Company is the lessor under its time charter contracts. Total time charter revenue was equal to income from lease payments of $84,434
less straight-line adjustments of $294 for the three months ended March 31, 2023. For the three months ended March 31, 2022, total time
charter revenue was equal to income from lease payments of $56,909 plus straight-line adjustments of $327.
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.