NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLARS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
NOTE
1 — BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The
consolidated financial statements include the accounts of Overseas Shipholding Group, Inc., a Delaware corporation incorporated
in 1969, and its wholly owned subsidiaries (the “Company” or “OSG”, or “we” or “us”
or “our”). All significant intercompany balances and transactions have been eliminated in consolidation. Investments
in 50% or less owned affiliated companies, in which the Company exercises significant influence, are accounted for by the equity
method. Dollar amounts, except per share amounts, are in thousands.
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 through two wholly owned subsidiaries.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
1.
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Cash
and cash equivalents - Interest-bearing deposits that are highly liquid investments and have a maturity of three months
or less when purchased are included in cash and cash equivalents. Restricted cash as of December 31, 2019 and 2018 was related
to the Company’s Unsecured Senior Notes as defined in Note 8, “Debt”.
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2.
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Vessels,
vessel lives, deferred drydocking expenditures and other property - Vessels are recorded at cost and are depreciated to
their estimated salvage value on the straight-line basis over the estimated useful lives of the vessels, which are generally
25 years (except for new ATBs for which estimated useful lives of 30 years are used).
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Other
property, including leasehold improvements, are recorded at cost and amortized on a straight-line basis over the shorter of
the terms of the leases or the estimated useful lives of the assets, which range from three years to 15 years.
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Interest
costs are capitalized to vessels and other property during the period that vessels are
under construction and projects are in progress. During the year ended December
31, 2019, interest costs capitalized were $3,636. During the year ended December 31,
2018, interest costs capitalized were not material.
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Expenditures
incurred during a drydocking are deferred and amortized on the straight-line basis over the shorter of the terms of the leases
or the period until the next scheduled drydocking, generally two and a half to five years. The Company only includes in deferred
drydocking costs those direct costs that are incurred as part of the drydocking to meet regulatory requirements, or are expenditures
that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency.
Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance
and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.
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The
carrying value of each of the Company’s vessels represents its original cost at the time it was delivered or purchased
less depreciation calculated using estimated useful lives from the date such vessel was originally delivered from the shipyard
or from the date (as in the case of certain of the Company’s ATBs) a vessel was rebuilt. A vessel’s carrying value
is reduced to its new cost basis (i.e., its current fair value) if a vessel impairment charge is recorded.
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If
the estimated economic lives assigned to the Company’s vessels prove to be too long because of new regulations, a prolonged
weak market environment, a broad imposition of age restrictions by the Company’s customers, or other future events,
it could result in higher depreciation expense and impairment losses in future periods related to a reduction in the useful
lives of any affected vessels.
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3.
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Impairment
of long-lived assets - The carrying amounts of long-lived assets held and used by the Company are reviewed for potential
impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be
fully recoverable. In such instances, the requirement for impairment could be triggered if the estimate of the undiscounted
future cash flows expected to result from the use of the asset and its eventual disposition is less than the asset’s
carrying amount. This assessment is made at the individual vessel level since separately identifiable cash flow information
for each vessel is available. The impairment charge, if any, would be measured as the amount by which the carrying amount
of a vessel exceeded its fair value. A long-lived asset impairment charge results in a new cost basis being established for
the relevant long-lived asset. See Note 9, “Fair Value Measurements and Fair Value Disclosures,” for further discussion
on the impairment tests performed on our vessels during the two years ended December 31, 2019. Although separate cash flow
information is available at the vessel level, the Company’s chief operating decision maker, the CEO, makes operating
decisions at a fleet level.
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54
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Overseas Shipholding Group, Inc.
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4.
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Intangible
assets - Intangible assets with estimable useful lives are amortized over their estimated useful lives and are reviewed
for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset
may be impaired. See Note 9, “Fair Value Measurements and Fair Value Disclosures,” for further discussion on the
impairment test performed on the Company’s intangible assets at December 31, 2019.
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5.
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Deferred
finance charges - Finance charges incurred in the arrangement and amendment of debt
are deferred and amortized to interest expense on an effective interest method over the
life of the related debt.
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Unamortized
deferred financing charges of $6,821 and $7,528 relating to the Term Loan Credit Agreement (as defined in Note 8, “Debt”)
and $98 and $124 relating to the term loan, due 2026, are included in long-term debt in the consolidated balance sheets as
of December 31, 2019 and 2018, respectively. In addition, at December 31, 2019, unamortized deferred financing charges of
$1,086 relating to the term loans, due 2024, are included in long-term debt in the consolidated balance sheets. At December
31, 2019 and 2018, unamortized deferred financing charges relating to the Unsecured Senior Notes were included in current
installments of long-term debt in the consolidated balance sheets and were not material. Interest expense relating to the
amortization of deferred financing charges amounted to $1,965 in 2019 and $4,069 in 2018.
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6.
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Revenue
and expense recognition - Revenues from time charters are accounted for as operating leases and are thus recognized ratably
over the rental periods of such charters, as service is performed.
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The
Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606), on January 1, 2018. Under the standard,
the Company recognizes revenue from voyage charter contracts ratably over the estimated length of each voyage, calculated
on a load-to-discharge basis.
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The
Company classifies time charter leasing arrangements less than 90 days within the voyage charter revenue financial statement
line item because the Company believes the pricing negotiated within these short-term time charter contracts more closely
aligns with the Company’s voyage charter spot market.
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Under
voyage charters, expenses such as fuel, port charges, canal tolls, cargo handling operations and brokerage commissions are
paid by the Company whereas, under time and bareboat charters, such voyage costs are generally paid by the Company’s
customers.
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The
Company receives an annual operating-differential subsidy pursuant to the Merchant Marine Act of 1936 for the two U.S. Flag
Product Carriers which participate in the U.S. MSP program. This subsidy has been recorded as an offset to vessel expenses
which amounted to $10,000 in 2019 and $9,600 in 2018.
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7.
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Voyage
receivables - All customers are granted credit on a short-term basis and related credit risks are considered minimal.
The Company routinely reviews its voyage receivables and makes provisions for probable doubtful accounts; however, those provisions
are estimates and actual results could differ from those estimates and those differences may be material. Voyage receivables
are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts
have been exhausted.
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8.
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Concentration
of credit risk - Financial instruments that potentially subject the Company to concentrations of credit risk are voyage
receivables due from charterers. With respect to voyage receivables, the Company limits its credit risk by performing ongoing
credit evaluations. Voyage receivables reflected in the consolidated balance sheets as of December 31, 2019 and 2018 are net
of a reserve for doubtful accounts of $5,040 and $774, respectively. In June 2019, one of the Company’s lightering customers,
Philadelphia Energy Solutions LLC (“PES”), suffered an explosion and fire at their refinery in the Delaware Bay.
In July 2019, PES filed a Chapter 11 bankruptcy petition. The reserve for doubtful accounts at December 31, 2019 includes
a provision of $4,300 on outstanding receivables of $4,300 from PES as the ultimate recovery of these receivables is currently
unknown.
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55
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Overseas Shipholding Group, Inc.
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During
the years ended December 31, 2019 and 2018, the Company had three and two individual customers, respectively, who accounted
for 10% or more of the Company’s revenues. The customers and their related percentages were Monroe Energy LLC (16%),
SeaRiver Maritime, Inc. (12%) and Shell (10%) for the year ended December 31, 2019 and Shell (12%) and Petrobras America Inc.
(11%) for the year ended December 31, 2018.
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9.
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Income
taxes - The Company accounts for income taxes under the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income
in the period that includes the enactment date.
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Net
deferred tax assets are recorded to the extent the Company believes these assets will more likely than not be realized. In
making such a determination, all available positive and negative evidence is considered, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.
In the event the Company were to determine that it would be able to realize its deferred income tax assets in the future in
excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would
reduce the provision for income taxes in the period such determination is made.
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Uncertain
tax positions are recorded in accordance with ASC 740, Income Taxes, on the basis of a two-step process whereby (1)
the Company first determines whether it is more likely than not that the tax positions will be sustained based on the technical
merits of the position and (2) for tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes
the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related
tax authority.
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10.
|
Use
of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the amounts of assets, liabilities, equity,
revenues and expenses reported in the financial statements and accompanying notes. The most significant estimates relate to
the depreciation of vessels and other property, amortization of drydocking costs, estimates used in assessing the recoverability
of vessels, intangible assets and other long-lived assets, liabilities incurred relating to pension benefits, and income taxes.
Actual results could differ from those estimates.
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11.
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Segment
information - Operating segments are defined as components of an enterprise that engage in business activities. The Company
has determined that it operates its business as a single segment as its chief operating decision maker and its management
team make decisions about resource allocations and review and measure the Company’s results as one line of business
with similar regulatory requirements, customers and commodities transported.
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12.
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Inventories
- Inventories are included in the inventories, prepaid expenses and other current assets line item in the consolidated
balance sheets. Inventories are accounted for on the first in first out basis and consist of fuel on the Company’s vessels.
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13.
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Recently
adopted accounting standards - In February 2016, the FASB issued ASU 2016-02, Leases,
which is included in the ASC in Topic 842. ASU 2016-02 is intended to improve transparency
and comparability of lease accounting among organizations. For leases with terms greater
than 12 months, the amendments require the lease rights and obligations arising from
the leasing arrangements, including operating leases, to be recognized as assets and
liabilities on the balance sheet. However, the effect on the statement of operations
and the statement of cash flows is largely unchanged from prior GAAP. The amendments
also expand the required disclosures surrounding leasing arrangements. Subsequently,
the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases,
ASU 2018-11, Targeted Improvements, ASU 2018-20, Narrow-Scope Improvements
for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend
the guidance in ASU 2016-02.
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56
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Overseas Shipholding Group, Inc.
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|
The
Company adopted the standard using the modified retrospective approach effective January 1, 2019. See Note 15, “Leases,”
for additional information.
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14.
|
Recently
issued accounting standards — In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits
- Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined
Benefit Plans, which amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension
and other postretirement plans. The new guidance is effective for fiscal years ending after December 15, 2020 and is required
to be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company plans to adopt this
standard on January 1, 2021. The adoption of this standard is not expected to have a material effect on the Company’s
consolidated financial statements.
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In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements
for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements.
The new guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal
years. The Company will adopt this standard on January 1, 2020. The adoption of this standard is not expected to have a material
effect on the Company’s consolidated financial statements.
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In
June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which adds a new Topic 326 and removes the thresholds that companies apply to measure
credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to maturity debt securities.
Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The
revised guidance will remove all recognition thresholds and will require entities to recognize an allowance for credit losses
for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the entity
expects to collect over the instrument’s contractual life. Subsequently, the FASB issued ASU 2018-19, Codification
Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting
standards.
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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:
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Bucket
1— All public business entities (“PBEs”) that are SEC filers (as defined in U.S. GAAP), excluding smaller
reporting companies (“SRCs”) (as defined by the SEC). The credit losses standard would be effective January 1,
2020.
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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 would be effective January 1, 2023.
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At
the annual evaluation date on June 30, 2019, the Company met the SEC definition of a smaller reporting company. Accordingly,
the Company plans on adopting the credit losses standard on January 1, 2023.
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In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which
removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce
complexity in accounting for income taxes. The new guidance is effective for fiscal years beginning after December 15, 2020
and for interim periods within those fiscal years. The Company will adopt this standard on January 1, 2021. Management is
currently reviewing the impact of the adoption of this accounting standard on the Company’s consolidated financial statements.
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57
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Overseas Shipholding Group, Inc.
|
NOTE
3 — EARNINGS PER COMMON SHARE
Basic
earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated
to participating securities, by the weighted average number of common shares outstanding during the period. As management deemed
the exercise price for the Class A of $0.01 per share to be nominal, warrant proceeds are ignored and the shares issuable upon
Class A warrant exercise are included in the calculation of Class A 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.
Class
A
As
of December 31, 2019 and 2018, there were no weighted average shares of unvested Class A restricted common stock shares considered
to be participating securities.
The
computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and
restricted stock units not classified as participating securities. As of December 31, 2019, there were 1,718,865 shares of Class
A restricted stock units and 1,478,756 Class A stock options outstanding and considered to be potentially dilutive securities.
As of December 31, 2018, there were 912,315 shares of Class A restricted stock units and 866,011 Class A stock options outstanding
and considered to be potentially dilutive securities.
The
components of the calculation of basic earnings per share and diluted earnings per share are as follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net
income
|
|
$
|
8,675
|
|
|
$
|
13,489
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Class A common stock - basic
|
|
|
89,251,818
|
|
|
|
88,394,580
|
|
Class A common stock - diluted
|
|
|
89,658,938
|
|
|
|
89,045,734
|
|
For
annual earnings per share calculations, there were 407,120 and 651,154 dilutive equity awards outstanding for the years ended
December 31, 2019 and 2018. Awards of 920,845 and 469,112 shares of common stock for 2019 and 2018, respectively, were not included
in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.
58
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Overseas Shipholding Group, Inc.
|
NOTE
4 — REVENUE RECOGNITION
Adoption
of ASC 606
On
January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, applying the modified retrospective
method to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are
presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards
in effect for the prior period.
The
impact of adopting the standard primarily related to a change in the timing of revenue recognition for voyage charter contracts.
In the past, the Company recognized revenue from voyage charters ratably over the estimated length of each voyage, calculated
on a discharge-to-discharge basis. Under the new standard, the Company recognizes revenue from voyage charters ratably over the
estimated length of each voyage, calculated on a load-to-discharge basis. In addition, the adoption of ASC 606 resulted in a corresponding
change in the timing of recognition of voyage expenses for voyage charter contracts.
The
cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASC
606 was as follows:
|
|
Balance
at
December 31, 2017
|
|
|
Adjustments
Due
to ASC 606
|
|
|
Balance
at
January 1, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage receivables
|
|
$
|
24,209
|
|
|
$
|
1,336
|
|
|
$
|
25,545
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
83,671
|
|
|
|
(108
|
)
|
|
|
83,563
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(265,758
|
)
|
|
|
(1,228
|
)
|
|
|
(266,986
|
)
|
For
the year ended December 31, 2018, revenues increased by $1,418, net income increased by $1,101 and basic and diluted net income
per share increased by $0.01 as a result of applying ASC 606.
Shipping
Revenues
The
Company enters into time charter contracts under which a customer pays a fixed daily or monthly rate for a fixed period of time
for use of a vessel. The Company recognizes revenues from time charters as operating leases ratably over the noncancellable contract
term. Customers generally pay voyage expenses such as fuel, canal tolls and port charges. The Company also provides the charterer
with services such as technical management expenses and crew costs. While there are lease and service (non-lease) components related
to time charter contracts, the predominant component of the contract is the charterer’s lease of the vessel. The non-lease
components of the contract have the same timing and pattern of transfer as the underlying lease component; therefore, the Company
applied the practical expedient to combine lease and non-lease components and recognizes revenue related to this service ratably
over the life of the contract term.
The
Company enters into voyage charter contracts, under which the customer pays a transportation charge (voyage freight) for
the movement of a specific cargo between two or more specified ports. The Company’s performance obligation under voyage
charters, which consists of moving cargo from a load port to a discharge port, is satisfied over time. Accordingly, under ASC
606, the Company recognizes revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge
basis. The transaction price is in the form of a fixed fee at contract inception, which is the transportation charge. Voyage charter
contracts also include variable consideration primarily in the form of demurrage, which is additional revenue the Company receives
for delays experienced in loading or unloading cargo that are not deemed to be the responsibility of the Company. The Company
does not include demurrage in the transaction price for voyage charters as it is considered constrained since it is highly susceptible
to factors outside the Company’s influence. Examples of when demurrage is incurred include unforeseeable weather conditions
and security regulations at ports. The uncertainty related to this variable consideration is resolved upon the completion of the
voyage, the duration of which is generally less than 30 days.
59
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Overseas Shipholding Group, Inc.
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|
U.S.
Maritime Security Program
|
Two
of the Company’s U.S. Flag Product Carriers participate in the U.S. Maritime Security Program (“MSP”), which
ensures that privately-owned, military-useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of
war or national emergency. The Company considers the MSP contract with the U.S. government a service arrangement under ASC 606.
Under this arrangement, the Company receives an annual operating-differential subsidy pursuant to the Merchant Marine Act of 1936
for each participating vessel, subject in each case to annual congressional appropriations. The subsidy is intended to reimburse
owners for the additional costs of operating U.S. Flag vessels; therefore, the Company has presented this subsidy as an offset
to vessel expenses.
|
Contracts
of Affreightment
|
The
Company enters into contracts of affreightment (“COA”) to provide transportation services between specified points
for a stated quantity of cargo over a specific time period, but without designating voyage schedules. The Company has COA arrangements
to provide for lightering services and other arrangements based on the number of voyages. These contracts are service contracts
within the scope of ASC 606 for which the underlying performance obligation is satisfied as a series of distinct services.
The
Company’s COA include minimum purchase requirements from customers that are expressed in either fixed monthly barrels, annual
minimum barrel volume requirements or annual minimum number of voyages to complete. The Company is required to transport and the
charterer is required to provide the Company with a minimum volume requirement. These contract minimums represent fixed consideration
within the contract which is recognized as the distinct services of delivering barrels or voyages are performed in the series
over time. The Company will adjust revenue recognized for any minimum volume unexercised right.
COA
provide the charterer with the opportunity to purchase additional transportation services above the minimum. If this is not considered
a material right, the Company recognizes revenue related to the additional services at the contractual rate as the product is
transferred over time. If the additional transportation service is considered a material right, the Company applies the practical
alternative to allocate the transaction price to the material right. As a result, the Company may recognize revenue related to
COA at an amount which is different than the invoiced amount if the Company’s estimated volume to be transported under the
contract exceeds the contractual minimum.
COA
also include variable consideration primarily related to demurrage. The Company does not include this variable consideration in
the transaction price for these contracts as the consideration is constrained since the obligation to deliver this service is
outside the control of the Company. The uncertainty related to this variable consideration is resolved with the customer over
the course of the contract term as individual voyages discharge. Revenue generated by COA is included within voyage charter revenues
on the consolidated statements of operations.
At
December 31, 2019, the Company did not have deferred revenue related to the Company’s COA.
60
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Overseas Shipholding Group, Inc.
|
Disaggregated
Revenue
The
Company has disaggregated revenue from contracts with customers into categories which 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 years ended
December 31, 2019 and 2018:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Time and bareboat charter
revenues
|
|
$
|
263,683
|
|
|
$
|
213,923
|
|
Voyage charter revenues(1)
|
|
|
33,275
|
|
|
|
83,542
|
|
Contracts of
affreightment revenues
|
|
|
58,589
|
|
|
|
68,698
|
|
Total
shipping revenues
|
|
$
|
355,547
|
|
|
$
|
366,163
|
|
(1)
|
Voyage
charter revenues include approximately $10,152 and $7,600 of revenue related to short-term time charter contracts for the
years ended December 31, 2019 and 2018, respectively.
|
Voyage
Receivables
As
of December 31, 2019 and 2018, contract balances from contracts with customers consisted of voyage receivables, including unbilled
receivables, of $5,831 and $12,515, respectively, net of reserve for doubtful accounts for voyage charters and lightering contracts.
For voyage charters, voyage freight is due to the Company upon completion of discharge at the last discharge port. For lightering
contracts, the Company invoices the customer monthly based on the actual barrels of cargo lightered. The Company routinely reviews
its voyage receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual
results could differ from those estimates and those differences may be material. Voyage receivables are removed from accounts
receivable and the reserve for doubtful accounts when they are deemed uncollectible. The Company deems voyage receivables uncollectible
when the Company has exhausted collection efforts.
Costs
to Fulfill a Contract
Under
ASC 606, for voyage charters and contracts of affreightment, the Company capitalizes the direct costs, which are voyage expenses,
of relocating the vessel to the load port to be amortized during transport of the cargo. At December 31, 2019, the costs related
to voyages that were not yet completed were not material.
Additionally,
these contracts include out-of-pocket expense (i.e. fuel, port charges, canal tolls) incurred by the Company in fulfilling its
performance obligation, which are reimbursed by the charterer at cost. The reimbursement for these fulfillment costs have been
included in the Company’s estimated transaction price for the contract and recognized as revenue when performance obligations
are satisfied.
Transaction
Price Allocated to the Remaining Performance Obligations
As
of December 31, 2019, there was an aggregate amount of $38,459 of revenue under COA which the Company will be entitled
to providing services in the future. The Company expects to recognize revenue of approximately $34,664 in 2020 and $3,795
in 2021 under these contracts. These estimated amounts relate to the fixed consideration of contractual minimums within the contracts
based on the Company’s best estimate of future services.
61
|
Overseas Shipholding Group, Inc.
|
Practical
Expedients and Exemptions
The
Company’s voyage charter contracts and some of the Company’s COA have an original expected duration of one year or
less; therefore, the Company has elected to apply the practical expedient, which permits the Company to not disclose the portion
of the transaction price allocated to the remaining performance obligations within these contracts.
The
Company expenses broker commissions for voyage charters, which are costs of obtaining a contract, as they are incurred because
the amortization period is less than one year or are otherwise amortized as the underlying performance obligation is satisfied.
The Company records these costs within voyage expenses in the consolidated statements of operations.
The
Company has not retrospectively restated contracts that were modified before the January 1, 2018 adoption date.
NOTE
5 — VESSELS, OTHER PROPERTY AND DEFERRED DRYDOCK
Vessels
and other property consist of the following:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Vessels, at cost
|
|
$
|
919,212
|
|
|
$
|
845,868
|
|
Accumulated depreciation
|
|
|
(274,900
|
)
|
|
|
(248,939
|
)
|
Vessels, net
|
|
|
644,312
|
|
|
|
596,929
|
|
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
65,697
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Finance lease right-of-use asset, at
cost (Note 15)
|
|
|
28,993
|
|
|
|
—
|
|
Accumulated amortization
(Note 15)
|
|
|
(2,053
|
)
|
|
|
—
|
|
Finance lease right-of use asset, net
(Note 15)
|
|
|
26,940
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Other property, at cost
|
|
|
5,552
|
|
|
|
5,895
|
|
Accumulated depreciation
and amortization
|
|
|
(5,289
|
)
|
|
|
(5,165
|
)
|
Other property,
net
|
|
|
263
|
|
|
|
730
|
|
|
|
|
|
|
|
|
|
|
Total vessels
and other property
|
|
$
|
737,212
|
|
|
$
|
597,659
|
|
On
September 30, 2019, the Company took delivery of two 50,000 DWT class product and chemical tankers at Hyundai Mipo Dockyard Co.,
Ltd. The tankers, named the Overseas Gulf Coast and Overseas Sun Coast, are operating in the international market
under the Marshall Islands flag, with both vessels having entered into one-year time charters.
In
September 2019, the Company sold one of its ATBs for $1,234, net of broker commissions. As a result of the sale, the Company recognized
an immaterial gain, which is included in loss/(gain) on disposal of vessels and other property, including impairments, net on
the consolidated statements of operations.
In
May and June 2019, the Company sold two of its ATBs for $1,101 and $1,069, respectively, net of broker commissions. As a result
of the sales, the Company recognized an immaterial loss, which is included in loss/(gain) on disposal of vessels and other property,
including impairments, net on the consolidated statements of operations.
In
July 2018 and January 2019, the Company signed binding contracts with Greenbrier Marine (formerly Gunderson Marine LLC)
for the construction of two approximately 204,000 BBL, oil and chemical tank barges. The anticipated delivery of the barges
to the Company is during the first and second half of 2020, respectively. The Company’s remaining commitments under the contracts
are $45,849 in 2020.
On
December 6, 2018, the Company sold one ATB and one barge for $2,367, net of broker commissions. As a result of the sale, the Company
recognized a gain of $877, which is included in loss/(gain) on disposal of vessels and other property, including impairments,
net on the consolidated statements of operations.
In
June 2018, one of the Company’s ATBs was berthed to the dock when a third-party ship transiting the channel hit the Company’s
ATB causing structural damage to the Company’s ATB and damage to the dock. The cost of repairs has been covered by existing
insurance policies. The Company has filed a lawsuit against the third-party ship seeking recovery of its costs of repairs as well
as its lost earnings from the ATB being off-hire for 46 repair days.
At
December 31, 2019, the Company’s owned vessel fleet with a weighted average age of 8.2 years, consisted of six Handysize
Product Carriers, two lightering ATBs and two clean ATBs. These vessels are pledged as collateral under the term loan agreements
and have an aggregate carrying value of $634,379.
62
|
Overseas Shipholding Group, Inc.
|
Vessel
activity, excluding construction in progress, for the two years ended December 31, 2019 is summarized as follows:
|
|
Vessel
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
Book
Value
|
|
Balance at December 31, 2017
|
|
$
|
849,713
|
|
|
$
|
(217,633
|
)
|
|
$
|
632,080
|
|
Depreciation
|
|
|
—
|
|
|
|
(33,851
|
)
|
|
|
|
|
Disposals
|
|
|
(3,845
|
)
|
|
|
2,545
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
845,868
|
|
|
|
(248,939
|
)
|
|
|
596,929
|
|
Transfers from construction
in progress
|
|
|
82,625
|
|
|
|
—
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
(32,284
|
)
|
|
|
|
|
Disposals
|
|
|
(9,281
|
)
|
|
|
6,323
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
919,212
|
|
|
$
|
(274,900
|
)
|
|
$
|
644,312
|
|
The
total of vessel additions can differ from expenditures for vessels as shown in the consolidated statements of cash flows because
of the timing of when payments were made. For the year ended December 31, 2019, the Company had approximately $3,866 of non-cash
investing activities for the accrual of capital expenditures related to the Company’s newbuilds.
Drydocking
activity for the two years ended December 31, 2019 is summarized as follows:
|
|
2019
|
|
|
2018
|
|
Balance at January 1
|
|
$
|
26,099
|
|
|
$
|
23,914
|
|
Additions
|
|
|
11,074
|
|
|
|
14,031
|
|
Drydock
amortization
|
|
|
(13,439
|
)
|
|
|
(11,846
|
)
|
Balance at December 31
|
|
$
|
23,734
|
|
|
$
|
26,099
|
|
NOTE
6 — INVESTMENT IN ALASKA TANKER COMPANY, LLC
At
December 31, 2019, investment in affiliated company was comprised of the Company’s 37.5% interest in Alaska Tanker
Company, LLC (“ATC”), which manages vessels carrying Alaskan crude for BP West Coast Products, LLC (“BP”).
Each member in ATC has been entitled to receive its respective share of any incentive charter hire payable by BP to ATC.
The Company has accounted for the investment in ATC as an equity–method investment because the Company has not individually
retained the power to significantly impact the economic performance of ATC and the Company’s maximum exposure to
losses in ATC has been limited to its initial capital investment in ATC, which is not material. As of December 31,
2019, the carrying value of the Company’s investment in ATC was $3,599, which includes the Company’s respective share
of distribution[s] of $3,562.
On
December 26, 2019, the Company announced that its subsidiaries entered into agreements with BP Oil Shipping Company USA and BP
AMI Leasing Inc. (“BP”) to purchase three U.S.-flagged crude oil carrier vessels operated by ATC for
total consideration of $54,000. The Company made a $10,800 deposit upon execution of the vessel purchase agreements. Additionally, the Company would acquire
the remaining 62.5% interest of ATC, from its partners, that it does not own for approximately $19,100.
On
March 12, 2020, the Company’s subsidiaries completed the purchase of three U.S.-flagged crude oil carrier
vessels, the Alaskan Explorer, Alaskan Legend, and Alaskan Navigator from BP and have entered into a
bareboat charter with BP for a fourth vessel, the Alaskan Frontier. In connection with these transactions,
the Company also completed the acquisition of ATC, making ATC a wholly owned subsidiary of the Company.
63
|
Overseas Shipholding Group, Inc.
|
Due
to the timing of the closing, and the limited information available prior to closing, the Company’s accounting for the purchase
of the vessels and the acquisition of ATC is incomplete at the time of this filing. As a result, information pertaining to the
amounts recognized for the assets acquired and liabilities assumed will be disclosed by the Company in future filings.
A
condensed summary of the assets and liabilities of the equity method investment follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Current
assets
|
|
$
|
38,531
|
|
|
$
|
38,949
|
|
Total assets
|
|
$
|
38,531
|
|
|
$
|
38,949
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
20,667
|
|
|
$
|
21,652
|
|
Non-current liabilities
|
|
|
18,867
|
|
|
|
17,286
|
|
(Deficiency)/equity
|
|
|
(1,003
|
)
|
|
|
11
|
|
Total liabilities
and equity
|
|
$
|
38,531
|
|
|
$
|
38,949
|
|
A
condensed summary of the results of operations of the equity method investments follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Shipping revenues
|
|
$
|
109,006
|
|
|
$
|
105,115
|
|
Ship operating
expenses
|
|
|
(100,437
|
)
|
|
|
(95,315
|
)
|
Income from vessel
operations
|
|
|
8,569
|
|
|
|
9,800
|
|
Net income
|
|
$
|
9,342
|
|
|
$
|
9,461
|
|
NOTE
7 — INTANGIBLE ASSETS
Intangible
assets activity for the two years ended December 31, 2019 is summarized as follows:
|
|
Total
|
|
Balance at December 31,
2017
|
|
$
|
41,017
|
|
Amortization
|
|
|
(4,600
|
)
|
Balance at December 31, 2018
|
|
|
36,417
|
|
Amortization
|
|
|
(4,600
|
)
|
Balance at December
31, 2019
|
|
$
|
31,817
|
|
As
discussed in Note 2, “Summary of Significant Accounting Policies,” the Company’s intangible assets at December
31, 2019 and 2018 consist of long-term customer relationships acquired as part of the 2006 purchase of Maritrans, Inc. The gross
intangible assets were $92,000 at December 31, 2019 and 2018. The unamortized balance of the Company’s intangible assets
at December 31, 2019 will be recognized over the remaining useful life, which is seven years. Amortization of intangible assets
for the five years subsequent to December 31, 2019 is expected to approximate $4,600 per year.
64
|
Overseas Shipholding Group, Inc.
|
NOTE
8 — DEBT
Debt
consists of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Term loan, due 2023, net
of unamortized discount and deferred costs of $6,821 and $7,528
|
|
$
|
291,994
|
|
|
$
|
317,472
|
|
Term loans, due 2024, net of unamortized
discount and deferred costs of $1,086
|
|
|
48,289
|
|
|
|
—
|
|
Term loan, due 2026, net of unamortized
discount and deferred costs
|
|
|
27,075
|
|
|
|
27,376
|
|
Unsecured senior
notes, net of unamortized discount and deferred costs
|
|
|
689
|
|
|
|
687
|
|
Total debt
|
|
|
368,047
|
|
|
|
345,535
|
|
Less current
installments of long-term debt
|
|
|
31,512
|
|
|
|
23,240
|
|
Total long-term
debt
|
|
$
|
336,535
|
|
|
$
|
322,295
|
|
The
weighted average interest rate for debt outstanding at December 31, 2019 and 2018 was 6.55% and 7.49%, respectively.
Term
Loans
Capitalized
terms used hereafter have the meaning given in this Annual Report on Form 10-K or in the respective transaction documents referred
to below, including subsequent amendments thereto.
On March 12, 2020, the Company entered
into a loan with Banc of America Leasing & Capital, LLC and other syndicate lenders in an aggregate principal amount of $54,000
to finance the purchase of three U.S.-flagged crude oil carrier vessels. The loan is secured by first preferred ship mortgages
on the vessels, bears a fixed rate of interest of 4.43% and has a 5-year term maturing on March 12, 2025. The annual principal
payments required to be made for the loan are $3,017 in 2020, $4,182 in 2021, $4,371 in 2022, $4,568 in 2023, $4,775 in 2024 and
$33,087 thereafter.
During
September 2019, in connection with the Company’s sale of one of its ATBs, the Company made a mandatory prepayment of $1,132
on its term loan due in 2023. The aggregate loss realized on this transaction, which related to the write-off of unamortized
deferred finance costs, was not material.
In
August 2019, two of the Company’s subsidiaries entered into term loans in an aggregate principal amount of $50,000, due 2024, to finance the Overseas Gulf Coast and the Overseas Sun Coast. The loans are secured by first
preferred ship mortgages on the vessels and a guaranty from the Company. Funding occurred on delivery of the vessels on September
30, 2019, with $45,157 used to fund the final payment for the vessels. The loans bear a fixed rate of interest of 5.54% and have
a 5-year term maturing on September 30, 2024 with a 17-year amortization schedule.
During
May 2019 and June 2019, in connection with the Company’s sale of two of its ATBs, the Company made mandatory prepayments
of $1,086 and $1,054, respectively, on its term loan due in 2023. The aggregate losses realized on these transactions, which related
to the write-off of unamortized deferred finance costs, were not material.
On
March 16, 2018 and March 29, 2018, the Company made a mandatory prepayment of $28,166 and optional prepayment of $47,000 on its
OBS Term Loan, respectively. The aggregate net loss of $981 realized on these transactions during the year ended December 31,
2018 reflects a write-off of unamortized original issue discount and deferred financing costs associated with the principal reductions
and is included in other income/(expense), net on the consolidated statements of operations.
On
November 19, 2018, two of the Company’s subsidiaries closed on a loan from Wintrust Commercial Finance, a division of Wintrust
Asset Finance Inc. (“Wintrust”), in the amount of $27,500, term loan, due 2026. The loan is secured by first preferred
ship mortgages on the Overseas Mykonos and Overseas Santorini, and a guaranty from the Company. The loan bears interest at a rate
equal to the prevailing 30-Day LIBOR plus 4.00% and matures on November 19, 2026.
The
Company used the proceeds from the Wintrust loan to make a voluntary
prepayment of $27,500 on its OBS Term Loan. The aggregate net loss realized on this transaction reflects a write-off of unamortized
original issue discount and deferred financing costs associated with the principal reductions and was not material.
65
|
Overseas Shipholding Group, Inc.
|
On
December 21, 2018, OSG, as the Parent Company (as a guarantor), OSG Bulk Ships, Inc. (“OBS”) and certain OBS subsidiaries
(the “Borrowers”) closed on a five-year $325,000 term loan credit facility with The Prudential Insurance Company of
America and other syndicate lenders (the “Term Loan Credit Agreement”), term loan, due 2023. The Company used the
proceeds from the Term Loan Credit Agreement, along with a cash payment of $27,623 to pay off its existing OBS Term Loan.
The Term Loan Credit Agreement bears interest at a rate equal to the prevailing 30-Day LIBOR plus 5.00% and matures on December
21, 2023. The aggregate net loss of $2,227 on this transaction reflects a write-off of original issue discount and deferred financing
costs associated with the principal reductions and is included in other income/(expense), net on the consolidated statements of
operations for the year ended December 31, 2018.
The
Borrowers’ obligations under the Term Loan Credit Agreement (the “Guaranteed Obligations”) are guaranteed by
OSG, and OSG has pledged the issued and outstanding shares of capital stock of OBS as security for the Guaranteed Obligations
pursuant to a pledge agreement between the Company and PGIM, Inc. as collateral agent. The Borrowers’ obligations are also
secured by security interests in all of the Borrowers’ assets and by mortgages covering two tankers, eight tugs and seven
barges.
Upon
30 days’ prior written notice, the Borrowers may prepay the outstanding indebtedness in full (or in part) at par plus accrued
interest and an additional sum as a premium that varies based on the date of the prepayment. Any amount prepaid under the Term
Loan Credit Agreement may not be reborrowed. Additionally, certain events, such as the sale of vessels serving as collateral,
will require a mandatory partial or full repayment. No prepayment premium shall apply to any such mandatory prepayment.
In
connection with the Term Loan Credit Agreement, OSG and its affiliates also entered into an amendment to the OBS ABL Facility
among OSG, OBS as administrative borrower, certain subsidiaries of OBS as co-borrowers, other guarantors, lender, Wells Fargo
Bank, National Association, as administrative agent. Pursuant to such amendment, the OBS ABL Facility agreement was amended to
permit the transactions contemplated under the Term Loan Credit Agreement, reduce the maximum credit line from $75,000 to $30,000,
reduce the number of vessels that serve as collateral and extend the term through its termination date of August 2, 2019.
The
applicable margins and floor interest rates for the Company’s term loan, due 2023, and term loan, due 2026, are as
follows:
Debt
Facility
|
|
Term
loan,
due
2023
|
|
|
Term
loan,
due
2026
|
|
Rate
|
|
ABR
|
|
|
LIBOR
|
|
|
ABR
|
|
|
LIBOR
|
|
Floor
|
|
None
|
|
|
0.00
|
%
|
|
None
|
|
|
0.00
|
%
|
Applicable Margin
|
|
None
|
|
|
4.00
|
%
|
|
None
|
|
|
5.00
|
%
|
Unsecured
Senior Notes
7.5%
Notes – These notes were issued on March 7, 2003 and consisted of $146,000 in face value, which were due on February
15, 2024. Pursuant to the Equity Plan, the Company issued two series of 7.50% Notes due February 15, 2021, one series in an aggregate
principal amount of $6,508 (the “Election 1 Notes”) and the other series in an aggregate principal amount of $138,708
(the “Election 2 Notes” and together with the Election 1 Notes, the “Election Notes”) to holders of the
7.50% Notes due 2024 (the “2024 Notes”) that elected to receive Election 1 Notes or Election 2 Notes, as the case
may be. The outstanding Election 1 notes were repurchased and retired during the year ended December 31, 2015.
The
Election 2 Notes have substantially the same terms as the 2024 Notes, other than the (i) the maturity date and (ii) definitions
and provisions related to a holder’s right to require the Company to repurchase such holder’s Election 2 Notes upon
the occurrence of certain changes in the ownership or control of OSG. The Election 2 Notes accrue interest at the rate of 7.50%
per annum.
66
|
Overseas Shipholding Group, Inc.
|
Interest
Expense
The
following table summarizes interest expense, including amortization of issuance and deferred financing costs, commitment, administrative
and other fees, recognized during the two years ended December 31, 2019 with respect to the Company’s debt facilities:
|
|
Years
Ended December 31,
|
|
Debt Facility
|
|
2019
|
|
|
2018
|
|
OBS Facilities
|
|
$
|
428
|
|
|
$
|
29,769
|
|
Term loan, due 2023
|
|
|
24,667
|
|
|
|
801
|
|
Term loan, due 2026
|
|
|
1,772
|
|
|
|
210
|
|
Unsecured senior notes
|
|
|
156
|
|
|
|
252
|
|
Term loans, due 2024
|
|
|
785
|
|
|
|
—
|
|
Total interest
expense on debt facilities
|
|
$
|
27,808
|
|
|
$
|
31,032
|
|
Cash
paid for interest expense was $24,593 and $29,052 in December 31, 2019 and 2018, respectively.
As
of December 31, 2019, the aggregate annual principal payments required to be made on the Company’s debt are as follows:
2020
|
|
$
|
31,514
|
|
2021
|
|
|
31,962
|
|
2022
|
|
|
31,817
|
|
2023
|
|
|
230,793
|
|
2024
|
|
|
42,436
|
|
Thereafter
|
|
|
7,530
|
|
Total
|
|
$
|
376,052
|
|
67
|
Overseas Shipholding Group, Inc.
|
NOTE
9 — FAIR VALUE MEASUREMENTS AND FAIR VALUE DISCLOSURES
ASC
820, Fair Value Measurements and Disclosures, relating to fair value measurements, defines fair value and established 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, essentially an exit price. 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
following methods and assumptions were 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 consolidated balance sheets for interest-bearing
deposits approximate their fair value.
Debt—
The fair values of the Company’s publicly traded and non-public debt are estimated based on quoted market prices.
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, at December 31, 2019 and 2018, are as follows:
|
|
Carrying
|
|
|
Fair
Value
|
|
|
|
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
(1)
|
|
$
|
41,677
|
|
|
$
|
41,677
|
|
|
$
|
—
|
|
Total
|
|
$
|
41,677
|
|
|
$
|
41,677
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan agreement,
due 2023
|
|
$
|
291,994
|
|
|
$
|
—
|
|
|
$
|
299,974
|
|
Term loan agreements,
due 2024
|
|
|
48,289
|
|
|
|
—
|
|
|
|
49,015
|
|
Term loan agreement,
due 2026
|
|
|
27,075
|
|
|
|
—
|
|
|
|
27,359
|
|
Unsecured
senior notes
|
|
|
689
|
|
|
|
—
|
|
|
|
722
|
|
Total
|
|
$
|
368,047
|
|
|
$
|
—
|
|
|
$
|
377,070
|
|
68
|
Overseas Shipholding Group, Inc.
|
|
|
Carrying
|
|
Fair
Value
|
|
|
Value
|
|
Level
1
|
|
Level
2
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (1)
|
|
$
|
80,641
|
|
|
$
|
80,641
|
|
|
$
|
—
|
|
Total
|
|
$
|
80,641
|
|
|
$
|
80,641
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan agreement,
due 2023
|
|
$
|
317,472
|
|
|
$
|
—
|
|
|
$
|
325,000
|
|
Term loan agreement,
due 2026
|
|
|
27,376
|
|
|
|
—
|
|
|
|
26,500
|
|
Unsecured senior
notes
|
|
|
687
|
|
|
|
—
|
|
|
|
525
|
|
Total
|
|
$
|
345,535
|
|
|
$
|
—
|
|
|
$
|
352,025
|
|
(1)
|
Includes
current and non-current restricted cash totaling $174 and $224 at December 31, 2019 and 2018, respectively. Restricted cash
as of December 31, 2019 and 2018 was related to the Company’s Unsecured Senior Notes.
|
Nonfinancial
Instruments that are Measured at Fair Value on a Nonrecurring Basis
During
the years ended December 31, 2019 and 2018, the Company gave consideration as to whether events or changes in circumstances had
occurred that could indicate the carrying amounts of the vessels in the Company’s fleet may not be recoverable. The Company
concluded that no such events or changes in circumstances had occurred.
|
Valuation
of Intangible Assets
|
The
Company’s intangible assets at December 31, 2019 and 2018 consisted of long-term customer relationships acquired as part
of the 2006 purchase of Maritrans, Inc. The long-term customer relationships are being amortized on a straight-line basis over
20 years.
During
the years ended December 31, 2019 and 2018, the Company gave consideration as to whether events or changes in circumstances had
occurred that could indicate the carrying value of the Company’s intangible assets may not be recoverable. The Company concluded
that no such events or changes in circumstances had occurred.
NOTE
10 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accounts payable
|
|
$
|
5,944
|
|
|
$
|
3,360
|
|
Payroll and benefits
|
|
|
8,660
|
|
|
|
12,454
|
|
Interest
|
|
|
1,828
|
|
|
|
1,010
|
|
Insurance
|
|
|
673
|
|
|
|
639
|
|
Accrued drydock and repair costs
|
|
|
115
|
|
|
|
900
|
|
Bunkers and lubricants
|
|
|
852
|
|
|
|
953
|
|
Charter revenues received in advance
|
|
|
11,580
|
|
|
|
6,731
|
|
Accrued vessel expenses
|
|
|
3,441
|
|
|
|
3,304
|
|
Accrued general and administrative,
primarily professional fees
|
|
|
799
|
|
|
|
1,998
|
|
Accrued deferred payment obligation
for chartered in vessels
|
|
|
—
|
|
|
|
1,944
|
|
Other
|
|
|
1,984
|
|
|
|
1,385
|
|
|
|
$
|
35,876
|
|
|
$
|
34,678
|
|
69
|
Overseas Shipholding Group, Inc.
|
NOTE
11 —TAXES
The
(expense)/benefit for income taxes on income before income taxes consists of the following:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Current
|
|
$
|
(1,527
|
)
|
|
$
|
(1,080
|
)
|
Deferred
|
|
|
991
|
|
|
|
18,794
|
|
Total
|
|
$
|
(536
|
)
|
|
$
|
17,714
|
|
The
current income tax expense is primarily attributable to state income taxes and the deferred income tax benefit is primarily attributable
to a change in state deferred tax rate.
The
reconciliations between the U.S. federal statutory income tax rate and the effective tax rate follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
U.S.
federal statutory income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
Adjustments due to:
|
|
|
|
|
|
|
|
|
State taxes, net
of federal benefit
|
|
|
(8.9
|
)%
|
|
|
(21.4
|
)%
|
Change in valuation
allowance
|
|
|
0.6
|
%
|
|
|
(59.0
|
)%
|
Equity awards
|
|
|
(1.8
|
)%
|
|
|
(14.2
|
)%
|
Return to provision
|
|
|
(4.5
|
)%
|
|
|
(13.8
|
)%
|
Nondeductible expenses
|
|
|
0.4
|
%
|
|
|
(11.4
|
)%
|
Uncertain tax
positions and tax examination settlement
|
|
|
6.8
|
%
|
|
|
505.7
|
%
|
U.S. income subject
to tonnage tax
|
|
|
(6.5
|
)%
|
|
|
14.0
|
%
|
Other
|
|
|
(1.3
|
)%
|
|
|
(1.7
|
)%
|
Effective tax
rate
|
|
|
5.8
|
%
|
|
|
419.2
|
%
|
During
2019, changes in state tax rates and changes in apportionment from the addition of new vessels, resulted
in state tax having a (8.9)% impact on the Company’s effective tax rate.
70
|
Overseas Shipholding Group, Inc.
|
The
significant components of the Company’s deferred tax liabilities and assets follow:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Vessels and other
property (1)
|
|
$
|
128,026
|
|
|
$
|
128,226
|
|
Prepaid expenditures
|
|
|
5,621
|
|
|
|
7,108
|
|
Operating lease right-of-use assets
|
|
|
72,298
|
|
|
|
—
|
|
Other-net
|
|
|
2
|
|
|
|
4
|
|
Total deferred
tax liabilities
|
|
|
205,947
|
|
|
|
135,338
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loss carryforwards
|
|
|
68,917
|
|
|
|
66,737
|
|
Operating lease
liability
|
|
|
71,779
|
|
|
|
—
|
|
Finance lease liability
|
|
|
6,333
|
|
|
|
—
|
|
Employee compensation and benefit plans
|
|
|
3,869
|
|
|
|
4,287
|
|
Financing and professional fees
|
|
|
2,003
|
|
|
|
1,859
|
|
Accrued expenses
and other
|
|
|
1,165
|
|
|
|
51
|
|
Total deferred tax assets
|
|
|
154,066
|
|
|
|
72,934
|
|
Valuation allowance
|
|
|
20,952
|
|
|
|
10,961
|
|
Net deferred
tax assets
|
|
|
133,114
|
|
|
|
61,973
|
|
Net deferred
tax liabilities
|
|
$
|
72,833
|
|
|
$
|
73,365
|
|
(1)
Includes deferred tax liabilities related to finance lease right-of-use assets totaling $6,190 and $0 at December 31, 2019 and
2018, respectively.
As
of December 31, 2019, the Company had U.S. federal net operating loss carryforwards of $213,800 which are available to reduce
future taxes, if any. The federal net operating loss carryforwards begin to expire in 2034. Additionally, as of December 31, 2019,
the Company had U.S. state net operating loss carryforwards of $445,936. This includes net operating losses previously unrecorded
due to minimal projected income in those jurisdictions. These U.S. state net operating loss carryforwards expire in various
years ending from December 31, 2019 through December 31, 2035. Included in the financing and professional fees deferred income
assets above are U.S. federal interest expense deductions with an indefinite carryforward period.
There
was a change of control in the Company during 2014 that limited the annual usage of pre-ownership change net operating losses.
All pre-ownership change net operating losses were fully utilized in 2019.
The
Company assessed all available positive and negative evidence to determine whether sufficient future taxable income will be generated
to permit use of existing deferred tax assets. For U.S. federal deferred tax assets, the Company concluded that sufficient positive
evidence existed, primarily the result of reversing deferred tax liabilities during the carryover period. However, for certain
state deferred tax assets, the negative evidence has outweighed the positive evidence which has resulted in the Company establishing
a valuation allowance of $20,952 and $10,961 as of December 31, 2019 and 2018, respectively, to recognize only the portion of
the deferred tax asset that is more likely than not to be realized.
During
the years ended December 31, 2019 and 2018, the Company paid (net of refunds received) $1,293 and $1,313, respectively, of income
taxes.
71
|
Overseas Shipholding Group, Inc.
|
The
following is a tabular reconciliation of the total amounts of unrecognized tax benefits (excluding interest and penalties):
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Balance of unrecognized tax benefits as of
January 1,
|
|
$
|
1,226
|
|
|
$
|
37,240
|
|
Increases for positions taken in prior
years
|
|
|
1,353
|
|
|
|
657
|
|
Rate change
|
|
|
(84
|
)
|
|
|
—
|
|
Amount of decreases
related to settlements
|
|
|
—
|
|
|
|
(36,671
|
)
|
Balance of unrecognized tax benefits
as of December 31,
|
|
$
|
2,495
|
|
|
$
|
1,226
|
|
Included
in the balance of unrecognized tax benefits as of December 31, 2019 and 2018 are $2,495 and $220, respectively, of tax benefits
that, if recognized would affect the effective tax rate.
The
Company records interest and penalties on unrecognized tax benefits in its provision for income taxes. Accrued interest and penalties
are included within the related liability for unrecognized tax benefit line on the consolidated balance sheets.
During the years ended December 31, 2019 and 2018, the Company accrued interest of $114 and $0, respectively, and recorded
liabilities for interest and penalties of $252 and $0, respectively.
After
taking into consideration tax attributes, such as net operating loss carryforwards and interest, the Company’s unrecognized
tax benefits represent a noncurrent reserve for uncertain tax positions of $864 and $220 as of December 31, 2019 and 2018, respectively.
The
U.S. Internal Revenue Service completed exams on the Company’s U.S. federal income tax returns for years 2012 - 2015.
With few exceptions, the Company is no longer subject to state and local income tax examinations by tax authorities for years
before 2015. The Company conducts business and files income tax returns in numerous states. Currently, one of the Company’s
state tax returns is under examination by a state as part of routine audits conducted in the ordinary course of business. The
future utilization of state net operating losses could potentially subject the Company to state examinations prior to the otherwise
applicable statute of limitation. States vary in carryforward periods but generally extend up to 20 years or a period consistent
with the federal limits under the Tax Cuts and Jobs Act.
NOTE
12 — RELATED PARTIES
Guarantees
International
Seaways, Inc. (“INSW”) entered into guarantee arrangements in connection with the spin-off from OSG on November 30,
2016. On October 7, 2019, INSW sold its ownership interest in their joint venture with Qatar Gas Transport Company Ltd, releasing
OSG from all obligations under the guarantee arrangements.
NOTE
13 — CAPITAL STOCK AND STOCK COMPENSATION
Ownership
Restrictions
In
order to preserve the status of OSG as a Jones Act company, the percentage of each class of its common stock that may be owned
by non-U.S. citizens is limited. In addition, the Company has established policies and procedures to ensure compliance with the
Jones Act. In order to provide a reasonable margin for compliance with the Jones Act, our Board of Directors has determined that
until further action by our Board, at least 77% of the outstanding shares of each class of capital stock of the Company must be
owned by U.S. citizens. At and during such time that the limit is reached with respect to shares of Class A common stock as applicable,
we will be unable to issue any further shares of such class of common stock or approve transfers of such class of common stock
to non-U.S. citizens until the holdings of non-U.S. citizens falls below the maximum percentage allowable.
Share
Repurchases
During
the year ended December 31, 2019, in connection with the vesting of restricted stock units (“RSUs”) in January, February
and March, the Company withheld 159,685 shares of Class A common stock at an average price of $1.84 per share (based on the market
prices on the dates of vesting) from certain members of management to cover withholding taxes.
During
the year ended December 31, 2018, in connection with the vesting of RSUs in January, February, March and December, the Company
withheld 296,822 shares of Class A common stock at an average cost of $2.15 per share (based on the market prices on the
dates of vesting) from certain members of management to cover withholding taxes.
72
|
Overseas Shipholding Group, Inc.
|
Warrant
Conversions
Each
Class A warrant represents the right to purchase one share of Class A common stock, subject in each case to the adjustments as
provided pursuant to the terms thereof. The warrants may be exercised at a price per share of Class A common stock, as applicable,
of $0.01, which shall be paid pursuant to a cashless exercise procedure. Warrants may be exercised at any time or from time to
time on or before August 5, 2039 and will expire thereafter. Until they exercise their warrants, except as otherwise provided
in the warrants, the holders of the warrants will not have the rights or privileges of holders of the Company’s common stock,
including any voting rights. Warrants may only be exercised by holders who establish to OSG’s reasonable satisfaction that
they or the person designated to receive the shares is a U.S. person or to the extent shares deliverable upon exercise would not
constitute Non-Complying Shares (as defined in OSG’s Amended and Restated Certificate of Incorporation). As of December
31, 2019, the Company had 19,238,262 Class A warrants outstanding, convertible into 3,655,270 shares of Class A common stock.
During
the years ended December 31, 2019 and 2018, the Company issued 257,963 and 5,628,650 shares of Class A common stock, respectively,
as a result of the exercise of 1,365,392 and 29,461,648 Class A warrants, respectively.
Incentive
Plans
On
September 23, 2014, the Company’s Compensation Committee (“the Committee”) approved the Overseas
Shipholding Group, Inc. Management Incentive Compensation Plan (the “Management Compensation Plan”) and the Overseas
Shipholding Group, Inc. Non-Employee Director Incentive Compensation Plan (the “Director Plan”). OSG stockholders
approved these plans on June 9, 2015. On June 6, 2017, at the annual stockholders meeting, the Company’s stockholders
approved an increase to the maximum number of shares for issuance under the Director Plan by 1,500,000 shares. The 2019 Incentive
Compensation Plan for Management was approved by the Committee on March 22, 2019, by our Board on April 4, 2019 and then by the
Company’s stockholders at the annual meeting on May 30, 2019 (together with the Management Compensation Plan and Non-employee
Director Incentive Compensation Plan, the “Incentive Plans”).
The
Incentive Plans contain anti-dilution provisions whereby in the event of any change in the capitalization of the Company, the
number and type of securities underlying outstanding share-based payment awards must be adjusted, as appropriate, in order
to prevent dilution or enlargement of rights. The impact of these provisions resulted in a modification of all outstanding share-based
payment awards upon the stock dividend, reverse stock split and spin-off transactions described above. As the fair value of
the awards immediately after the stock dividend, reverse stock split and spin off transactions, did not increase when compared
to the fair value of such awards immediately prior to such transactions, no incremental compensation costs were recognized as
a result of such modifications.
The
purpose of the Incentive Plans is to promote the interests of the Company and its stockholders by providing certain employees
and members of the Board, who are largely responsible for the management, growth and protection of the business of the Company,
with incentives and rewards to encourage them to continue in the service of the Company. The Incentive Plans permit the Committee
to grant to eligible employees and directors of the Company, as applicable, any of the following types of awards (or any combination
thereof): cash incentive awards, nonqualified stock options, incentive stock options and other stock-based awards, including,
without limitation, stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred
share units and share-denominated performance units.
73
|
Overseas Shipholding Group, Inc.
|
Stock
Compensation
The
Company accounts for stock compensation expense in accordance with the fair value based method required by ASC 718, Compensation
– Stock Compensation. Such fair value based method requires share based payment transactions to be measured based on
the fair value of the equity instruments issued.
Director
Compensation - Restricted Stock Units
The
Company awarded a total of 357,866 and 170,400 RSUs for the years ended December 31, 2019 and 2018, respectively, to its non-employee
directors. The weighted average fair value of the Company’s stock on the measurement date of such awards was $1.78 (2019)
and $3.61 (2018) per share. Such RSUs vest in full on the earlier of the next annual meeting of the stockholders or the first
anniversary of the grant date, subject to each director continuing to provide services to the Company through such date. The RSUs
granted may not be transferred, pledged, assigned or otherwise encumbered prior to vesting. Upon vesting, a holder of restricted
share awards has all the rights of a stockholder of the Company, including the right to vote such shares and the right to receive
dividends paid with respect to such shares at the same time as common stockholders generally. RSUs which have not become vested
as of the date the grantee’s service on the Board of Directors terminates will be forfeited and the grantee will have no
further rights with respect to the RSUs.
Management
Compensation
During
the years ended December 31, 2019 and 2018, the Company awarded 552,598 and 365,584 time-based RSUs to certain of its employees,
including senior officers. The average grant date fair value of these awards was $2.02 (2019) and $1.70 (2018), per RSU. Each
RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award of RSUs will vest in equal
installments on each of the first three anniversaries of the grant date. RSUs may not be transferred, pledged, assigned or otherwise
encumbered until they are settled. Settlement of vested RSUs may be in either shares of Class A common stock or cash, as determined
at the discretion of the Human Resources and Compensation Committee, and will occur as soon as practicable after the vesting date.
If the RSUs are settled in shares of common stock, following the settlement of such shares, the grantee will be the record owner
of the shares of Class A common stock and will have all the rights of a shareholder of the Company, including the right to vote
such shares and the right to receive dividends paid with respect to such shares of Class A common stock. RSUs which have not become
vested as of the date of a grantee’s termination from the Company will be forfeited without the payment of any consideration,
unless otherwise provided for.
In
addition, during the years ended December 31, 2019 and 2018, the Company awarded 329,121 and 688,877 shares, respectively, to
certain of its senior officers of the Company’s common stock, net of all taxes, which vested immediately. The average grant
date fair value of these awards was $1.82 and $1.91.
During
the years ended December 31, 2019 and 2018, the Company awarded 352,258 and 142,060 performance-based RSUs to its senior officers,
respectively. Each performance-based RSU represents a contingent right to receive RSUs based upon continuous employment through
the end of a three-year performance period (the “Performance Period”) and will vest as follows: (i) one-half of the
target RSUs will vest and become nonforfeitable subject to OSG’s return on invested capital (“ROIC”) performance
in the three-year ROIC performance period relative to a target rate (the “ROIC Target”) set forth in the award agreements
(the formula for ROIC is net operating profit after taxes divided by the net of total debt plus shareholders equity less cash);
and (ii) one-half of the target RSUs will be subject to OSG’s three-year total shareholder return (“TSR Target”)
performance relative to that of a performance index over a three-year TSR performance period. The performance index consists of
companies that comprise a combination of the oil and gas storage and transportation and marine GICS sub-industries indexes during
the Performance Period. Vesting is subject in each case to the Human Resources and Compensation Committee’s certification
of achievement of the performance measures and targets.
74
|
Overseas Shipholding Group, Inc.
|
The
ROIC Target RSU award and the TSR Target RSU award is subject to an increase up to a maximum of 176,129 and 106,545 target RSUs
combined, respectively, (528,387 and 213,090 RSUs in total, respectively) or decrease depending on performance against the applicable
measure and targets. The ROIC performance goal is a performance condition which, as of December 31, 2019, management believed
was probable of being achieved. Accordingly, for financial reporting purposes, compensation costs have been recognized for these
awards. The grant date fair value of the TSR based performance awards, which have a market condition, was determined to be $2.02
and $1.70 per RSU, respectively.
Stock
Options
During
the year ended December 31, 2019 and 2018, the Company awarded 612,745 and 494,118, respectively, stock options to one of its
senior officers, which vested immediately. Each stock option represents an option to purchase one share of Class A common stock
for an exercise price of $1.89 and $1.70 per share, respectively. The call option value of the options was $1.02 and $0.92 per
option, respectively. Under the grant agreement, the stock options have a holding requirement until the earliest to occur of (i)
a change in control; (ii) the separation from service date, in the event of a termination of the grantee’s employment by
the Company without cause or by the grantee for good reason and (iii) the third anniversary of the grant date. The stock options
expire on the business day immediately preceding the tenth anniversary of the award date. If a stock option grantee’s employment
is terminated for cause (as defined in the applicable Form of Grant Agreement), stock options (whether then vested or exercisable
or not) will lapse and will not be exercisable. If a stock option grantee’s employment is terminated for reasons other than
cause, the option recipient may exercise the vested portion of the stock option but only within such period of time ending on
the earlier to occur of (i) the 90th day ending after the option holder’s employment terminated and (ii) the expiration
of the options, provided that if the option holder’s employment terminates for death or disability the vested portion of
the option may be exercised until the earlier of (i) the first anniversary of employment termination and (ii) the expiration date
of the options.
The
fair values of the options granted were estimated on the dates of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for 2019 and 2018 grants: risk free interest rates of 2.50% and 2.72%, respectively, dividend
yields of 0.0%, expected stock price volatility factors of .55 and expected lives of 6.0 years.
The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Since the Company’s stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate,
in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its
stock options.
For
the Incentive Plans, compensation expense is recognized over the vesting period, contingent or otherwise, applicable to each grant,
using the straight-line method. Compensation expense as a result of the RSUs described above was $1,615 and$1,646 during the years
ended December 31, 2019 and 2018, respectively.
Activity
with respect to restricted stock units under the Incentive Plans during the two years ended December 31, 2019 is summarized as
follows:
Activity
for the two years ended December 31, 2019
|
|
Class
A
common
shares
|
|
Nonvested Shares Outstanding at December 31,
2017
|
|
|
660,999
|
|
Granted
|
|
|
1,366,921
|
|
Vested ($1.70 to $2.74 per share)
|
|
|
(1,108,180
|
)
|
Forfeited ($2.39 to $2.44 per share)
|
|
|
(7,425
|
)
|
Nonvested Shares Outstanding at December 31, 2018
|
|
|
912,315
|
|
Granted
|
|
|
1,591,839
|
|
Vested ($1.66 to $2.32 per share)
|
|
|
(780,542
|
)
|
Forfeited ($1.63 per share)
|
|
|
(4,747
|
)
|
Nonvested Shares Outstanding at December 31, 2019
|
|
|
1,718,865
|
|
75
|
Overseas Shipholding Group, Inc.
|
Activity
with respect to stock options under the Incentive Plans during the two years ended December 31, 2019 is summarized as follows:
Activity
for the two years ended December 31, 2019
|
|
Class
A
common
shares
|
|
Options Outstanding at December 31, 2017
|
|
|
371,893
|
|
Granted
|
|
|
494,118
|
|
Options Outstanding at December 31, 2018
|
|
|
866,011
|
|
Granted
|
|
|
612,745
|
|
Options Outstanding at December
31, 2019
|
|
|
1,478,756
|
|
Options Exercisable at December 31, 2019
|
|
|
1,454,063
|
|
The
weighted average remaining contractual life of the outstanding stock options at December 31, 2019 was 8.18 years. The range of
exercise prices of the stock options outstanding at December 31, 2019 was between $1.70 and $5.57 per share. The weighted average
exercise prices of the stock options outstanding at December 31, 2019 and 2018 were $2.67 and $3.23 per share, respectively. Stock
options of 612,745 which vested during the year ended December 31, 2019 were “in-the-money.”
Compensation
expense as a result of the grants of stock options described above was not material for the years ended December 31, 2019 and
2018.
As
of December 31, 2019, there was $1,993 of unrecognized compensation cost related to nonvested share-based compensation arrangements.
That cost is expected to be recognized over a weighted average period of 1.57 years.
NOTE
14 — ACCUMULATED OTHER COMPREHENSIVE LOSS
The
components of accumulated other comprehensive loss, net of related taxes, in the consolidated balance sheets follow:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Items
not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans)
|
|
|
(6,409
|
)
|
|
|
(7,192
|
)
|
|
|
$
|
(6,409
|
)
|
|
$
|
(7,192
|
)
|
76
|
Overseas Shipholding Group, Inc.
|
The
following tables present the changes in the balances of each component of accumulated other comprehensive loss, net of related
taxes, for the two years ended December 31, 2019.
|
|
Unrealized
losses
on
cash flow
hedges
|
|
|
Items
not yet
recognized
as a
component
of net
periodic
benefit cost (pension and other postretirement
plans)
|
|
|
Total
|
|
Balance as of December
31, 2018
|
|
$
|
—
|
|
|
$
|
(7,192
|
)
|
|
$
|
(7,192
|
)
|
Current period change, excluding amounts
reclassified from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
501
|
|
|
|
501
|
|
Amounts reclassified
from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
282
|
|
|
|
282
|
|
Total change
in accumulated other comprehensive loss
|
|
|
—
|
|
|
|
783
|
|
|
|
783
|
|
Balance as of December 31, 2019
|
|
$
|
—
|
|
|
$
|
(6,409
|
)
|
|
$
|
(6,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
(112
|
)
|
|
$
|
(6,350
|
)
|
|
$
|
(6,462
|
)
|
Current period change, excluding amounts
reclassified from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
300
|
|
|
|
300
|
|
Amounts reclassified from accumulated
other comprehensive loss
|
|
|
112
|
|
|
|
341
|
|
|
|
453
|
|
Adoption of accounting
standard - reclassification adjustment to retained earnings
|
|
|
—
|
|
|
|
(1,483
|
)
|
|
|
(1,483
|
)
|
Total change
in accumulated other comprehensive loss
|
|
|
112
|
|
|
|
(842
|
)
|
|
|
(730
|
)
|
Balance as of December 31, 2018
|
|
$
|
—
|
|
|
$
|
(7,192
|
)
|
|
$
|
(7,192
|
)
|
The
following table presents information with respect to amounts reclassified out of accumulated other comprehensive loss for the
two years ended December 31, 2019.
|
|
Years
Ended December 31,
|
|
|
Statement
of
Operations
|
Accumulated
Other Comprehensive Loss Component
|
|
2019
|
|
|
2018
|
|
|
Line
Item
|
Unrealized losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Interest
rate caps entered into by the Company’s subsidiaries
|
|
|
—
|
|
|
|
(181
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
Items not yet recognized as a component
of net periodic benefit cost (pension and other postretirement plans):
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit
costs associated with pension and postretirement benefit plans for shore-based employees
|
|
|
(570
|
)
|
|
|
(465
|
)
|
|
Other income/
(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit costs associated with pension and postretirement benefit plans for seagoing employees
|
|
|
200
|
|
|
|
166
|
|
|
Other income/
(expense), net
|
|
|
|
(370
|
)
|
|
|
(480
|
)
|
|
Total before tax
|
|
|
|
652
|
|
|
|
933
|
|
|
Tax provision
|
|
|
$
|
282
|
|
|
$
|
453
|
|
|
Total net of
tax
|
77
|
Overseas Shipholding Group, Inc.
|
The
following amounts are included in accumulated other comprehensive loss at December 31, 2019, which have not yet been recognized
in net periodic cost: unrecognized prior service credits of $1,616 ($1,277 net of tax) and unrecognized actuarial losses $9,868
($7,796 net of tax). The prior service credit and actuarial loss included in accumulated other comprehensive loss and expected
to be recognized in net periodic cost during 2020 are a gain of $229 ($181 net of tax) and a loss of $465 ($367 net of tax), respectively.
The
income tax (expense)/benefit allocated to each component of other comprehensive income follows:
|
|
Unrealized
gains/(losses)
on cash
flow
hedges
|
|
|
Items
not yet
recognized
as
a component of net periodic benefit cost
|
|
For the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
Current period change excluding
amounts reclassified from accumulated other comprehensive loss
|
|
$
|
—
|
|
|
$
|
(154
|
)
|
Amounts reclassified
from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
(87
|
)
|
Total change
in accumulated other comprehensive loss
|
|
$
|
—
|
|
|
$
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
Current period change excluding amounts
reclassified from accumulated other comprehensive loss
|
|
$
|
—
|
|
|
$
|
—
|
|
Amounts reclassified
from accumulated other comprehensive loss
|
|
|
69
|
|
|
|
—
|
|
Total change
in accumulated other comprehensive loss
|
|
$
|
69
|
|
|
$
|
—
|
|
78
|
Overseas Shipholding Group, Inc.
|
NOTE
15 — LEASES
On
January 1, 2019, the Company adopted ASC 842 applying the modified retrospective method. Results for reporting periods beginning
after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported under
the accounting standards in effect for the prior period.
The
Company’s lease portfolio is comprised of vessels chartered-in, office space and equipment under agreements with contractual
periods ranging from less than 1 year to 16 years. Many of the Company’s leases contain one or more options to extend. The
Company includes options that it is reasonably certain to exercise in its evaluation of the lease term after considering all relevant
economic and financial factors. The impact of adopting this standard resulted in the recording of right-of-use assets of $264,546
and lease liabilities of $280,407 at January 1, 2019. The adoption of the standard did not impact the Company’s accumulated
deficit, consolidated statements of operations or consolidated statements of cash flows. The Company calculates the initial lease
liability as the present value of fixed payments, or in substance fixed payments, not yet paid and variable payments that are
based on an index (e.g., CPI), measured at commencement. The Company’s leases are discounted using its incremental borrowing
rate adjusted for risk based on the length of the lease term because the rate implicit in the lease is not readily determinable.
The
Company applied the package of practical expedients that allows companies not to reassess whether any expired or expiring contracts
are or contain leases, lease classification for any expired or expiring leases and initial direct costs for any expired or expiring
leases. Also, the Company made the accounting policy election to keep leases with a term of 12 months or less off the balance
sheet. Finally, the Company implemented changes to processes and internal controls to meet the standard’s updated reporting
and disclosure requirements.
The
Company’s lease right-of-use assets and lease liabilities at December 31, 2019 were as follows:
|
|
December
31, 2019
|
|
Operating leases
|
|
|
|
|
Vessels
chartered-in noncurrent operating lease assets
|
|
$
|
283,871
|
|
Office
space noncurrent operating lease assets
|
|
|
2,598
|
|
Total
noncurrent operating lease assets
|
|
$
|
286,469
|
|
|
|
|
|
|
Vessels chartered-in
operating lease liabilities
|
|
|
|
|
Current portion
of operating lease liabilities
|
|
$
|
89,537
|
|
Noncurrent
operating lease liabilities
|
|
|
217,511
|
|
|
|
|
307,048
|
|
Office space operating lease liabilities
|
|
|
|
|
Current portion
of operating lease liabilities
|
|
|
608
|
|
Noncurrent
operating lease liabilities
|
|
|
1,990
|
|
|
|
|
2,598
|
|
Total
operating lease liabilities
|
|
$
|
309,646
|
|
|
|
|
|
|
Finance lease
|
|
|
|
|
Vessels and other
property
|
|
$
|
28,993
|
|
Accumulated
amortization
|
|
|
(2,053
|
)
|
Vessels
and other property, less accumulated amortization
|
|
$
|
26,940
|
|
|
|
|
|
|
Current portion
of finance lease liabilities
|
|
$
|
4,011
|
|
Noncurrent
finance lease liabilities
|
|
|
23,548
|
|
Total
finance lease liabilities
|
|
$
|
27,559
|
|
79
|
Overseas Shipholding Group, Inc.
|
Charters-in
As
of December 31, 2019, the Company had commitments to charter-in 11 vessels, which are all bareboat charters. During the second
quarter of 2019, the Company commenced a bareboat charter for the Overseas Key West for a lease term of 10 years. Based
on the length of the lease term and the remaining economic life of the vessel, it is accounted for as a finance lease. The remaining
10 chartered-in vessels are accounted for as operating leases. The right-of-use asset accounted for as a finance lease arrangement
is reported in vessels and other property, less accumulated depreciation on our consolidated balance sheets. The Company holds
options for 10 of the vessels chartered-in that can be exercised for one, three or five years with the one-year option
only usable once, while the three- and five-year options are available indefinitely. The lease payments for the
charters-in are fixed throughout the option periods and the options are on a vessel-by-vessel basis that can be exercised individually.
The Company exercised its option on one of its vessels to extend the term until June 2025. On December 10, 2018, the Company exercised
its options to extend the terms of the other nine vessels. Terms for five of the vessels were extended for an additional three
years, with terms ending in December 2022, and terms for four of the vessels were extended for an additional year, with terms
ending December 2020. On December 11, 2019, the terms for the four vessels ending December 2020 were extended for an additional
three years, with terms ending in December 2023.
Five
of the Company’s chartered in vessels contain a deferred payment obligation (“DPO”) which relates to charter
hire expense incurred by the Company in prior years and payable to the vessel owner in future periods. This DPO is due in quarterly
installments with the final quarterly payment due upon lease termination.
The
future minimum commitments under these leases are as follows:
At
December 31, 2019
|
|
Operating
Leases
|
|
|
Finance
Lease
|
|
2020
|
|
$
|
92,404
|
|
|
$
|
4,172
|
|
2021
|
|
|
91,164
|
|
|
|
4,161
|
|
2022
|
|
|
107,654
|
|
|
|
4,161
|
|
2023
|
|
|
43,015
|
|
|
|
4,161
|
|
2024
|
|
|
9,168
|
|
|
|
4,172
|
|
Thereafter
|
|
|
4,534
|
|
|
|
17,180
|
|
Net minimum lease payments
|
|
|
347,939
|
|
|
|
38,007
|
|
Less: present
value discount
|
|
|
40,891
|
|
|
|
10,448
|
|
Total lease liabilities
|
|
$
|
307,048
|
|
|
$
|
27,559
|
|
The
bareboat charters-in provide for variable lease payments in the form of profit share to the owners of the vessels calculated in
accordance with the respective charter agreements or based on time charter sublease revenue. Because such amounts and the periods
impacted are not reasonably estimable, they are not currently reflected in the table above. Due to reserve funding requirements
and current rate forecasts, no profits are currently expected to be paid to the owners in respect of the charter term within the
next year.
For
the year ended December 31, 2019, lease expense for the 10 chartered-in vessels accounted for as operating leases was $90,359,
which is included in charter hire expense on the consolidated statements of operations and operating cash flows on the consolidated
statements of cash flows. The Company recognized sublease income of $188,163 for the year ended December 31, 2019. For
the year ended December 31, 2019, the Company had non-cash operating activities of $93,407 for obtaining operating right-of-use
assets and liabilities that resulted from exercising lease renewals not assumed in the initial lease term.
80
|
Overseas Shipholding Group, Inc.
|
For
the year ended December 31, 2019, lease expense related to the Company’s finance lease was $2,052 related to amortization
of the right-of-use asset and $1,462 related to interest on the lease liability. These are included in operating cash flows on
the consolidated statements of cash flows. For the year ended December 31, 2019, the Company had non-cash financing activities
of $28,993 for obtaining finance right-of-use assets.
For
the year ended December 31, 2018, lease expense relating to charters-in was $91,350, which is included in charter hire expense
on the consolidated statements of operations.
Office
space
The
Company has lease obligations for office space that generally require fixed annual rental payments and may also include escalation
clauses and renewal options.
The
future minimum commitments under lease obligations for office space, which are operating leases, as of December 31, 2019 are as
follows:
At
December 31, 2019
|
|
Amount
|
|
2020
|
|
$
|
630
|
|
2021
|
|
|
631
|
|
2022
|
|
|
649
|
|
2023
|
|
|
474
|
|
2024
|
|
|
98
|
|
Thereafter
|
|
|
1,088
|
|
Net minimum lease payments
|
|
|
3,570
|
|
Less: present
value discount
|
|
|
972
|
|
Total lease liabilities
|
|
$
|
2,598
|
|
For
the year ended December 31, 2019, the rental expense for office space, which is included in general and administrative expenses
on the consolidated statements of operations, was $648. For the year ended December 31, 2019, cash paid for office space rental
was $604, which is included in operating cash flows on the consolidated statements of cash flows.
For
the year ended December 31, 2018, rental expense for office space, which is included in general and administrative expenses on
the consolidated statements of operations was $659.
At
December 31, 2019, the weighted average remaining lease term for the Company’s operating leases and finance lease was 3.7
years and 9.1 years, respectively, and the weighted average discount rate was 6.7% and 7.3%, respectively.
Charters-out
The
Company enters into time charter contracts under which a customer pays a fixed daily or monthly rate for a fixed period of time
for use of a vessel. The Company recognizes revenues from time charters as operating leases ratably over the noncancelable contract
term. Under certain time charter contracts, the Company receives variable lease payments based on a defined profit share arrangement,
which are recognized as revenue in the period in which the changes in facts and circumstances on which the variable lease payments
are based occur. Customers generally pay voyage expenses such as fuel, canal tolls and port charges. The Company also provides
the charterer with services such as technical management and crew costs. Services are recognized ratably over the life of the
contract term.
81
|
Overseas Shipholding Group, Inc.
|
The
Company is the lessor under its time charter contracts. For time charters, the Company applied the practical expedient to combine
the lease and non-lease components for these contracts. Total time charter revenue for the year ended December 31, 2019 was equal
to lease income from lease payments of $263,416 plus straight-line adjustments of $267. The net book value of owned vessels on
noncancelable time charters was equal to $419,793 at December 31, 2019.
The
future minimum revenues, including rent escalations, which is equal to lease payments expected to be received over the noncancelable
time charters term are as follows:
At
December 31, 2019
|
|
Amount
|
|
2020
|
|
$
|
239,865
|
|
2021
|
|
|
72,929
|
|
2022
|
|
|
51,675
|
|
2023
|
|
|
31,405
|
|
2024
|
|
|
30,395
|
|
Thereafter
|
|
|
15,575
|
|
Net minimum lease
receipts
|
|
$
|
441,844
|
|
Revenues
from a time charter are not generally received when a vessel is off-hire, including time required for normal periodic maintenance
of the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance
on each vessel has been deducted, although it cannot be assured that such estimate will be reflective of the actual off-hire in
the future.
NOTE
16 — PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
For
the years ended December 31, 2019 and 2018, pension and other benefit liabilities are included in other liabilities in the consolidated
balance sheets.
Pension
Plans
In
connection with the November 2006 acquisition of Maritrans, the Company assumed the obligations under the defined benefit retirement
plan of Maritrans Inc. (“the Maritrans Plan”). As of December 31, 2006, the Company froze the benefits under the Maritrans
Plan. At December 31, 2019, the Maritrans Plan is the only domestic defined benefit pension plan in existence at the Company.
The Maritrans Plan was noncontributory and covered substantially all shore-based employees and substantially all of the seagoing
supervisors who were supervisors in 1984, or who were hired in, or promoted into, supervisory roles between 1984 and 1998 for
that period of time. Beginning in 1999, the seagoing supervisors’ retirement benefits are provided through contributions
to an industry-wide, multiemployer union sponsored pension plan. Upon retirement, those seagoing supervisors are entitled to retirement
benefits from the Maritrans Plan for service periods between 1984 and 1998 and from the multiemployer union sponsored plan for
other covered periods. Retirement benefits are based primarily on years of service and average compensation for the five consecutive
plan years that produce the highest results.
Multiemployer
Pension and Postretirement Benefit Plans
The
Company’s subsidiaries are parties to collective-bargaining agreements that require them to make contributions to three
jointly managed (Company and union) multiemployer pension plans covering seagoing personnel of U.S. Flag vessels. All three plans,
the American Maritime Officers (“AMO”) Pension Plan, the Seafarers Pension Plan (“SIU”) and the Marine
Engineers’ Beneficial Association (“MEBA”) Defined Benefit Pension Plan, are deemed individually significant
by management.
82
|
Overseas Shipholding Group, Inc.
|
Plan
level information is available in the public domain for each of the multiemployer pension plans the Company participates in. The
table below provides additional information about the Company’s participation in the above multi-employer pension plans:
|
|
EIN / Pension
|
|
Pension
Protection
Act Zone Status
|
|
|
Rehabilitation
|
|
Contributions
made
by
the Company
|
|
Pension
Plan
|
|
Plan
Number
|
|
2019
|
|
|
2018
|
|
|
Plan
Status
|
|
2019
|
|
|
2018
|
|
AMO Pension Plan
|
|
13-1936709
|
|
|
Yellow
(1)
|
|
|
|
Yellow
(1)
|
|
|
Implemented
|
|
$
|
650
|
|
|
$
|
880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEBA Pension Plan
|
|
51-6029896
|
|
|
Green
(1)
|
|
|
|
Green
(1)
|
|
|
None
|
|
|
2,353
|
|
|
|
1,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seafarers Pension
Plan
|
|
13-6100329
|
|
|
Green
(1)
|
|
|
|
Green
(1)
|
|
|
None
|
|
|
288
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
3,291
|
|
|
$
|
2,675
|
|
|
(1)
|
A
“Yellow” Zone Status plan is a plan that has a funding ratio between 65% and 80%. A “Green” Zone Status
plan is a plan that is 80% funded or more.
|
The
plan years for the three union plans end as follows: MEBA and SIU on December 31 and AMO on September 30. The Company has no future
minimum contribution requirements under the three multiemployer pension plans shown above as of December 31, 2019 and any future
contributions are subject to negotiations between the employers and the unions.
ERISA
requires employers who are contributors to U.S. multiemployer plans to continue funding their allocable share of each plan’s
unfunded vested benefits in the event of withdrawal from or termination of such plans. Based on information received from the
trustees of the SIU Pension Plan, the Company is not subject to withdrawal liabilities under that plan. Based on the actuarial
report received from the trustees of the MEBA Pension Plan, as of December 31, 2018, the Company’s estimated withdrawal
liability would have been approximately $25,309 had the Company elected to withdraw from the plan in 2019. Based
on the actuarial report received from the trustees of the AMO Pension Plan, as of September 30, 2018, the Company’s estimated
withdrawal liability would have been approximately $19,591 had the Company elected to withdraw from the plan in 2019. The
Company has no intentions of terminating its participation in any of the three multiemployer pension plans and has no expectations
that the plans will be terminated. Accordingly, no provisions have been made for the estimated withdrawal liability as of December
31, 2019.
The
SIU – Tanker Agreement, SIU – Tug Agreement, AMO and MEBA collective bargaining agreements expire in June 2022 and
March 2021, respectively. The collective bargaining agreements also require the Company to make contributions to certain other
postretirement employee benefit plans the unions offer to their members. Such contributions were not material during the two years
ended December 31, 2019.
Postretirement
Benefit Plans
The
Company also provides certain postretirement health care and life insurance benefits to qualifying domestic retirees and their
eligible dependents. The health care plan for shore-based employees and their dependents and seagoing licensed deck officers (“Deck
Officers”) and their dependents is contributory at retirement, while the life insurance plan for all employees is noncontributory.
In general, postretirement medical coverage is provided to shore-based employees hired prior to January 1, 2005 and all Deck Officers
who retire and have met minimum age and service requirements under a formula related to total years of service. The Company no
longer provides prescription drug coverage to its retirees or their beneficiaries once they reach age 65. The Company does not
currently fund these benefit arrangements and has the right to amend or terminate the health care and life insurance benefits
at any time.
83
|
Overseas Shipholding Group, Inc.
|
Information
with respect to the domestic pension and postretirement benefit plans for which the Company uses a December 31 measurement date,
follow:
|
|
|
Pension
Benefits
|
|
|
|
Other
Benefits
|
|
At
December 31,
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning
of year
|
|
$
|
44,015
|
|
|
$
|
48,500
|
|
|
$
|
3,401
|
|
|
$
|
4,548
|
|
Cost of benefits earned (service cost)
|
|
|
—
|
|
|
|
—
|
|
|
|
105
|
|
|
|
119
|
|
Interest cost on benefit obligation
|
|
|
1,802
|
|
|
|
1,673
|
|
|
|
140
|
|
|
|
142
|
|
Actuarial losses/(gains)
|
|
|
3,805
|
|
|
|
(3,456
|
)
|
|
|
84
|
|
|
|
(1,206
|
)
|
Benefits paid
|
|
|
(2,686
|
)
|
|
|
(2,702
|
)
|
|
|
(158
|
)
|
|
|
(202
|
)
|
Benefit obligation
at year end
|
|
|
46,936
|
|
|
|
44,015
|
|
|
|
3,572
|
|
|
|
3,401
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning
of year
|
|
|
31,929
|
|
|
|
35,591
|
|
|
|
—
|
|
|
|
—
|
|
Actual return on plan assets
|
|
|
6,790
|
|
|
|
(1,882
|
)
|
|
|
—
|
|
|
|
—
|
|
Employer contributions
|
|
|
721
|
|
|
|
922
|
|
|
|
158
|
|
|
|
202
|
|
Benefits paid
|
|
|
(2,686
|
)
|
|
|
(2,702
|
)
|
|
|
(158
|
)
|
|
|
(202
|
)
|
Fair value of
plan assets at year end
|
|
|
36,754
|
|
|
|
31,929
|
|
|
|
—
|
|
|
|
—
|
|
Unfunded status
at December 31
|
|
$
|
(10,182
|
)
|
|
$
|
(12,086
|
)
|
|
$
|
(3,572
|
)
|
|
$
|
(3,401
|
)
|
Information
for defined benefit pension plans with accumulated benefit obligations in excess of plan assets follows:
At
December 31,
|
|
2019
|
|
|
2018
|
|
Projected benefit obligation
|
|
$
|
46,936
|
|
|
$
|
44,015
|
|
Accumulated benefit obligation
|
|
|
46,936
|
|
|
|
44,015
|
|
Fair value of plan assets
|
|
|
36,754
|
|
|
|
31,929
|
|
Information
for defined benefit pension plans and other postretirement benefit plans net periodic cost/(benefit) follows:
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
For
the year ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Components of expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of benefits earned
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105
|
|
|
$
|
119
|
|
Interest cost on benefit obligation
|
|
|
1,802
|
|
|
|
1,673
|
|
|
|
140
|
|
|
|
142
|
|
Expected return on plan assets
|
|
|
(2,246
|
)
|
|
|
(2,517
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization of prior-service costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(229
|
)
|
|
|
(229
|
)
|
Recognized net
actuarial loss
|
|
|
588
|
|
|
|
483
|
|
|
|
11
|
|
|
|
45
|
|
Net periodic
benefit cost
|
|
$
|
144
|
|
|
$
|
(361
|
)
|
|
$
|
27
|
|
|
$
|
77
|
|
The
weighted-average assumptions used to determine benefit obligations follow:
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
At
December 31,
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Discount rate
|
|
|
3.20
|
%
|
|
|
4.25
|
%
|
|
|
3.55
|
%
|
|
|
4.40
|
%
|
The
selection of a single discount rate for the Maritrans Plan was derived from bond yield curves, which the Company believed as of
such dates to be appropriate for ongoing plans with a long duration, such as the Maritrans Plan, and that generally mirror the
type of high yield bond portfolio the Company could acquire to offset its obligations under the Maritrans Plan.
84
|
Overseas Shipholding Group, Inc.
|
The
weighted-average assumptions used to determine net periodic benefit cost follow:
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
For
the year ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Discount rate
|
|
|
4.25
|
%
|
|
|
3.55
|
%
|
|
|
4.40
|
%
|
|
|
3.70
|
%
|
Expected (long-term) return on plan
assets
|
|
|
7.25
|
%
|
|
|
7.25
|
%
|
|
|
—
|
|
|
|
—
|
|
The
assumed health care cost trend rate for measuring the benefit obligation included in Other Benefits above is an increase of 6.50%
as of December 31, 2019, with the rate of increase declining to an ultimate trend rate of 4.75% per annum by 2027 Assumed health
care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health
care cost trend rates would have the following effects:
|
|
1%
increase
|
|
|
1%
decrease
|
|
Effect on total of service
and interest cost components in 2019
|
|
$
|
38
|
|
|
$
|
(31
|
)
|
Effect on postretirement benefit obligation as of December 31,
2019
|
|
$
|
384
|
|
|
$
|
(313
|
)
|
Expected
benefit payments are as follows:
|
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
2020
|
|
|
$
|
2,867
|
|
|
$
|
156
|
|
2021
|
|
|
|
2,946
|
|
|
|
157
|
|
2022
|
|
|
|
2,978
|
|
|
|
159
|
|
2023
|
|
|
|
3,024
|
|
|
|
164
|
|
2024
|
|
|
|
3,090
|
|
|
|
165
|
|
Years 2025-2029
|
|
|
|
15,335
|
|
|
|
804
|
|
Total
|
|
|
$
|
30,240
|
|
|
$
|
1,605
|
|
The
expected long-term rate of return on plan assets is based on the current and expected asset allocations. Additionally, the long-term
rate of return is based on historical returns, investment strategy, inflation expectations and other economic factors. The expected
long-term rate of return is then applied to the market value of plan assets.
The
fair values of the Company’s pension plan assets at December 31, 2019, by asset category are as follows:
Description
|
|
Fair
Value
|
|
|
Level
1
|
|
Cash and cash equivalents
|
|
$
|
595
|
|
|
$
|
595
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
Large cap exchange
traded fund
|
|
|
13,994
|
|
|
|
13,994
|
|
Small company -
mid value
|
|
|
2,222
|
|
|
|
2,222
|
|
Small company -
mid growth
|
|
|
2,167
|
|
|
|
2,167
|
|
International value
|
|
|
2,634
|
|
|
|
2,634
|
|
International growth
|
|
|
2,656
|
|
|
|
2,656
|
|
Fixed income and
preferred stock:
|
|
|
|
|
|
|
|
|
Intermediate term
bond fund
|
|
|
12,418
|
|
|
|
12,418
|
|
Small
company - mid value - preferred stock
|
|
|
68
|
|
|
|
68
|
|
Total
|
|
$
|
36,754
|
|
|
$
|
36,754
|
|
Plan
fiduciaries of the Retirement Plan of Maritrans, Inc. set investment policies, strategies and oversee its investment allocation,
which includes selecting investment managers and setting long term strategic targets. The primary strategic investment objective
is to maximize total return while maintaining a broadly diversified portfolio for the primary purpose of satisfying obligations
for future benefit payments. Equities are the primary holdings of the Retirement Plan of Maritrans, Inc. Other investments, including
fixed income investments, provide diversification, and, in certain cases, lower the volatility of returns. In general, equity
can range from 55 to 75 percent of total plan assets, fixed income securities can range from 25 to 45 percent of total plan assets
and cash can be held in amounts up to 5 percent of plan assets. Actual asset allocation within the approved ranges varies from
time to time based on economic conditions (both current and forecast) and the advice of professional advisors.
85
|
Overseas Shipholding Group, Inc.
|
The
Company contributed $721 and $921 to the Maritrans Plan in 2019 and 2018, respectively. The Company expects to make contributions
of approximately $1,619 to the Maritrans Plan in 2020.
Defined
Contribution Plans
The
Company also had defined contribution plans covering all eligible employees. Contributions are limited to amounts allowable for
income tax purposes. Commencing in 2006, employer contributions include both employer contributions made regardless of employee
contributions and matching contributions to the plans. All contributions to the plans are at the discretion of the Company. The
Company’s contributions to the plan were $2,414 and $1,956 for the years ended December 31, 2019 and 2018, respectively.
The
Company also has an unfunded, nonqualified supplemental savings plan covering highly compensated U.S. shore-based employees of
the Company, which was terminated in connection with the Company’s filing for bankruptcy in 2012. This plan provided for
levels of hypothetical employer contributions that would otherwise have been made under the Company’s defined contribution
plans in the absence of limitations imposed by income tax regulations. The Company’s unfunded obligations under this plan
at December 31, 2019 and 2018 were not material.
86
|
Overseas Shipholding Group, Inc.
|
NOTE
17 — OTHER INCOME/(EXPENSE), NET
Other
income/(expense), net consists of:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Interest income
|
|
$
|
1,177
|
|
|
$
|
1,970
|
|
Loss on repurchases and extinguishment
of debt (1)
|
|
|
(72
|
)
|
|
|
(3,399
|
)
|
Pension and post retirement items (2)
|
|
|
(26
|
)
|
|
|
532
|
|
OSG LNG performance guarantee fees
|
|
|
110
|
|
|
|
135
|
|
Miscellaneous-net
|
|
|
251
|
|
|
|
3
|
|
|
|
$
|
1,440
|
|
|
$
|
(759
|
)
|
|
(1)
|
See
Note 8, “Debt,” for disclosures relating to loss on mandatory prepayments of debt and loss on repurchases of debt.
|
|
|
|
|
(2)
|
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 income/(expense) on the consolidated statements of operations.
|
NOTE
18 — COMMITMENTS AND CONTINGENCIES
At
December 31, 2019, the Company had aggregate capital commitments of $45,849, net of progress payments already made aggregating
to $55,823, for the construction of two barges scheduled for delivery in the second quarter of 2020 and in the fourth quarter
of 2020. The contracts for these barges require progress payments during the construction periods with a final payment due on
delivery. The Company has made all required progress payments to date, and the Company expects to make remaining payments, including
those due on delivery, with financing that the Company will need to obtain, operating cash flow and cash on hand. The Company
is currently in discussion with potential lenders to obtain such financing.
Legal
Proceedings Arising in the Ordinary Course of Business
The
Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising
principally from personal injuries (including without limitation exposure to asbestos and other toxic materials), wrongful death,
collision or other casualty and to claims arising under charter parties. A substantial majority of such personal injury, wrongful
death, collision or other casualty claims against the Company are covered by insurance (subject to deductibles not material in
amount). Each of the claims involves an amount which, in the opinion of management, are not expected to be material to the Company’s
financial position, results of operations and cash flows.
87
|
Overseas Shipholding Group, Inc.
|