NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 1 — Basis of Presentation:
The accompanying unaudited condensed consolidated financial
statements include the accounts of Overseas Shipholding Group, Inc., a Delaware corporation (the “Parent Company”),
and its wholly owned subsidiaries (collectively, the “Company” or “OSG”, “we”, “us”
or “our”). The Company owns and operates a fleet of oceangoing vessels engaged primarily in the transportation of crude
oil and refined petroleum products in the U.S. Flag trades. The Company manages the operations of its fleet through its wholly
owned subsidiary, OSG Bulk Ships, Inc. (“OBS”), a New York corporation.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required
by generally accepted accounting principles in the United States. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results for the
three and six months ended June 30, 2017, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2017.
The condensed consolidated balance sheet as of December 31,
2016 has been derived from the audited financial statements at that date but does not include all of the information and notes
required by generally accepted accounting principles in the United States for complete financial statements. For further information,
refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2016 (“Form 10-K”).
On November 30, 2016 (the “Distribution Date”),
OSG completed the separation of its business into two independent publicly traded companies through the spin-off of its then wholly-owned
subsidiary International Seaways, Inc. (“INSW”). The spin-off separated OSG and INSW into two distinct businesses with
separate managements. OSG retained the U.S. Flag business and INSW holds entities and other assets and liabilities that formed
OSG’s former International Flag business.
The spin-off transaction was in the form of a pro rata distribution
of INSW’s common stock to our stockholders and warrant holders of record as of 5:00 p.m., New York time on November 18, 2016
(the “Record Date”). On the Distribution Date, each holder of OSG common stock received 0.3333 shares of INSW’s
common stock for every share of OSG common stock held on the Record Date. Each holder of OSG warrants received 0.3333 shares of
INSW’s common stock for every one share of OSG common stock they would have received if they exercised their warrants immediately
prior to the Distribution (or 0.063327 INSW shares per warrant).
The spin-off was completed pursuant to a Separation and Distribution
Agreement and several other agreements with INSW related to the spin-off, including a Transition Services Agreement and an Employee
Matters Agreement. These agreements govern the relationship between us and INSW following the spin-off and provide for the allocation
of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be
provided by OSG to INSW and by INSW to OSG.
The Company’s Board of Directors (the “Board”)
approved a stock dividend of Class A common stock, whereby on December 17, 2015, all stockholders of record of the Company’s
Class A and B common stock as of December 3, 2015, received a dividend of one-tenth of one share of Class A common stock for each
share of Class A common stock and Class B common stock held by them as of the record date. In addition, effective May 27, 2016,
each Class B common share and Class B warrant automatically converted into one Class A common share and one Class A warrant, respectively,
and on June 2, 2016 the Board approved an amendment (the “Reverse Split Amendment”) to the Company’s Amended
and Restated Certificate of Incorporation. The Reverse Split Amendment effected a one-for-six reverse stock split and corresponding
reduction of the number of authorized shares of common stock, par value $0.01 per share (the “Reverse Split”). The
Reverse Split Amendment became effective on June 13, 2016.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 2 — Chapter 11 Filing and Emergence from Bankruptcy:
In October 2012, the Company disclosed that its Audit Committee,
on the recommendation of management, concluded that the Company’s previously issued financial statements for at least the
three years ended December 31, 2011 and associated interim periods, and for the fiscal quarters ended March 31, 2012 and June 30,
2012, should no longer be relied upon. Shortly thereafter several putative class action suits were filed in the United States District
Court for the Southern District of New York against the Company. Also named as defendants were its then President and Chief Executive
Officer, its then Chief Financial Officer, its then current and certain former members of its Board of the Directors, and certain
Company representatives.
On November 14, 2012 (the “Petition Date”), the
Parent Company and 180 of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On August 5, 2014, a plan
of reorganization (the “Equity Plan”) became effective and OSG emerged from bankruptcy.
The Company has fully and finally resolved all potential direct
claims by members of the putative class of securities claimants through a settlement effectuated through Equity Plan. Under the
terms of that settlement, the Equity Plan provided for full satisfaction of claims through the payment of (i) $7,000 in cash, which
was paid on August 5, 2014, (ii) $3,000 in cash, which was paid on August 5, 2015, (iii) any remaining cash in the Class E1 Disputed
Claims Reserve established by the Equity Plan following resolution of all other Class E1 claims, which was paid on October 5, 2015,
(iv) 15% (or $2,136) of the Net Litigation Recovery in the action against Proskauer (described below), which was paid on April
5, 2016, (v) $5,000 in cash, following the entry of a final order resolving the Proskauer action, which was paid on March 17, 2016,
and (vi) proceeds of any residual interest the Company has in certain director and officer insurance policies.
On January 23, 2017, the SEC commenced an administrative proceeding,
with the Company’s consent, that fully resolved an SEC investigation that was initiated in connection with the Company’s
earnings restatement announced in 2012. The Company neither admitted nor denied the SEC’s allegations that the Company violated
certain provisions of the Securities Act, the Exchange Act and related rules. After receiving Bankruptcy Court approval, the Company
paid a $5,000 civil penalty relating to the investigation in February 2017, which was fully accrued as of December 31, 2016. The
settlement with the SEC does not require any further changes to the Company’s historical financial statements. Any indemnification
or contribution claims by officers or directors of the Company that could be asserted in connection with the SEC’s investigation
have been released or otherwise resolved pursuant to the Equity Plan and order of the Bankruptcy Court.
On February 10, 2017, pursuant to a final decree and order of
the Bankruptcy Court, OSG’s one remaining case, as the Parent Company, was closed.
Reorganization Items, net
Reorganization items net, represent amounts incurred subsequent
to the Petition Date as a direct result of the filing of our Chapter 11 cases and are comprised of the following:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Trustee fees
|
|
$
|
-
|
|
|
$
|
30
|
|
|
$
|
5
|
|
|
$
|
60
|
|
Professional fees
|
|
|
9
|
|
|
|
744
|
|
|
|
239
|
|
|
|
1,027
|
|
Litigation settlement, net
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(20,359
|
)
|
Litigation settlement due to class action plaintiffs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,136
|
|
Litigation settlement due to Class B warrant holders
|
|
|
-
|
|
|
|
87
|
|
|
|
-
|
|
|
|
86
|
|
|
|
$
|
9
|
|
|
$
|
861
|
|
|
$
|
244
|
|
|
$
|
(17,050
|
)
|
On February 12, 2016, the Company entered into an agreement
with Proskauer Rose, LLP and four of its partners (“Proskauer Plaintiffs”) to settle a malpractice suit filed by the
Company in March 2014. Settlement proceeds totaling $20,359 net of all related out-of-pocket expenses, including legal fees, incurred
by the Company during the six months ended June 30, 2016 are included in litigation settlement, net in the table above.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
In addition, pursuant to the terms of the Company’s settlement
with members of the putative class of securities claimants, the Company recognized an income statement charge for 15%, or $2,136,
of the Net Litigation Recovery amount of $14,242 during the six months ended June 30, 2016. The “Net Litigation Recovery”
is the gross amount of the settlement less all related out-of-pocket expenses, including legal fees, incurred by the Company since
the inception of the action against the Proskauer Plaintiffs through the date of settlement. Further, as required by the Equity
Plan, the Company’s Amended and Restated Certificate of Incorporation and the Class B Warrant Agreement, the Company distributed
10%, or $1,423, of the Net Litigation Recovery amount to the Class B stockholders and warrant holders in May 2016. Approximately
$86 of the aforementioned $1,423, which represents the proportional share of the Net Litigation Recovery payable to the Company’s
Class B warrant holders, was recognized as a charge to reorganization items, net in the second quarter of 2016. The balance of
$1,337 was distributed in the form of a special dividend to the Company’s Class B stockholders and was recorded as a reduction
of retained earnings as of June 30, 2016.
Cash paid for reorganization items, excluding the SEC and Proskauer
related settlement amounts noted above, were $135 and $159 for the three and six month periods ended June 30, 2017, respectively,
and $562 and $1,088
for the three and six month
periods ended June 30, 2016, respectively.
Note 3 — Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(ASC 842)
, which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported
assets and liabilities. For public companies, the standard will be effective for the first interim reporting period within annual
periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply
the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new
guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in
required disclosures. Management is analyzing the impact of the adoption of this guidance on the Company’s consolidated financial
statements, including assessing changes that might be necessary to information technology systems, processes and internal controls
to capture new data and address changes in financial reporting. Management expects that the Company will recognize substantial
increases in reported amounts for property, plant and equipment and related lease liabilities upon adoption of the new standard.
As of June 30, 2017, the contractual obligations for the Company’s leased vessels was approximately $301,000.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from
Contracts with Customers (ASC 606
) to provide a single, comprehensive revenue recognition model for all contracts with customers
to improve comparability within industries, across industries, and across capital markets. Subsequent to the May 2014 issuance,
several clarifications and updates have been issued on this topic. The revenue standard contains principles that an entity will
apply to determine the measurement and timing of when it is recognized. The underlying principle is that an entity will recognize
revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange
for those goods or services. For public companies, the revenue standard is effective for the first interim period within annual
reporting periods beginning after December 15, 2017. Reporting entities may choose to adopt the standard as of the original effective
date. The requirements of this standard include an increase in required disclosures. Management will apply the modified retrospective
transition method and is currently analyzing the impact of the adoption of this guidance on the Company’s consolidated financial
statements, including developing a comprehensive implementation plan and assessing changes that might be necessary to information
technology systems, processes and internal controls to capture new data and address changes in financial reporting.
Note 4 — 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 and B warrants of $0.01
per share to be nominal, warrant proceeds are ignored and the shares issuable upon Class A and B warrant exercise are included
in the calculation of Class A and B basic weighted average common shares outstanding for all periods.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
The computation of diluted earnings per share assumes the issuance
of common stock for all potentially dilutive stock options and restricted stock units. Participating securities are defined by
ASC 260, Earnings Per Share
, as unvested share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.
On June 2, 2016, the Board approved the Reverse Split Amendment
to the Company’s Amended and Restated Certificate of Incorporation. The Reverse Split Amendment effected the Reverse Split.
The Reverse Split Amendment became effective on June 13, 2016.
Class A
There were 125,145 and 99,814
weighted average shares of unvested Class A restricted common stock shares considered to be participating securities for
the three and six month periods ended June 30, 2017, respectively, and 38,697 and 40,577 weighted average shares of unvested Class
A restricted common stock shares considered to be participating securities for the three and six month periods ended June 30, 2016,
respectively. Such participating securities were allocated a portion of income under the two-class method for the three and six
months ended June 30, 2017 and 2016.
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 June 30, 2017, there were 430,633 shares of Class A restricted stock units and 384,084 Class A stock options outstanding
and considered to be potentially dilutive securities. As of June 30, 2016, there were 489,282 shares of Class A restricted stock
units and 587,607 Class A stock options outstanding and considered to be potentially dilutive securities.
Class B
There are no participating securities or potentially dilutive
securities relating to the Class B common stock. The Class B shares were all converted to Class A shares in May 2016.
The components of the calculation of basic earnings per share
and diluted earnings per share are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
|
|
$
|
3,211
|
|
|
$
|
(4,185
|
)
|
|
$
|
8,641
|
|
|
$
|
(12,881
|
)
|
Income/(loss) from discontinued operations
|
|
|
-
|
|
|
|
34,045
|
|
|
|
-
|
|
|
|
93,481
|
|
Net income
|
|
$
|
3,211
|
|
|
$
|
29,860
|
|
|
$
|
8,641
|
|
|
$
|
80,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock - basic
|
|
|
87,769,483
|
|
|
|
92,255,692
|
|
|
|
88,309,231
|
|
|
|
93,496,651
|
|
Class A common stock - diluted
|
|
|
87,964,755
|
|
|
|
92,321,359
|
|
|
|
88,542,779
|
|
|
|
93,531,462
|
|
Class B common stock - basic and diluted
|
|
|
-
|
|
|
|
826,794
|
|
|
|
-
|
|
|
|
1,073,382
|
|
|
(1)
|
For the three and six months ended June 30, 2017 and
2016, income/(loss) from continuing operations allocated to participating securities relates to unvested restricted stock and
for the three and six months ended June 30, 2016, income from discontinued operations allocated to participating securities relates
to amounts equivalent to the cash dividends declared.
|
|
(2)
|
The 2016 loss allocated to Class B common stockholders
includes amounts equivalent to the special cash dividends declared on the Class B common stock shares.
|
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
For the three and six months ended June 30, 2017, there were
195,272 and 233,548, respectively, dilutive equity awards outstanding and for the three and six months ended June 30, 2016, there
were 65,667 and 34,811, respectively, dilutive equity awards outstanding. Awards of 687,505 and 877,271 (which includes restricted
stock units and stock options) for the three and six months ended June 30, 2017 were not included in the computation of diluted
earnings per share because inclusion of these awards would be anti-dilutive.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 5 — Discontinued Operations:
As discussed in Note 1, on November 30, 2016 the Company completed
the separation of its business into two independent publicly-traded companies through the spin-off of INSW. In connection with
the spin-off, OSG and INSW entered into a number of agreements that provide a framework for governing the relationships between
the parties going forward.
Separation and Distribution Agreement
OSG entered into a separation and distribution agreement (the
“Separation and Distribution Agreement”) with INSW, which among other things, sets forth other agreements that govern
the aspects of the relationship as follows.
Transfer of Assets and Assumption of Liabilities.
The
Separation and Distribution Agreement identified certain transfers of assets and assumptions of liabilities that were necessary
in advance of the spin-off of INSW from OSG so that OSG and INSW retained the assets of, and the liabilities associated with, their
respective businesses. The Separation and Distribution Agreement also provided for the settlement or extinguishment of certain
liabilities and other obligations between OSG and INSW.
Legal Matters and Claims; Sharing of Certain Liabilities.
Subject to any specified exceptions, each party to the Separation and Distribution Agreement has assumed the liability for, and
control of, all pending and threatened legal matters related to its own business, as well as assumed or retained liabilities, and
has indemnified the other party for any liability arising out of or resulting from such assumed legal matters.
Other Matters.
In addition to those matters discussed
above, the Separation and Distribution Agreement, among other things, (i) governs the transfer of assets and liabilities generally,
(ii) terminates all intercompany arrangements between OSG and INSW except for specified agreements and arrangements that follow
the Distribution, (iii) contains further assurances, terms and conditions that require OSG and INSW to use commercially reasonable
efforts to consummate the transactions contemplated by the Separation and Distribution Agreement and the ancillary agreements,
(iv) releases certain claims between the parties and their affiliates, successors and assigns, (v) contains mutual indemnification
clauses and (vi) allocates expenses of the spin-off between the parties.
Transition Services Agreement
OSG and INSW entered into a transition services agreement (the
“TSA” or “Transition Services Agreement”) pursuant to which both parties agreed to provide each other with
specified services for a limited time to help ensure an orderly transition following the Distribution. The Transition Services
Agreement specifies the calculation of the costs for these services. Pursuant to the terms of the agreement, OSG will provide certain
administrative services, including administrative support services related to benefit plans, human resources and legal services,
for a transitional period after the spin-off. Similarly, INSW has agreed to provide certain limited transition services to OSG,
including services relating to accounting activities and information and data provision services. The Transition Services Agreement
will terminate 30 days after the expiration or termination of all of the services provided thereunder, which are generally provided
for a maximum period of three to six months. During Q2 2017, this agreement terminated.
Employee Matters Agreement
OSG and INSW entered into an employee matters agreement (the
“Employee Matters Agreement”), which addresses the allocation and treatment of assets and liabilities relating to employees
and compensation and benefit plans and programs in which INSW employees participated, including equity incentive plans. The Employee
Matters Agreement also governs the transfer of employees between OSG and INSW in connection with the Distribution and set forth
certain obligations for reimbursements and indemnities between OSG and INSW. During Q2 2017, this agreement terminated.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Results of Discontinued Operations
The table below presents statements of operations data for INSW,
which has been classified as discontinued operations for the three and six months ended June 30, 2016.
|
|
Three Months Ended
June 30, 2016
|
|
|
Six Months Ended
June 30, 2016
|
|
Shipping revenues:
|
|
|
|
|
|
|
|
|
Pool revenues
|
|
$
|
66,706
|
|
|
$
|
157,234
|
|
Time and bareboat charter revenues
|
|
|
28,660
|
|
|
|
50,343
|
|
Voyage charter revenues
|
|
|
7,698
|
|
|
|
24,161
|
|
|
|
|
103,064
|
|
|
|
231,738
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
2,107
|
|
|
|
6,074
|
|
Vessel expenses
|
|
|
34,400
|
|
|
|
69,538
|
|
Charter hire expenses
|
|
|
8,595
|
|
|
|
16,810
|
|
Depreciation and amortization
|
|
|
19,920
|
|
|
|
39,880
|
|
General and administrative
|
|
|
4,853
|
|
|
|
9,140
|
|
Spin-off related costs
|
|
|
1,090
|
|
|
|
1,223
|
|
Gain on disposal of vessels and other property, including impairments
|
|
|
-
|
|
|
|
(172
|
)
|
Total Operating Expenses
|
|
|
70,965
|
|
|
|
142,493
|
|
Income from Vessel Operations
|
|
|
32,099
|
|
|
|
89,245
|
|
Equity in Income of Affiliated Companies
|
|
|
11,985
|
|
|
|
23,606
|
|
Operating Income
|
|
|
44,084
|
|
|
|
112,851
|
|
Other Income
|
|
|
(176
|
)
|
|
|
1,239
|
|
Income before Interest Expense, Reorganization Items and Taxes
|
|
|
43,908
|
|
|
|
114,090
|
|
Interest expense
|
|
|
9,690
|
|
|
|
20,432
|
|
Income before Reorganization Items and Income Taxes
|
|
|
34,218
|
|
|
|
93,658
|
|
Reorganization Items, net
|
|
|
-
|
|
|
|
-
|
|
Income before Income Taxes
|
|
|
34,218
|
|
|
|
93,658
|
|
Income Tax Provision
|
|
|
173
|
|
|
|
177
|
|
Net Income
|
|
$
|
34,045
|
|
|
$
|
93,481
|
|
Corporate administrative expenses, employee compensation and
benefits related costs, and depreciation for certain administrative fixed assets were allocated to INSW through June 30, 2016,
in accordance with the "Shared Services and Cost Sharing Agreement" and the "Cost Sharing Agreement" by and
among, OSG, INSW and OBS. However, in accordance with the accounting standards for discontinued operations, only costs directly
attributable to INSW are to be reported in the results from discontinued operations. As such, the allocated costs in the table
above will differ from the costs allocated to INSW (and reported or to be reported by INSW) in accordance with the aforementioned
cost sharing agreements as discussed further in Note 10, “Related Parties.” Total indirect costs allocated to INSW
that are included in continuing operations in the consolidated statement of operations were $2,606 and $6,236 for the three and
six months ended June 30, 2016, respectively.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 6 — Vessels:
Vessel Impairments and Change in Useful Lives of Vessels
The Company gave consideration as to whether events or changes
in circumstances had occurred since December 31, 2016 that could indicate that the carrying amounts of the vessels in the Company’s
fleet may not be recoverable as of June 30, 2017. The Company concluded that no such events or changes in circumstances had occurred.
Vessel Sales and Acquisitions
There were no vessels sold or acquired during the three and
six months ended June 30, 2017 or 2016.
Note 7 — Fair Value of Financial Instruments, Derivatives
and Fair Value Disclosures:
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 condensed consolidated balance sheet 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.
Interest rate caps—
The fair values of interest
rate caps are the estimated amounts that the Company would receive or pay to terminate the caps at the reporting date, which include
adjustments for the counterparty or the Company’s credit risk, as appropriate, after taking into consideration any underlying
collateral securing the swap or cap agreements.
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
The estimated fair values of the Company’s
financial instruments, other than derivatives, that are not measured at fair value on a recurring basis, categorized based upon
the fair value hierarchy, are as follows:
|
|
Carrying
|
|
|
Fair Value
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
(1)
|
|
$
|
210,510
|
|
|
$
|
210,510
|
|
|
$
|
-
|
|
Total
|
|
$
|
210,510
|
|
|
$
|
210,510
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
8.125% notes due 2018
|
|
$
|
61,872
|
|
|
$
|
-
|
|
|
$
|
64,412
|
|
OBS Term loan
|
|
|
446,170
|
|
|
|
-
|
|
|
|
432,524
|
|
7.5% Election 2 notes due 2021
|
|
|
294
|
|
|
|
-
|
|
|
|
308
|
|
7.5% notes due 2024
|
|
|
390
|
|
|
|
-
|
|
|
|
380
|
|
Total
|
|
$
|
508,726
|
|
|
$
|
-
|
|
|
$
|
497,624
|
|
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
|
|
Carrying
|
|
|
Fair Value
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
(1)
|
|
$
|
206,933
|
|
|
$
|
206,933
|
|
|
$
|
-
|
|
Total
|
|
$
|
206,933
|
|
|
$
|
206,933
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
8.125% notes due 2018
|
|
$
|
80,213
|
|
|
$
|
-
|
|
|
$
|
84,935
|
|
OBS Term loan
|
|
|
444,186
|
|
|
|
-
|
|
|
|
442,199
|
|
7.5% Election 2 notes due 2021
|
|
|
293
|
|
|
|
-
|
|
|
|
303
|
|
7.5% notes due 2024
|
|
|
390
|
|
|
|
-
|
|
|
|
392
|
|
Total
|
|
$
|
525,082
|
|
|
$
|
-
|
|
|
$
|
527,829
|
|
|
(1)
|
Includes current and non-current restricted cash aggregating
$5,935 and $15,844 at June 30, 2017 and December 31, 2016, respectively.
|
Derivatives
Interest Rate Risk
The Company manages its exposure to interest rate volatility
risks by using interest rate caps and swap derivative instruments. At June 30, 2017, OBS was a party to an interest rate cap agreement
(“Interest Rate Cap”) with a start date of February 5, 2015 with a major financial institution covering a notional
amount of $375,000 to limit the floating interest rate exposure associated with the OBS Term Loan. The Interest Rate Cap was designated
and qualified as a cash flow hedge and contains no leverage features. The Interest Rate Cap had a cap rate of 2.5% through February
5, 2017, at which time the cap rate increased to 3.0% through the termination date of February 5, 2018.
The following tables present information with respect to gains
and losses on derivative positions reflected in the condensed consolidated statements of operations or in the condensed consolidated
statements of other comprehensive income.
The effect of cash flow hedging relationships recognized in
other comprehensive income/(loss) excluding amounts reclassified from accumulated other comprehensive loss (effective portion)
for the three and six months ended June 30, 2017 and 2016 is as follows:
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Interest Rate Cap of continuing operations
|
|
$
|
(202
|
)
|
|
$
|
(15
|
)
|
Interest Rate Cap of discontinued operations
|
|
|
-
|
|
|
|
1
|
|
Interest rate swaps of discontinued operations
|
|
|
-
|
|
|
|
(4,463
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(202
|
)
|
|
$
|
(4,477
|
)
|
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Interest Rate Cap of continuing operations
|
|
$
|
669
|
|
|
$
|
1,207
|
|
Interest Rate Cap of discontinued operations
|
|
|
-
|
|
|
|
(1,307
|
)
|
Interest rate swaps of discontinued operations
|
|
|
-
|
|
|
|
(15,669
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
669
|
|
|
$
|
(15,769
|
)
|
The effect of cash flow hedging relationships on the unaudited
condensed consolidated statement of operations excludes hedges of equity method investees. The effect of the Company’s cash
flow hedging relationships on the unaudited condensed consolidated statement of operations for the three and six months ended June
30, 2017 were $317 and $551, respectively, and $105 and $133 for the three and six months ended June 30, 2016, respectively. These
amounts represented the effective portion of loss reclassified from accumulated other comprehensive loss for interest expense associated
with the Company’s interest rate caps. The amount of estimated unrealized losses that are expected to be reclassified from
accumulated other comprehensive loss for interest expense associated with the Company’s interest rate caps in the next twelve
months is $1,052.
See Note 12, “Accumulated Other Comprehensive Loss,”
for disclosures relating to the impact of derivative instruments on accumulated other comprehensive loss.
At June 30, 2017 and December 31, 2016,
the Company did not have any financial instruments categorized in the Level 3 fair value hierarchy.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 8 — Debt:
Exit Financing Facilities
Capitalized terms used hereafter in this Note 8 have the meanings
given in this Quarterly Report on Form 10-Q or in the Company’s 2016 Annual Report on Form 10-K or in the respective transaction
documents referred to below, including subsequent amendments thereto.
On the Effective Date, to support the Equity Plan, OSG and its
subsidiaries entered into secured debt facilities consisting of: (i) a secured asset-based revolving loan facility of $75,000,
among the Parent Company, OBS, certain OBS subsidiaries, Wells Fargo Bank, National Association (“Wells Fargo”) as
Administrative Agent, and the other lenders party thereto (the “OBS ABL Facility”), secured by a first lien on substantially
all of the U.S. Flag assets of OBS and its subsidiaries and a second lien on certain other specified U.S. Flag assets and (ii)
a secured term loan of $603,000, among the Parent Company, OBS, certain OBS subsidiaries, Jefferies Finance LLC (“Jefferies”),
as Administrative Agent, and other lenders party thereto (the “OBS Term Loan”), secured by a first lien on certain
specified U.S. Flag assets of OBS and its subsidiaries and a second lien on substantially all of the other U.S. Flag assets of
OBS and its subsidiaries. On August 5, 2014, the available amounts under the OBS Term Loan were drawn in full and as of June 30,
2017, no amounts had been drawn under the OBS ABL Facility.
The OBS Term Loan amortizes in equal
quarterly installments in aggregate annual amounts equal to 1% of the original principal amount of the loans, adjusted for optional
and mandatory prepayments. However, due to a $20,000 prepayment made on May 16, 2016, the Company is no longer required to make
the 1% annualized principal payments. The OBS Term Loan stipulates that if annual aggregate net cash proceeds of asset sales exceed
$5,000, the net cash proceeds from each such sale are required to be reinvested in fixed or capital assets within twelve months
of such sale or be used to prepay the principal balance outstanding of the facility. The OBS Term Loan is subject to additional
mandatory annual prepayments in an aggregate principal amount of up to 50% of Excess Cash Flow.
Management determined that it had Excess
Cash Flow under the OBS Term Loan for the six months ended June 30, 2017 and has projected the amount of Excess Cash Flow for the
twelve months ended December 31, 2017. The mandatory prepayment, which is estimated to be approximately $24,714 will be due during
the first quarter of 2018, and is therefore included in current installments of long-term debt on the condensed consolidated balance
sheet as of June 30, 2017.
The Exit Financing Facilities also
contain certain restrictions relating to new borrowings, and the movement of funds between OBS and OSG (as Parent Company), which
is not a borrower under the Exit Financing Facilities, as set forth in the respective loan agreements. The Parent Company’s
ability to receive cash dividends, loans or advances from OBS is restricted under the Exit Financing Facilities. The Available
Amount for cash dividends, loans or advances to the Parent Company permitted under the OBS Term Loan was $43,592 as of June 30,
2017.
The OBS ABL Facility matures on February 5, 2019. However, to
the extent that any of the 8.125% notes due 2018 are outstanding on December 29, 2017, the maturity date of the OBS ABL Facility
will be December 29, 2017. To remain in compliance with the OBS ABL Facility, the Company’s plan, as of June 30, 2017, is
to pay off or refinance the outstanding balance on its 8.125% unsecured notes by December 29, 2017.
Unsecured Senior Notes
During the six months ended June 30, 2017, the Company repurchased
and retired an aggregate principal amount of $19,083 of its 8.125% notes due 2018. The aggregate loss of $1,189 realized on this
transaction during the six months ended June 30, 2017, is included in other (expense)/income in the condensed consolidated statements of
operations. The net loss reflects a $264 write-off of unamortized deferred finance costs associated with the repurchased debt.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 9 — Taxes:
For the three months ended June 30, 2017 and 2016, the Company
recorded income tax provisions of $1,593 and $15,075, respectively, which represent effective tax rates of 33% and 138%, respectively.
For the six months ended June 30, 2017 and 2016, the Company recorded income tax provisions of $5,162 and $48,310, respectively,
which represent effective tax rates of 37% and 136% respectively. The effective tax rate for the six months ending June 30, 2017
is greater than the statutory rate primarily as a result of an income tax provision resulting from stock compensation pursuant
to ASU 2016-09 offset in part by the non-taxability of income subject to U.S. tonnage tax. The effective tax rate for the six months
ending June 30, 2016 is greater than the statutory rate primarily as a result of management’s determination that, prior to
the spin-off of INSW, the Company could not make an assertion that OSG’s investment in INSW was essentially permanent in
duration and recorded a deferred tax liability for INSW’s 2016 earnings.
As of June 30, 2017 and December 31, 2016, the Company recorded
a noncurrent reserve for uncertain tax positions of $3,175 and $3,129, respectively, after taking into consideration tax attributes,
such as net operating loss carryforwards, and accrued interest of $806 and $760, respectively.
The Company is currently undergoing an examination by the Internal
Revenue Service of its 2012 through 2015 tax returns. As of June 30, 2017, the IRS has not proposed any adjustments and continues
to issue Information Document Requests.
Note 10 — Related Parties:
Equity Method Investment
Investment in affiliated company is comprised of the Company’s
37.5% interest in Alaska Tanker Company, LLC, which manages vessels carrying Alaskan crude for BP. In the first quarter of 1999,
OSG, BP, and Keystone Shipping Company formed Alaska Tanker Company, LLC (“ATC”) to manage the vessels carrying crude
oil for BP. ATC provides marine transportation services in the environmentally sensitive Alaskan crude oil trade. Each member in
ATC is entitled to receive its respective share of any incentive charter hire payable by BP to ATC.
Transition Services Agreement and Other Spin-off Related
Activity
During the three and six months ended June 30, 2017, OSG earned
fees totaling $49 and $126 for services provided to INSW and, during the three and six months ended June 30, 2017, incurred fees
totaling $2 and $53 for services received from INSW, pursuant to the terms of the Transition Services Agreement.
Receivables from INSW aggregating $506 and $683 as of June 30,
2017 and December 31, 2016, respectively, were primarily in relation to the spin-related agreements (Transition Services, Separation
and Distribution and Employee Matters Agreements) between OSG and INSW, as described in Note 5, “Discontinued Operations.”
Guarantees
INSW entered into guarantee arrangements in connection with
the spin-off on November 30, 2016, in favor of Qatar Liquefied Gas Company Limited (2) (“LNG Charterer”) and relating
to certain LNG Tanker Time Charter Party Agreements with the LNG Charterer and each of Overseas LNG H1 Corporation, Overseas LNG
H2 Corporation, Overseas LNG S1 Corporation and Overseas LNG S2 Corporation (such agreements, the “LNG Charter Party Agreements,”
and such guarantees, collectively, the “LNG Performance Guarantees”).
OSG continues to provide a guarantee in favor of the LNG Charterer
relating to the LNG Charter Party Agreements (such guarantees, the ‘‘OSG LNG Performance Guarantee’’).
INSW will indemnify OSG for liabilities arising from the OSG LNG Performance Guarantees pursuant to the terms of the Separation
and Distribution Agreement. In connection with the OSG LNG Performance Guarantees, INSW will pay a $125 fee per year to OSG, which
is subject to escalation after 2017 and will be terminated if OSG ceases to provide the OSG LNG Performance Guarantee. The maximum
potential liability of the guarantee is $30,235.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 11 — Capital Stock and Stock Compensation:
Share and Warrant Repurchases
During the six months ended June 30, 2016, the Company repurchased
106,350 shares of its Class A common stock in open-market purchases on the NYSE MKT at an average price of $12.23 per share, for
a total cost of $1,301. In addition, during the six months ended June 30, 2016, the Company repurchased 33,326,716 Class A warrants
in private transactions with non-affiliates at an average per share equivalent cost of $12.05 for a total cost of $75,347.
In connection with the vesting of restricted stock units during
the six months ended June 30, 2016, the Company repurchased 22,113 shares of Class A common stock at an average cost of $14.67
per share (based on the market prices on the dates of vesting) from certain members of management to cover withholding taxes.
Warrant Conversions
During the six months ended June 30, 2017, the Company issued
4,477,726 shares of Class A common stock as a result of the exercise of 23,625,925 Class A warrants. During the six months ended
June 30, 2016, the Company issued 6,604,494 shares of Class A common stock and 7,833 shares of Class B common stock as a result
of the exercise of 35,178,898 Class A warrants and 46,997 Class B warrants, respectively.
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 Common
Stock
The Company awarded a total of 253,700 restricted Class A common
stock shares during the three and six months ended June 30, 2017 to its non-employee directors. At the annual shareholders meeting
during Q2 2017, the Company’s shareholders approved to increase this award by 1,500 shares. The weighted average grant date
fair value of the Company’s stock on the measurement date of such awards was $2.68 per share. During the three and six months
ended June 30, 2016, the Company awarded a total of 65,769 restricted Class A common stock shares to its non-employee directors.
The weighted average grant date fair value of the Company’s stock on the measurement date of such awards was $11.86 per share.
Such restricted shares awards 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 restricted share
awards granted may not be transferred, pledged, assigned or otherwise encumbered prior to vesting. Prior to the vesting date, a
holder of restricted share awards otherwise has all 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 at the same time as common shareholders generally.
Management Compensation
—
Restricted Stock
Units and Stock Options
During the three and six months ended June 30, 2017, the Company
respectively granted 0 and 165,010
time-based
restricted stock units (“RSUs”) to its employees, including senior officers. The average grant date fair value of these
awards was $4.04 per RSU. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each
award of RSUs will vest in equal installments on each of the first three anniversaries of the grant date.
During the three and six months ended June 30, 2017, the Company
respectively awarded 0 and 63,532 performance-based RSUs to its senior officers. Each performance stock unit represents a contingent
right to receive RSUs based upon continuous employment through the end of the three-year performance period commencing on January
1, 2017 and ending on December 31, 2019 (the “Performance Period”) and shall vest as follows: (i) one-half of the target
RSUs shall vest and become nonforfeitable on March 23, 2020, 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”)
performance relative to that of a performance peer group over a three-year TSR performance period (“TSR Target”). The
peer group will consist of companies that comprise the Standard and Poor’s Transportation Select Index during the performance
Period. Vesting is subject in each case to the Human Resources and Compensation Committee’s (“HRC”) certification
of achievement of the performance measures and targets no later than March 31, 2020.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Both the ROIC target RSUs and the TSR target RSUs are subject
to an increase up to a maximum of 47,647 target RSU’s (aggregate 95,294 target RSU’s) or decrease depending on performance
against the applicable measure and targets. The ROIC Performance Goal is a performance condition which, as of June 30, 2017, management
believed, was considered probable of being achieved. Accordingly, for financial reporting purposes, compensation costs have been
recognized. The grant date fair value of the TSR based performance awards, which has a market condition, was determined to be $4.04
per RSU.
During the three and six months ended June 30, 2017, the Company
respectively awarded 0 and 135,804 stock options to certain senior officers. Each stock option represents an option to purchase
one share of Class A common stock for an exercise price of $4.04 per share. The average grant date fair value of the options was
$1.89 per option. Stock options may not be transferred, pledged, assigned or otherwise encumbered prior to vesting. Each stock
option will vest in equal installments on each of the first three anniversaries of the award 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.
Note 12 — Accumulated Other Comprehensive Loss:
The components of accumulated other comprehensive loss, net
of related taxes, in the condensed consolidated balance sheets follow:
|
|
June 30,
|
|
|
December 31,
|
|
As of
|
|
2017
|
|
|
2016
|
|
Unrealized losses on derivative instruments
|
|
$
|
(669
|
)
|
|
$
|
(1,019
|
)
|
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans)
|
|
|
(6,806
|
)
|
|
|
(7,141
|
)
|
|
|
$
|
(7,475
|
)
|
|
$
|
(8,160
|
)
|
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
The following table present the changes in the balances of each
component of accumulated other comprehensive loss, net of related taxes, during three and six months ended June 30, 2017 and 2016:
|
|
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 March 31, 2017
|
|
$
|
(871
|
)
|
|
$
|
(7,141
|
)
|
|
$
|
(8,012
|
)
|
Current period change, excluding amounts reclassified from accumulated other comprehensive income
|
|
|
(115
|
)
|
|
|
335
|
|
|
|
220
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
317
|
|
|
|
-
|
|
|
|
317
|
|
Total change in accumulated other comprehensive income
|
|
|
202
|
|
|
|
335
|
|
|
|
537
|
|
Balance as of June 30, 2017
|
|
$
|
(669
|
)
|
|
$
|
(6,806
|
)
|
|
$
|
(7,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2016
|
|
$
|
(1,222
|
)
|
|
$
|
(8,206
|
)
|
|
$
|
(9,428
|
)
|
Current period change, excluding amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive income
|
|
|
(21
|
)
|
|
|
-
|
|
|
|
(21
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
37
|
|
|
|
-
|
|
|
|
37
|
|
Total change in accumulated other comprehensive loss
|
|
|
16
|
|
|
|
-
|
|
|
|
16
|
|
Balance as of June 30, 2016
|
|
$
|
(1,206
|
)
|
|
$
|
(8,206
|
)
|
|
$
|
(9,412
|
)
|
|
|
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, 2016
|
|
$
|
(1,019
|
)
|
|
$
|
(7,141
|
)
|
|
$
|
(8,160
|
)
|
Current period change, excluding amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive loss
|
|
|
(200
|
)
|
|
|
335
|
|
|
|
135
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
550
|
|
|
|
-
|
|
|
|
550
|
|
Total change in accumulated other comprehensive loss
|
|
|
350
|
|
|
|
335
|
|
|
|
685
|
|
Balance as of June 30, 2017
|
|
$
|
(669
|
)
|
|
$
|
(6,806
|
)
|
|
$
|
(7,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
(54,620
|
)
|
|
$
|
(18,841
|
)
|
|
$
|
(73,461
|
)
|
Current period change, excluding amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive loss
|
|
|
(11,286
|
)
|
|
|
-
|
|
|
|
(11,286
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
4,337
|
|
|
|
-
|
|
|
|
4,337
|
|
Capital effects of INSW spin - discontinued operations
|
|
|
60,363
|
|
|
|
10,635
|
|
|
|
70,998
|
|
Total change in accumulated other comprehensive loss
|
|
|
53,414
|
|
|
|
10,635
|
|
|
|
64,049
|
|
Balance as of June 30, 2016
|
|
$
|
(1,206
|
)
|
|
$
|
(8,206
|
)
|
|
$
|
(9,412
|
)
|
The income tax (benefit)/expense allocated to unrealized (losses)/gains
on cash flow hedges for the three and six months ended June 30, 2017 was $(115) and $(198), respectively, and was $(8) and $19
for the three and six months ended June 30, 2016. These amounts reflected the current period change, excluding amounts reclassified
from accumulated other comprehensive loss.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 13 — Leases:
1. Charters-in:
As of June 30, 2017, the Company had commitments to charter-in
10 vessels. All of the charters-in are accounted for as operating leases and all are bareboat charters. Lease expense relating
to charters-in is included in charter hire expenses in the condensed consolidated statements of operations. The future minimum
commitments and related number of operating days under these operating leases are as follows:
Bareboat Charters-in:
At June 30, 2017
|
|
Amount
|
|
|
Operating Days
|
|
2017
|
|
$
|
47,088
|
|
|
|
1,840
|
|
2018
|
|
|
91,457
|
|
|
|
3,650
|
|
2019
|
|
|
111,819
|
|
|
|
3,470
|
|
2020
|
|
|
9,168
|
|
|
|
366
|
|
2021
|
|
|
9,143
|
|
|
|
365
|
|
Thereafter
|
|
|
31,989
|
|
|
|
1,277
|
|
Net minimum lease payments
|
|
$
|
300,664
|
|
|
|
10,968
|
|
Certain of the bareboat charters-in provide for the payment
of profit share to the owners of the vessels calculated in accordance with the respective charter agreements. 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
through December 31, 2019. Certain of the charters in the above table also provide the Company with renewal and purchase options.
2. Charters-out:
The future minimum revenues, before reduction for brokerage
commissions, expected to be received on noncancelable time charters and certain contracts of affreightment (“COAs”)
for which minimum annual revenues can be reasonably estimated and the related revenue days (calendar days, less days on which vessels
are not available for employment due to repairs, drydock or lay-up) are as follows:
At June 30, 2017
|
|
Amount
|
|
|
Revenue
Days
|
|
2017
|
|
$
|
119,622
|
|
|
|
2,113
|
|
2018
|
|
|
153,125
|
|
|
|
2,172
|
|
2019
|
|
|
78,488
|
|
|
|
938
|
|
2020
|
|
|
43,658
|
|
|
|
531
|
|
2021
|
|
|
26,624
|
|
|
|
324
|
|
Thereafter
|
|
|
108,050
|
|
|
|
1,250
|
|
Net minimum lease receipts
|
|
$
|
529,567
|
|
|
|
7,328
|
|
Future minimum revenues do not include COAs for which minimum
annual revenues cannot be reasonably estimated. Revenues from those COAs that are included in the table above, $11,214 (2017),
$22,698 (2018), $23,031 (2019) and $6,356 (2020), are based on minimum annual volumes of cargo to be loaded during the contract
periods at a fixed price and do not contemplate early termination of the COAs as provided in the agreements. Amounts that would
be due to the Company in the event of the cancellation of the COA contracts have not been reflected in the table above. 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 there is no assurance that such estimate will be reflective of the actual off-hire in the
future.
OVERSEAS SHIPHOLDING GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Note 14 — Contingencies:
The Company’s policy for recording legal costs related
to contingencies is to expense such legal costs as incurred.
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.
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES