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. Certain prior period amounts have been reclassified in the Consolidated Statements of Cash Flows to conform to the current period presentation. The reclassifications in the Consolidated Statements of Cash Flows had no impact on net cash provided by operating activities and net cash provided by/(used in) investing and financing activities.
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 its wholly owned subsidiary, OSG Bulk Ships, Inc. (“OBS”), a New York corporation.
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 management. OSG retained the U.S. Flag business and relocated its headquarters to Tampa, Florida.
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. These agreements governed the relationship between and INSW and OSG following the spin-off and provided for the allocation of various assets, liabilities, rights and obligations. These agreements also included a Transition Services Agreement and an Employee Matters Agreement, which expired during 2017, covering arrangements for transition services to be provided by OSG to INSW and by INSW to OSG. See Note 5, "Discontinued Operations, " for additional information.
In accordance with Accounting Standards Update (“ASU”) 2014-8,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
, the assets and liabilities and results of operations of INSW are reported as discontinued operations, net of taxes, for all periods presented. Accordingly, all references made to financial data in this Annual Report on Form 10-K are to the Company’s continuing operations unless specifically noted. See Note 5, “Discontinued Operations,” for additional information.
As further discussed in Note 14, “Capital Stock and Stock Compensation,” 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 (the “record date”), 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, as discussed further in Note 14, effective May 27, 2016, all Class B common shares and Class B warrants 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 (1) for six (6) 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.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 260,
Earnings Per Share
, the Company adjusted the computations of basic and diluted earnings per share retroactively for all periods presented to reflect that change in its capital structure. Accordingly, amounts previously reported in 2015 with respect to earnings per share, outstanding Class A shares, Class A restricted stock units, restricted shares and stock options have been restated where appropriate. See Note 4, “Earnings per Common Share,” for additional information.
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57
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Overseas Shipholding Group, Inc.
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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 (the "Effective Date"), 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 the 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
$5,000
civil penalty relating to the investigation in February 2017, which was fully accrued as of
December 31, 2016
. The settlement with the SEC does not require any further changes to the Company’s historical financial statements. Any indemnification or contribution claims by officers or directors of the Company that could be asserted in connection with the SEC’s investigation have been released or otherwise resolved pursuant to the Equity Plan and order of the Bankruptcy Court.
On February 10, 2017, pursuant to a final decree and order of the Bankruptcy Court, OSG’s one remaining case, as the Parent Company, was closed.
Reorganization Items, net
Reorganization items, net represent amounts incurred after the Petition Date as a direct result of the filing of the Chapter 11 cases and are comprised of the following:
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Years Ended December 31,
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2017
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2016
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2015
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Trustee fees
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$
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5
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$
|
100
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$
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217
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Professional fees
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185
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2,288
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8,027
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Litigation settlement, net
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—
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(20,359
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)
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—
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Litigation settlement due to class action plaintiffs
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—
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2,136
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—
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Litigation settlement due to Class B warrant holders
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—
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86
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|
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—
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Provision for claims
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—
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4,824
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|
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—
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Other claim adjustments
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—
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—
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(192
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)
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$
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190
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$
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(10,925
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)
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$
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8,052
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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 three months ended March 31, 2016 are included in litigation settlement, net in the table above.
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58
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Overseas Shipholding Group, Inc.
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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 year ended December 31, 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.
Cash paid for reorganization items, excluding the Proskauer related settlement amounts noted above, was
$295
,
$2,455
, and
$18,068
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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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. Pursuant to the terms of the OBS Facility, in the event of a spinoff of INSW, the Company was required to set aside, in an escrow account, cash in an aggregate amount of not less than the sum of all accrued and unpaid interest on the outstanding Unsecured Senior Notes (as defined in Note 9, “Debt”) through the date of the consummation of the INSW Spinoff and all interest expense that will accrue under the respective outstanding Unsecured Senior Notes from the date of the consummation of the INSW Spinoff through the maturity of the respective Unsecured Senior Notes. Activity relating to restricted cash is reflected in investing activities in the consolidated statements of cash flow. Additionally, management had designated cash reserves of
$5,576
as of December 31, 2016 to be utilized for the settlement of certain unsecured claims related to the Company's emergence from bankruptcy.
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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
3
years to
15 years
.
Interest costs are capitalized to vessels during the period that vessels are under construction however,
no
interest was capitalized during
2017
,
2016
or
2015
, as there were no vessels under construction.
Expenditures incurred during a drydocking are deferred and amortized on the straight-line basis over 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.
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.
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
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59
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Overseas Shipholding Group, Inc.
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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 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” for further discussion on the impairment tests performed on certain of our vessels during the three years ended
December 31, 2017
.
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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 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” for further discussion on the impairment test performed on the Company's intangible assets at
December 31, 2017
.
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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 either an effective interest method or straight-line basis over the life of the related debt.
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Unamortized deferred finance charges of
$418
and
$800
relating to the OBS ABL Facility (as defined in Note 9, “Debt”) are included in other assets in the consolidated balance sheets as of
December 31, 2017
and
2016
, respectively. Unamortized deferred financing charges of
$7,037
and
$10,421
relating to the OBS Term Loan (as defined in Note 9, “Debt”) and
$0
and
$1,414
relating to the Unsecured Senior Notes are included in long-term debt in the consolidated balance sheets as of
December 31, 2017
and
2016
, respectively. At December 31, 2017, unamortized deferred financing charges of
$6
relating to the Unsecured Senior Notes are included in current installments of long-term debt in the consolidated balance sheets. Interest expense relating to the amortization of deferred financing charges amounted to
$5,167
in
2017
,
$6,005
in
2016
and
$5,154
in
2015
.
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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. Under existing U.S. GAAP in 2017 and prior, voyage revenues and expenses are recognized ratably over the estimated length of each voyage, calculated on a discharge-to-discharge basis and, therefore, are allocated between reporting periods based on the relative transit time in each period. The impact of recognizing voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. OSG does not begin recognizing voyage revenue until a charter has been agreed to by both the Company and the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.
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The Company will adopt ASU No. 2014-9,
Revenue from Contracts with Customers (ASC 606)
, on January 1, 2018. Under the new standard, the Company will recognize revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. See “Recently adopted accounting standards” below for further details.
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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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, 2017
and
2016
are net of an allowance for doubtful accounts of
$682
and
$70
, respectively. The provisions for doubtful accounts for the years ended
December 31, 2017
,
2016
and
2015
were not material.
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During the year ended December 31, 2017, the Company had three individual customers who accounted for
10%
or more of our revenues as follows:
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60
|
Overseas Shipholding Group, Inc.
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Percentage of Shipping Revenue
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Customer Name
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2017
|
Andeavor
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16
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%
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Petrobras America Inc.
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15
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%
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Shell
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10
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%
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During the years ended
December 31, 2016
and
2015
, the Company had four individual customers who accounted for
10%
or more of our revenues as follows:
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Percentage of Shipping Revenue
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Customer Name
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2016
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|
2015
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Andeavor
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16
|
%
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15
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%
|
Petrobras America Inc.
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12
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%
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12
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%
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Shell
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12
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%
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11
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%
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Marathon Petroleum Company
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11
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%
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14
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%
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9.
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Derivatives
- ASC 815,
Derivatives and Hedging
, requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not effective hedges must be adjusted to fair value through earnings. If the derivative is an effective hedge, depending on the nature of the hedge, a change in the fair value of the derivative is either offset against the change in fair value of the hedged item (fair value hedge), or recognized in other comprehensive income/(loss) and reclassified into earnings in the same period or periods during which the hedge transaction affects earnings (cash flow hedge). The ineffective portion (that is, the change in fair value of the derivative that does not offset the change in fair value of the hedged item) of an effective hedge and the full amount of the change in fair value of derivative instruments that do not qualify for hedge accounting are immediately recognized in earnings.
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The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses (both at the hedge's inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item such as forecasted transactions; (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate or desired.
When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive loss and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive loss will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current period earnings, unless it is designated in a new hedging relationship or terminated.
During the three years ended
December 31, 2017
,
no
ineffectiveness gains or losses were recorded in earnings relative to interest rate caps entered into by the Company or its subsidiaries that qualified for hedge accounting. Any gain or loss realized upon the early termination of an interest rate cap is recognized as an adjustment of interest expense over the shorter of the remaining term of the cap or the hedged debt. See Note 10, “Fair Value of Financial Instruments,
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61
|
Overseas Shipholding Group, Inc.
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Derivatives and Fair Value Disclosures,” for additional disclosures on the Company’s interest rate caps and other financial instruments.
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10.
|
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.
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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11.
|
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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12.
|
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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13.
|
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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14.
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Recently adopted accounting standards
- In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASC 205)
, which explicitly requires management to assess an entity’s ability to continue as a going concern and disclose going concern uncertainties in connection with each annual and interim period. The new standard requires management to assess if there is substantial doubt about an entity’s ability to continue to meet its obligations within one year after the reporting date based upon management’s consideration of relevant conditions that are known (and reasonably knowable) at the issuance date. The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. The new standard was effective for all entities in the first annual period ending after December 15, 2016. The Company adopted this standard on December 31, 2016. The adoption of this standard had no impact to the Company’s consolidated financial statements.
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In March 2016, the FASB issued ASU No. 2016-9,
Improvements to Employee Share-Based Payment Accounting (ASC 718)
, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The standard was effective for annual periods beginning after December 31, 2016 and interim periods within that reporting period. The Company adopted this standard on January 1, 2017 and applied the accounting prospectively. Prior periods have not been adjusted. As a result of the adoption of this accounting standard,
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62
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Overseas Shipholding Group, Inc.
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the Company elected to account for forfeitures of share-based payments as they occur. The adoption of this accounting standard did not have a material impact to the Company’s consolidated financial statements.
Recently issued accounting standards
— In March 2017, the FASB issued ASU 2017-07,
Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, that will change how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Under ASU 2017-07, employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Additionally, employers will present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. The guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The guidance provides a practical expedient for disaggregating the service cost component and other components for comparative periods. The Company will adopt this standard during the first interim period beginning after December 31, 2017.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (ASC 230): Restricted Cash
, which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard will be effective for annual periods beginning after December 31, 2017 and interim periods within that reporting period. The Company will adopt this standard during the first interim period beginning after December 31, 2017.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (ASC 740): Intra-Entity Transfers of Assets Other Than Inventory
, amending the accounting for income taxes. Under current guidance the recognition of current and deferred income taxes for an intra-entity asset transfer is prohibited until the asset has been sold to an outside party. The amended guidance eliminates the prohibition against immediate recognition of current and deferred income tax amounts associated with intra-entity transfers of assets other than inventory. This guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The requirements of the amended guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Management does not expect the adoption of this accounting standard to have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments (ASC 230),
which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic with respect to (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The standard will be effective for interim and annual periods beginning after December 31, 2017 and early adoption is permitted. The guidance requires application using a retrospective transition method. Management is currently reviewing the impact of the adoption of this accounting standard on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-2,
Leases (ASC 842).
The standard, which requires lessees to recognize most leases on the balance sheet, 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. In arrangements where the Company is the lessee, management expects that the Company will recognize substantial
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63
|
Overseas Shipholding Group, Inc.
|
increases in reported amounts for vessels and other property and related lease liabilities upon adoption of the new standard. In arrangements where the Company is the lessor, management is currently evaluating the impact to non-lease components of time charter contracts. As of
December 31, 2017
, the contractual obligations for the Company’s leased vessels was approximately
$253,576
.
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 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. The Company adopted ASC 606 effective January 1, 2018 using the modified retrospective transition method which will be applied to existing contracts as of that date.
Upon adoption, the Company will recognize the cumulative effect of adopting this guidance as an adjustment to the 2018 opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The Company has completed in-depth reviews over existing contracts. The Company is substantially complete with the analysis and does not expect the adoption of this standard to have a material impact on the consolidated financial statements. The Company has implemented changes to systems, processes and internal controls to meet the standard’s updated reporting and disclosure requirements. The impact of adopting the new standard will primarily relate 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 will recognize 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 will result in a corresponding change in the timing of recognition of voyage expenses for voyage charter contracts. The Company continues to evaluate the impact of the standard as it relates to non-lease components of time charter contracts and will finalize its position when the FASB’s Proposed Accounting Standards Update -
Leases (Topic 842): Targeted Improvements
becomes final.
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 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. 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. In accordance with ASC 260,
Earnings Per Share
, the Company adjusted the computations of basic and diluted earnings per share retroactively for all periods presented to reflect that change in its capital structure.
Accordingly, amounts previously reported for the year ended December 31, 2015, and for the quarters ended March 31, 2015, June 30, 2015, September 30, 2015, and March 31, 2016 with respect to income/(loss) per share, outstanding Class A common shares, Class A restricted stock units, Class A restricted shares and Class A stock options, Class B shares and Class B warrants have been restated, where appropriate. The table below shows the effect of the Reverse Split on the calculation of per share amounts previously reported.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending
|
|
Year Ended
|
|
Three
Months Ending
|
(Thousands of shares)
|
March 31,
2015
|
|
June 30,
2015
|
|
September 30,
2015
|
|
December 31, 2015
|
|
December 31, 2015
|
|
March 31,
2016
|
|
(unaudited)
|
|
|
|
(unaudited)
|
Decrease in weighted average number of shares outstanding used to calculate basic net income/(loss) per share amounts for Class A
|
(477,862
|
)
|
|
(477,881
|
)
|
|
(477,949
|
)
|
|
(477,996
|
)
|
|
(477,923
|
)
|
|
(473,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in weighted average number of shares outstanding used to calculate diluted net income/(loss) per share amounts for Class A
|
(477,862
|
)
|
|
(478,109
|
)
|
|
(477,996
|
)
|
|
(477,996
|
)
|
|
(478,145
|
)
|
|
(473,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in weighted average number of shares outstanding used to calculate basic and diluted net income/(loss) per share amounts for Class B
|
(6,604
|
)
|
|
(6,602
|
)
|
|
(6,600
|
)
|
|
(6,600
|
)
|
|
(6,602
|
)
|
|
(6,600
|
)
|
Class A
There were
32,120
,
54,993
, and
52,730
weighted average shares of unvested Class A restricted common stock shares considered to be participating securities as of December
2017
,
2016
and
2015
, respectively. Such participating securities were allocated a portion of income under the two-class method for the years ended
December 31, 2017
and
2015
, but
no
allocation of loss was made for the year ended
December 31, 2016
since the holders of the participating securities do not participate in losses.
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, 2017
, there were
660,999
shares of Class A restricted stock units and
371,893
Class A stock options outstanding and considered to be potentially dilutive securities. As of
December 31, 2016
there were
485,223
shares of Class A restricted stock units and
1,114,103
Class A stock options outstanding and considered to be potentially dilutive securities. As of
December 31, 2015
there were
268,066
shares of Class A restricted stock units and
268,538
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.
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64
|
Overseas Shipholding Group, Inc.
|
The components of the calculation of basic earnings per share and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Income/(loss) from continuing operations
|
|
$
|
55,978
|
|
|
$
|
(1,059
|
)
|
|
$
|
80,565
|
|
(Loss)/income from discontinued operations
|
|
—
|
|
|
(292,555
|
)
|
|
203,395
|
|
Net income/(loss)
|
|
$
|
55,978
|
|
|
$
|
(293,614
|
)
|
|
$
|
283,960
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
Class A common stock - basic
|
|
87,834,769
|
|
|
90,949,577
|
|
|
95,584,559
|
|
Class A common stock - diluted
|
|
88,082,978
|
|
|
90,949,577
|
|
|
95,629,090
|
|
Class B common stock - basic
|
|
—
|
|
|
533,758
|
|
|
1,320,337
|
|
Class B common stock - diluted
|
|
—
|
|
|
533,758
|
|
|
1,320,337
|
|
Reconciliations of the numerator of the basic and diluted earnings per share computations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Net income/(loss) from continuing operations allocated to:
|
|
|
|
|
|
|
|
|
|
Class A Common Stockholders
|
|
$
|
55,957
|
|
|
$
|
(1,002
|
)
|
|
$
|
79,424
|
|
Class B Common Stockholders
(2)
|
|
—
|
|
|
(57
|
)
|
|
1,097
|
|
Participating securities
(1)
|
|
21
|
|
|
—
|
|
|
44
|
|
|
|
$
|
55,978
|
|
|
$
|
(1,059
|
)
|
|
$
|
80,565
|
|
|
|
|
|
|
|
|
Net income/(loss) from discontinued operations allocated to:
|
|
|
|
|
|
|
Class A Common Stockholders
|
|
$
|
—
|
|
|
$
|
(295,001
|
)
|
|
$
|
200,515
|
|
Class B Common Stockholders
(2)
|
|
—
|
|
|
2,426
|
|
|
2,770
|
|
Participating securities
(1)
|
|
—
|
|
|
20
|
|
|
110
|
|
|
|
$
|
—
|
|
|
$
|
(292,555
|
)
|
|
$
|
203,395
|
|
|
|
(1)
|
For the years ended December 31, 2017 and 2015, income from continuing operations allocated to participating securities relates to unvested restricted stock. For the year ended December 31, 2016 and 2015, income from discontinued operations allocated to participating securities relates to amounts equivalent to the cash dividends declared.
|
|
|
(2)
|
The December 31, 2016 and 2015 income allocated to Class B common stockholders includes amounts equivalent to the special cash dividends declared on the Class B common stock shares.
|
For annual earnings per share calculations, there were
248,209
and
44,531
dilutive equity awards outstanding for the years ended December 31, 2017 and 2015. Awards of
732,690
,
1,074,548
and
221,218
shares of common stock for
2017
,
2016
and
2015
, respectively, were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.
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.
|
|
|
65
|
Overseas Shipholding Group, Inc.
|
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 specified the calculation of the costs for these services. Pursuant to the terms of the agreement, OSG provided 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 had 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 provided for termination
30 days
after the expiration or termination of all of the services provided thereunder. During the second quarter of 2017, the Transition Services Agreement terminated.
Employee Matters Agreement
OSG and INSW entered into an employee matters agreement (the “Employee Matters Agreement”), which addressed 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 governed 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 the second quarter of 2017, the Employee Matters Agreement terminated.
|
|
|
66
|
Overseas Shipholding Group, Inc.
|
Results of Discontinued Operations
As a result of the spin-off transaction, the Company distributed
$895,650
in net assets of INSW, which has been reflected as a reduction to paid-in additional capital and accumulated other comprehensive loss in the accompanying consolidated balance sheet as of December 31, 2016 and statement of changes in equity/(deficit) for the year ended December 31, 2016.
The table below presents statements of operations data for INSW, which has been classified as discontinued operations for the years ended December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
Shipping revenues:
|
|
|
|
|
|
|
Pool revenues
|
|
$
|
226,329
|
|
|
$
|
360,218
|
|
Time and bareboat charter revenues
|
|
88,786
|
|
|
52,092
|
|
Voyage charter revenues
|
|
50,005
|
|
|
85,324
|
|
|
|
365,120
|
|
|
497,634
|
|
Operating expenses:
|
|
|
|
|
Voyage expenses
|
|
11,219
|
|
|
21,844
|
|
Vessel expenses
|
|
129,914
|
|
|
143,925
|
|
Charter hire expenses
|
|
32,790
|
|
|
36,802
|
|
Depreciation and amortization
|
|
73,039
|
|
|
80,962
|
|
General and administrative
|
|
17,900
|
|
|
17,628
|
|
Technical management transition costs
|
|
—
|
|
|
39
|
|
Spin-off related costs
|
|
16,763
|
|
|
—
|
|
Severance costs
|
|
243
|
|
|
—
|
|
Loss/(gain) on disposal of vessels and other property, including impairments
|
|
382,163
|
|
|
(4,459
|
)
|
Total Operating Expenses
|
|
664,031
|
|
|
296,741
|
|
(Loss)/Income from Vessel Operations
|
|
(298,911
|
)
|
|
200,893
|
|
Equity in Income of Affiliated Companies
|
|
44,067
|
|
|
45,546
|
|
Operating (Loss)/Income
|
|
(254,844
|
)
|
|
246,439
|
|
Other (Expense)Income
|
|
(968
|
)
|
|
66
|
|
(Loss)/Income before Interest Expense, Reorganization Items and Taxes
|
|
(255,812
|
)
|
|
246,505
|
|
Interest expense
|
|
36,430
|
|
|
42,970
|
|
(Loss)/Income before Reorganization Items and Income Taxes
|
|
(292,242
|
)
|
|
203,535
|
|
Reorganization Items, net
|
|
—
|
|
|
—
|
|
(Loss)/Income before Income Taxes
|
|
(292,242
|
)
|
|
203,535
|
|
Income Tax Provision
|
|
313
|
|
|
140
|
|
Net (Loss)/Income
|
|
$
|
(292,555
|
)
|
|
$
|
203,395
|
|
Corporate administrative expenses, reorganization costs, employee compensation and benefits related costs, severance costs and depreciation for certain administrative fixed assets were allocated to INSW through November 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 13, “Related Parties.” Total indirect costs allocated to INSW that are included in continuing operations in the consolidated statement of operations are
$15,380
, and
$29,969
for the years ended
December 31, 2016
and
2015
, respectively. Such amounts include reorganization items, net of
$131
, and
$5,659
for the years ended December 31, 2016 and 2015, respectively.
|
|
|
67
|
Overseas Shipholding Group, Inc.
|
Also, in accordance with the discontinued operations accounting standards, approximately
$12,264
of one-time separation costs incurred by OSG and that are directly attributable to the spin-off transaction have been classified in the loss from discontinued operations and are included in the table above.
Vessel and Investment in Joint Venture Impairments – Held for Sale Basis (Disposal Group)
ASC 845 requires that the accounting for the distribution of nonmonetary assets to owners of an entity in a spinoff be based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value). Based on ASC 505, the nonmonetary distribution of the assets of INSW constitute the disposal of a business. Accordingly, OSG's distribution of the shares of INSW to its stockholders on November 30, 2016 was recorded based on the carrying value of the INSW disposal group, after reduction for net impairment charges recognized for the excess of the carrying value of the INSW disposal group over its fair value, calculated on a held for sale basis.
The determination of fair value is highly judgmental. In estimating the fair value of INSW’s vessels as of November 30, 2016 the Company considered the market and income approaches by using a combination of third party appraisals and discounted cash flow models prepared by the Company. In preparing the discounted cash flow models, the Company used a methodology consistent with the methodology and assumptions detailed in the “Vessel Impairment – Held for Use Basis” section below, and discounted the cash flows using its current estimate of INSW’s weighted average cost of capital, of
9%
.
The INSW disposal group includes an approximate
50%
interest in two joint ventures. One joint venture operates four LNG Carriers. The other joint venture converted two ULCCs to Floating Storage and Offloading Service (“FSO”) vessels. In estimating the fair value of INSW’s investments in and advances to these joint ventures as of November 30, 2016, the Company utilized an income approach since there is a lack of comparable market transactions for the specially built assets held by the joint ventures, by preparing discounted cash flow models. In preparing the discounted cash flows models the Company used a methodology largely consistent with the methodology and assumptions detailed in the “Vessel Impairment – Held for Use Basis” section below, with the exception being that as the assets owned by the joint ventures serve under specific service contracts, the estimated charter rates for periods after the expiry of the existing contracts are based upon management’s internally forecasted rates. The cash flows were discounted using the current estimated weighted average cost of capital for each joint venture, which ranged from
8.7%
to
9.5%
and took into consideration country risk, entity size and uncertainty with respect to the cash flows for periods beyond the current charter expiries.
Accordingly, the Company recorded a charge in the fourth quarter of 2016, as part of income/(loss) from discontinued operations of
$332,562
to reduce the carrying value of the disposal group to its estimated fair value, calculated on a held for sale basis.
Vessel Impairment – Held for Use Basis
For INSW’s International Flag fleet, the Company monitored the industry wide decline in vessel valuations during 2016 and specifically from June 30, 2016 to September 30, 2016, as well as the decline in forecasted near term charter rates, and concluded that declines in vessel valuations of up to
20%
during the quarter ended September 30, 2016 for
28
vessels in its International Flag fleet with carrying values in excess of their estimated market values, constituted an impairment trigger event for these vessels as of September 30, 2016. In developing estimates of undiscounted future cash flows for performing Step 1 of the impairment tests, the Company made assumptions about future performance, with significant assumptions including charter rates, ship operating expenses, utilization, drydocking requirements, residual value and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations. The estimated daily time charter equivalent rates used for unfixed days were based on a combination of (i) internally forecasted rates that are consistent with forecasts provided to the Company’s senior management and Board of Directors, and (ii) the trailing 12-year historical average rates, based on quarterly average rates published by a third party maritime research service. The internally forecasted rates were based on management’s evaluation of current economic data and trends in the shipping and oil and gas industries. In estimating the fair value of the vessels for the purposes of step 2 of the impairment tests, the Company developed fair value estimates that utilized a market approach which considered an average of two vessel appraisals. Based on the tests performed, impairment charges totaling
$49,640
were recorded on two LR1s, an Aframax and a Panamax to write-down their carrying values to their estimated fair values at September 30, 2016. The aggregate fair value of the four impaired vessels totaling
$68,875
was determined using the market approach, which considers the expected sales prices of the vessels obtained from third-party appraisals.
The remaining
24
vessels tested had estimated undiscounted future cash flows in excess of their carrying values.
|
|
|
68
|
Overseas Shipholding Group, Inc.
|
Because the determination of the fair value of the disposal group was based in part on an income approach, which utilized cash flow projections consistent with the most recent projections of the Company, such fair value estimate is considered to be Level 3 in the fair value hierarchy (See Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures” for fair value hierarchy definitions).
NOTE 6 — VESSELS, OTHER PROPERTY AND DEFERRED DRYDOCK
Vessels and other property consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
Vessels, at cost
|
|
$
|
849,713
|
|
|
$
|
892,022
|
|
Accumulated depreciation
|
|
(217,633
|
)
|
|
(208,318
|
)
|
Vessels, net
|
|
632,080
|
|
|
683,704
|
|
|
|
|
|
|
Other property, at cost
|
|
5,630
|
|
|
5,619
|
|
Accumulated depreciation and amortization
|
|
(5,201
|
)
|
|
(4,855
|
)
|
Other property, net
|
|
429
|
|
|
764
|
|
Total vessels and other property
|
|
$
|
632,509
|
|
|
$
|
684,468
|
|
On November 20, 2017, the Company sold one rebuilt ATB for
$1,055
, net of broker commission of
$27
. As a result of the sale, the Company recognized a loss of
$7,322
, which is included in loss on disposal of vessels and other property, including impairments in the consolidated statements of operations.
At
December 31, 2017
, the Company’s owned vessel fleet with a weighted average age of
10.1 years
, consisted of four Handysize Product Carriers, two lightering ATBs and seven clean ATBs. Four Handysize Product Carriers and seven clean ATBs are pledged as collateral under the Exit Financing Facilities. Vessels pledged as collateral under the Exit Financing Facilities have an aggregate carrying value of
$307,163
.
Vessel activity, excluding construction in progress, for the three years ended
December 31, 2017
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel Cost
|
|
Accumulated
Depreciation
|
|
Net Book
Value
|
Balance at December 31, 2014
|
|
$
|
1,156,064
|
|
|
$
|
(262,028
|
)
|
|
$
|
894,036
|
|
Vessel additions
|
|
53
|
|
|
—
|
|
|
|
Depreciation
|
|
—
|
|
|
(51,364
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
1,156,117
|
|
|
(313,392
|
)
|
|
842,725
|
|
Impairment
|
|
(264,095
|
)
|
|
163,563
|
|
|
|
Depreciation
|
|
—
|
|
|
(58,489
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
892,022
|
|
|
(208,318
|
)
|
|
683,704
|
|
Impairment
|
|
(6,957
|
)
|
|
1,079
|
|
|
|
Depreciation
|
|
—
|
|
|
(37,681
|
)
|
|
|
Disposals
|
|
(35,352
|
)
|
|
27,287
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
849,713
|
|
|
$
|
(217,633
|
)
|
|
$
|
632,080
|
|
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.
|
|
|
69
|
Overseas Shipholding Group, Inc.
|
Drydocking activity for the three years ended
December 31, 2017
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Balance at January 1
|
|
$
|
31,172
|
|
|
$
|
58,166
|
|
|
$
|
33,087
|
|
Additions
|
|
8,787
|
|
|
2,626
|
|
|
45,046
|
|
Sub-total
|
|
39,959
|
|
|
60,792
|
|
|
78,133
|
|
Drydock amortization
|
|
(16,045
|
)
|
|
(25,747
|
)
|
|
(19,967
|
)
|
Impairments
|
|
—
|
|
|
(3,873
|
)
|
|
—
|
|
Balance at December 31
|
|
$
|
23,914
|
|
|
$
|
31,172
|
|
|
$
|
58,166
|
|
NOTE 7 — 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 West Coast Products, LLC (“BP”). In the first quarter of 1999, OSG, BP, and Keystone Shipping Company formed Alaska Tanker Company, LLC (“ATC”) to manage the vessels carrying Alaskan 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.
Under Rule 3-09 of Regulation S-X, we are required to file separate audited financial statements of Alaska Tanker Company, LLC, for the ended December 31, 2017. We expect to file those financial statements by amendment to our Annual Report on Form 10-K/A on or before March 30, 2018.
A condensed summary of the assets and liabilities of the equity method investment follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
Current assets
|
|
$
|
37,497
|
|
|
$
|
37,680
|
|
Total assets
|
|
$
|
37,497
|
|
|
$
|
37,680
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
28,910
|
|
|
$
|
29,335
|
|
Non-current liabilities
|
|
9,865
|
|
|
10,301
|
|
Equity/(deficiency)
|
|
(1,278
|
)
|
|
(1,956
|
)
|
Total liabilities and equity/(deficiency)
|
|
$
|
37,497
|
|
|
$
|
37,680
|
|
A condensed summary of the results of operations of the equity method investments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Shipping revenues
|
|
$
|
106,894
|
|
|
$
|
110,503
|
|
|
$
|
126,331
|
|
Ship operating expenses
|
|
(96,901
|
)
|
|
(100,752
|
)
|
|
(116,267
|
)
|
Income from vessel operations
|
|
9,993
|
|
|
9,751
|
|
|
10,064
|
|
Net income
|
|
$
|
9,993
|
|
|
$
|
9,751
|
|
|
$
|
10,064
|
|
|
|
|
70
|
Overseas Shipholding Group, Inc.
|
NOTE 8 — INTANGIBLE ASSETS
Intangible Assets
Intangible assets activity for three years ended
December 31, 2017
is summarized as follows:
|
|
|
|
|
|
Total
|
Balance at January 1, 2015
|
$
|
54,817
|
|
Amortization
|
(4,600
|
)
|
Balance at December 31, 2015
|
50,217
|
|
Amortization
|
(4,600
|
)
|
Balance at December 31, 2016
|
45,617
|
|
Amortization
|
(4,600
|
)
|
Balance at December 31, 2017
|
$
|
41,017
|
|
As discussed in Note 3, “Summary of Significant Accounting Policies,” the Company’s intangible assets at
December 31, 2017
and
2016
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, 2017
and
2016
. The unamortized balance of the Company's intangible assets will be recognized over the remaining useful life, which is
9
years. Amortization of intangible assets for the
5
years subsequent to December 31, 2017 is expected to approximate
$4,600
per year.
NOTE 9 — DEBT
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
8.125% notes due 2018, net of unamortized discount and deferred costs of $0 and $1,406
|
|
$
|
—
|
|
|
$
|
80,213
|
|
OBS term loan, due 2019, net of unamortized discount and deferred costs of $7,037 and $11,102
|
|
448,251
|
|
|
444,186
|
|
7.5% Election 2 notes due 2021, net of unamortized discount and deferred costs of $6 and $8
|
|
295
|
|
|
293
|
|
7.50% notes due 2024
|
|
390
|
|
|
390
|
|
Total debt
|
|
448,936
|
|
|
525,082
|
|
Less current installments of long-term debt
|
|
28,160
|
|
|
—
|
|
Total long-term debt
|
|
$
|
420,776
|
|
|
$
|
525,082
|
|
The weighted average interest rate for debt outstanding as of
December 31, 2017
and
2016
was
5.51%
and
5.75%
, respectively.
Exit Financing Facilities
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.
As discussed in Note 2, “Chapter 11 Filing and Emergence from Bankruptcy,” to support the Equity Plan, OSG and certain of its subsidiaries entered into secured debt facilities including: (i) a secured asset-based revolving loan facility of
$75,000
, among the Parent Company, OBS, certain OBS subsidiaries, Wells Fargo Bank, National Association, 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 and collectively with the OBS ABL Facility and the OBS Term Loan, (the “Exit Financing Facilities”), among OSG, Jefferies, as Administrative Agent, and other lenders party thereto. On August 5, 2014, the available amount under the OBS Term Loan was drawn in full. At December 31, 2017 and 2016,
no
amounts had been drawn under the OBS ABL Facility.
|
|
|
71
|
Overseas Shipholding Group, Inc.
|
The OBS Term Loan provides that OBS may request an increase of the term loan commitment by an amount which may not exceed the greater of (i)
$75,000
and (ii) an additional amount, if, after giving effect to the increase of such additional amount on a Pro Forma Basis, OBS is in compliance with a stated ratio for the Test Period most recently ended for which financial statements have been delivered to the Administrative Agent, provided that, among other terms and conditions, (a) no Default shall have occurred and be continuing or would occur after giving effect to such commitment increase and (b) immediately after giving effect to such increase, OBS shall be in compliance with the Loan to Value Test. However, no individual Lender is obligated to increase the amount of their loan commitment thereunder. The OBS Term loan matures in August 2019.
The OBS ABL Facility provides that OBS may request an increase of the revolving term loan commitments by up to
$25,000
, provided that among other terms and conditions, (a) no Default shall have occurred and be continuing or would occur after giving effect to such commitment increase and (b) immediately before and after giving effect to such increase, Suppressed Availability may not be less than
$10,000
. However, no individual Lender is obligated to increase the amount of their loan commitment thereunder. The OBS ABL Facility matures on February 5, 2019.
Interest on the Exit Financing Facilities is calculated, at the Company’s option, based upon (i) an alternate base rate (“ABR”) plus the applicable margin or (ii) Adjusted LIBOR plus the applicable margin. ABR is defined as the highest of (i) the Base Rate (the prime rate published in The Wall Street Journal), (ii) the Federal Funds Effective Rate plus
0.50%
, (iii) the one-month Adjusted LIBOR Rate plus
1.00%
and (iv)
2.00%
per annum. The OBS ABL Facility applicable margin varies based upon undrawn availability under the commitment and is subject to certain pricing adjustments. The OBS ABL Facility provides for quarterly payment of commitment fees at a rate of
0.50%
for each quarter during which the daily average Total Revolving Exposure is less than 50% of Total Revolving Commitments or
0.375%
for each quarter during which the daily average the Total Resolving Exposure is greater than or equal to 50% of Total Revolving Commitments.
The applicable margins and floor interest rates for the Exit Financing Facilities is as follows:
|
|
|
|
|
|
|
|
|
|
Facility
|
|
OBS
ABL Facility
|
|
OBS
Term Loan
|
Rate
|
|
ABR
|
|
LIBOR
|
|
ABR
|
|
LIBOR
|
Floor
|
|
None
|
|
None
|
|
2.00%
|
|
1.00%
|
Applicable Margin
|
|
1.25% - 1.75%
|
|
2.25% - 2.75%
|
|
3.25%
|
|
4.25%
|
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 mandatory pre-payments. 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.
At December 31, 2017, the Company determined it had Excess Cash Flow under the OBS Term Loan. The mandatory prepayment of
$28,165
will be due during the first quarter of 2018 and is included in current installments of long-term debt on the consolidated balance sheets as of December 31, 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
$71,758
as of
December 31, 2017
.
During the year ended December 31, 2015, the Company paid fees aggregating
$642
in connection with the amendments to the Exit Financing Facilities described above, that were capitalized as deferred finance charges. (See Note 3, “Summary of Significant Accounting Policies” for additional information relating to deferred financing charges).
Unsecured Senior Notes
The Company had the following unsecured notes issued and outstanding as of
December 31, 2017
and
2016
.
|
|
|
|
72
|
Overseas Shipholding Group, Inc.
|
|
7.5% Notes (the “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. Under the Third Supplemental indenture, such right is triggered only upon the occurrence of both, a Change of Control and a Rating Decline (each as defined in the Third Supplemental Indenture). The Election 2 Notes (i) accrue interest at the rate of
7.50%
per annum from August 5, 2014, payable on February 15 and August 15 of each year, beginning on February 15, 2015, to holders of record on the immediately preceding February 1 and August 1; (ii) are the Company’s general, unsecured obligations and rank equally and ratably in right of payment with its existing and future unsecured senior indebtedness; (iii) may not be redeemed prior to their maturity dates; (iv) are subject to repurchase upon certain changes of ownership or control (the provisions of which, as noted above, are different between the two series of notes); (v) are subject to certain covenants and limitations, including that the Company may not, directly or indirectly, Incur as such term (and all capitalized terms hereafter in this paragraph) are defined within the applicable indenture, assume or suffer to exist any Mortgage on or with respect to any property or assets, now owned or hereafter acquired, to secure any present or future Designated Debt without making effective provision for securing the notes in certain circumstances; and (vi) restrict the Company’s ability to merge or consolidate with another person.
In addition, the Company had the following unsecured notes issued and outstanding as of
December 31, 2016
.
8.125% Notes (the “8.125% Notes”) –
These notes were issued on March 29, 2010 and consisted of
$300,000
in face value, which are due on
March 30, 2018
. As of the Effective Date, the
8.125%
Notes were reinstated and contractual interest through the last missed coupon date was paid. The
8.125%
Notes (i) are the Company's general, unsecured obligations and rank equally and ratably in right of payment with its existing and future unsecured senior indebtedness; (ii) may not be redeemed prior to their respective maturity dates; (iii) are subject to repurchase upon certain changes of ownership or control (as further described below); (iv) are subject to certain covenants and limitations, including that the Company may not, directly or indirectly, Incur, as such term (and all capitalized terms hereafter in this paragraph) is defined within the applicable indenture, assume or suffer to exist any Mortgage on or with respect to any property or assets, now owned or hereafter acquired, to secure any present or future Designated Debt without making effective provision for securing the notes in certain circumstances; and (v) restrict the Company's ability to merge or consolidate with another person. Upon a "Change of Control Triggering Event," which requires both a ‘‘Change of Control'' and a ‘‘Rating Decline," as such terms are defined within the
8.125%
Notes indenture, the Company would be obligated to make an offer to purchase all outstanding
8.125%
Notes at a redemption price of
101%
of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. Additionally, upon certain Events of Default, the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding
8.125%
Notes may declare the entire unpaid principal of and accrued interest on the
8.125%
Notes to be due and payable immediately.
Debt Repurchases, Extinguishments and Modifications
In October 2015, the Board of Directors of the Company adopted and approved resolutions relating to a consent solicitation (the “Consent Solicitation”) and a tender offer (the “Tender Offer”), whereby the Company was authorized to repurchase certain amounts of the Company’s Unsecured Senior Notes. In addition, the Company also solicited consents from registered holders of the Unsecured Senior Notes to approve certain amendments to the applicable indenture governing such series of Unsecured Senior Notes. During the years ended December 31, 2017 and 2016, the Company repurchased and retired an aggregate principal amount of
$0
and
$294
, respectively, of its
7.50%
notes due 2024 and
$55,202
and
$37,345
, respectively, of its
8.125%
notes due 2018. The aggregate losses of
$2,495
and
$2,463
realized on these transactions during the years ended December 31, 2017 and 2016, respectively, are included in other expense in the consolidated statements of operations. The net losses reflect a
$504
and
$784
write-off of unamortized deferred finance costs associated with the repurchased debt during the years ended December 31, 2017 and 2016, respectively.
On December 27, 2017, the Company deposited cash in the amount of
$27,491
with The Bank of New York Mellon Trust Company, N.A., as trustee, to pay the principal of
$26,417
plus accrued and unpaid interest of
$514
on all of the outstanding
8.125%
Notes ("Remaining Notes") on their stated maturity. As a result, the Company's obligations under the indenture and the Remaining Notes were satisfied and the indenture was cancelled and discharged. The aggregate loss of
$742
realized on this transaction during the year ended December 31, 2017 is included in other expense in the consolidated statements of operations. The net loss reflects a
$182
write-off of unamortized deferred finance costs.
|
|
|
|
73
|
Overseas Shipholding Group, Inc.
|
|
During the year ended December 31, 2016, the Company made optional and mandatory prepayments on its OBS Term Loan of
$110,295
and open market repurchases of
$27,000
. The aggregate net loss of
$525
realized on these transactions during the year ended December 31, 2016 is included in other expense in the consolidated statements of operations. The Company also recognized a
$3,940
write-off of unamortized original issue discount and deferred financing costs associated with the principal reductions, which were treated as partial extinguishments. Third party legal and consulting fees (aggregating approximately
$77
) incurred by the Company in relation to the open market repurchases are included in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2016.
The following table summarizes interest expense, including amortization of issuance and deferred financing costs, commitment, administrative and other fees, recognized during the three years ended
December 31, 2017
with respect to the Company’s debt facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
Debt facility
|
|
2017
|
|
2016
|
|
2015
|
8.125% notes due 2018
|
|
$
|
5,568
|
|
|
$
|
10,200
|
|
|
$
|
22,779
|
|
OBS Facilities, due 2019
|
|
30,308
|
|
|
32,460
|
|
|
37,666
|
|
7.50% notes due 2021-2024
|
|
102
|
|
|
121
|
|
|
9,890
|
|
Total expense on debt facilities
|
|
$
|
35,978
|
|
|
$
|
42,781
|
|
|
$
|
70,335
|
|
As of
December 31, 2017
, the aggregate annual principal payments required to be made on the Company's debt are as follows:
|
|
|
|
|
|
2018
|
|
$
|
28,166
|
|
2019
|
|
427,123
|
|
2020
|
|
—
|
|
2021
|
|
301
|
|
2022
|
|
—
|
|
Thereafter
|
|
390
|
|
Total
|
|
$
|
455,980
|
|
Interest paid was
$31,283
,
$37,875
and
$72,344
in
December 31, 2017
,
2016
and
2015
, respectively.
|
|
|
|
74
|
Overseas Shipholding Group, Inc.
|
|
NOTE 10 — 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 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.
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 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, at
December 31, 2017
and
2016
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Fair Value
|
|
|
Level 1
|
|
Level 2
|
December 31, 2017:
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
(1)
|
$
|
166,269
|
|
|
$
|
166,269
|
|
|
$
|
—
|
|
Total
|
$
|
166,269
|
|
|
$
|
166,269
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
OBS Term loan
|
$
|
448,251
|
|
|
$
|
—
|
|
|
$
|
441,630
|
|
7.5% Election 2 notes due 2021
|
295
|
|
|
—
|
|
|
305
|
|
7.5% notes due 2024
|
390
|
|
|
—
|
|
|
380
|
|
Total
|
$
|
448,936
|
|
|
$
|
—
|
|
|
$
|
442,315
|
|
|
|
|
|
75
|
Overseas Shipholding Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Fair 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
$275
and
$15,844
at
December 31, 2017
and
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
December 31, 2017
and
2016
, OBS was party to an interest rate cap agreement (“Interest Rate Cap”) with a start date of February 15, 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 consolidated statements of operations or in the consolidated statements of other comprehensive income/(loss).
The effect of cash flow hedging relationships recognized in other comprehensive income/(loss) excluding amounts reclassified from accumulated other comprehensive loss (effective portion), including hedges of equity method investees, for the years ended
December 31, 2017
,
2016
and
2015
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Interest Rate Cap of continuing operations
|
|
$
|
(2
|
)
|
|
$
|
(97
|
)
|
|
$
|
(1,537
|
)
|
Interest rate caps of discontinued operations
|
|
—
|
|
|
(3
|
)
|
|
(472
|
)
|
Interest rate swaps of discontinued operations
|
|
—
|
|
|
(5,794
|
)
|
|
(9,721
|
)
|
Total
|
|
$
|
(2
|
)
|
|
$
|
(5,894
|
)
|
|
$
|
(11,730
|
)
|
|
|
|
|
76
|
Overseas Shipholding Group, Inc.
|
|
The effect of cash flow hedging relationships on the consolidated statements of operations is presented excluding hedges of equity method investees. The effect of the Company’s cash flow hedging relationships on the consolidated statement of operations for the years ended
2017
and
2016
is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
Effective Portion of Gain/(Loss)
Reclassified from
Accumulated Other Comprehensive
Loss
|
|
Ineffective Portion
|
|
|
Location
|
|
Amount of
Loss
|
|
Location
|
|
Amount of
Loss
|
For the year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Cap
|
|
Interest expense
|
|
$
|
(1,423
|
)
|
|
Interest expense
|
|
$
|
—
|
|
Total
|
|
|
|
$
|
(1,423
|
)
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
Interest Rate Cap
|
|
Interest expense
|
|
$
|
(339
|
)
|
|
Interest expense
|
|
$
|
—
|
|
Interest rate caps
|
|
Net (loss)/income from discontinued operations
|
|
(408
|
)
|
|
|
|
—
|
|
Total
|
|
|
|
$
|
(747
|
)
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015:
|
|
|
|
|
|
|
|
|
Interest Rate Cap
|
|
Interest expense
|
|
$
|
(1
|
)
|
|
Interest expense
|
|
$
|
—
|
|
Interest rate caps
|
|
Net (loss)/income from discontinued operations
|
|
(2
|
)
|
|
|
|
—
|
|
|
|
|
|
$
|
(3
|
)
|
|
|
|
$
|
—
|
|
See Note 15, “Accumulated Other Comprehensive Loss,” for disclosures relating to the impact of derivative instruments on accumulated other comprehensive loss.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel Impairments
Based on the sale of one of the Company's ATBs during the fourth quarter of 2017 (see Note 6, “Vessels, Other Property and Deferred Drydock”), the Company noted declines in the current fair market value for scrap metal in the U.S. for these vessel types. In addition, the Company determined that five of the Company's ATBs are more likely than not to be sold or disposed of during the next six to eighteen months, which is either at or towards the end of their estimated useful lives, at this lower scrap value. These factors were viewed as impairment triggering events for seven of the Company's rebuilt ATBs as of December 31, 2017. The indicators discussed above were not considered to be impairment triggering events for the other ATBs and tankers in the Company’s fleet as these vessels (i) were fairly recently built and do not face the same commercial obsolescence issues faced by the rebuilt ATBs, and (ii) are currently operating under long-term charters or contracts of affreightment.
In developing estimates of undiscounted future cash flows for performing Step 1 of the impairment tests, management made assumptions about future performance, including estimated charter rates, ship operating expenses, utilization, drydocking requirements, salvage value and the estimated remaining useful lives of the vessels. The assumptions about the estimated remaining useful lives of the seven ATBs reflects management’s current belief that the Company would dispose of these ATBs at the expiry of associated charters or before the performance of the next required drydocking. Based on tests performed, the sum of the undiscounted cash flows for four of the seven ATBs were less than their December 31, 2017 carrying values. Accordingly, the Company recorded an impairment charge of
$5,878
, which is included in loss on disposal of vessels and other property, including impairments in the consolidated statements of operations, to write down the carrying values of the four
|
|
|
|
77
|
Overseas Shipholding Group, Inc.
|
|
ATBs to their estimated fair values as of December 31, 2017, using estimates of discounted future cash flows for each of the vessels.
During the quarter ended September 30, 2016, the Company considered changes in circumstances that appeared to be indicative of a continued weakening of the Jones Act crude oil transportation market. Such indicators included a decline in the number of Jones Act tank vessels transporting crude oil, which led to (i) increased competition for clean cargoes and the idling of some Jones Act vessels; (ii) a sharp decrease in estimated spot rates for Jones Act Product Carriers and large ATBs between July and September 2016; and (iii) a significant decline in forecasted near term TCE rates reported by a leading third party industry analyst. These factors were viewed as an impairment triggering event for the Company’s eight rebuilt ATBs at September 30, 2016. In addition, given the uncertainty around how long the weak market conditions discussed above could last taking into consideration the large number of newbuildings scheduled for delivery, management believed it was more likely than not that some of the rebuilt ATBs will be laid-up, scrapped or disposed of before the end of their estimated useful lives, which currently ranged between 2019 and 2020. The indicators discussed above were not considered to be impairment triggering events for the other ATBs and tankers in the Company’s fleet as these vessels (i) were fairly recently built and do not face the same commercial obsolescence issues faced by the rebuilt ATBs, and (ii) are currently operating under long-term charters or contracts of affreightment.
In developing estimates of undiscounted future cash flows for performing Step 1 of the impairment tests, management made assumptions about future performance, with significant assumptions including charter rates, ship operating expenses, utilization, drydocking requirements, residual value and the estimated remaining useful lives of the vessels. The assumptions about the estimated remaining useful lives of the ATBs reflected management’s belief that the Company would scrap these ATBs at the expiry of their time charters. Based on tests performed, the sum of the undiscounted cash flows for seven of the eight rebuilt ATBs were less than their September 30, 2016 carrying values. Accordingly, the Company recorded an impairment charge of
$97,782
(including
$3,873
recorded as a reduction in deferred drydock costs) to write down the carrying values of the seven ATBs to their estimated fair values as of September 30, 2016, using estimates of discounted future cash flows for each of the vessels (income approach) since the secondhand sale and purchase market for the type of vessels owned by OSG is not considered to be robust.
During the fourth quarter of 2016, the Company gave consideration as to whether events or changes in circumstances had occurred since September 30, 2016 that could indicate that the carrying amounts of the vessels in the Company’s fleet may not be recoverable. The Company concluded that the decline in previously forecasted cash flows on one of the seven ATBs discussed above, due to a change in its expected deployment, constituted an impairment trigger event as of December 31, 2016. Based on the tests performed, an additional impairment charge of
$6,623
was recorded in December 2016.
During the third quarter of 2015, in evaluating whether or not certain events or circumstances existing at that time resulted in a triggering event for impairment testing of the fleet, management gave consideration to various indicators of a weakening of the Jones Act crude oil transportation market that began to materialize during the period. Based on tests performed, the sum of the undiscounted cash flows for each of the six rebuilt ATBs were in excess of their September 30, 2015 carrying values and no impairment was therefore recorded at that date. As of December 31, 2015, management determined that there had been no significant changes in the facts and circumstances that existed at the end of September 30, 2015 that would warrant a change to the assumptions utilized in the undiscounted cash flows analysis on the six rebuilt ATBs prepared at that date. Accordingly, no further analysis was performed as of December 31, 2015.
The principal assumptions used in the Company's cash flow projections of our vessels mentioned above for the three years ended December 31, 2017 are considered to be Level 3 inputs.
Valuation of Intangible Assets
The Company’s intangible assets at
December 31, 2017
and
2016
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
.
In 2017 and 2016, the factors that were determined to be impairment triggering events for the Company's vessels discussed above, were also considered impairment triggering events for the carrying value of the Company's intangible asset. The Company reduced its estimates of undiscounted future cash flows to reflect consideration of the impairment triggering events. Based on the results of the recoverability test performed, no intangible asset impairment was recorded in 2017 or 2016 as the net undiscounted cash flows from the asset group, attributable to these relationships, were in excess of the carrying value of the asset group. The principal assumptions used in the undiscounted future cash flows for our intangible assets, which were similar to those used in our cash flow projections of our vessels, are considered Level 3 inputs.
|
|
|
|
78
|
Overseas Shipholding Group, Inc.
|
|
NOTE 11 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
Accounts payable
|
|
$
|
3,825
|
|
|
$
|
3,336
|
|
Payroll and benefits
|
|
9,194
|
|
|
24,683
|
|
Interest
|
|
4,129
|
|
|
5,456
|
|
Insurance
|
|
1,096
|
|
|
702
|
|
Accrued drydock and repair costs
|
|
151
|
|
|
62
|
|
Bunkers and lubricants
|
|
2,341
|
|
|
1,317
|
|
Charter revenues received in advance
|
|
5,217
|
|
|
9,579
|
|
Accrued vessel expenses
|
|
2,311
|
|
|
1,575
|
|
Accrued general and administrative, primarily professional fees
|
|
1,011
|
|
|
3,290
|
|
Bankruptcy claims accrual
|
|
—
|
|
|
5,000
|
|
Accrued deferred payment obligation for chartered in vessels
|
|
1,944
|
|
|
1,944
|
|
Other
|
|
3,001
|
|
|
278
|
|
|
|
$
|
34,220
|
|
|
$
|
57,222
|
|
NOTE 12 —TAXES
As described in Note 5, INSW has been classified as discontinued operations and as a result the income tax impacts of INSW are not included in the below disclosures.
The benefit for income taxes on the income/(loss) from continuing operations before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Current
|
|
$
|
(1,420
|
)
|
|
$
|
(2,296
|
)
|
|
$
|
31,468
|
|
Deferred
|
|
59,047
|
|
|
67,394
|
|
|
69,564
|
|
Total
|
|
$
|
57,627
|
|
|
$
|
65,098
|
|
|
$
|
101,032
|
|
The current income tax expense is primarily attributable to U.S. federal alternative minimum tax and state income taxes and the deferred income tax benefit is primarily attributable to the remeasurement of the net deferred tax liabilities from 35.0% to 21.0%.
|
|
|
|
79
|
Overseas Shipholding Group, Inc.
|
|
The reconciliations between the U.S. Federal statutory income tax rate and the effective tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
U.S. federal statutory income tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
|
|
|
|
|
|
Adjustments due to:
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
76.5
|
%
|
|
(1.5
|
)%
|
|
(1.3
|
)%
|
Interest on unrecognized tax benefits
|
|
(5.9
|
)%
|
|
1.8
|
%
|
|
(0.5
|
)%
|
Nondeductible reorganization costs
|
|
—
|
%
|
|
(9.0
|
)%
|
|
(30.8
|
)%
|
Unremitted earnings of foreign subsidiaries
|
|
—
|
%
|
|
73.5
|
%
|
|
(237.5
|
)%
|
Change in valuation allowance
|
|
(11.5
|
)%
|
|
—
|
%
|
|
—
|
%
|
Deferred compensation
|
|
(10.7
|
)%
|
|
(1.7
|
)%
|
|
—
|
%
|
Payments as guarantor
|
|
—
|
%
|
|
—
|
%
|
|
726.0
|
%
|
Remeasurement of deferred tax liabilities
|
|
3,292.9
|
%
|
|
—
|
%
|
|
—
|
%
|
U.S. income subject to tonnage tax
|
|
123.7
|
%
|
|
1.4
|
%
|
|
3.0
|
%
|
Other
|
|
(7.1
|
)%
|
|
(1.1
|
)%
|
|
(0.2
|
)%
|
Effective tax rate
|
|
3,492.9
|
%
|
|
98.4
|
%
|
|
493.7
|
%
|
On December 22, 2017, the TCJA was signed into law. Under U.S. GAAP, deferred taxes must be adjusted for enacted changes in tax laws or rates during the period in which new tax legislation is enacted. As the TCJA was effective in the fourth quarter of 2017, the Company prepared an estimate of the accounting for the impacts of the TCJA as of December 31, 2017. The Company recognized a non-cash tax benefit of approximately
$54,300
based on our preliminary assessment of the TCJA. We will continue to analyze additional information and guidance related to the TCJA as supplemental legislation, regulatory guidance, or evolving technical interpretations become available. Consequently, reasonable estimates of the impact of the TCJA on the Company’s deferred tax balances have been reported as provisional, as defined in SEC Staff Accounting Bulletin No. 118. We expect to complete our analysis no later than the fourth quarter of 2018.
The significant components of the Company’s deferred tax liabilities and assets follow:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Vessels and other property
|
|
$
|
133,347
|
|
|
$
|
227,846
|
|
Prepaid expenditures
|
|
7,236
|
|
|
13,553
|
|
Other—net
|
|
6
|
|
|
885
|
|
Total deferred tax liabilities
|
|
140,589
|
|
|
242,284
|
|
Deferred tax assets:
|
|
|
|
|
Loss carryforwards
|
|
53,006
|
|
|
88,370
|
|
Employee compensation and benefit plans
|
|
5,507
|
|
|
12,232
|
|
Financing and professional fees
|
|
268
|
|
|
977
|
|
Accrued expenses and other
|
|
5,762
|
|
|
5,873
|
|
Total deferred tax assets
|
|
64,543
|
|
|
107,452
|
|
Valuation allowance
|
|
7,625
|
|
|
6,625
|
|
Net deferred tax assets
|
|
56,918
|
|
|
100,827
|
|
Net deferred tax liabilities
|
|
$
|
83,671
|
|
|
$
|
141,457
|
|
As of
December 31, 2017
, the Company had U.S. federal net operating loss carryforwards of
$281,942
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, 2017
and
December 31, 2016
, the Company had U.S. state net operating loss carryforwards of
$244,026
and
$292,233
, respectively. We also have U.S. state net operating loss carryforwards in additional jurisdictions for which we have not recorded a deferred tax asset or corresponding valuation allowance because we no longer conduct business in those states as of the year ended December 31, 2017 and December 31, 2016.
|
|
|
|
80
|
Overseas Shipholding Group, Inc.
|
|
These U.S. state net operating loss carryforwards expire in various years ending from December 31, 2017 through December 31, 2036. The amount of net operating loss carryforwards reflected in this paragraph are presented on a tax return basis and differ from the amounts in the deferred tax table above, which reflect the future tax benefit of the losses and are reflected net of unrecognized tax benefits.
In connection with the emergence from bankruptcy in 2014, under applicable tax regulations, the Company underwent an ownership change. As a result, there is an annual limitation on the use of pre-ownership change net operating losses, tax credits and certain other tax attributes to offset taxable income earned after the ownership change. The annual limitation is equal to the product of the applicable long-term tax exempt rate and the value of the Company’s stock immediately before the ownership change. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and losses for the year. The Company does not believe that the limitations imposed will impact its ability to utilize any pre-ownership change net operating losses before the carryforward period expires but could cause the timing of utilization to be impacted.
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 in the form of cumulative losses incurred over the preceding three-year period and lack of positive evidence of reversing deferred tax liabilities during the carryover period resulted in the Company establishing a valuation allowance of
$7,625
and
$6,625
as of December 31, 2017 and 2016, respectively, to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The valuation allowance increased by
$1,000
during 2017 largely due to the Company's assessment of its ability to utilize state losses in the applicable carryforward periods.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (excluding interest and penalties):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Balance of unrecognized tax benefits as of January 1,
|
|
$
|
36,671
|
|
|
$
|
36,535
|
|
|
$
|
215,328
|
|
Increases for positions taken in prior years
|
|
569
|
|
|
136
|
|
|
358
|
|
Decreases for positions taken in prior years
|
|
|
|
|
|
(179,151
|
)
|
Balance of unrecognized tax benefits as of December 31,
|
|
$
|
37,240
|
|
|
$
|
36,671
|
|
|
$
|
36,535
|
|
Included in the balances of unrecognized tax benefits as of
December 31, 2017
and
2016
are
$36,884
and
$36,077
, 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 in the consolidated balance sheet. As of the years ended December 31, 2017, 2016 and 2015, we accrued interest of
$76
,
$58
and
$168
, respectively, and recorded liabilities for interest and penalties of
$911
,
$835
and
$777
.
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
$3,205
and
$3,129
as of
December 31, 2017
and
2016
, respectively.
The Company is currently undergoing an examination by the IRS of its 2012 through 2015 tax returns. Although the timing of the resolution or closure of audits is highly uncertain, at this time it is reasonably possible that between
zero
and
$37,240
of uncertain tax positions could be recognized within the next twelve months. 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 can extend up to 20 years.
|
|
|
|
81
|
Overseas Shipholding Group, Inc.
|
|
NOTE 13 — RELATED PARTIES
Transition Services Agreement and Other Spin-off Related Activity
OSG earned fees totaling
$126
for services provided to INSW pursuant to the terms of the Transition Services Agreement for the year ended December 31, 2017. Approximately
$31
of such fees were earned as of December 31, 2016. OSG incurred fees totaling
$53
during the term of the TSA for services received from INSW for the year ended December 31, 2017. Approximately
$27
of such fees were incurred as of December 31, 2016.
The outstanding amounts related to the transactions between OSG and INSW were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
Receivable from INSW
|
|
$
|
372
|
|
|
$
|
683
|
|
Receivables due from INSW as of
December 31, 2017
are primarily in relation to the Transition Services Agreement and amounts owed pursuant to the Separation and Distribution Agreement, as described in Note 5, “Discontinued Operations.”
In connection with the Distribution, payments were made to or received from INSW totaling
$1,969
and
$9,857
, respectively, for the settlement of allocated one-time separation costs, the transfer of assets and liabilities between OSG and INSW and amounts due for costs allocated pursuant to the "Shared Services and Cost Sharing Agreement" and the "Cost Sharing Agreement" by and among, OSG, INSW and OBS, that was in effect during the eleven months ended November 30, 2016.
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 Guarantees"). INSW will indemnify OSG for liabilities arising from the OSG LNG Performance Guarantees pursuant to the terms of the Separation and Distribution Agreement. The maximum potential liability associated with this guarantee is not estimable because obligations are only based on future non-performance events of charter arrangements. In connection with the OSG LNG Performance Guarantees, INSW will pay a per year fee of
$135
per year to OSG, which is subject to escalation after 2018 and will be terminated if OSG ceases to provide the OSG LNG Performance Guarantees.
NOTE 14 — CAPITAL STOCK AND STOCK COMPENSATION
Change in Capital Structure
See Note 2, “Chapter 11 Filing and Emergence from Bankruptcy,” for information relating to the Equity Plan and Rights Offering. After its emergence from Bankruptcy, the Company had two classes of common stock whereby the holders of our common stock were entitled to one vote per share, and holders of the Class A common stock and Class B common stock were entitled to vote together as a class, on any matter to be voted upon by the stockholders, other than as described below.
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 (see discussion relating to the reverse 1 for 6 split and the discussion under
Dividends
below). 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
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|
|
82
|
Overseas Shipholding Group, Inc.
|
31, 2017
, the Company had
50,306,574
Class A warrants outstanding, convertible into
9,558,249
shares of Class A common stock.
The Company's Class B common stock carried an entitlement to distribution of a percentage of the proceeds from the malpractice lawsuit against Proskauer Rose LLP (“Proskauer”) and four of its partners, net of related out-of-pocket expenses incurred by us, including legal fees, all reasonable and documented costs and expenses incurred and all payments made or to be made by us in respect of certain counterclaims or pursuant to indemnification obligations, as determined by our Board of Directors (“the Board”) in good faith (such net amount, the “Net Litigation Recovery”). The aggregate amount of the Net Litigation Recovery that was distributed to holders of the Class B common stock as of the relevant record date (the “Aggregate Available Distribution”) was an amount equal to the product of the Net Litigation Recovery multiplied by
0.1
. The holders of record of Class B common stock on the relevant record date were entitled to receive, in respect of each share of Class B common stock held by such holder, a pro rata portion of the Aggregate Available Distribution calculated as a fraction thereof, the numerator of which was one and the denominator of which was
7,926,805
(unadjusted for subsequent reverse stock split as this was a fixed calculation at a point in time).
On May 13, 2016, all holders of Class B common stock and Class B warrants as of May 9, 2016 received a distribution from the Company representing their pro-rata share of the Net Litigation Recovery. On May 27, 2016, pursuant to the Company’s Amended and Restated Certificate of Incorporation, and the warrant agreement governing the Class B warrants, each Class B common share and Class B warrant automatically converted to a Class A common share and Class A warrant, respectively.
On June 2, 2016, the Board authorized the Company to take action to transfer the listing of its Class A common stock to the New York Stock Exchange from the NYSE MKT (the “Transfer”). In conjunction with the Transfer, the Board approved the Reverse Split Amendment to the Company’s Amended and Restated Certificate of Incorporation. The Reverse Split Amendment effected a one (1) for six (6) reverse stock split and corresponding reduction of the number of authorized shares of Class A common stock and Class B common stock, par value
$0.01
per share. On June 7, 2016, the Company filed the Reverse Split Amendment with the Secretary of State of the State of Delaware. The Reverse Split Amendment became effective on June 13, 2016. As previously reported, the Company’s stockholders approved the filing of the Reverse Split Amendment at the Company’s annual meeting of stockholders held on June 9, 2015. The Transfer was approved by the New York Stock Exchange on June 23, 2016. In order to account for the impact of the reverse stock split, holders of the Company’s outstanding Class A warrants will receive, upon exercise,
0.190
shares of Class A common stock per warrant exercised.
Unless otherwise noted, all of the share and per share information below has been recast to reflect the impact of the reverse stock split.
On November 30, 2016, the Company completed the separation of its business into two independent publicly-traded companies through the spin-off of INSW. 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.
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.
Dividends
On
February 29, 2016
, the Company’s Board of Directors declared a cash dividend of
$0.08
per share of common stock payable prior to the end of March 2016. In addition, in connection with the cash dividend, in accordance with the terms of the outstanding warrants for OSG’s Class A and Class B common stock, those warrants were automatically adjusted so that exercising holders received additional shares of Class A common stock reflecting the payment of the cash dividend.
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|
83
|
Overseas Shipholding Group, Inc.
|
|
On November 20, 2015, the Company’s 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 (the “record date”), 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. Holders of the Company’s outstanding Class A and Class B warrants were entitled to receive, upon exercise,
0.1
additional shares of Class A common stock per warrant exercised, in order to account for the dilutive impact of the stock dividend.
Share and Warrant Repurchases
During the year ended December 31, 2017, in connection with the vesting of restricted stock units in March, November and December, the Company repurchased
246,461
shares of Class A common stock at an average cost of
$4.55
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, 2016, in connection with the vesting of restricted stock units in January, March, April and September, the Company repurchased
25,885
shares of Class A common stock at an average cost of
$14.06
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, 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 years ended December 31, 2016 and 2015, the Company repurchased
55,306,351
and
1,219,202
Class A warrants, respectively, in private transactions with non-affiliates at an average per share equivalent cost of
$11.31
and
$16.25
, respectively, for a total cost of
$118,041
and
$3,633
, respectively.
Warrant Conversions
During the years ended
December 31, 2017
,
2016
and
2015
, the Company issued
7,629,319
,
8,247,648
and
3,277,309
shares of Class A common stock, respectively, as a result of the exercise of
40,269,797
,
43,835,170
and
19,688,119
Class A warrants, respectively.
During the years ended December 31, 2016 and 2015, the Company issued
7,833
and
396,025
shares of Class B common stock, respectively, as a result of the exercise of
46,997
and
2,381,811
Class B warrants, respectively.
Management Incentive Compensation Plan and Non-Employee Director Incentive Compensation Plan
On September 23, 2014, the Committee approved the Overseas Shipholding Group, Inc. Management Incentive Compensation Plan (the “Management Plan”) and the Overseas Shipholding Group, Inc. Non-Employee Director Incentive Compensation Plan (the “Director Plan” and together with the Management Plan, the “Incentive Plans”). OSG stockholders approved the Incentive 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 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. Pursuant to the Employee Matters Agreement described in Note 5, “Discontinued Operations,” and below, unvested share based payment awards of OSG employees that transitioned to INSW were assumed by INSW and converted into equivalent awards of INSW’s equity.
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.
|
|
|
|
84
|
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 and Restricted Common Stock
The Company awarded a total of
253,700
restricted stock units for the year ended December 31, 2017 and
74,201
and
54,881
restricted Class A common stock shares during the years ended December 31,
2016
and
2015
, respectively, to its non-employee directors. The weighted average fair value of the Company’s stock on the measurement date of such awards was
$2.68
(
2017
)
$11.64
(
2016
) and
$18.87
(
2015
) per share. Such restricted stock units and restricted Class A common stock shares 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 stock units and restricted Class A common stock shares granted may not be transferred, pledged, assigned or otherwise encumbered prior to vesting. Prior to the vesting date, 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.
On March 3, 2015, Mr. John J. Ray, III resigned from the Board. Pursuant to a waiver letter agreement entered into by the Company and Mr. Ray in connection with his resignation,
5,380
shares of the
9,722
shares originally granted to Mr. Ray, relating to his period of service as a director, vested on March 3, 2015. The balance of his restricted stock awards (
4,342
shares) was forfeited and cancelled. The incremental compensation expense recognized as a result of the difference between the grant date fair value of the vested shares and estimated fair value of the Company’s Class A common stock on March 3, 2015 was approximately
$8
.
On August 3, 2015, Mr. Alexander Greene and Mr. Nikolaus Semaca resigned from the Board. Pursuant to waiver letter agreements entered into between the Company and each of such former directors in connection with their resignations, a total of
20,829
shares originally granted these directors vested in full on August 7, 2015. The incremental compensation expense recognized as a result of the accelerated vesting and the difference between the grant date fair value of the vested shares and the estimated fair value of the Company’s Class A common stock on August 7, 2015 was approximately
$189
. The Company also entered into consulting agreements with each of Messrs. Greene and Semaca for the provision of advisory services as requested from time to time at the discretion of the Chairman of the Board. During the consulting period which terminated on June 30, 2016, Messrs. Greene and Semaca each received a quarterly fee of approximately
$37
.
Management Compensation
Restricted Stock Units
During the years ended
December 31, 2017
,
2016
and
2015
, the Company awarded
165,017
,
381,922
and
280,545
time-based restricted stock units (“RSUs”) to certain of its employees, including senior officers. The average grant date fair value of these awards was
$4.04
(
2017
),
$9.93
(
2016
) and
$18.65
(
2015
), 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 shall 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 stockholder 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 year ended December 31, 2017, the Company awarded
103,945
shares 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
$2.81
.
|
|
|
|
85
|
Overseas Shipholding Group, Inc.
|
|
During the year ended December 31, 2017, the Company awarded
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 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 stockholders equity less cash); and (ii) one-half of the target RSUs will be subject to OSG’s three-year total stockholder return (“TSR”) performance relative to that of a performance peer group over a three-year TSR performance period (“TSR Target”). The peer group consists 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 certification of achievement of the performance measures and targets no later than March 31, 2020.
Both the ROIC target RSUs and the TSR target RSUs are subject to an increase up to a maximum of
47,647
target RSUs (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 December 31, 2017, management believed was considered probable of being achieved. Accordingly, compensation costs have been recognized. The grant date fair value of the performance awards was
$4.04
per RSU.
During the year ended December 31, 2016, the Company awarded
119,853
performance-based RSUs to its senior officers. Each performance stock unit represents a contingent right to receive RSUs based upon the covered employees being continuously employed through the end of the period over which the performance goals are measured and shall vest as follows: (i) one-third of the target RSUs shall vest on December 31, 2018, subject to OSG’s three-year earnings per share (“EPS”) performance in the three-year EPS performance period relative to a compounded annual growth rate (the “EPS Target”) set forth in the award agreements; (ii) one-third of the target RSUs shall vest on December 31, 2018, subject to OSG’s ROIC performance in the three-year ROIC performance period relative to a ROIC Target set forth in the award agreements; and (iii) one-third of the target RSUs will be subject to OSG’s TSR performance relative to that of a performance peer group over a three-year TSR 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 no later than March 31, 2019. The grant date fair value of the TSR based performance awards was
$11.82
per RSU. At December 31, 2016, no compensation costs were recognized as management believed the EPS Target and ROIC Target performance conditions were not probable of being achieved.
In addition, during the year ended December 31, 2016, the Company granted
38,547
performance-based RSUs (which represented the 2016 tranche of the October 12, 2015 awards described below) to certain members of senior management. The grant date fair value of the performance awards was determined to be
$11.82
per RSU. Each performance stock unit represents a contingent right to receive RSUs based upon certain performance related goals being met and the covered employees being continuously employed through the end of the period over which the performance goals are measured. These performance awards vested on December 31, 2016, subject in each case to the Human Resources and Compensation Committee’s certification of achievement of the performance measures and targets no later than March 31, 2017. Achievement of the performance condition in this award was considered probable and accordingly, compensation cost was recognized commencing on March 30, 2016, the grant date of the award. However, as a result of the INSW spin off transaction, the outstanding unvested performance based RSU awards held by the members of senior management that remained with OSG, but terminated employment with the Company shortly after the spinoff date, were forfeited. As noted above, the awards granted to former members of OSG senior management that transitioned to INSW were cancelled.
On October 12, 2015, the Company awarded
115,640
performance-based RSUs to certain members of senior management to be granted in three equal but separate tranches. The grant date fair value of the 2015 Tranche of the performance awards (
38,547
units) was determined to be
$14.51
per RSU. Each performance stock unit represents a contingent right to receive RSUs of the Company based upon certain performance related goals being met and the covered employees being continuously employed through the end of the period over which the performance goals are measured. The performance stock units have no voting rights and may not be transferred or otherwise disposed of until they vest. Each performance award tranche granted during
2016
,
2017
and
2018
, will vest on each of
December 31, 2016
,
2017
and
2018
, subject in each case to the Committee’s certification of achievement of the performance measures and targets no later than each March 31 following the respective date of vesting. Settlement of the vested RSUs may be in either shares of common stock or cash, as determined by the Committee in its discretion, and shall occur as soon as practicable following the Committee's certification of the achievement of the applicable performance measures and targets for 2017 and in any event no later than April 30, 2018. With respect to the RSUs that may vest with respect to each of
2016
,
2017
and
2018
, the number of target RSUs shall be subject to an increase or decrease depending on performance against the applicable performance measures and targets. Compensation expense recognized with respect to the performance awards vesting on
December 31, 2017
and
2016
was based upon an achievement levels of
100%
and
130%
, respectively, of the target RSUs.
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86
|
Overseas Shipholding Group, Inc.
|
|
Stock Options
During the years ended
December 31, 2017
,
2016
and
2015
, the Company awarded to certain senior officers an aggregate of
135,084
,
528,304
, and
182,310
stock options, respectively. Each stock option represents an option to purchase one share of Class A common stock for an exercise price of
$4.04
per share for 2017, an exercise price that ranged between
$3.73
and
$12.69
per share for 2016 and an exercise price of
$17.10
per share for 2015. The average grant date fair value of the options was
$1.89
per option in
2017
,
$10.83
in
2016
and
$8.40
in
2015
. 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 recipient’s employment terminated and (ii) the expiration of the options, provided that if the Optionee’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
2017
,
2016
and
2015
grants: risk free interest rates of
2.09%
,
1.65%
and
1.80%
, respectively, dividend yields of
0.0%
, expected stock price volatility factors of
.47
,
.40
and
.37
, respectively, 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.
Employee Terminations and Retirements and Impact of Spinoff
On July 29, 2016, Mr. Henry Flinter retired from his position as President of the Company’s U.S. Flag operations. Pursuant to his employment agreement, as amended on March 30, 2016, all of his unvested stock option awards, time-based RSUs and performance-based RSUs vested in full (per the terms of his agreement, performance-based RSUs vested at target performance) on July 29, 2016. The incremental compensation expense recognized as a result of the accelerated vesting and the difference between the grant date fair value of the vested shares and the fair value of the Company’s Class A common stock on July 29, 2016 was approximately
$23
. The Human Resources and Compensation Committee of the Company’s Board elected to settle the vested equity awards (with the exception of certain performance-based RSUs that by their terms are not settled until the first quarter of 2018) in cash. Severance costs of approximately
$2,238
were recognized during the year in relation to Mr. Flinter’s separation from the Company, of which
$789
was as a result of the accelerated vesting of his share based compensation awards. Also see Note 19, “Severance and Agreements with Executive Officers.”
On December 29, 2016, Captain Ian Blackley retired from his position as Chief Executive Officer of the Company. Pursuant to his employment agreement, as amended on March 30, 2016 and August 3, 2016, all of his unvested stock option awards and time-based RSUs vested in full on December 29, 2016. Stock compensation expense, net of forfeitures, totaling
$1,251
was recognized in December 2016 as a result of the accelerated vesting of his time-based RSU and stock option awards offset by the related forfeitures of his unvested performance-based RSU awards.
On December 29, 2016, Mr. Rick Oricchio retired from his position as Chief Financial Officer of the Company. Pursuant to his employment agreement, as amended on March 30, 2016 and August 3, 2016, all of his unvested stock option awards, and time-based RSU awards vested in full on December 29, 2016. Stock compensation expense, net of forfeitures, totaling
$984
was recognized in December 2016 as a result of the accelerated vesting of his share based compensation awards and the related forfeitures of his unvested performance-based RSU awards.
|
|
|
|
87
|
Overseas Shipholding Group, Inc.
|
|
The spin-off transaction resulted in the Human Resources and Compensation Committee, as required by the Management and Director Incentive Plans, adjusting the number and the type of securities underlying the outstanding awards at November 30, 2016, in each case as it considered appropriate, in order to prevent dilution or enlargement of rights. The adjustments resulted in a
430,841
increase in restricted stock and restricted stock units and a
581,332
increase in stock options. Additionally, as a result of certain employees transferring from OSG to INSW,
177,635
restricted stock units and
205,427
stock options were cancelled.
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 restricted shares and RSU awards described above was
$2,107
,
$5,198
and
$3,139
during each of the years ended
December 31, 2017
,
2016
and 2015, respectively.
Activity with respect to restricted common stock and restricted stock units under the Incentive Plans during the three years ended
December 31, 2017
is summarized as follows:
|
|
|
|
|
Activity for the three years ended December 31, 2017
|
|
Class A common
shares
|
Nonvested Shares Outstanding at December 31, 2014
|
|
90,163
|
|
Granted
(1)
|
|
871,439
|
|
Vested ($3.00 to $3.65 per share)
(1)
|
|
(160,835
|
)
|
Forfeited
(1)
|
|
(4,342
|
)
|
Performance awards
(2)
|
|
11,564
|
|
Nonvested Shares Outstanding at December 31, 2015
|
|
807,989
|
|
Granted
(1)
|
|
614,523
|
|
Vested ($2.87 to $21.90 per share)
(1)
|
|
(1,025,212
|
)
|
Forfeited
|
|
(88,228
|
)
|
INSW Spin off modification
|
|
430,841
|
|
Cancellations related to INSW Spin-off
|
|
(177,635
|
)
|
Nonvested Shares Outstanding at December 31, 2016
|
|
562,278
|
|
Granted
|
|
586,194
|
|
Vested ($2.28 to $4.04 per share)
|
|
(323,086
|
)
|
Forfeited ($2.48 to $2.97 per share)
|
|
(164,387
|
)
|
Nonvested Shares Outstanding at December 31, 2017
|
|
660,999
|
|
|
|
(1)
|
Share information has been recast to reflect the 2016 reverse stock split and 2015 stock dividend.
|
|
|
(2)
|
Represents additional shares resulting from an increase in performance awards vesting on December 31, 2016 and 2015 based on the actual achievement of performance goals.
|
|
|
|
|
88
|
Overseas Shipholding Group, Inc.
|
|
Activity with respect to stock options under the Incentive Plans during the three years ended
December 31, 2017
is summarized as follows:
|
|
|
|
|
Activity for the three years ended December 31, 2017
|
|
Class A common
shares
|
Options Outstanding at December 31, 2014
|
|
86,229
|
|
Granted
(1)
|
|
182,310
|
|
Exercised
|
|
—
|
|
Options Outstanding at December 31, 2015
|
|
268,539
|
|
Granted
(1)
|
|
528,304
|
|
Forfeited
|
|
(2,674
|
)
|
Expired
|
|
(55,971
|
)
|
Exercised
|
|
—
|
|
INSW Spin off modification
|
|
581,332
|
|
Cancellations related to INSW Spin-off
|
|
(205,427
|
)
|
Options Outstanding at December 31, 2016
|
|
1,114,103
|
|
Granted
|
|
135,804
|
|
Forfeited ($2.84 per share)
|
|
(140,345
|
)
|
Expired ($3.35 to $4.00 per share)
|
|
(737,669
|
)
|
Exercised
|
|
—
|
|
Options Outstanding at December 31, 2017
|
|
371,893
|
|
Options Exercisable at December 31, 2017
|
|
99,272
|
|
|
|
(1)
|
Share information has been recast to reflect the 2016 reverse stock split and 2015 stock dividend.
|
The weighted average remaining contractual life of the outstanding stock options at
December 31, 2017
was
7.33 years
. The range of exercise prices of the stock options outstanding at
December 31, 2017
was between
$4.04
and
$5.57
per share (which reflects an adjustment as a result of the stock dividend and reverse spin modification and INSW spin off described above). The weighted average exercise prices of the stock options outstanding at
December 31, 2017
,
2016
and
2015
were
$5.27
,
$6.69
and
$2.96
per share, respectively. None of the stock options which vested during the three-year period ended
December 31, 2017
were “in-the-money.”
Compensation expense as a result of the grants of stock options described above was
$281
,
$2,243
and
$441
during each of the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
As of
December 31, 2017
, there was
$1,770
of unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of
1.87 years
.
NOTE 15 — 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,
|
|
|
2017
|
|
2016
|
Unrealized losses on derivative instruments
|
|
$
|
(112
|
)
|
|
$
|
(1,019
|
)
|
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans)
|
|
(6,350
|
)
|
|
(7,141
|
)
|
|
|
$
|
(6,462
|
)
|
|
$
|
(8,160
|
)
|
The following tables present the changes in the balances of each component of accumulated other comprehensive loss, net of related taxes, for the three years ended
December 31, 2017
.
|
|
|
|
89
|
Overseas Shipholding Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
—
|
|
|
438
|
|
|
438
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
907
|
|
|
353
|
|
|
1,260
|
|
Total change in accumulated other comprehensive loss
|
|
907
|
|
|
791
|
|
|
1,698
|
|
Balance as of December 31, 2017
|
|
$
|
(112
|
)
|
|
$
|
(6,350
|
)
|
|
$
|
(6,462
|
)
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
(54,620
|
)
|
|
$
|
(18,841
|
)
|
|
$
|
(73,461
|
)
|
Current period change, excluding amounts reclassified from accumulated other comprehensive loss
|
|
(5,982
|
)
|
|
(4,055
|
)
|
|
(10,037
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
16,293
|
|
|
700
|
|
|
16,993
|
|
Distribution of International Seaways, Inc.
|
|
43,290
|
|
|
15,055
|
|
|
58,345
|
|
Total change in accumulated other comprehensive loss
|
|
53,601
|
|
|
11,700
|
|
|
65,301
|
|
Balance as of December 31, 2016
|
|
$
|
(1,019
|
)
|
|
$
|
(7,141
|
)
|
|
$
|
(8,160
|
)
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
$
|
(61,547
|
)
|
|
$
|
(21,833
|
)
|
|
$
|
(83,380
|
)
|
Current period change, excluding amounts reclassified from accumulated other comprehensive loss
|
|
(11,177
|
)
|
|
2,581
|
|
|
(8,596
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
18,104
|
|
|
411
|
|
|
18,515
|
|
Total change in accumulated other comprehensive loss
|
|
6,927
|
|
|
2,992
|
|
|
9,919
|
|
Balance as of December 31, 2015
|
|
$
|
(54,620
|
)
|
|
$
|
(18,841
|
)
|
|
$
|
(73,461
|
)
|
|
|
|
|
90
|
Overseas Shipholding Group, Inc.
|
|
The following table presents information with respect to amounts reclassified out of accumulated other comprehensive loss for the three years ended
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Accumulated Other Comprehensive Loss Component
|
2017
|
|
2016
|
|
2015
|
|
Statement of Operations
Line Item
|
Unrealized losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps entered into by the Company's equity method joint venture investees
|
—
|
|
|
(15,664
|
)
|
|
(18,101
|
)
|
|
Net (loss)/income from discontinued operations
|
|
|
|
|
|
|
|
|
Interest rate caps entered into by the Company's subsidiaries
|
(1,421
|
)
|
|
(339
|
)
|
|
(1
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Interest rate caps entered into by the Company's subsidiaries
|
—
|
|
|
(408
|
)
|
|
(2
|
)
|
|
Net (loss)/income from discontinued operations
|
|
|
|
|
|
|
|
|
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
|
(666
|
)
|
|
(645
|
)
|
|
(232
|
)
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
Net periodic benefit costs associated with pension and postretirement benefit plans for shore-based employees
|
—
|
|
|
(365
|
)
|
|
(482
|
)
|
|
Net (loss)/income from discontinued operations
|
|
|
|
|
|
|
|
|
Net periodic benefit costs associated with pension and postretirement benefit plans for seagoing employees
|
150
|
|
|
131
|
|
|
80
|
|
|
Vessel expenses
|
|
(1,937
|
)
|
|
(17,290
|
)
|
|
(18,738
|
)
|
|
Total before tax
|
|
677
|
|
|
297
|
|
|
223
|
|
|
Tax provision
|
|
$
|
(1,260
|
)
|
|
$
|
(16,993
|
)
|
|
$
|
(18,515
|
)
|
|
Total net of tax
|
The following amounts are included in accumulated other comprehensive loss at
December 31, 2017
, which have not yet been recognized in net periodic cost: unrecognized prior service credits of
$2,075
(
$1,940
net of tax) and unrecognized actuarial losses
$11,912
(
$8,290
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 2018 are a gain of
$229
(
$181
net of tax) and a loss of
$568
(
$449
net of tax), respectively.
At
December 31, 2017
, the amount of estimated unrealized losses that the Company expects to be reclassified from accumulated other comprehensive loss to earnings associated with the Company's Interest Rate Cap in the next twelve months is not significant.
See Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value,” for additional disclosures relating to derivative instruments.
|
|
|
|
91
|
Overseas Shipholding Group, Inc.
|
|
The income tax (expense)/benefit allocated to each component of other comprehensive loss follows:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(losses)/gains on cash
flow hedges
|
|
Items not yet recognized
as a component of net
periodic benefit cost
|
For the year ended December 31, 2017:
|
|
|
|
|
|
|
Current period change excluding amounts reclassified from accumulated other comprehensive loss
|
|
$
|
—
|
|
|
$
|
(203
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
(513
|
)
|
|
(164
|
)
|
Total change in accumulated other comprehensive loss
|
|
$
|
(513
|
)
|
|
$
|
(367
|
)
|
|
|
|
|
|
For the year ended December 31, 2016:
|
|
|
|
|
Current period change excluding amounts reclassified from accumulated other comprehensive loss
|
|
$
|
30
|
|
|
$
|
(388
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
(118
|
)
|
|
(179
|
)
|
Total change in accumulated other comprehensive loss
|
|
$
|
(88
|
)
|
|
$
|
(567
|
)
|
|
|
|
|
|
For the year ended December 31, 2015:
|
|
|
|
|
Current period change excluding amounts reclassified from accumulated other comprehensive loss
|
|
$
|
553
|
|
|
$
|
(353
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
(223
|
)
|
Total change in accumulated other comprehensive loss
|
|
$
|
553
|
|
|
$
|
(576
|
)
|
NOTE 16 — LEASES
Charters-in
As of
December 31, 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 consolidated statements of operations. The base term for 9 vessels expire in December 2019. The Company holds options for the charters-in that can be exercised for 1, 3 or 5 years with the 1 year option only usable once, while the 3 and 5 year options are available forever. 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 option on one of the Company's vessel has been extended until December 2025. For the remaining 9 vessels, the Company is required to declare its intention under the options by December 11, 2018.
The future minimum commitments and related number of operating days under these operating leases are as follows:
|
|
|
|
|
|
|
|
At December 31,
|
|
Amount
|
|
Operating Days
|
2018
|
|
$
|
91,457
|
|
|
3,650
|
2019
|
|
111,819
|
|
|
3,470
|
2020
|
|
9,168
|
|
|
366
|
2021
|
|
9,143
|
|
|
365
|
2022
|
|
9,143
|
|
|
365
|
Thereafter
|
|
22,846
|
|
|
912
|
Net minimum lease payments
|
|
$
|
253,576
|
|
|
9,128
|
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. 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 through December 31, 2019. The charters in the above tables also provide the Company with renewal and purchase options.
|
|
|
|
92
|
Overseas Shipholding Group, Inc.
|
|
Charters-out
The future minimum revenues, before reduction for brokerage commissions and which include rent escalations, expected to be received on noncancelable time charters and certain COAs for which minimum annual revenues can be reasonably estimated and the related revenue days (revenue days represent calendar days, less days that vessels are not available for employment due to repairs, drydock or lay-up) are as follows:
|
|
|
|
|
|
|
|
At December 31,
|
|
Amount
|
|
Revenue
Days
|
2018
|
|
$
|
177,283
|
|
|
3,002
|
2019
|
|
94,961
|
|
|
1,449
|
2020
|
|
43,570
|
|
|
530
|
2021
|
|
26,219
|
|
|
319
|
2022
|
|
30,675
|
|
|
365
|
Thereafter
|
|
77,464
|
|
|
886
|
Net minimum lease receipts
|
|
$
|
450,172
|
|
|
6,551
|
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,
$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 certain of 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 above table. 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.
Office space
The Company has lease obligations for office space that generally require fixed annul rental payments and may also include escalation clauses and renewal options.
The future minimum commitments under lease obligations for office space as of December 31, 2017 and for each of the next five years ended December 31 and thereafter, are as follows:
|
|
|
|
|
|
At December 31,
|
|
Amount
|
2018
|
|
$
|
627
|
|
2019
|
|
658
|
|
2020
|
|
635
|
|
2021
|
|
631
|
|
2022
|
|
649
|
|
Thereafter
|
|
573
|
|
Net minimum lease payments
|
|
$
|
3,773
|
|
The rental expense for office space, which is included in general and administrative expenses in the consolidated statements of operations, amounted to
$647
in
2017
,
$1,324
in
2016
and
$1,808
in
2015
.
NOTE 17 — PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
For the years ended
December 31, 2017
and 2016, 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, 2017
, the Maritrans Plan is the only domestic defined benefit pension plan in
|
|
|
93
|
Overseas Shipholding Group, Inc.
|
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection Act
Zone Status
|
|
|
|
Contributions made
by the Company
|
Pension Plan
|
|
EIN / Pension
Plan Number
|
|
2017
|
|
2016
|
|
Rehabilitation
Plan Status
|
|
2017
|
|
2016
|
|
2015
|
AMO Pension Plan
|
|
13-1936709
|
|
Yellow
(1)
|
|
Yellow
(1)
|
|
Implemented
|
|
$
|
984
|
|
|
$
|
1,015
|
|
|
$
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEBA Pension Plan
|
|
51-6029896
|
|
Green
(1)
|
|
Green
(1)
|
|
None
|
|
1,411
|
|
|
1,406
|
|
|
1,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seafarers Pension Plan
|
|
13-6100329
|
|
Green
(1)
|
|
Green
(1)
|
|
None
|
|
400
|
|
|
434
|
|
|
427
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
2,795
|
|
|
$
|
2,855
|
|
|
$
|
2,714
|
|
|
|
(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, 2017
and any future contributions are subject to negotiations between the employers and the unions.
Under the Employee Retirement Income Security Act of 1974 (“ERISA”) as amended by the Pension Protection Act of 2006 (“PPA”) and the Multiemployer Pension Reform Act of 2014 (“MPRA”), on March 31, 2015, the actuary of the MEBA Pension Plan (“Plan”) certified the Plan as being in neither endangered nor critical status as of January 1, 2015. The actuary also certified that the Plan was projected to be in critical status in at least one of the five succeeding Plan years. Under MPRA, a multiemployer pension plan that has been actuarially projected to be in critical status within the succeeding five plan years may elect to be in critical status for the current plan year within
30
days of the actuary’s certification. In accordance with applicable law, on April 30, 2015 the Plan’s Board of Trustees (“Trustees”) elected that the Plan enter critical status for the plan year beginning January 1, 2015. The Plan entered into a Rehabilitation Plan (“RP”) whereby lump sum payment options previously available under the Plan will no longer be paid to beneficiaries, and each employer became obligated to pay a
5%
contribution surcharge to the Plan, effective with respect to contributions for work performed on or after June 1, 2015. On October 27, 2015, the Company received correspondence from MEBA indicating that Federal law requires that the Trustees adopt an RP with a schedule of increases in contributions and reductions in future benefits that will help the Plan emerge from critical status. However, because the Plan’s actuary has projected that the Plan will emerge from critical status without any contribution increases or benefit reductions; the RP does not include any. The letter also indicated that since the Company signed a Memorandum of Understanding on October 21, 2015 whereby the Company and MEBA amended their collective bargaining agreement to adopt the preferred schedule of the RP that was adopted by the Pension Plan’s Board of Trustees on October 21, 2015, the surcharges required to be paid to the Plan by the Company since June 1, 2015 ceased as of October 31, 2015. During April 2016, the Company received correspondence from MEBA indicating that due to the actions of the Trustees, the Plan’s
|
|
|
|
94
|
Overseas Shipholding Group, Inc.
|
|
actuaries certified in March 2016 that the Plan has emerged from critical status, and the Plan is not in endangered, critical, or critical and declining status for the plan year commencing January 1, 2016. As a result, the rehabilitation plan period has terminated.
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, 2016, the Company’s estimated withdrawal liability would have been approximately
$24,867
had the Company elected to withdrawal from the plan in 2017. Based on the actuarial report received from the trustees of the AMO Pension Plan, as of September 30, 2016, the Company’s estimated withdrawal liability would have been approximately
$21,891
had the Company elected to withdraw from the plan in 2017. 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, 2017
.
The SIU – Tanker Agreement, SIU – Tug Agreement, AMO and MEBA collective bargaining agreements expire in June 2022, March 2018, March 2018 and June 2020, 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 three years ended
December 31, 2017
.
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.
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,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
47,468
|
|
|
$
|
49,622
|
|
|
$
|
4,094
|
|
|
$
|
4,623
|
|
Cost of benefits earned (service cost)
|
|
—
|
|
|
—
|
|
|
113
|
|
|
138
|
|
Interest cost on benefit obligation
|
|
1,830
|
|
|
1,893
|
|
|
165
|
|
|
189
|
|
Curtailment gain
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(451
|
)
|
Actuarial (gains)/losses
|
|
1,788
|
|
|
(1,520
|
)
|
|
389
|
|
|
(192
|
)
|
Benefits paid
|
|
(2,586
|
)
|
|
(2,527
|
)
|
|
(213
|
)
|
|
(213
|
)
|
Benefit obligation at year end
|
|
48,500
|
|
|
47,468
|
|
|
4,548
|
|
|
4,094
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
32,013
|
|
|
33,127
|
|
|
—
|
|
|
—
|
|
Actual return on plan assets
|
|
5,082
|
|
|
1,413
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
|
1,082
|
|
|
—
|
|
|
213
|
|
|
213
|
|
Benefits paid
|
|
(2,586
|
)
|
|
(2,527
|
)
|
|
(213
|
)
|
|
(213
|
)
|
Fair value of plan assets at year end
|
|
35,591
|
|
|
32,013
|
|
|
—
|
|
|
—
|
|
Unfunded status at December 31
|
|
$
|
(12,909
|
)
|
|
$
|
(15,455
|
)
|
|
$
|
(4,548
|
)
|
|
$
|
(4,094
|
)
|
|
|
|
|
95
|
Overseas Shipholding Group, Inc.
|
|
Information for defined benefit pension plans with accumulated benefit obligations in excess of plan assets follows:
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2017
|
|
2016
|
Projected benefit obligation
|
|
$
|
48,500
|
|
|
$
|
47,468
|
|
Accumulated benefit obligation
|
|
48,500
|
|
|
47,468
|
|
Fair value of plan assets
|
|
35,591
|
|
|
32,013
|
|
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,
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Components of expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of benefits earned
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
113
|
|
|
$
|
138
|
|
|
$
|
137
|
|
Interest cost on benefit obligation
|
|
1,830
|
|
|
1,893
|
|
|
1,928
|
|
|
165
|
|
|
189
|
|
|
191
|
|
Expected return on plan assets
|
|
(2,258
|
)
|
|
(2,309
|
)
|
|
(2,412
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior-service costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(229
|
)
|
|
(271
|
)
|
|
(316
|
)
|
Recognized net actuarial loss
|
|
688
|
|
|
688
|
|
|
792
|
|
|
56
|
|
|
97
|
|
|
157
|
|
Curtailment
|
|
—
|
|
|
97
|
|
|
157
|
|
|
—
|
|
|
(149
|
)
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
260
|
|
|
$
|
369
|
|
|
$
|
465
|
|
|
$
|
105
|
|
|
$
|
4
|
|
|
$
|
169
|
|
The weighted-average assumptions used to determine benefit obligations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
At December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Discount rate
|
|
3.55
|
%
|
|
3.95
|
%
|
|
3.70
|
%
|
|
4.15
|
%
|
Rate of future compensation increases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
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.
The weighted-average assumptions used to determine net periodic benefit cost follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
For the year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
|
3.95
|
%
|
|
4.00
|
%
|
|
3.75
|
%
|
|
4.15
|
%
|
|
4.25
|
%
|
|
4.00
|
%
|
Expected (long-term) return on plan assets
|
|
7.25
|
%
|
|
7.25
|
%
|
|
7.00
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
Rate of future compensation increases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The assumed health care cost trend rate for measuring the benefit obligation included in Other Benefits above is an increase of
7.00%
as of
December 31, 2017
, 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 2017
|
|
$
|
50
|
|
|
$
|
(37
|
)
|
Effect on postretirement benefit obligation as of December 31, 2017
|
|
$
|
637
|
|
|
$
|
(444
|
)
|
|
|
|
|
96
|
Overseas Shipholding Group, Inc.
|
|
Expected benefit payments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
2018
|
|
$
|
2,753
|
|
|
$
|
215
|
|
2019
|
|
2,848
|
|
|
192
|
|
2020
|
|
2,999
|
|
|
194
|
|
2021
|
|
3,010
|
|
|
198
|
|
2022
|
|
3,040
|
|
|
200
|
|
Years 2023-2027
|
|
15,817
|
|
|
1,074
|
|
Total
|
|
$
|
30,467
|
|
|
$
|
2,073
|
|
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, 2017
, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
Description
|
|
Fair Value
|
|
Level 1
|
Cash and cash equivalents
|
|
$
|
655
|
|
|
$
|
655
|
|
Equity securities:
|
|
|
|
|
Large cap exchange traded fund
|
|
14,396
|
|
|
14,396
|
|
Small company - mid value
|
|
2,165
|
|
|
2,165
|
|
Small company - mid growth
|
|
2,284
|
|
|
2,284
|
|
International value
|
|
2,726
|
|
|
2,726
|
|
International growth
|
|
2,799
|
|
|
2,799
|
|
Fixed income and preferred stock:
|
|
|
|
|
Intermediate term bond fund
|
|
10,553
|
|
|
10,553
|
|
Small company - mid value - preferred stock
|
|
13
|
|
|
13
|
|
Total
|
|
$
|
35,591
|
|
|
$
|
35,591
|
|
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 Plan. 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.
The Company contributed
$1,082
,
$0
and
$0
to the Maritrans Plan in
2017
,
2016
and
2015
, respectively. The Company expects to make contributions of approximately
$1,279
to the Maritrans Plan in 2018.
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
$2,244
for the year ended December 31, 2017.
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
|
|
|
|
97
|
Overseas Shipholding Group, Inc.
|
|
contribution plans in the absence of limitations imposed by income tax regulations. The Company’s unfunded obligations under this plan at
December 31, 2017
and
2016
were
$22
and
$741
, respectively.
NOTE 18 — OTHER INCOME/(EXPENSE)
Other income/(expense) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Investment income:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,183
|
|
|
$
|
534
|
|
|
$
|
219
|
|
Gain on sale of investments
|
|
—
|
|
|
46
|
|
|
53
|
|
|
|
1,183
|
|
|
580
|
|
|
272
|
|
Loss on repurchase of debt
|
|
(3,237
|
)
|
|
(2,988
|
)
|
|
(26,516
|
)
|
OSG LNG performance guarantee fees
|
|
135
|
|
|
—
|
|
|
—
|
|
Miscellaneous—net
|
|
38
|
|
|
17
|
|
|
5
|
|
|
|
$
|
(1,881
|
)
|
|
$
|
(2,391
|
)
|
|
$
|
(26,239
|
)
|
See Note 9, “Debt,” for disclosures relating to loss on repurchase of debt.
NOTE 19 — SEVERANCE COSTS AND AGREEMENTS WITH EXECUTIVE OFFICERS
Severance
Severance related costs are recognized over the period commencing on the date on which the affected employees are notified and ending on the date when required services are completed.
For the year ended December 31, 2017, severance costs for termination benefits and share based compensation costs recognized were not material.
Severance costs for termination benefits and share based compensation costs recognized during the year ended December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
Benefits
|
|
Share Based
Payment
Expense
|
|
Total
Severance
Charges
|
Terminations as a result of spin-off and related restructuring
|
|
$
|
8,218
|
|
|
$
|
4,778
|
|
|
$
|
12,996
|
|
See below for additional discussion on termination agreements with executive officers. Charges relating to employee termination benefits and severance are presented separately in the consolidated statement of operations.
Activity relating to the reserves for the severance arrangements incurred during the three years ended December 31, 2017 is summarized as follows:
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
—
|
|
Provision
|
|
8,218
|
|
Utilized
|
|
(524
|
)
|
Balance at December 31, 2016
|
|
7,694
|
|
Utilized
|
|
(6,440
|
)
|
Balance at December 31, 2017
|
|
$
|
1,254
|
|
The above table excludes related professional fees which are expensed as incurred.
|
|
|
|
98
|
Overseas Shipholding Group, Inc.
|
|
Agreements with Executive Officers
On December 29, 2016 Captain Ian T. Blackley stepped down from his role as President, Chief Executive Officer and Director of the Company. In connection with his departure from the Company, Captain Blackley entered into a letter agreement with the Company that provides for a general release and waiver of claims against the Company in addition to the payment of certain benefits that were consistent with the terms of his employment agreement, as amended including: (a) a cash payment of
$1,350
in substantially equal installments over a period of twenty-four (24) months; (b) a lump sum cash payment of
$3,214
; (c) a lump sum cash payment of
$475
pursuant to the Company’s Retention Bonus Plan; and (d) any benefits to which he is entitled under the Company’s nonqualified supplemental savings plan. Captain Blackley also received accelerated vesting of time-based equity awards. Charges recognized as part of severance costs in relation to the accelerated vesting of his time-based equity awards totaled
$2,313
. During the year ending
December 31, 2017
, severance related amounts of
$5,333
were paid to Captain Blackley.
On December 29, 2016, Mr. Rick Oricchio stepped down from his role as Senior Vice President and Chief Financial Officer of the Company. In connection with his departure, Mr. Oricchio entered into a letter agreement with the Company containing, among other things, a general release and waiver of claims against the Company, in addition to the payment of certain benefits that were consistent with the terms of his employment agreement, as amended including: (a) a cash payment of
$475
in substantially equal installments over a period of twelve months; (b) a lump sum cash payment of
$1,012
; (c) the pro rata portion of Mr. Oricchio’s second anniversary bonus in a lump sum cash payment of
$386
and (d) Mr. Oricchio’s annual incentive bonus for fiscal year 2016, to be determined based on actual performance of previously established performance metrics and paid in accordance with the Company’s normal practice. Mr. Oricchio also received accelerated vesting of time-based equity awards. Charges recognized as part of severance costs in relation to the accelerated vesting of his time-based equity awards totaled
$1,676
. During the year ending
December 31, 2017
, severance related amounts of
$3,342
were paid to Mr. Oricchio.
On July 29, 2016, Mr. Henry Flinter retired from his position as President of the Company’s U.S. Flag operations. Pursuant to his employment agreement, as amended on March 30, 2016, all of his unvested stock option awards, time-based RSUs and performance-based RSUs vested in full (per the terms of his agreement, performance-based RSUs vested at target performance) on July 29, 2016. The incremental compensation expense recognized as a result of the difference between the grant date fair value of the vested shares and the fair value of the Company’s Class A common stock on July 29, 2016 was approximately
$23
. The Human Resources and Compensation Committee of the Company’s Board elected to settle the vested equity awards (with the exception of certain performance-based RSUs that by their terms are not settled until the first quarter of 2018) in cash. Severance costs of approximately
$2,238
were recognized during the quarter in relation to Mr. Flinter’s separation from the Company, of which
$789
was as a result of the accelerated vesting of his share based compensation awards. In addition, Mr. Flinter is eligible for any benefits to which he is entitled under the Company’s nonqualified supplemental savings plan.
|
|
|
|
99
|
Overseas Shipholding Group, Inc.
|
|
NOTE 20 —
2017
AND
2016
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Data for the Quarter Ended
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping revenues
|
|
$
|
108,116
|
|
|
$
|
96,225
|
|
|
$
|
93,270
|
|
|
$
|
92,815
|
|
Loss on disposal of vessels and other property, including impairments
(1)
|
|
—
|
|
|
—
|
|
|
7,353
|
|
|
5,847
|
|
Income from vessel operations
|
|
19,258
|
|
|
14,220
|
|
|
434
|
|
|
164
|
|
Interest expense
|
|
(9,357
|
)
|
|
(9,445
|
)
|
|
(9,474
|
)
|
|
(9,125
|
)
|
Reorganization items, net
|
|
(235
|
)
|
|
(9
|
)
|
|
46
|
|
|
8
|
|
(Provision)/benefit for taxes from continuing operations
(2)
|
|
(3,569
|
)
|
|
(1,593
|
)
|
|
3,110
|
|
|
59,679
|
|
Net income/(loss)
|
|
5,429
|
|
|
3,211
|
|
|
(6,307
|
)
|
|
53,645
|
|
Basic and Diluted net income/(loss) per share - Class A
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.61
|
|
|
|
(1)
|
As discussed in Note 6, “Vessels, Other Property and Deferred Drydock,” the Company recognized a loss on the sale of an ATB. In addition, as discussed in Note 10, "Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures," the Company recorded an impairment charge to write down the carrying values of five ATBs to their estimated fair values as of December 31, 2017.
|
|
|
(2)
|
As discussed in Note 12, “Taxes,” the Company has recognized a one-time non-cash tax benefit of approximately
$54,300
in the fourth quarter of the fiscal year ended December 31, 2017. This tax benefit is based on the Company’s assessment of the impact of the TCJA, which reduced the federal corporate income tax rate from 35.0% to 21.0%.
|
|
|
|
|
100
|
Overseas Shipholding Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Data for the Quarter Ended
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping revenues
(2)
|
|
$
|
115,080
|
|
|
$
|
118,384
|
|
|
$
|
114,180
|
|
|
$
|
114,776
|
|
Loss on disposal of vessels and other property, including impairments
(1) (2)
|
|
(14
|
)
|
|
(113
|
)
|
|
(97,782
|
)
|
|
(6,623
|
)
|
Income/(loss) from vessel operations
(2)
|
|
17,401
|
|
|
23,035
|
|
|
(83,439
|
)
|
|
7,821
|
|
Interest expense
(2)
|
|
(11,917
|
)
|
|
(10,862
|
)
|
|
(10,607
|
)
|
|
(9,765
|
)
|
Reorganization items, net
(2)
|
|
17,910
|
|
|
(860
|
)
|
|
(5,732
|
)
|
|
(393
|
)
|
(Provision)/benefit for taxes from continuing operations
(1)
|
|
(33,235
|
)
|
|
(15,075
|
)
|
|
49,755
|
|
|
63,653
|
|
Income/(loss) from continuing operations
|
|
(8,698
|
)
|
|
(4,184
|
)
|
|
(52,855
|
)
|
|
64,678
|
|
Income/(loss) from discontinued operations
(3)
|
|
59,437
|
|
|
34,045
|
|
|
(45,884
|
)
|
|
(340,153
|
)
|
Net income
|
|
50,739
|
|
|
29,861
|
|
|
(98,739
|
)
|
|
(275,475
|
)
|
Basic and Diluted net income/(loss) per share - Class A from continuing operations
|
|
$
|
(0.09
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
0.74
|
|
Basic and Diluted net income/(loss) per share - Class A from discontinued operations
|
|
$
|
0.62
|
|
|
$
|
0.35
|
|
|
$
|
(0.51
|
)
|
|
$
|
(3.89
|
)
|
Basic and Diluted net income/(loss) per share - Class B from continuing operations
|
|
$
|
(0.09
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Basic and Diluted net income/(loss) per share - Class B from discontinued operations
|
|
$
|
0.64
|
|
|
$
|
2.19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
As discussed in Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” the Company recorded impairment charges to write down the carrying values of the seven ATBs to their estimated fair values as of September 30, 2016 and December 31, 2016, respectively, using estimates of discounted future cash flows for each of the vessels (income approach) since the secondhand sale and purchase market for the type of U.S. Flag vessels owned by OSG is not considered to be robust.
|
|
|
(2)
|
Data has been adjusted from amounts previously reported in Form 10-Q to reflect discontinued operations as discussed in Note 1.
|
|
|
(3)
|
As discussed in Note 5, “Discontinued Operations,” the Company recorded an impairment charge of
$332,562
to write down the carrying values of the INSW disposal group to its fair value, calculated on a held for sale basis, on November 30, 2016.
|
NOTE 21 — CONTINGENCIES
The Company’s policy for recording legal costs related to contingencies is to expense such legal costs as incurred.
Class Action Lawsuits and Derivative Actions
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 the Equity Plan, which became effective on August 5, 2014. Under the terms of that settlement, the Equity Plan provides for full satisfaction of the claims of the putative class through (i)
$7,000
in cash, which was paid on August 5, 2014, (ii)
$3,000
in cash, which was paid by the Company 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.
The settled claims stem from the Company’s filing of a Form 8-K on October 22, 2012 disclosing that on October 19, 2012 the Audit Committee of the Board of Directors of the Company, 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 (the “Southern District”) against the Company, 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, its current independent registered public accounting
|
|
|
|
101
|
Overseas Shipholding Group, Inc.
|
|
firm, and underwriters of the Company’s public offering of notes in March 2010 (the “Offering”). The Company’s former independent registered public accounting firm was later added as a defendant. Subsequent to the Company’s filing for relief under Chapter 11, these suits were consolidated and the plaintiffs filed an amended complaint that did not name the Company as a defendant. The consolidated suit was purportedly on behalf of purchasers of Company securities between March 1, 2010 and October 19, 2012 and purchasers of notes in the Offering. The plaintiffs alleged that documents that the Company filed with the SEC were defective, inaccurate and misleading, that the plaintiffs relied on such documents in purchasing the Company’s securities, and that, as a result, the plaintiffs suffered losses. The plaintiffs asserted claims under the Securities Act against all defendants and claims under the Securities Exchange Act of 1934 (the “Exchange Act”) against the then former President and former Chief Financial Officer of the Company. Following additional amendments on plaintiffs’ Exchange Act claims and motion to dismiss briefing, on April 28, 2014, the Southern District denied the motion to dismiss the Exchange Act claims filed by the then former President and former Chief Financial Officer on the third amended complaint. On March 18, 2015, OSG’s former independent registered public accounting firm moved for summary judgment and on May 29, 2015, the Southern District issued an order granting that motion. On July 1, 2015, the plaintiffs noticed an appeal of that order to the U.S. Court of Appeals for the Second Circuit. On September 2, 2015, the plaintiffs and OSG’s former independent registered public accounting firm filed a stipulation withdrawing that appeal with prejudice. On August 6, 2015, the plaintiffs moved for the Southern District to preliminarily approve settlements with respect to all of the plaintiffs’ remaining claims, including settlements with former officers and directors of the Company, the Company’s former underwriters, and the Company’s current independent registered public accounting firm that contemplate payments of
$10,500
,
$4,000
and
$1,750
, respectively, on behalf of such defendants. On August 12, 2015, the Southern District preliminarily approved those settlements, and on December 2, 2015, entered orders that (a) certified the proposed class for settlement purposes, (b) approved a plan of allocation for distribution of settlement proceeds, (c) finally approved those settlements, and (d) entered final orders of judgment dismissing the remaining defendants from the action.
The plaintiffs in the Southern District action filed a proof of claim against the Company in the Bankruptcy Court. Pursuant to a settlement with such plaintiffs and the putative class on whose behalf their claim was filed, their direct claims against the Company were fully and finally resolved based on the Equity Plan treatment described above. Separately, certain of the defendants in the Southern District filed claims in the Bankruptcy Court against the Company for indemnification or reimbursement based on potential losses incurred in connection with such action. Each of those indemnification claims, asserted by certain former directors and officers of the Company, have been released pursuant to the Equity Plan or otherwise resolved by the Reorganized Debtors. In addition, the indemnification claims asserted by the Company’s former underwriters have been resolved and paid pursuant to the orders of the Bankruptcy Court and the Equity Plan. On October 5, 2015, following the resolution of all disputed Class E1 claims, the Reorganized Debtors disbursed the remaining funds in the Disputed Claims Reserve for Class E1to representatives of the putative class in accordance with the Equity Plan and Confirmation Order. The Equity Plan and orders of the Bankruptcy Court foreclose the defendants in the Southern District from pursuing any other or further remedies against the Company.
Proskauer Action
On February 23, 2014, Proskauer and four of its partners (the “Proskauer Plaintiffs”) filed an action in the Supreme Court of the State of New York, County of New York (the “Supreme Court”) against the then Senior Vice President, General Counsel and Secretary and the former Chief Financial Officer alleging that the defendants engaged in tortious and fraudulent conduct that caused significant harm to the Proskauer Plaintiffs and the Company. The Proskauer Plaintiffs alleged that the defendants made false representations and thereby deceived and misled Proskauer into providing legal advice to the Company, which was the subject of the Company’s malpractice suit against Proskauer and four of its partners filed on November 18, 2013 in the Bankruptcy Court. On May 1, 2014, the defendants in the action filed by the Proskauer Plaintiffs filed motions to dismiss the action. On June 9, 2014, the Proskauer Plaintiffs filed an amended complaint that included certain additional factual allegations and an additional claim against the former Chief Financial Officer of the Company. On July 18, 2014, the defendants filed motions to dismiss the Proskauer Plaintiffs’ amended complaint. On January 15, 2015, the Supreme Court dismissed the Proskauer Plaintiffs’ amended complaint in its entirety against the defendants. On March 2, 2015, the Proskauer Plaintiffs filed a notice of appeal of the Supreme Court’s decision to the Appellate Division of the Supreme Court, First Department (the “Appellate Court”). Proskauer filed its appellant’s brief on August 17, 2015. The appellees filed their response briefs on October 30, 2015 and Proskauer filed its reply brief on November 13, 2015. On February 12, 2016, as part of the settlement agreement between the Company and Proskauer and four of its partners, the Proskauer Plaintiffs agreed to withdraw their appeal of the Supreme Court’s dismissal of the amended complaint against the defendants and on March 31, 2016, the Appellate Court dismissed the appeal.
On February 21, 2014, the Bankruptcy Court declined to hear the Company’s malpractice claims against Proskauer and four of its partners that were filed on November 18, 2013 under the doctrine of permissive abstention, and on March 11, 2014, the Company re-filed its malpractice claims against such defendants in the Supreme Court. On April 11, 2014, Proskauer and four
|
|
|
|
102
|
Overseas Shipholding Group, Inc.
|
|
of its partners filed a motion to dismiss the malpractice action, and on September 10, 2014, the Supreme Court denied the motion to dismiss the legal malpractice claim for breach of duty of care but granted the motion to dismiss the legal malpractice claim for breach of duty of loyalty as subsumed within the duty of care claim. Proskauer and four of its partners appealed this decision to the Appellate Division of the Supreme Court, First Department and on July 2, 2015, the appellate court affirmed the Supreme Court’s denial of Proskauer’s motion to dismiss. In addition, on December 3, 2014, the Company filed a motion with the Supreme Court for partial summary judgment on whether the “joint and several” liability provisions of certain of the Company’s prior loan agreements, which were the focus of the malpractice action, were unambiguous as a matter of law. The Supreme Court denied that motion as being procedurally premature on July 24, 2015.
On May 20, 2015, the Supreme Court issued a scheduling order for discovery in the Company’s malpractice action against Proskauer. Under the terms of that scheduling order, all discovery was to be completed by April 15, 2016. On October 16, 2015, the parties agreed to extend the deadline for all discovery to be completed to August 1, 2016, and the Court issued a revised scheduling order.
On February 12, 2016, the Company entered into an agreement with Proskauer and four of its partners to settle the malpractice suit. See Note 2, “Chapter 11 Filing and Emergence from Bankruptcy,” for additional information.
On March 3, 2016, pursuant to the settlement agreement with Proskauer, the Supreme Court entered an order discontinuing the Proskauer action with prejudice, which order has become final and nonappealable.
SEC Investigation
On November 13, 2012, the Company received from the staff of the SEC’s Division of Enforcement (the “Staff”) a request for documents relating to the statements in the Company’s October 22, 2012 Form 8-K. On January 29, 2013, the SEC issued a formal order of private investigation of the Company. The Company provided documents to the SEC and cooperated fully with the SEC’s investigation.
On July 25, 2016, the staff of the SEC provided a “Wells Notice” to the Company’s counsel in connection with the above-referenced investigation, advising that the staff had made a preliminary determination to recommend that the Commission file an enforcement action against the Company.
On January 23, 2017, the SEC commenced an administrative proceeding, with the Company’s consent, that fully resolved the SEC’s investigation. 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 agreement 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.
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.
|
|
|
|
103
|
Overseas Shipholding Group, Inc.
|
|