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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number: 001-06479

 

OVERSEAS SHIPHOLDING GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   13-2637623
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

302 Knights Run Avenue, Tampa, Florida   33602
(Address of principal executive office)   (Zip Code)

 

(813) 209-0600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock (par value $0.01 per share)   OSG   New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒
       
      Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES ☒ NO ☐

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

The number of shares outstanding of the issuer’s Class A common stock as of May 5, 2021: Class A common stock, par value $0.01 – 86,863,651 shares. Excluded from these amounts are penny warrants, which were outstanding as of May 5, 2021 for the purchase of 3,654,795 shares of Class A common stock without consideration of any withholding pursuant to the cashless exercise procedures.

 

 

 

 
 

 

TABLE OF CONTENTS

 

   

Page
#

     
Part I—FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020 3
     
  Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2021 and 2020 4
     
  Condensed Consolidated Statements of Comprehensive (Loss)/Income (Unaudited) for the three months ended March 31, 2021 and 2020 5
     
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2021 and 2020 6
     
  Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three months ended March 31, 2021 and 2020 7
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
     
Item 4. Controls and Procedures 23
     
Part II—OTHER INFORMATION  
     
Item 1A Risk Factors 24
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 25
   
Item 3 Defaults upon Senior Securities 25
     
Item 4 Mine Safety Disclosure 26
   
Item 5 Other Information 26
     
Item 6. Exhibits 26
     
Signatures 27

 

     2

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

DOLLARS IN THOUSANDS

 

    March 31, 2021     December 31, 2020  
    (unaudited)        
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 45,093     $ 69,697  
Restricted cash     37       49  
Voyage receivables, including unbilled of $4,999 and $6,740, net of reserve for doubtful accounts     10,872       13,123  
Income tax receivable     388       387  
Other receivables     3,817       1,817  
Inventories, prepaid expenses and other current assets     5,067       3,603  
Total Current Assets     65,274       88,676  
Vessels and other property, less accumulated depreciation     787,241       832,174  
Asset held for sale     31,850       —  
Deferred drydock expenditures, net     45,810       43,134  
Total Vessels, Other Property and Deferred Drydock     864,901       875,308  
Restricted cash - non current     59       73  
Intangible assets, less accumulated amortization     26,067       27,217  
Operating lease right-of-use assets, net     197,073       215,817  
Other assets     26,058       24,646  
Total Assets   $ 1,179,432     $ 1,231,737  
LIABILITIES AND EQUITY                
Current Liabilities:                
Accounts payable, accrued expenses and other current liabilities   $ 48,449     $ 48,089  
Current portion of operating lease liabilities     90,612       90,613  
Current portion of finance lease liabilities     4,001       4,000  
Current installments of long-term debt     38,718       38,922  
Total Current Liabilities     181,780       181,624  
Reserve for uncertain tax positions     183       189  
Noncurrent operating lease liabilities     128,055       147,154  
Noncurrent finance lease liabilities     20,793       21,360  
Long-term debt     380,165       390,198  
Deferred income taxes, net     74,821       80,992  
Other liabilities     29,618       30,409  
Total Liabilities     815,415       851,926  
Equity:                
Common stock - Class A ($0.01 par value; 166,666,666 shares authorized; 86,863,651 and 86,365,422 shares issued and outstanding)     869       864  
Paid-in additional capital     592,732       592,564  
Accumulated deficit     (229,203 )     (213,335 )
Stockholder’s Equity Subtotal     364,398       380,093  
Accumulated other comprehensive loss     (381 )     (282 )
Total Equity     364,017       379,811  
Total Liabilities and Equity   $ 1,179,432     $ 1,231,737  

 

See notes to condensed consolidated financial statements

 

     3

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

(UNAUDITED)

 

    2021     2020  
   

Three Months Ended

March 31,

 
    2021     2020  
Shipping Revenues:                
                 
Time and bareboat charter revenues   $ 63,788     $ 78,150  
Voyage charter revenues     17,485       22,709  
Total Shipping revenues     81,273       100,859  
                 
Operating Expenses:                
Voyage expenses     15,760       3,786  
Vessel expenses     31,807       35,769  
Charter hire expenses     22,318       22,460  
Depreciation and amortization     15,319       14,019  
General and administrative     6,365       6,173  
Loss on disposal of vessels and other property, including impairments, net     5,493       296  
Total operating expenses     97,062       82,503  
(Loss)/income from vessel operations     (15,789 )     18,356  
Gain on termination of pre-existing arrangement     —       19,172  
Operating (loss)/income     (15,789 )     37,528  
Other income, net     122       31  
(Loss)/income before interest expense and income taxes     (15,667 )     37,559  
Interest expense     (6,370 )     (6,074 )
(Loss)/income before income taxes     (22,037 )     31,485  
Income tax benefit/(expense)     6,169       (6,360 )
Net (loss)/income   $ (15,868 )   $ 25,125  
                 
Weighted Average Number of Common Shares Outstanding:                
Basic - Class A     90,111,701       89,422,311  
Diluted - Class A     90,111,701       90,388,988  
Per Share Amounts:                
Basic and diluted net (loss)/income - Class A   $ (0.18 )   $ 0.28  

 

See notes to condensed consolidated financial statements

 

     4

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

DOLLARS IN THOUSANDS

(UNAUDITED)

 

    2021     2020  
   

Three Months Ended

March 31,

 
    2021     2020  
Net (loss)/income   $ (15,868 )   $ 25,125  
Other comprehensive (loss)/income, net of tax:                
Defined benefit pension and other postretirement benefit plans:                
Net change in unrecognized prior service costs     (180 )     (18 )
Net change in unrecognized actuarial losses     81     76  
Other comprehensive (loss)/income     (99 )     58  
Comprehensive (loss)/income   $ (15,967 )   $ 25,183  

 

See notes to condensed consolidated financial statements

 

     5

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

DOLLARS IN THOUSANDS

(UNAUDITED)

 

    2021     2020  
   

Three Months Ended

March 31,

 
    2021     2020  
Cash Flows from Operating Activities:                
Net (loss)/income   $ (15,868 )   $ 25,125  
Items included in net income not affecting cash flows:                
Depreciation and amortization     15,319       14,019  
Gain on termination of pre-existing arrangement     —       (19,172 )
Loss on disposal of vessels and other property, including impairments, net     5,493       296  
Amortization of debt discount and other deferred financing costs     557       533  
Compensation relating to restricted stock awards and stock option grants     575       438  
Deferred income tax (benefit)/expense     (6,178 )     2,135  
Interest on finance lease liabilities     460       506  
Non-cash operating lease expense     22,717       22,811  
Distributed earnings of affiliated companies     —       3,562  
Payments for drydocking     (8,179 )     (3,327 )
Operating lease liabilities     (22,860 )     (22,969 )
Changes in operating assets and liabilities, net     (1,217 )     2,162  
Net cash (used in)/provided by operating activities     (9,181 )     26,119  
Cash Flows from Investing Activities:                
Acquisition, net of cash acquired     —       (16,973 )
Expenditures for vessels and vessel improvements     (3,227 )     (20,871 )
Expenditures for other property     —       (232 )
Net cash used in investing activities     (3,227 )     (38,076 )
Cash Flows from Financing Activities:                
Payments on debt     (9,616 )     (7,865 )
Tax withholding on share-based awards     (402 )     (197 )
Payments on principal portion of finance lease liabilities     (1,026 )     (1,037 )
Extinguishment of debt     (301 )     —  
Deferred financing costs paid for debt amendments     (877 )     —  
Issuance of debt, net of issuance and deferred financing costs     —       80,886  
Net cash (used in)/provided by financing activities     (12,222 )     71,787  
Net (decrease)/increase in cash, cash equivalents and restricted cash     (24,630 )     59,830  
Cash, cash equivalents and restricted cash at beginning of period     69,819       41,677  
Cash, cash equivalents and restricted cash at end of period   $ 45,189     $ 101,507  

 

See notes to condensed consolidated financial statements

 

     6

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

DOLLARS IN THOUSANDS

(UNAUDITED)

 

    Common Stock (1)     Paid-in Additional Capital (2)     Accumulated Deficit     Accumulated Other Comprehensive Loss (3)     Total  
Balance at December 31, 2019   $ 857     $ 590,436     $ (243,339 )   $ (6,409 )   $ 341,545  
Net income     —       —       25,125       —       25,125  
Other comprehensive income     —       —       —       58       58  
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net     1       (200 )     —       —       (199 )
Compensation related to Class A options granted and restricted stock awards     —       438       —       —       438  
Balance at March 31, 2020   $ 858     $ 590,674     $ (218,214 )   $ (6,351 )   $ 366,967  
                                         
Balance at December 31, 2020   $ 864     $ 592,564     $ (213,335 )   $ (282 )   $ 379,811  
Net loss     —       —       (15,868 )     —       (15,868 )
Other comprehensive loss     —       —       —       (99 )     (99 )
Forfeitures, cancellations, issuance and vesting of restricted stock awards, net     5       (407 )     —       —       (402 )
Compensation related to Class A options granted and restricted stock awards     —       575       —       —       575  
Balance at March 31, 2021   $ 869     $ 592,732     $ (229,203 )   $ (381 )   $ 364,017  

 

  (1) Par value $0.01 per share; 166,666,666 Class A shares authorized; 86,863,651 and 85,845,920 Class A shares outstanding as of March 31, 2021 and 2020, respectively.
  (2) Includes 19,235,764 and 19,238,262 outstanding Class A warrants as of March 31, 2021 and 2020, respectively.
  (3) Amounts are net of tax.

 

See notes to condensed consolidated financial statements

 

     7

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 1 — Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Overseas Shipholding Group, Inc., a Delaware corporation (the “Parent Company”), and its wholly-owned subsidiaries (collectively, the “Company” or “OSG”, “we”, “us” or “our”), including Alaska Tanker Company (“ATC”) as of its March 12, 2020 acquisition date. The Company owns and operates a fleet of oceangoing vessels engaged primarily in the transportation of crude oil and refined petroleum products in the U.S. Flag trade.

 

These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any other interim period.

 

The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Form 10-K”).

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic, which continues to affect the United States and the world. COVID-19 and its direct and indirect consequences have caused significant volatility in U.S. and international markets, and there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The COVID-19 pandemic is a dynamic and continuously evolving phenomenon and the ultimate severity of the outbreak, and its effect on the Company’s business in the future, is uncertain.

 

Note 2 — Recently Adopted and Issued Accounting Standards

 

Recently Adopted Accounting Standards

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which contains amendments to improve the codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the disclosure section so that disclosure is not missed. The standard also clarifies various guidance so that an entity can apply the guidance more consistently. The new guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have an impact to the Company’s condensed consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The new guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact to the Company’s condensed consolidated financial statements.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to maturity debt securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that a loss has been incurred. The revised guidance will remove all recognition thresholds and will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the entity expects to collect over the instrument’s contractual life. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards.

 

In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which allows a two-bucket approach for determining the effective dates of these accounting standards. Under this approach, the buckets would be defined as follows:

 

Bucket 1— All public business entities (“PBEs”) that are SEC filers (as defined in U.S. GAAP), excluding smaller reporting companies (“SRCs”) (as defined by the SEC). The credit losses standard became effective January 1, 2020.

 

Bucket 2— All other entities, including SRCs, other PBEs that are not SEC filers, private companies, not-for-profit organizations, and employee benefit plans. The credit losses standard is to become effective January 1, 2023.

 

At June 30, 2019, the evaluation date for purposes of determining the applicability of the credit losses standard, the Company met the SEC definition of a smaller reporting company. Accordingly, the Company plans to adopt the credit losses standard on January 1, 2023. Management is currently reviewing the impact of the adoption of this accounting standard on the Company’s consolidated financial statements.

 

Note 3 - Revenue Recognition

 

Disaggregated Revenue

 

The Company has disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Consequently, the disaggregation below is based on contract type. Since the terms within these contract types are generally standard in nature, the Company does not believe that further disaggregation would result in increased insight into the economic factors impacting revenue and cash flows.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

The following table shows the Company’s shipping revenues disaggregated by nature of the charter arrangement for the three months ended March 31, 2021 and 2020:

 

   

Three Months Ended

March 31,

 
    2021     2020  
Time and bareboat charter revenues   $ 63,788     $ 78,150  
Voyage charter revenues(1)     7,037       11,468  
Contracts of affreightment revenues     10,448       11,241  
Total shipping revenues   $ 81,273     $ 100,859  

 

(1) Voyage charter revenues include revenue related to short-term time charter contracts was $2,864 and $11,319 for the three months ended March 31, 2021 and 2020, respectively.

  

Voyage Receivables

 

As of March 31, 2021 and December 31, 2020, contract balances from contracts with customers consisted of voyage receivables of $8,458 and $9,351, respectively, net of reserve for doubtful accounts for voyage charters and lightering contracts.

 

Contracts of Affreightment

 

At March 31, 2021, the Company did not have deferred revenue related to the Company's contracts of affreightment (“COAs”).

 

Costs to Fulfill a Contract

 

At March 31, 2021, the costs related to voyages that were not yet completed were not material.

 

Transaction Price Allocated to the Remaining Performance Obligations

 

As of March 31, 2021, the Company expects to recognize revenue of approximately $16,519 for the remainder of 2021 under COAs. This estimated amount relates to the fixed consideration of contractual minimums within the contracts based on the Company’s estimate of future services.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

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 deems the exercise price for the Class A warrants of $0.01 per share to be nominal, warrant proceeds are ignored and the shares issuable upon Class A warrant exercise are included in the calculation of basic weighted average common shares outstanding for all periods.

 

The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units. Participating securities are defined by ASC 260, Earnings Per Share, as unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.

 

Class A

 

As of March 31, 2021, there were 3,414,189 shares of Class A common stock issuable under outstanding restricted stock units and 1,478,756 shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities. As of March 31, 2020, there were 2,681,891 shares of Class A common stock issuable under outstanding restricted stock units and 1,478,756 shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities.

 

The components of the calculation of basic earnings per share and diluted earnings per share are as follows:

 

   

Three Months Ended

March 31,

 
    2021     2020  
Net (loss)/income   $ (15,868 )   $ 25,125  
                 
Weighted average common shares outstanding:                
Class A common stock - basic     90,111,701       89,422,311  
Class A common stock - diluted     90,111,701       90,388,988  

 

For the three months ended March 31, 2020, there were dilutive equity awards outstanding covering 966,677 shares. Awards of 371,893 shares (which are related to stock options) for the three months ended March 31, 2020 were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 5 — Fair Value Measurements and Fair Value Disclosures

 

The following methods and assumptions are used to estimate the fair value of each class of financial instrument:

 

Cash and cash equivalents and restricted cash— The carrying amounts reported in the condensed consolidated balance sheet for interest-bearing deposits approximate fair value. Investments in trading securities consist of equity securities and were measured using quoted market prices at the reporting date.

 

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 establishes a framework for measuring fair value. The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, which for the liabilities described below includes the Company’s own credit risk.

 

The levels of the fair value hierarchy established by ASC 820 are as follows:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities

 

Level 2 - Quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

 

Financial Instruments that are not Measured at Fair Value on a Recurring Basis

 

The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:

 

    Carrying     Fair Value  
    Value     Level 1     Level 2  
March 31, 2021:                        
Assets                        
Cash and cash equivalents (1)   $ 45,189     $ 45,189     $ —  
Total   $ 45,189     $ 45,189     $ —  
Liabilities                        
Term loan, due 2023, net   $ 245,994     $ —     $ 250,988  
Term loan, due 2024, net     22,603       —       22,868  
Alaska tankers term loan, due 2025, net     49,242       —       47,688  
OSG 204 LLC term loan, due 2025, net     30,647       —       30,562  
Term loan, due 2026, net     47,924       —       50,346  
OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net     22,083       —       20,555  
Unsecured senior notes, net     390       —       407  
Total   $ 418,883     $ —     $ 423,414  

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

    Carrying     Fair Value  
    Value     Level 1     Level 2  
December 31, 2020:                        
Assets                        
Cash and cash equivalents (1)   $ 69,819     $ 69,819     $ —  
Total   $ 69,819     $ 69,819     $ —  
Liabilities                        
Term loan, due 2023, net   $ 252,057     $ —       257,228  
Term loan, due 2024, net     22,972       —       23,535  
Alaska tankers term loan, due 2025, net     50,360       —       49,357  
OSG 204 LLC term loan, due 2025, net     31,283       —       31,562  
Term loan, due 2026, net     23,171       —       21,921  
OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, net     48,586       —       52,199  
Unsecured senior notes, net     691       —       715  
Total   $ 429,120     $ —     $ 436,517  

 

(1) Includes current and non-current restricted cash aggregating $96 and $122 at March 31, 2021 and December 31, 2020, respectively. Restricted cash as of March 31, 2021 and December 31, 2020 was related to the Company’s Unsecured Senior Notes.

 

Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis

 

Vessel and Intangible Assets Impairments

 

During the first quarter of 2021, the Company considered whether events or changes in circumstances had occurred since December 31, 2020 that could indicate the carrying amounts of the vessels in the Company’s fleet and the carrying value of the Company’s intangible assets may not be recoverable as of March 31, 2021.

 

The Company concluded that no such events or changes in circumstances had occurred for its intangible assets at March 31, 2021.

 

During the first quarter of 2021 the Company received a firm offer for the sale of the Overseas Gulf Coast, which is classified as asset held for sale on the condensed consolidated balance sheets at March 31, 2021. Based on the negotiated sale terms, the Company recorded a loss of $5,446, which is included in loss on disposal of vessels and other property, including impairments, net on the condensed consolidated statements of operations, on the planned disposition of this tanker. In April 2021, the Company entered into a contract to sell the vessel for $31,850, net of broker commissions. The sale is anticipated to be final prior to the end of the second quarter of 2021.

 

Note 6 — Taxes

 

For the three months ended March 31, 2021 and 2020, the Company recorded an income tax benefit/(provision) of $6,169 and $(6,360), respectively, which represented effective tax rates of 28% and 20%, respectively. The increase in the effective tax rate for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily due to the tonnage tax exclusion. The effective tax rate for the three months ended March 31, 2021 was more than the statutory rate due to the tonnage tax exclusion and state benefit. The effective tax rate for the three months ended March 31, 2020 was less than the statutory rate due to a discrete tax benefit in the quarter relating to state benefit resulting from the Alaska Tanker Company acquisition and deductible expenses related to Code Section 162(m).

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 7 — Capital Stock and Stock Compensation

 

Share and Warrant Repurchases

 

During the three months ended March 31, 2021, in connection with the vesting of restricted stock units (“RSUs”), the Company withheld 185,459 shares of Class A common stock at an average price of $2.18 per share (based on the market prices on the dates of vesting) from certain members of management to cover withholding taxes.

 

Warrant Conversions

 

During the three months ended March 31, 2021 and 2020, the Company did not issue any shares of Class A common stock as a result of the exercise of Class A warrants.

 

Stock Compensation

 

The Company accounts for stock compensation expense in accordance with the fair value-based method required by ASC 718, Compensation – Stock Compensation. This method requires share-based payment transactions to be measured based on the fair value of the equity instruments issued.

 

Management Compensation — Restricted Stock Units and Stock Options

 

During the three months ended March 31, 2021, the Company granted 554,962 RSUs to its employees, including senior officers. The grant date fair value of these awards was $2.36 per RSU. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award of RSUs will vest in equal installments on each of the first three anniversaries of the grant date.

 

During the three months ended March 31, 2021, the Company awarded 363,238 performance-based RSUs to its senior officers. Each performance-based RSU represents a contingent right to receive RSUs based upon continuous employment through the end of a three-year performance period and will vest as follows: (i) one-half of the target RSUs will vest and become nonforfeitable subject to OSG’s return on invested capital (“ROIC”) performance in the three-year ROIC performance period relative to a target rate (the “ROIC Target”) set forth in the award agreements (which define ROIC as net operating profit after taxes divided by the net of total debt plus shareholders equity less cash); and (ii) one–half of the target RSUs will be subject to OSG’s three–year total shareholder return (“TSR Target”) performance relative to that of a performance index over a three–year TSR performance period. The index consists of companies that comprise a combination of the oil and gas storage and transportation and marine GICS sub-industries indexes during the performance period. Vesting is subject in each case to certification by the Human Resources and Compensation Committee of the Parent Company’s Board of Directors as to achievement of the performance measures and targets.

 

The ROIC Target RSU awards and the TSR Target RSU awards are subject to an increase of up to a maximum of 181,619 target RSUs combined (544,857 RSUs in total) or decrease, depending on performance against the applicable measure and targets. The ROIC performance goal is a performance condition which, as of March 31, 2021, management believed was probable of being achieved. Accordingly, for financial reporting purposes, compensation costs have been recognized for these awards. The grant date fair value of the TSR based performance awards, which have a market condition, was determined to be $2.36 per RSU.

 

During the three months ended March 31, 2021, the Company awarded 590,251 performance-based RSUs to its senior officers. The grant date fair value of these awards was $2.36 per RSU. Each performance-based RSU represents a contingent right to receive RSUs based on performance criteria tied to specific operational and financial goals that must be achieved over an 18-month performance period. Vesting is subject to certification by the Compensation Committee as to achievement of the performance measures.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

 

Note 8 — Accumulated Other Comprehensive Loss

 

The components of accumulated other comprehensive loss, net of related taxes, in the condensed consolidated balance sheets follow:

 

As of   March 31, 2021     December 31, 2020  
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans)   $ (381 )   $ (282 )
Accumulated other comprehensive loss   $ (381 )   $ (282 )

 

The following tables present the changes in the balances of each component of accumulated other comprehensive loss, net of related taxes, during the three and three months ended March 31, 2021 and 2020:

  

   

Items not yet

recognized as a component of net periodic benefit

cost (pension and

other

postretirement plans)

 
       
Balance as of December 31, 2020   $ (282 )
Current period change, excluding amounts reclassified from accumulated other comprehensive income     —  
Amounts reclassified from accumulated other comprehensive income     (99 )
Total change in accumulated other comprehensive income     (99 )
Balance as of March 31, 2021   $ (381 )
         
Balance as of December 31, 2019   $ (6,409 )
Current period change, excluding amounts reclassified from accumulated other comprehensive income     —  
Amounts reclassified from accumulated other comprehensive income     58  
Total change in accumulated other comprehensive income     58  
Balance as of March 31, 2020   $ (6,351 )

 

The Company includes the service cost component for net periodic benefit cost/(income) in vessel expenses and general and administrative expenses and other components in other (expense)/income, net on the condensed consolidated statements of operations.

 

Note 9 — Leases

 

Charters-out

 

The Company is the lessor under its time charter contracts. Total time charter revenue for the three months ended March 31, 2021 and 2020 was equal to lease income from lease payments of $63,417 and $78,853, respectively, plus straight-line adjustments of $371 for the three months ended March 31, 2021 and less straight-line adjustments of $703 for the three months ended March 31, 2020.

 

Note 10 — Debt

 

The COVID-19 pandemic has resulted in a significant reduction in demand for oil and refined petroleum products worldwide which has had a direct impact on the Company’s business. In an effort to conserve costs, several of the vessels in the Company’s fleet were placed in layup in late 2020 and 2021. In recognition that certain of the financial covenants that were in place in each of the Company’s vessel financing facilities did not appropriately reflect the impact of the pandemic on the Company's business, in March 2021, the Company obtained waivers and amendments of certain financial covenants in each of its vessel financing facilities, with respect to fourth quarter 2020 and later periods’ compliance requirements. In accordance with the loan amendments, the Company agreed to sell one of its vessels, the Overseas Gulf Coast.

 

Note 11 — Commitments and Contingencies

 

The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries (including 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.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

 

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the section titled “Forward-Looking Statements” and Item 1A. Risk Factors of our 2020 Annual Report on Form 10-K. Other factors besides those listed in our quarterly reports or in our Annual Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. The following highlights some of these risk factors:

 

  ● public health threats, particularly the COVID-19 pandemic, which may impact the Company in many ways, including those noted below, as well as by increasing operating costs to protect the health and safety of the Company’s crew members and others in the industry;
  ● volatility in supply and demand in the crude oil market worldwide, which could also affect the nature and severity of certain factors listed below;
  ● the Company’s ability to renew its time charters when they expire or to enter into new time charters, or to replace its operating leases on favorable terms;
  ● the loss of or reduction in business with a large customer, should it be impacted by the COVID-19 pandemic or otherwise;
  ● changing economic, political and governmental conditions in the United States or abroad and conditions in the oil and natural gas industry, including in reaction to the COVID-19 pandemic;
  ● the Company’s ability to generate sufficient cash to service its indebtedness and to comply with debt covenants, allowing it to maintain capital availability;
  ● the effect of the Company’s indebtedness on its ability to finance operations, pursue desirable business operations and successfully run its business in the future;
  ● changes in demand in certain specialized markets in which the Company currently trades;
  ● changes in credit risk with respect to the Company’s counterparties on contracts or the failure of contract counterparties to meet their obligations;
  ● the Company’s compliance with complex laws and regulations, including those seeking to reduce the spread of the COVID-19 virus, and environmental laws and regulations, including those relating to the emission of greenhouse gases and ballast water treatment;
  ● the highly cyclical nature of OSG’s industry;
  ● significant fluctuations in the market value of our vessels;
  ● the Company’s compliance with 46 U.S.C. sections 50501 and 55101 (commonly known as the “Jones Act”) and heightened exposure to Jones Act market fluctuations, as well as stockholder citizenship requirements imposed on us by the Jones Act which result in restrictions on foreign ownership of the Company’s common stock;
  ● competition within the Company’s industry and OSG’s ability to compete effectively for charters;
  ● the refusal of certain customers to use vessels of a certain age;
  ● increasing operating costs, unexpected drydock costs or increasing capital expenses as the Company’s vessels age, including increases due to limited shipbuilder warranties of the consolidation of suppliers;

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

  ● work stoppages or other labor disruptions by the unionized employees of OSG or other companies in related industries or the impact of any potential liabilities resulting from withdrawal from participation in multiemployer plans;
  ● limitations on U.S. coastwise trade, the waiver, modification or repeal of the Jones Act limitations or changes in international trade agreements;
  ● the inability to clear oil majors’ risk assessment processes;
  ● the Company’s ability to use its net operating loss carryforwards;
  ● significant fluctuations in the market price of the Company’s securities; and
  ● provisions of Delaware law and the Company’s governing documents that could influence its ability to effect a change of control.

 

The Company assumes no obligation to update or revise any forward-looking statements, except as may be required by law. Forward-looking statements in this Quarterly Report on Form 10-Q and written and oral forward-looking statements attributable to the Company or its representatives after the date of this Quarterly Report on Form 10-Q are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports hereafter filed by the Company with the SEC.

 

Business Overview

 

OSG is a publicly traded tanker company providing energy transportation services for crude oil and petroleum products in the U.S. Flag markets. OSG is a major operator of tankers and ATBs in the Jones Act industry. OSG’s active vessel fleet, of which 22 are U.S. Flag vessels, consists of three crude oil tankers doing business in Alaska, two conventional ATBs, two lightering ATBs, three shuttle tankers, ten MR tankers, and two non-Jones Act MR tankers that participate in the U.S. Maritime Security Program. The Company also owns and operates two Marshall Islands flagged MR tankers which trade internationally. OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world’s most customer-focused marine transportation companies and is headquartered in Tampa, FL. Our revenues are derived predominantly from time charter agreements for specific periods of time at fixed daily amounts. We also charter-out vessels for specific voyages where we typically earn freight revenue at spot market rates.

 

The following is a discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2021 and 2020. You should consider the foregoing when reviewing the condensed consolidated financial statements, including the notes thereto, and this discussion and analysis. This Quarterly Report on Form 10-Q includes industry data and forecasts that we have prepared based in part on information obtained from industry publications and surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from internal market studies and research reports. Unless we state otherwise, statements about the Company’s relative competitive position in this report are based on management’s beliefs, internal studies and management’s knowledge of industry trends.

 

All dollar amounts are in thousands, except daily dollar amounts and per share amounts.

 

Operations and Oil Tanker Markets

 

The ongoing coronavirus pandemic has severely impacted global and national economies. Lockdown orders, business closures and travel restrictions among many other events have reduced the demand for many products, including petroleum. This has led to a significant reduction in refinery operations and end user demand for transportation fuels. The reduced demand has created extreme business uncertainty for our customers and the result has been a reluctance to enter into longer term transportation commitments. We believe that, as our customers’ visibility and confidence in the future returns, there will be a resumption of more typical customer behavior and time charter activity will rebound.

 

Heightened uncertainty has resulted in the non-renewal of charters for vessels whose time charters ended in late 2020 and early in 2021. In response to this we have placed seven vessels in lay-up. Laying up vessels in times of limited near-term employment opportunities allows us to reduce the costs associated with vessels that are without charter. The historic Texas freeze during the just completed quarter also impacted lay-up decisions as more than 50% of PADD 3 refining capacity was shut in for a good portion of the just completed quarter. The refinery shutdowns have by now largely been resolved. Further, we anticipate that, as vaccines become more widely distributed and there is a lifting of the COVID-19 restrictions, mobility and related US consumption of transportation fuels will, more likely than not, normalize. A normalization of fuel demand patterns consistent with historic levels of consumption is expected to stimulate more marine transportation demand, which in turn should lead to a reactivation of vessels from lay-up to meet any such increase in demand. The pace and trajectory of demand recovery continues to be influenced by many factors, including progress in resolving the pandemic outside of the US, and near-term uncertainty will continue to define a wide spectrum of possible vessel reactivation outcomes as we move through the late spring and summer.

 

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OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

Our revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by us and the trades in which those vessels operate. Rates for the transportation of crude oil and refined petroleum products are determined by market forces such as the supply and demand for oil, the distance that cargoes must be transported, and the number of vessels expected to be available at the time cargoes need to be transported. In the Jones Act trades within which the substantial majority of our vessels operate, demand factors for transportation are affected almost exclusively by supply and distribution decisions of oil producers, refiners and distributors based in the United States. Further, the demand for U.S. domestic oil shipments is significantly affected by the state of the U.S. and global economies, the level of imports into the U.S. from OPEC and other foreign producers, oil production in the United States, and the relative price differentials of U.S. produced crude oil and refined petroleum products as compared with comparable products sourced from or destined for foreign markets, including the cost of transportation on international flag vessels to or from those markets. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally through storage, deletions, or conversions. Our revenues are also affected by the mix of charters between spot (voyage charter which includes short-term time charter) and long-term (time or bareboat charter).

 

Beginning in the 2020 first quarter, COVID-19 has resulted in disruptions in demand and an oversupply of crude oil and refined products. Many analysts predict that gasoline and diesel demand will recover in 2021. Jet fuel demand is anticipated to remain well below 2019 levels through at least the end of 2021. These predictions reflect estimates on the prevalence of COVID-19 and the recovery of the U.S. economy. Energy markets are, however, global in nature and the pace and extent of COVID and its continuing presence in markets outside of the U.S. is also an important factor in understanding the timing and extent of recovery of supply and consumption patterns within the U.S. While COVID-19 has presented our industry and markets with significant challenges, we believe that we have thus far managed its impact on our business operations well, with all of our Jones Act and internationally trading vessels able to load, transit and discharge cargo without material interruption.

 

As a result of the COVID-19 pandemic, we have implemented procedures to protect the health and safety of our employees, crew and contractors. These procedures and protocols are those mandated or recommended by the Centers for Disease Control and Prevention, the U.S. Coast Guard, local ports and shipyards, and country- and state-specific requirements. They include such actions as providing personal protective equipment, minimizing crew changes, managing the locations where crew members board and depart from our vessels, requiring crew members to disclose symptoms and the health of those they have been in contact with, mandatory quarantine periods imposed prior to joining any vessel, sanitization of the vessels, mandating face coverings, social distancing and temperature checks, and requiring testing in certain instances. COVID-19 has also impacted planned shipyard maintenance and vetting activities, resulting in delays, rescheduling and extensions. These additional procedures and delays have resulted in increased costs, which at this point in time, have not been material but are expected to continue and may increase.

 

Having our vessels committed on time charters is a fundamental objective of our chartering strategy. The majority of available vessel operating days are covered with medium-term charters or contracts of affreightment. However, medium-term charters may not always be remunerative, nor prove achievable under certain market conditions. As a result, some of our vessels may operate in the spot market, which is more volatile and less predictable. In some cases, where neither time charter nor consistent spot market business is available, lay up and removal of vessels from an actively available status is deemed necessary. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, we manage our vessels based on TCE revenues and rates, which are non-GAAP measures.

 

COVID-19 induced demand destruction that started in March 2020 has resulted in minimal spot market activity since then. The few voyages that were available were typically performed by ATBs and not by product tankers.

 

Our vessels, excluding vessels in lay-up, were employed for 92% of available days during the first quarter of 2021, with 93 of a total 1,223 available days (available days excludes 43 days vessels were offhire due to drydock requirements) seeing vessels idle without employment.

 

     18

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

Industry-wide, there were no firm Jones Act vessel orders as of March 31, 2021.

 

Delaware Bay lightering volumes averaged 66,000 b/d in the first quarter of 2021 compared with 80,000 b/d in the first quarter of 2020. Refinery demand for crude oil has been significantly reduced since the third quarter of 2020 due to COVID-19, reducing the need for lightering services. We have contract minimums with our refinery customers that compensate us for barrels not lightered below those minimum amounts.

 

Critical Accounting Policies

 

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. For a description of all of the Company’s material accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2020.

 

Results of Vessel Operations

 

During the three months ended March 31, 2021, shipping revenues decreased by $19,586, or 19.4%, compared to the same period in 2020. The decrease was primarily a result of a 624-day increase in lay-up days due to seven vessels in lay-up, a decision taken in light of the lack of demand due to the economic impact of COVID-19. The decrease in shipping revenues was partially offset by the addition to our fleet of three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, which were purchased on March 12, 2020.

 

Reconciliation of TCE revenues, a non-GAAP measure, to shipping revenues as reported in the consolidated statements of operations follows:

 

   

Three Months Ended

March 31,

 
    2021     2020  
Time charter equivalent revenues   $ 65,513     $ 97,073  
Add: Voyage expenses     15,760       3,786  
Shipping revenues   $ 81,273     $ 100,859  

 

     19

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

The following table provides a breakdown of TCE rates achieved for the three months ended March 31, 2021 and 2020 between spot and fixed earnings and the related revenue days.

 

    2021     2020  
Three Months Ended March 31,   Spot Earnings     Fixed Earnings     Spot Earnings     Fixed Earnings  
Jones Act Handysize Product Carriers:                                
Average rate   $ 24,467     $ 65,165     $ 61,951     $ 60,260  
Revenue days     148       477       92       1,052  
Non-Jones Act Handysize Product Carriers:                                
Average rate   $ 14,958     $ 7,044     $ 27,727     $ 16,788  
Revenue days     180       177       154       182  
ATBs:                                
Average rate   $ —     $ 32,339     $ 28,332     $ 24,015  
Revenue days     —       180       93       89  
Lightering:                                
Average rate   $ 92,524     $ —     $ 78,258     $ 61,012  
Revenue days     73       —       91       87  
Alaska (a):                                
Average rate   $ —     $ 58,743     $ —     $ 59,015  
Revenue days     —       238       —       58  

 

(a) Excludes one Alaska vessel currently in layup.

 

During the first quarter of 2021, TCE revenues decreased by $31,560, or 32.5%, to $65,513 from $97,073 in the first quarter of 2020. The decrease was primarily a result of a 624-day increase in lay-up days due to seven vessels in lay-up, a decision taken in light of the lack of demand due to the economic impact of COVID-19. The decrease in TCE revenues was partially offset by the addition to our fleet of three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, which were purchased on March 12, 2020.

 

Voyage expenses increased by $11,974, or 316.3%, in the first quarter of 2021 to $15,760 compared to $3,786 in the first quarter of 2020, primarily related to expenses for oil pollution mitigation services for the Alaskan tankers in the first quarter of 2021 compared to none during the first quarter of 2020 as we acquired the vessels on March 12, 2020. These expenses are passed through to the charterer each month. Additionally, voyage expenses increased due to fuel and port expenses related to one Government of Israel voyage during the first quarter of 2021 compared to no Government of Israel voyages during the first quarter of 2020.

 

Vessel expenses decreased by $3,962, or 11.1%, in the first quarter of 2021 to $31,807 compared to $35,769 in the first quarter of 2020, primarily due to a decrease in crewing costs. The decrease in crewing costs was due to the decision to place seven vessels in layup as a result of the lack of demand due to COVID-19 economic impact.

 

Depreciation and amortization increased by $1,300, or 9.3%, to $15,319 in the first quarter of 2021 compared to $14,019 in the first quarter of 2020. The increase primarily resulted from an increase in depreciation expense due to the addition of three crude oil tankers, Alaskan Explorer, Alaskan Legend and Alaskan Navigator, to our fleet in March 2020 and the addition of our newbuild barges, OSG 204 and OSG 205, which entered service during the second and fourth quarters of 2020, respectively.

 

Our two U.S. Flag Product Carriers participate in the MSP, which is designed to ensure that militarily useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. We receive an annual subsidy, subject in each case to annual congressional appropriations, which is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. For 2021, we expect to receive up to $5,200 for each vessel. During 2020, the stipend we received was $5,058 on one vessel and $4,607 on one vessel. We do not receive a subsidy for any days for which either of the two vessels operate under a time charter to a U.S. government agency.

 

     20

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

General and Administrative Expenses

 

During the first quarter of 2021, general and administrative expenses increased by $192, or 3.1%, to $6,365 from $6,173 in the first quarter of 2020. The increase was primarily driven by an increase in compensation and benefit costs due to our acquisition of ATC on March 12, 2020 and the resulting increase in headcount.

 

Loss on Disposal of Vessels and Other Property, Including Impairments, Net

 

Loss on disposal of vessels and other property, including impairments, net was $5,493 for the three months ended March 31, 2021 compared to $296 for the three months ended March 31, 2020. The increase was a result of a firm offer we received to sell the Overseas Gulf Coast. Based on the negotiated sale terms, we recorded a loss of $5,446 on the planned disposition of this tanker. We expect the sale to be completed prior to the end of the second quarter of 2021.

 

Gain on Termination of Pre-Existing Arrangement

 

Gain on termination of pre-existing arrangement was $0 for the three months ended March 31, 2021 compared to $19,172 during the three months ended March 31, 2020. The decrease was due to our acquisition of ATC on March 12, 2020. Our pre-existing ATC arrangements with a minimum term through December 2023 were terminated at the time of acquisition and a non-cash gain equal to the value of the remaining arrangement of $19,172 was recognized.

 

Interest Expense

 

Interest expense was $6,370 for the three months ended March 31, 2021 compared with $6,074 for the three months ended March 31, 2020. The increase in interest expense was primarily associated with the additional debt outstanding at March 31, 2021 compared to at March 31, 2020.

 

Income Taxes

 

For the three months ended March 31, 2021 and 2020, we recorded an income tax benefit/(provision) of $6,169 and $(6,360), respectively, which represented effective tax rates of 28% and 20%, respectively. The increase in the effective tax rate for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was substantially due to the tonnage tax exclusion. The effective tax rate for the three months ended March 31, 2021 was more than the statutory rate due to the tonnage tax exclusion and state benefit. The effective tax rate for the three months ended March 31, 2020 was less than the statutory rate due to a discrete tax benefit in the quarter relating to state benefit resulting from the Alaska Tanker Company acquisition and deductible expenses related to Code Section 162(m).

 

Liquidity and Sources of Capital

 

Our business is capital intensive. Our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business to meet near-term and long-term debt repayment obligations is dependent on maintaining sufficient liquidity.

 

Liquidity

 

Working capital at March 31, 2021 was approximately $(117,000) compared with approximately $(93,000) at December 31, 2020. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $(22,000) at March 31, 2021 compared to $1,700 at December 31, 2020. The decrease in working capital was primarily due to a decrease in cash and cash equivalents from use in operations including for payments on debt and expenditures for vessel improvements.

 

As of March 31, 2021, we had total liquidity on a consolidated basis comprised of $45,093 of cash and cash equivalents. We manage our cash in accordance with our intercompany cash management system, subject to the requirements of our debt facilities. Our cash and cash equivalents, as well as our restricted cash balances, generally exceed Federal Deposit Insurance Corporation insurance limits. We place our cash, cash equivalents and restricted cash in what we believe to be credit-worthy financial institutions. In addition, certain of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government or its agencies. Restricted cash as of March 31, 2021 was related to requirements under the Unsecured Senior Notes.

 

     21

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

As of March 31, 2021, we had total debt outstanding (net of deferred financing costs) of $418,883 and a total debt to total capitalization of 53.5%, compared to $429,120 and 53.0%, respectively, at December 31, 2020.

 

Sources, Uses and Management of Capital

 

We generate significant cash flows through our complementary mix of time charters, voyage charters and contracts of affreightment. Net cash used in operating activities during the three months ended March 31, 2021 was $9,181. In addition to operating cash flows, our other current potential sources of funds are proceeds from additional issuances of equity securities, additional borrowings and proceeds from the opportunistic sales of our vessels. In the past, we have also obtained funds from the issuance of long-term debt securities.

 

We use capital to fund working capital requirements, maintain the quality of our vessels, comply with U.S. and international shipping standards and environmental laws and regulations and repay or repurchase our outstanding loan facilities. We may also use cash generated by operations to finance capital expenditures to modernize and grow our fleet.

 

We are presently assessing the impact of the expected discontinuation of LIBOR, expected by year-end 2021.

 

The COVID-19 pandemic has resulted in a significant reduction in demand for oil and refined petroleum products worldwide which has had a direct impact on our business. In an effort to conserve costs, seven of the vessels in our fleet were placed in layup in late 2020 and 2021. In recognition that certain of the financial covenants that were in place in each of the Company’s vessel financing facilities did not appropriately reflect the impact of the pandemic on the Company’s business, in March 2021, we obtained waivers and amendments of certain financial covenants in each of our vessel financing facilities, with respect to fourth quarter 2020 and later periods’ compliance requirements. In accordance with the loan amendments, the Company agreed to sell one of its vessels, the Overseas Gulf Coast.

 

During the first quarter of 2021 the Company received a firm offer for the sale of the Overseas Gulf Coast, which is classified as asset held for sale on the condensed consolidated balance sheets at March 31, 2021. Based on the negotiated sale terms, the Company recorded a loss of $5,446, which is included in loss on disposal of vessels and other property, including impairments, net on the condensed consolidated statements of operations, on the planned disposition of this tanker. In April 2021, the Company entered into a contract to sell the vessel for $31,850, net of broker commissions. The sale is expected to be final prior to the end of the second quarter of 2021.

 

Off-Balance Sheet Arrangements

 

The Company did not have, during the periods presented, and does not currently have, any off-balance sheet arrangements.

 

Item 3: Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable due to the Company’s status as a smaller reporting company.

 

     22

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

Item 4: Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s current disclosure controls and procedures were effective as of March 31, 2021 to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

     23

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

PART II – OTHER INFORMATION

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2020 Form 10-K, and as may be updated in our subsequent quarterly reports. The risks described in our 2020 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. There have been no material changes in our risk factors from those disclosed in our 2020 Form 10-K.

 

     24

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended March 31, 2021, in connection with the vesting of restricted stock awards, the Company withheld the following number of shares of Class A common stock from certain members of management to cover withholding taxes.

 

Period   Total Number Shares of Class A Withheld     Average Price Paid per Share of Class A  
January 1, 2021 through January 31, 2021     —     $ —  
February 1, 2021 through February 28, 2021     74,270     $ 2.19  
March 1, 2021 through March 31, 2021     111,189     $ 2.17  
      185,459     $ 2.18  

 

Item 3. Defaults upon senior securities

 

None.

 

     25

 

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other information

 

None.

 

Item 6. Exhibits

 

31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
     
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
10.1   Form of Overseas Shipholding Group, Inc. 2019 Incentive Compensation Plan For Management Performance-Based Restricted Stock Unit Grant Agreement Form PB-2021 Special Grant.
     
101.INS   Inline XBRL Instance Document.
     
101.SCH   Inline XBRL Taxonomy Schema.
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase.
     
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase.
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase.
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase.

 

     26

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  OVERSEAS SHIPHOLDING GROUP, INC.
                 (Registrant)
   
Date: May 7, 2021 /s/ Samuel H. Norton
  Samuel H. Norton
  Chief Executive Officer
   
Date: May 7, 2021 /s/ Richard Trueblood
  Richard Trueblood
  Chief Financial Officer
  (Mr. Trueblood is the Principal Financial Officer and has been duly authorized to sign on behalf of the Registrant)

 

     27

 

 

Exhibit 10.1

 

OVERSEAS SHIPHOLDING GROUP, INC.

2019 INCENTIVE COMPENSATION PLAN for MANAGEMENT

PERFORMANCE-BASED

RESTRICTED STOCK UNIT GRANT AGREEMENT

Form PB - 2021 Special Grant

 

THIS AGREEMENT, made as of this ___________, ____ (the “Agreement”), by and between Overseas Shipholding Group, Inc. (the “Company”), and ________________ (the “Grantee”).

 

WHEREAS, the Company has adopted the Overseas Shipholding Group, Inc. 2019 Incentive Compensation Plan for Management (the “Plan”) to promote the interests of the Company and its shareholders by providing the employees and consultants of the Company with incentives and rewards to encourage them to continue in the service of the Company and with a proprietary interest in pursuing the long-term growth, profitability and financial success of the Company; and

 

WHEREAS, Section 7 of the Plan provides for the grant of Other Stock-Based Awards, including restricted stock units, to Participants in the Plan.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:

 

1. Grant of RSUs. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Grantee an award of performance-based RSUs (collectively, the “RSUs”) in a number equal to a target of _________ (the “Target RSUs”) with the actual number of RSUs to be determined based upon achievement of performance criteria as described in Exhibit A (the “Performance Goals”). Each RSU represents the right to receive one share of Common Stock subject to Section 4 below.

 

2. Grant Date. The “Grant Date” of the RSUs hereby granted is _________________.

 

3. Incorporation of the Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall govern. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings given to such terms in the Plan.

 

4. Vesting and Settlement.

 

(a) Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, the RSUs shall vest and become nonforfeitable based upon the satisfaction of the Performance Goals, provided that the Grantee remains continuously employed by the Company through the end of the 18 month period commencing on January 1, 2021 and ending on June 30,2022 (the “Performance Period”). The 2021 Special Grant is based on the Performance Goals approved by the Compensation Committee with each metric measured separately and with the relative weightings as described in Exhibit A.

 

No fractional shares of Common Stock shall be issued, and any fractional share that would have resulted from the foregoing calculations shall be rounded down to the next whole share.

 

(b) Notwithstanding anything to the contrary in Section 4(a) above, if the Grantee’s Employment is terminated by the Company for a reason other than Cause before the end of the Performance Period, a pro-rata portion of the RSUs shall vest as of the last day of the Performance Period, determined by multiplying the number of RSUs that otherwise would have vested at the end of the Performance Period, based on the level of attainment of the Performance Goals as certified by the Committee as provided in Section 4(c) below, by a fraction, the numerator of which is the number of days the Grantee was in Employment during the Performance Period and the denominator of which is the number of days in the Performance Period.

 

OSG Grant Agreement- Form PB 2021 Special Grant

 

 

(c) 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 following the end of the Performance Period of the level of attainment of the Performance Goals and in any event no later than 60 days after the date of the Committee’s certification (such date, the “Settlement Date”).

 

5. Rights as Shareholder.

 

(a) During the period beginning on the Grant Date and ending on the date that the RSU is settled, the Grantee will accrue dividend equivalents on the RSUs equal to the cash dividend or distribution that would have been paid on the RSU had the RSU been an issued and outstanding share of Common Stock on the record date for the dividend or distribution. Such accrued dividend equivalents (i) will vest and become payable upon the same terms and at the same time of settlement as the RSUs to which they relate, and (ii) will be denominated and payable solely in cash.

 

(b) If the RSUs are settled in shares of Common Stock, upon and following the Settlement Date and the entry of such settlement on the books of the Company or its transfer agents or registrars, the Grantee shall be the record owner of the shares of Common Stock and shall be entitled to all of the rights of a shareholder of the Company including the right to vote such shares of Common Stock and receive all dividends or other distributions paid with respect to such shares of Common Stock

 

6. Forfeiture. Except as otherwise provided in Section 4(b), RSUs and any dividend equivalents which have not become vested as of the date the Grantee’s Employment terminates shall immediately be forfeited on such date, and the Grantee shall have no further rights with respect thereto. In addition, in the event the Company experiences a major safety and/or containment incident which results from gross negligence or willful misconduct of management or results from a violation of federal operation, safety or construction regulations, or if the responsible party fails to report the incident, or to cooperate with relevant authorities in responding to such incident, in any such case as determined by the Committee in its sole discretion, all RSUs and any related dividend equivalents which have not become vested as of the date such incident occurs may be cancelled at the sole discretion of the Committee and the Grantee shall have no further rights with respect to the forfeited RSUs.

 

7. Restrictions. Subject to any exceptions set forth in this Agreement or the Plan, until such time as the RSUs are settled in accordance with Section 4, the RSUs or the rights represented thereby may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of. No purported sale, assignment, transfer, pledge, hypothecation or other disposal of the RSUs, or the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise will vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such purported sale, assignment, transfer, pledge, hypothecation or other disposal of the RSUs will be forfeited by the Grantee and all of the Grantee’s rights to such RSUs shall immediately terminate without any payment or consideration from the Company.

 

8. Restrictive Covenants. Unless otherwise determined by the Committee in its sole discretion, by accepting the RSUs, the Grantee acknowledges that the Grantee is bound by the following restrictive covenants (the “Restrictive Covenants”):

 

(a) Except to the extent (1) expressly authorized in writing by the Company or (2) required by law or any legal process, the Grantee shall not at any time during the Grantee’s Employment with the Company or any of its Affiliates or following the date the Grantee’s Employment terminates use, disseminate, disclose or divulge to any person or to any firm, corporation, association or other business entity, Confidential Information (as defined in Section 20 herein) or proprietary Trade Secrets (as defined in Section 20 herein) of the Company or any of its Affiliates; or

 

2

OSG Grant Agreement- Form PB 2021 Special Grant

 

 

(b) The Grantee shall not at any time during the Grantee’s Employment with the Company or any of its Affiliates or following the date the Grantee’s Employment terminates make any derogatory, disparaging or negative statements, orally, written or otherwise, against the Company or any of its Affiliates or any of their respective directors, officers and employees.

 

Notwithstanding clause (a) above, pursuant to the Defend Trade Secrets Act of 2016 (18 U.S.C. 1833(b)), the Grantee shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence either directly or indirectly to a federal, state, or local government official, or to an attorney, solely for the purpose of reporting or investigating a violation of law. The Grantee shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret made in a complaint, or other document filed in a lawsuit or other proceeding, if such filing is made under seal. If the Grantee files a lawsuit or other action alleging retaliation by the Company for reporting a suspected violation of law, the Grantee may disclose the trade secret to the Grantee’s attorney and use the trade secret in the court proceeding or other action, if the Grantee files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order. This paragraph shall govern to the extent it may conflict with any other provision of this Agreement.

 

The Restrictive Covenants are in addition to and do not supersede any rights the Company or any of its Affiliates may have in law or at equity or under any other agreement.

 

By accepting the RSUs, the Grantee shall further agree that it is impossible to measure in money the damages which will accrue to the Company or any of its Affiliates in the event the Grantee breaches the Restrictive Covenants. Therefore, if the Company or any of its Affiliates shall institute any action or proceeding to enforce the provisions hereof, the Grantee shall agree to waive the claim or defense that the Company or any of its Affiliates has an adequate remedy at law and the Grantee shall agree not to assert in any such action or proceeding the claim or defense that the Company or any of its Affiliates has an adequate remedy at law.

 

If at any time the Committee reasonably believes that the Grantee has breached any of the Restrictive Covenants described in clauses (a) and (b) above, the Committee may suspend the vesting of Grantee’s RSUs pending a good faith determination by the Committee of whether any such Restrictive Covenant has been breached, it being understood that such suspension shall not cause the settlement to be delayed beyond the last date that settlement may occur pursuant to Section 4 hereof. If the Committee determines in good faith that the Grantee has breached any such Restrictive Covenant, the Grantee shall immediately forfeit any outstanding unvested RSUs and any related dividend equivalents and shall repay to the Company, upon demand, any Common Stock or cash issued upon the settlement of the Grantee’s RSUs (and the payment of any related dividend equivalents) if the vesting of such RSUs occurred during such breach. The Grantee shall also be required to repay to the Company, in cash and upon demand, any proceeds resulting from the sale or other disposition (including to the Company) of Common Stock issued upon settlement of the Grantee’s RSUs if the sale or disposition was effected at any time during such breach.

 

The foregoing shall not prejudice the Company’s right to require the Grantee to account for and pay over to the Company on a pre-tax basis any profit obtained by the Grantee as a result of any transaction constituting a breach of the Restrictive Covenants.

 

9. Taxes.

 

(a) Liability for Tax-Related Items. Except to the extent prohibited by law, the Grantee acknowledges that the Grantee is ultimately liable and responsible for any and all income taxes (including federal, state, local and other income taxes), social insurance, payroll taxes and other tax-related withholding (the “Tax-Related Items”) arising in connection with the RSUs, regardless of any action the Company takes with respect to such Tax-Related Items. The Grantee further acknowledges that the Company (i) does not make any representation or undertaking regarding the treatment of any Tax-Related Item in connection with any aspect of the RSUs, including the grant and vesting of the RSUs, or the subsequent sale of the shares of Common Stock and (ii) does not commit, and is under no obligation, to structure the terms of the RSUs or any aspect of the RSUs to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result.

 

3

OSG Grant Agreement- Form PB 2021 Special Grant

 

 

(b) Payment of Withholding Taxes. Notwithstanding any contrary provision of this Agreement, no shares of Common Stock shall be issued and no dividend equivalents shall be paid unless and until satisfactory arrangements (as determined by the Committee) have been made by the Grantee with respect to the payment of any taxes which the Company determines must be withheld with respect to such shares of Common Stock and payment of dividend equivalents. If the Grantee is subject to Section 16 of the Exchange Act pursuant to Rule 16a-2 promulgated thereunder, the Company will withhold from shares of Common Stock upon the relevant tax withholding event, unless the use of such withholding method is prevented by applicable law or has materially adverse accounting or tax consequences, in which case, the withholding obligation may be satisfied by one or a combination of the methods set forth in the Plan. If the Grantee is not subject to Section 16 of the Exchange Act pursuant to Rule 16a-2 promulgated thereunder, the Grantee may elect to have the Company withhold from shares of Common Stock upon the relevant tax withholding event and such election shall satisfy the Grantee’s obligations under this Section 9.

 

10. Modification; Entire Agreement; Waiver. No change, modification or waiver of any provision of this Agreement which reduces the Grantee’s rights hereunder will be valid unless the same is agreed to in writing by the parties hereto. This Agreement, together with the Plan, represent the entire agreement between the parties with respect to the RSUs. The failure of the Company to enforce at any time any provision of this Agreement will in no way be construed to be a waiver of such provision or of any other provision hereof.

 

11. Policy Against Insider Trading; Recoupment. By accepting the RSUs, the Grantee acknowledges that the Grantee is bound by and shall comply with all the terms and conditions of the Company’s insider trading policy as may be in effect from time to time. The Grantee further acknowledges and agrees that shares of Common Stock or cash delivered in settlement of the RSUs or any dividend equivalents, and any proceeds of such shares of Common Stock, are subject to any recoupment or “clawback” policy of the Company as may be in effect from time to time and applied with prospective or retroactive effect.

 

12. Data Privacy Consent. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other RSU grant materials by the Company for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that the Company may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, work location and phone number, date of birth, social insurance number or other identification number, salary, nationality, job title, hire date, any shares of Common Stock or directorships held in the Company or any of its Affiliates, details of all awards or any other entitlement to shares awarded, cancelled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the purpose of implementing, administering and managing the Plan (“Personal Data”). The Grantee understands that Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, now or in the future, that these recipients may be located in the Grantee’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Grantee’s country. The Grantee authorizes the recipients to receive, possess, use, retain and transfer the Personal Data, in electronic or other form, for the purposes of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that Personal Data will be held only as long as is necessary or appropriate to implement, administer and manage the Grantee’s participation in the Plan. Further, the Grantee understands that the Grantee is providing the consents herein on a purely voluntary basis.

 

13. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon the Grantee and the Grantee’s beneficiary, if applicable.

 

4

OSG Grant Agreement- Form PB 2021 Special Grant

 

 

14. Captions. Captions provided herein are for convenience only and shall not affect the scope, meaning, intent or interpretation of the provisions of this Agreement.

 

15. Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.

 

16. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

 

17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to the provisions governing conflict of laws.

 

18. Acceptance. The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms and provisions thereof, and accepts the RSUs subject to all of the terms and conditions of the Plan and this Agreement. The Grantee hereby acknowledges that all decisions, determinations and interpretations of the Board of Directors, or a Committee thereof, in respect of the Plan, this Agreement and the RSUs shall be final and conclusive. The Grantee acknowledges that there may be adverse tax consequences upon disposition of the underlying shares and that the Grantee should consult a tax advisor prior to such disposition.

 

19. Section 409A. This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations that the payment and benefits provided under this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Grantee on account of non-compliance with Section 409A of the Code. Notwithstanding any provision of this Agreement to the contrary, any compensation or benefit payable hereunder that constitutes a deferral of compensation under Code Section 409A shall be subject to the following:

 

(a) no amount or benefit that is payable upon a termination of employment or services from the Company shall be payable unless such termination also meets the requirements of a “separation from service” under Treasury Regulation Section 1.409A-1(h), and references in the Agreement to “termination”, “termination of employment” or like terms shall mean a “separation from service;”

 

(b) in the event that any payment to the Grantee or any benefit hereunder is made upon, or as a result of, the Grantee’s termination of employment, and the Grantee is a “specified employee” (as that term is defined under Section 409A of the Code) at the time the Grantee becomes entitled to any such payment or benefit, and provided further that such payment or benefit does not otherwise qualify for an applicable exemption from Section 409A of the Code, then no such payment or benefit will be paid or commenced to be paid to the Grantee under this Agreement until the date that is the earlier to occur of (i) the Grantee’s death or (ii) six months and one day following the Grantee’s termination of employment (the “Delay Period”). Any payments which the Grantee would otherwise have received during the Delay Period will be payable to the Grantee in a lump sum on the date that is six months and one day following the effective date of the termination, and any remaining compensation and benefits due under the Agreement shall be paid or provided as otherwise set forth herein;

 

(c) whenever a payment under this Agreement specifies a payment period, the actual date of payment within such specified period shall be within the sole discretion of the Company, and the Grantee shall have no right (directly or indirectly) to determine the year in which such payment is made. In the event a payment period straddles two consecutive calendar years, the payment shall be made in the later of such calendar years;

 

5

OSG Grant Agreement- Form PB 2021 Special Grant

 

 

(d) each separately identified amount and each installment payment to which the Grantee is entitled to payment shall be deemed to be a separate payment for purposes of Section 409A of the Code; and

 

(e) the payment of any compensation or benefit may not be accelerated except to the extent permitted by Section 409A of the Code.

 

20. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:

 

(a) “Cause” shall mean (i) the Grantee’s failure to attempt in good faith to perform his or her lawful duties (other than as a result of Disability); (ii) the Grantee’s willful misconduct or gross negligence of a material nature in connection with the performance of his or her duties as an employee, which is or could reasonably be expected to be materially injurious to the Company, or any of its Affiliates (whether financially, reputationally or otherwise) (“Injurious”); (iii) a breach by the Grantee of the Grantee’s fiduciary duty or duty of loyalty to the Company or its Affiliates which is or could reasonably be expected to be Injurious; (iv) the Grantee’s intentional and unauthorized removal, use or disclosure of the Company’s or any Affiliate’s document (in any medium or form) relating to the Company or an Affiliate, or the customers of the Company or an Affiliate thereof and which is not pursuant to his or her lawful duties and may be Injurious to the Company, its customers or their respective Affiliates; (v) the willful performance by the Grantee of any act or acts of dishonesty in connection with or relating to the Company’s or its Affiliates’ business which is or could reasonably be expected to be Injurious, or the willful misappropriation (or willful attempted misappropriation) of any of the Company’s or any of its Affiliates’ funds or property; (vi) the indictment of the Grantee for, or a plea of guilty or nolo contendere by the Grantee to, any felony or other serious crime involving moral turpitude; (vii) a material breach of any of the Grantee’s obligations under any agreement entered into between the Grantee and the Company or any of its Affiliates that is material to either (A) the employment relationship between the Company or any of its Affiliates and the Grantee or (B) the relationship between the Company and the Grantee as investor or prospective investor in the Company; or (viii) a material breach of the Company’s policies or procedures, which breach causes or could reasonably be expected to cause material harm to the Company or its business reputation; provided that, with respect to the events in clauses (i), (ii), (iv), or (vii) herein, the Company shall have delivered written notice to the Grantee of its intention to terminate the Grantee’s employment for Cause, which notice specifies in reasonable detail the circumstances claimed to give rise to the Company’s right to terminate the Grantee’s employment for Cause and the Grantee shall not have cured such circumstances, to the extent such circumstances are reasonably susceptible to cure as determined by the Board of Directors in good faith, within 30 days following the Company’s delivery of such notice.

 

(b) “Competitor” shall mean any individual, corporation, partnership or other entity that engages in (or that owns a significant interest in any corporation, partnership or other entity that engages in) any business conducted by the Company or any of its Affiliates.

 

(c) “Confidential Information” shall mean all information regarding the Company or any of its Affiliates, any Company activity or the activity of any of its Affiliates, Company business or the business of any of its Affiliates, or Company customers or the customers of any of its Affiliates that is not generally known to persons not employed or retained (as employees or as independent contractors or agents) by the Company or any of its Affiliates, that is not generally disclosed by Company practice or authority to persons not employed by the Company or any of its Affiliates that does not rise to the level of a Trade Secret and that is the subject of reasonable efforts to keep it confidential, and shall include, to the extent such information is not a Trade Secret and to the extent material, but not be limited to product code, product concepts, production techniques, technical information regarding the Company’s or any of its Affiliates’ products or services, production processes and product/service development, operations techniques, product/service formulas, information concerning Company or any of its Affiliates’ techniques for use and integration of its website and other products/services, current and future development and expansion or contraction plans of the Company or any of its Affiliates, sale/acquisition plans and contacts, marketing plans and contacts, information concerning the legal affairs of the Company or any of its Affiliates and certain information concerning the strategy, tactics and financial affairs of the Company or any of its Affiliates; provided that Confidential Information shall not include information that has become generally available to the public, other than through a breach by such Grantee; and provided further that this definition shall not limit any definition of “confidential information” or any equivalent term under the Uniform Trade Secrets Act or any other state, local or federal law.

 

6

OSG Grant Agreement- Form PB 2021 Special Grant

 

 

(d) “Disability” shall mean, as a result of the Grantee’s incapacity due to physical or mental illness or injury, the Grantee (i) becomes eligible to receive a benefit under the Company’s long-term disability plan applicable to the Grantee, or (ii) has been unable, due to physical or mental illness or incapacity, to perform the essential duties of his or her employment with reasonable accommodation for a continuous period of 90 days or an aggregate of 180 days within a one-year period.

 

(e) “Trade Secrets” shall mean all secret, proprietary or confidential information regarding the Company (which shall mean and include all of the Company’s subsidiaries and all Affiliates and joint ventures connected by ownership to the Company at any time) or any Company activity that fits within the definition of “trade secrets” under the Uniform Trade Secrets Act or other applicable law, and shall include, but not be limited to, all source codes and object codes for the Company’s software and all website design information to the extent that such information fits within the Uniform Trade Secrets Act; provided that Trade Secrets shall not include information that has become generally available to the public, other than through a breach by such Grantee; and provided further that this definition shall not limit any definition of “trade secrets” or any equivalent term under the Uniform Trade Secrets Act or any other state, local or federal law.

 

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its duly authorized officer and said Grantee has hereunto signed this Agreement on the Grantee’s own behalf, thereby representing that the Grantee has carefully read and understands this Agreement and the Plan as of the day and year first written above.

 

  OVERSEAS SHIPHOLDING GROUP, INC.
   
   
  By: Samuel H. Norton
  Title: President and CEO
     
  Acknowledged and Accepted:
     
   
  Executive Officer name

 

7

OSG Grant Agreement- Form PB 2021 Special Grant

 

 

Exhibit 31.1

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED

 

I, Samuel H. Norton, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Overseas Shipholding Group, Inc.
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
   
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: May 7, 2021 /s/ Samuel H. Norton
  Samuel H. Norton
  Chief Executive Officer

 

 

 

 

Exhibit 31.2

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED

 

I, Richard Trueblood, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Overseas Shipholding Group, Inc.
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
     
  4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

  5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: May 7, 2021 /s/ Richard Trueblood
  Richard Trueblood
  Chief Financial Officer

 

 

 

 

Exhibit 32

 

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT 0F 2002

 

Each of the undersigned, the Chief Executive Officer and the Chief Financial Officer of Overseas Shipholding Group, Inc. (the “Company”), hereby certifies, to the best of his knowledge and belief, that the Form 10-Q of the Company for the quarterly period ended March 31, 2021 (the “Periodic Report”) accompanying this certification fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose.

 

Date: May 7, 2021 /s/ Samuel H. Norton
  Samuel H. Norton
  Chief Executive Officer
   
Date: May 7, 2021 /s/ Richard Trueblood
  Richard Trueblood
  Chief Financial Officer