NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
NOTE 1 — BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Overseas Shipholding Group, Inc., a Delaware corporation incorporated in 1969, and its wholly owned subsidiaries (the “Company” or “OSG”, or “we” or “us” or “our”). All significant intercompany balances and transactions have been eliminated in consolidation. Investments in
50%
or less owned affiliated companies, in which the Company exercises significant influence, are accounted for by the equity method. Dollar amounts, except per share amounts, are in thousands. Certain prior period amounts have been reclassified in the Consolidated Statements of Cash Flows to conform to the current period presentation. The reclassifications in the Consolidated Statements of Cash Flows had no impact on net cash provided by operating activities and net cash provided by/(used in) investing and financing activities.
The Company owns and operates a fleet of oceangoing vessels engaged primarily in the transportation of crude oil and refined petroleum products in the U.S. Flag trade through two wholly owned subsidiaries.
On November 30, 2016 (the “Distribution Date”), OSG completed the separation of its business into two independent publicly-traded companies through the spin-off of its then wholly-owned subsidiary International Seaways, Inc. (“INSW”). The spin-off separated OSG and INSW into two distinct businesses with separate management. OSG retained the U.S. Flag business and relocated its headquarters to Tampa, Florida.
The spin-off transaction was in the form of a pro rata distribution of INSW’s common stock to our stockholders and warrant holders of record as of 5:00 p.m., New York time on November 18, 2016 (the “Record Date”). On the Distribution Date, each holder of OSG common stock received
0.3333
shares of INSW’s common stock for every share of OSG common stock held on the Record Date. Each holder of OSG warrants received
0.3333
shares of INSW’s common stock for every one share of OSG common stock they would have received if they exercised their warrants immediately prior to the Distribution (or
0.063327
INSW shares per warrant).
The spin-off was completed pursuant to a Separation and Distribution Agreement and several other agreements with INSW related to the spin-off. These agreements governed the relationship between and INSW and OSG following the spin-off and provided for the allocation of various assets, liabilities, rights and obligations. These agreements also included a Transition Services Agreement and an Employee Matters Agreement, which expired during 2017, covering arrangements for transition services to be provided by OSG to INSW and by INSW to OSG. See Note 5, "Discontinued Operations, " for additional information.
In accordance with Accounting Standards Update (“ASU”) 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
, the assets and liabilities and results of operations of INSW are reported as discontinued operations, net of taxes, for all periods presented. Accordingly, all references made to financial data in this Annual Report on Form 10-K are to the Company’s continuing operations unless specifically noted. See Note 5, “Discontinued Operations,” for additional information.
As further discussed in Note 14, “Capital Stock and Stock Compensation,” the Company’s board of directors (the “Board”) approved a stock dividend of Class A common stock, whereby on December 17, 2015, all stockholders of record of the Company’s Class A and B common stock as of December 3, 2015 (the “record date”), received a dividend of one-tenth of one share of Class A common stock for each share of Class A common stock and Class B common stock held by them as of the record date. In addition, as discussed further in Note 14, effective May 27, 2016, all Class B common shares and Class B warrants automatically converted into one Class A common share and one Class A warrant, respectively, and on
June 2, 2016 the Board approved an amendment (the "Reverse Split Amendment") to the Company's Amended and Restated Certificate of Incorporation. The Reverse Split Amendment effected a one (1) for six (6) reverse stock split and corresponding reduction of the number of authorized shares of common stock, par value $0.01 per share (the "Reverse Split"). The Reverse Split Amendment became effective on June 13, 2016.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 260,
Earnings Per Share
, the Company adjusted the computations of basic and diluted earnings per share retroactively for all periods presented to reflect that change in its capital structure. Accordingly, amounts previously reported in 2015 with respect to earnings per share, outstanding Class A shares, Class A restricted stock units, restricted shares and stock options have been restated where appropriate. See Note 4, “Earnings per Common Share,” for additional information.
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56
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Overseas Shipholding Group, Inc.
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NOTE 2 — CHAPTER 11 FILING AND EMERGENCE FROM BANKRUPTCY
In October 2012, the Company disclosed that its Audit Committee, on the recommendation of management, concluded that the Company’s previously issued financial statements for at least the three years ended December 31, 2011 and associated interim periods, and for the fiscal quarters ended March 31, 2012 and June 30, 2012, should no longer be relied upon. Shortly thereafter several putative class action suits were filed in the United States District Court for the Southern District of New York against the Company. Also named as defendants were its then President and Chief Executive Officer, its then Chief Financial Officer, its then current and certain former members of its Board of the Directors, and certain Company representatives.
On November 14, 2012 (the “Petition Date”), the Parent Company and 180 of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On August 5, 2014 (the "Effective Date"), a plan of reorganization (the “Equity Plan”) became effective and OSG emerged from bankruptcy.
The Company has fully and finally resolved all potential direct claims by members of the putative class of securities claimants through a settlement effectuated through the Equity Plan. Under the terms of that settlement, the Equity Plan provided for full satisfaction of claims through the payment of (i)
$7,000
in cash, which was paid on August 5, 2014, (ii)
$3,000
in cash, which was paid on August 5, 2015, (iii) any remaining cash in the Class E1 Disputed Claims Reserve established by the Equity Plan following resolution of all other Class E1 claims, which was paid on October 5, 2015, (iv)
15%
(or
$2,136
) of the Net Litigation Recovery in the action against Proskauer (described below), which was paid on April 5, 2016, (v)
$5,000
in cash, following the entry of a final order resolving the Proskauer action, which was paid on March 17, 2016, and (vi) proceeds of any residual interest the Company has in certain director and officer insurance policies.
On January 23, 2017, the SEC commenced an administrative proceeding, with the Company’s consent, that fully resolved an SEC investigation that was initiated in connection with the Company’s earnings restatement announced in 2012. The Company neither admitted or denied the SEC’s allegations that the Company violated certain provisions of the Securities Act, the Exchange Act and related rules. After receiving Bankruptcy Court approval, the Company paid a
$5,000
civil penalty relating to the investigation in February 2017, which was fully accrued as of
December 31, 2016
. The settlement with the SEC does not require any further changes to the Company’s historical financial statements. Any indemnification or contribution claims by officers or directors of the Company that could be asserted in connection with the SEC’s investigation have been released or otherwise resolved pursuant to the Equity Plan and order of the Bankruptcy Court.
On February 10, 2017, pursuant to a final decree and order of the Bankruptcy Court, OSG’s one remaining case, as the Parent Company, was closed.
Reorganization Items, net
Reorganization items, net represent amounts incurred after the Petition Date as a direct result of the filing of the Chapter 11 cases. During the year ended December 31, 2018, the Company did not incur any reorganization items, net. For the years ended December 31, 2017 and 2016, reorganization items, net were comprised of the following:
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|
|
|
|
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Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
Trustee fees
|
$
|
5
|
|
|
$
|
100
|
|
|
Professional fees
|
185
|
|
|
2,288
|
|
|
Litigation settlement, net
|
—
|
|
|
(20,359
|
)
|
|
Litigation settlement due to class action plaintiffs
|
—
|
|
|
2,136
|
|
|
Litigation settlement due to Class B warrant holders
|
—
|
|
|
86
|
|
|
Provision for claims
|
—
|
|
|
4,824
|
|
|
Other claim adjustments
|
—
|
|
|
—
|
|
|
|
$
|
190
|
|
|
$
|
(10,925
|
)
|
On February 12, 2016, the Company entered into an agreement with Proskauer Rose, LLP and four of its partners (“Proskauer Plaintiffs”) to settle a malpractice suit filed by the Company in March 2014. Settlement proceeds totaling
$20,359
net of all related out-of-pocket expenses, including legal fees, incurred by the Company during the three months ended March 31, 2016 are included in litigation settlement, net in the table above.
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57
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Overseas Shipholding Group, Inc.
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In addition, pursuant to the terms of the Company’s settlement with members of the putative class of securities claimants, the Company recognized an income statement charge for
15%
, or
$2,136
, of the Net Litigation Recovery amount of
$14,242
during the year ended December 31, 2016. The “Net Litigation Recovery” is the gross amount of the settlement less all related out-of-pocket expenses, including legal fees, incurred by the Company since the inception of the action against the Proskauer Plaintiffs through the date of settlement. Further, as required by the Equity Plan, the Company’s Amended and Restated Certificate of Incorporation and the Class B Warrant Agreement, the Company distributed
10%
, or
$1,423
, of the Net Litigation Recovery amount to the Class B stockholders and warrant holders in May 2016. Approximately
$86
of the aforementioned
$1,423
, which represents the proportional share of the Net Litigation Recovery payable to the Company’s Class B warrant holders, was recognized as a charge to reorganization items, net in the second quarter of 2016. The balance of
$1,337
was distributed in the form of a special dividend to the Company’s Class B stockholders and was recorded as a reduction of retained earnings.
Cash paid for reorganization items, excluding the Proskauer related settlement amounts noted above, was
$295
, and
$2,455
for the years ended
December 31, 2017
and
2016
, respectively.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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1.
|
Cash and cash equivalents -
Interest-bearing deposits that are highly liquid investments and have a maturity of three months or less when purchased are included in cash and cash equivalents. Pursuant to the terms of the OBS Facility, in the event of a spinoff of INSW, the Company was required to set aside, in an escrow account, cash in an aggregate amount of not less than the sum of all accrued and unpaid interest on the outstanding Unsecured Senior Notes (as defined in Note 9, “Debt”) through the date of the consummation of the INSW Spinoff and all interest expense that will accrue under the respective outstanding Unsecured Senior Notes from the date of the consummation of the INSW Spinoff through the maturity of the respective Unsecured Senior Notes.
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|
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2.
|
Vessels, vessel lives, deferred drydocking expenditures and other property
- Vessels are recorded at cost and are depreciated to their estimated salvage value on the straight-line basis over the estimated useful lives of the vessels, which are generally
25 years
(except for new ATBs for which estimated useful lives of
30 years
are used).
|
Other property, including leasehold improvements, are recorded at cost and amortized on a
straight-line basis
over the shorter of the terms of the leases or the estimated useful lives of the assets, which range from
3
years to
15 years
.
Interest costs are capitalized to vessels during the period that vessels are under construction. During the year ended December 31, 2018, interest costs capitalized were not material and
no
interest was capitalized during the years ended December 31,
2017
and
2016
.
Expenditures incurred during a drydocking are deferred and amortized on the straight-line basis over the shorter of the terms of the leases or the period until the next scheduled drydocking, generally two and a half to
five
years. The Company only includes in deferred drydocking costs those direct costs that are incurred as part of the drydocking to meet regulatory requirements, or are expenditures that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.
The carrying value of each of the Company’s vessels represents its original cost at the time it was delivered or purchased less depreciation calculated using estimated useful lives from the date such vessel was originally delivered from the shipyard or from the date (as in the case of certain of the Company’s ATBs) a vessel was rebuilt. A vessel’s carrying value is reduced to its new cost basis (i.e., its current fair value) if a vessel impairment charge is recorded.
If the estimated economic lives assigned to the Company’s vessels prove to be too long because of new regulations, a prolonged weak market environment, a broad imposition of age restrictions by the Company’s customers, or other future events, it could result in higher depreciation expense and impairment losses in future periods related to a reduction in the useful lives of any affected vessels.
|
|
|
|
3.
|
Impairment of long-lived assets
- The carrying amounts of long-lived assets held and used by the Company are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be fully recoverable. In such instances, the requirement for impairment could be triggered if the estimate of the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the asset’s carrying amount. This assessment is made at the individual vessel level since
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58
|
Overseas Shipholding Group, Inc.
|
separately identifiable cash flow information for each vessel is available. The impairment charge, if any, would be measured as the amount by which the carrying amount of a vessel exceeded its fair value. A long-lived asset impairment charge results in a new cost basis being established for the relevant long-lived asset. See Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” for further discussion on the impairment tests performed on our vessels during the three years ended
December 31, 2018
. Although separate cash flow information is available at the vessel level, the Company's chief operating decision maker, the CEO, makes operating decisions at a fleet level.
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|
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4.
|
Intangible assets -
Intangible assets with estimable useful lives are amortized over their estimated useful lives and are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may be impaired. See Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” for further discussion on the impairment test performed on the Company's intangible assets at
December 31, 2018
.
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|
|
|
|
5.
|
Deferred finance charges -
Finance charges incurred in the arrangement and amendment of debt are deferred and amortized to interest expense on either an effective interest method or straight-line basis over the life of the related debt.
|
Unamortized deferred finance charges of
$217
and
$418
relating to the OBS ABL Facility (as defined in Note 9, “Debt”) are included in other assets in the consolidated balance sheets as of
December 31, 2018
and
2017
, respectively. Unamortized deferred financing charges of
$7,528
relating to the Term Loan Credit Agreement (as defined in Note 9, “Debt”) and
$124
relating to the Wintrust loan are included in long-term debt in the consolidated balance sheets as of
December 31, 2018
. At December 31, 2018, unamortized deferred financing charges relating to the Unsecured Senior Notes were included in current installments of long-term debt in the consolidated balance sheets and were not material. Interest expense relating to the amortization of deferred financing charges amounted to
$4,069
in
2018
,
$5,167
in
2017
and
$6,005
in
2016
.
|
|
|
|
6.
|
Revenue and expense recognition -
Revenues from time charters are accounted for as operating leases and are thus recognized ratably over the rental periods of such charters, as service is performed. In 2017 and prior, voyage revenues and expenses were recognized ratably over the estimated length of each voyage, calculated on a discharge-to-discharge basis and, therefore, were allocated between reporting periods based on the relative transit time in each period.
|
The Company adopted ASU No. 2014-09,
Revenue from Contracts with Customers (ASC 606)
, on January 1, 2018. Under the new standard, the Company recognizes revenue from voyage charter contracts ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. See “Recently adopted accounting standards” below for further details.
The Company classifies time charter leasing arrangements less than 90 days within the Voyage charter revenue financial statement line item because the Company believes the pricing negotiated within these short-term time charter contracts more closely aligns with the Company’s voyage charter spot market.
Under voyage charters, expenses such as fuel, port charges, canal tolls, cargo handling operations and brokerage commissions are paid by the Company whereas, under time and bareboat charters, such voyage costs are generally paid by the Company’s customers.
The Company receives an annual operating-differential subsidy pursuant to the Merchant Marine Act of 1936 for the two U.S. Flag Product Carriers which participate in the U.S. MSP program. This subsidy has been recorded as an offset to vessel expenses which amounted to
$9,600
in 2018,
$9,900
in 2017 and
$6,200
in 2016.
|
|
|
|
7.
|
Voyage receivables
- All customers are granted credit on a short-term basis and related credit risks are considered minimal. The Company routinely reviews its voyage receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Voyage receivables are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts have been exhausted.
|
|
|
|
|
8.
|
Concentration of Credit Risk
- Financial instruments that potentially subject the Company to concentrations of credit risk are voyage receivables due from charterers. With respect to voyage receivables, the Company limits its credit risk
|
|
|
|
|
|
|
59
|
Overseas Shipholding Group, Inc.
|
by performing ongoing credit evaluations. Voyage receivables reflected in the consolidated balance sheets as of
December 31, 2018
and
2017
are net of an allowance for doubtful accounts of
$774
and
$682
, respectively.
During the years ended December 31, 2018, 2017 and 2016, the Company had two, three and four individual customers, respectively, who accounted for
10%
or more of the Company's revenues. The customers and their related percentages were Shell (
12%
) and Petrobras America Inc. (
11%
) for the year ended December 31, 2018, Andeavor (
16%
), Petrobras America Inc. (
15%
) and Shell (
10%
) for the year ended December 31, 2017 and Andeavor (
16%
), Petrobras America Inc. (
12%
), Shell (
12%
) and Marathon Petroleum Company (
11%
) for the year ended December 31, 2016.
|
|
|
|
9.
|
Derivatives
- ASC 815,
Derivatives and Hedging
, requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not effective hedges must be adjusted to fair value through earnings. If the derivative is an effective hedge, depending on the nature of the hedge, a change in the fair value of the derivative is either offset against the change in fair value of the hedged item (fair value hedge), or recognized in other comprehensive income/(loss) and reclassified into earnings in the same period or periods during which the hedge transaction affects earnings (cash flow hedge). The ineffective portion (that is, the change in fair value of the derivative that does not offset the change in fair value of the hedged item) of an effective hedge and the full amount of the change in fair value of derivative instruments that do not qualify for hedge accounting are immediately recognized in earnings.
|
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses (both at the hedge's inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item such as forecasted transactions; (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate or desired.
When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive loss and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive loss will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current period earnings, unless it is designated in a new hedging relationship or terminated.
During the three years ended
December 31, 2018
,
no
ineffectiveness gains or losses were recorded in earnings relative to interest rate caps entered into by the Company or its subsidiaries that qualified for hedge accounting. Any gain or loss realized upon the early termination of an interest rate cap is recognized as an adjustment of interest expense over the shorter of the remaining term of the cap or the hedged debt. See Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” for additional disclosures on the Company’s interest rate caps and other financial instruments.
|
|
|
|
10.
|
Income taxes
- The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
|
Net deferred tax assets are recorded to the extent the Company believes these assets will more likely than not be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and
|
|
|
|
|
|
60
|
Overseas Shipholding Group, Inc.
|
results of recent operations. In the event the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes in the period such determination is made.
Uncertain tax positions are recorded in accordance with ASC 740,
Income Taxes
, on the basis of a two-step process whereby (1) the Company first determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is greater than
50%
likely to be realized upon ultimate settlement with the related tax authority.
|
|
|
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11.
|
Use of estimates
- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets, liabilities, equity, revenues and expenses reported in the financial statements and accompanying notes. The most significant estimates relate to the depreciation of vessels and other property, amortization of drydocking costs, estimates used in assessing the recoverability of vessels, intangible assets and other long-lived assets, liabilities incurred relating to pension benefits, and income taxes. Actual results could differ from those estimates.
|
|
|
|
|
12.
|
Segment information
- Operating segments are defined as components of an enterprise that engage in business activities. The Company has determined that it operates its business as a single segment as its chief operating decision maker and its management team make decisions about resource allocations and review and measure the Company’s results as one line of business with similar regulatory requirements, customers and commodities transported.
|
|
|
|
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13.
|
Inventories
- Inventories are included in the inventories, prepaid expenses and other current assets line item in the consolidated balance sheets. Inventories are accounted for on the first in first out basis and consist of fuel on the Company’s vessels.
|
|
|
|
|
14.
|
Recently adopted accounting standards
- In May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (ASC 718)
,
Scope of Modification Accounting,
which provides guidance in regards to a change to the terms or conditions of a share-based payment award. An entity is required to account for the effects of a modification unless all the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The guidance is to be applied prospectively to an award modified on or after the adoption date. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within that reporting period. The adoption of this accounting policy had no impact on the Company’s consolidated financial statements since there were no stock award modifications during the year ended
December 31, 2018
.
|
In March 2017, the FASB issued ASU 2017-07,
Compensation — Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, that will change how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. Under ASU 2017-07, employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Additionally, employers will present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. The guidance is effective for interim and annual periods beginning after December 15, 2017. This standard must be applied retrospectively to all periods presented. The Company retrospectively adopted this standard effective January 1, 2018. The amortization of actuarial (gain)/loss and amortization of prior service credits have been reclassified from vessel expenses and general and administrative expenses to other expense in the Company's consolidated statements of operations.
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|
|
|
|
|
61
|
Overseas Shipholding Group, Inc.
|
The effect of the retrospective presentation change related to the net periodic cost of the Company's domestic pension and postretirement benefit plans on its consolidated statements of operations for the years ended December 31, 2017 and 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
As Previously Reported
|
|
Impact of Adoption
|
|
As Adjusted
|
|
Vessel expenses
|
$
|
135,991
|
|
|
$
|
157
|
|
|
$
|
136,148
|
|
|
General and administrative
|
27,493
|
|
|
(29
|
)
|
|
27,464
|
|
|
Total operating expenses
|
356,350
|
|
|
128
|
|
|
356,478
|
|
|
Income from vessel operations
|
34,076
|
|
|
(128
|
)
|
|
33,948
|
|
|
Other expense
|
1,881
|
|
|
(128
|
)
|
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
As Previously Reported
|
|
Impact of Adoption
|
|
As Adjusted
|
|
Vessel expenses
|
140,696
|
|
|
$
|
258
|
|
|
$
|
140,954
|
|
|
General and administrative
|
41,608
|
|
|
(548
|
)
|
|
41,060
|
|
|
Total operating expenses
|
497,602
|
|
|
(290
|
)
|
|
497,312
|
|
|
Loss from vessel operations
|
35,182
|
|
|
(290
|
)
|
|
34,892
|
|
|
Other expense
|
2,391
|
|
|
290
|
|
|
2,681
|
|
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (ASC 230): Restricted Cash
, which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within that reporting period. This standard must be applied retrospectively to all periods presented. The Company adopted this standard effective January 1, 2018. The prior periods have been adjusted to conform to current period presentation, which resulted in a decrease of
$15,569
in net cash provided by investing activities for the year ended December 31, 2017 and an increase of
$5,261
in net cash provided by investing activities for the year ended December 31, 2016, related to changes in restricted cash amounts.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (ASC 740): Intra-Entity Transfers of Assets Other Than Inventory
, amending the accounting for income taxes. Under current guidance the recognition of current and deferred income taxes for an intra-entity asset transfer is prohibited until the asset has been sold to an outside party. The amended guidance eliminates the prohibition against immediate recognition of current and deferred income tax amounts associated with intra entity transfers of assets other than inventory. This guidance is effective for interim and annual periods beginning after December 15, 2017. The requirements of the amended guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted this standard effective January 1, 2018. The adoption of the standard did not have any impact to the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments (ASC 230),
which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic with respect to (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The standard is effective for interim and annual periods beginning after December 31, 2017. The guidance requires application using a retrospective transition method. The Company adopted this standard effective January 1, 2018. The Company determined that its current accounting policies align with this standard, therefore, this standard did not have an impact on the Company's consolidated financial statements.
|
|
|
|
|
|
62
|
Overseas Shipholding Group, Inc.
|
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (ASC 606)
, to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. Subsequent to the May 2014 issuance, several clarifications and updates have been issued on this topic. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The Company adopted ASC 606 effective January 1, 2018 using the modified retrospective transition method. The Company recognized the cumulative effect of initially applying the new revenue standard as a
$1,228
, net of tax, adjustment to the opening balance of retained earnings at January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented.
See Note 22, “Revenue Recognition,” for additional accounting policy and transition disclosures.
In February 2018 the FASB issued ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, that gives entities the option to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (“TCJA”). The new guidance may be applied retrospectively to each period in which the effect of the TCJA is recognized in the period of adoption. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for periods for which financial statements have not yet been issued or made available for issuance, including the period the TCJA was enacted. The guidance, when adopted, will require new disclosures regarding a company’s accounting policy for releasing the tax effects in AOCI and permit the company the option to reclassify to retained earnings the tax effects resulting from the TCJA that are stranded in AOCI. The Company early adopted the guidance at December 31, 2018 using the beginning of the period transition method. As a result, the Company reclassified
$1,483
from AOCI to retained earnings related to pension items.
See Note 12, “Taxes,” for additional accounting policy and transition disclosures.
15.
Recently issued accounting standards
— In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The new guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption is permitted in interim periods, including periods for which financial statements have not been issued or financial statements have not been made available for issuance. The adoption of this standard is not expected to have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, which is included in the ASC in Topic 842. ASU 2016-02 is intended to improve transparency and comparability of lease accounting among organizations. For leases with a term greater than 12 months, the amendments require the lease rights and obligations arising from the leasing arrangements, including operating leases, to be recognized as assets and liabilities on the balance sheet. However, the effect on the statement of operations and the statement of cash flows is largely unchanged from current GAAP. The amendments also expand the required disclosures surrounding leasing arrangements. The update is effective for the Company beginning January 1, 2019 and can be applied retrospectively to each prior reporting period presented in the financial statements or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment.
The Company plans to adopt the standard using the modified retrospective approach effective January 1, 2019. The Company's lease portfolio is primarily comprised of vessel charters in and office space. The adoption of this guidance is expected to have a significant impact on vessels and other property within the Company's consolidated balance sheet due to the recognition of the right of use asset and liability for the Company's operating leases. As of December 31, 2018, the future minimum commitments for the Company's leased vessels was approximately
$330,834
, as presented in Note 16,
“Leases”.
The Company plans to apply the package of practical expedients that allows companies not to reassess whether any expired or expiring contracts are or contain leases, lease classification for any expired or expiring leases and initial direct costs for any expired or expiring leases. Also, the Company intends to make the accounting policy election to keep leases with a term of 12 months or less off the balance sheet. Finally, the Company has commenced implementing changes to processes and internal controls to meet the standard's updated reporting and disclosure requirements.
|
|
|
|
|
|
63
|
Overseas Shipholding Group, Inc.
|
The Company plans to apply the FASB practical expedient which provides lessors with an option to not separate non-lease components from the associated lease components of a contract. As a result, the Company will elect to not separate non-lease components of time charter contracts from the associated lease because the required criteria has been met.
|
|
|
|
|
|
64
|
Overseas Shipholding Group, Inc.
|
NOTE 4 — EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. As management deemed the exercise price for the Class A of
$0.01
per share to be nominal, warrant proceeds are ignored and the shares issuable upon Class A warrant exercise are included in the calculation of Class A basic weighted average common shares outstanding for all periods.
The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units. Participating securities are defined by ASC 260,
Earnings Per Share
, as unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.
On June 2, 2016 the Board approved the Reverse Split Amendment to the Company’s Amended and Restated Certificate of Incorporation. The Reverse Split Amendment effected the Reverse Split. The Reverse Split Amendment became effective on June 13, 2016. In accordance with ASC 260,
Earnings Per Share
, the Company adjusted the computations of basic and diluted earnings per share retroactively for all periods presented to reflect that change in its capital structure.
Accordingly, amounts previously reported for the quarter ended March 31, 2016 with respect to income/(loss) per share, outstanding Class A common shares, Class A restricted stock units, Class A restricted shares and Class A stock options, Class B shares and Class B warrants have been restated, where appropriate. The table below shows the effect of the Reverse Split on the calculation of per share amounts previously reported.
|
|
|
|
|
|
|
|
Three
Months Ending
|
|
(Thousands of shares)
|
March 31,
2016
|
|
|
(unaudited)
|
|
Decrease in weighted average number of shares outstanding used to calculate basic net income/(loss) per share amounts for Class A
|
(473,688
|
)
|
|
|
|
|
Decrease in weighted average number of shares outstanding used to calculate diluted net income/(loss) per share amounts for Class A
|
(473,688
|
)
|
|
|
|
|
Decrease in weighted average number of shares outstanding used to calculate basic and diluted net income/(loss) per share amounts for Class B
|
(6,600
|
)
|
Class A
As of December 31, 2018, there were
no
weighted average shares of unvested Class A restricted common stock shares considered to be participating securities. There were
32,120
and
54,993
weighted average shares of unvested Class A restricted common stock shares considered to be participating securities as of December 31,
2017
and
2016
, respectively. Such participating securities were allocated a portion of income under the two-class method for the year ended
December 31, 2017
, but
no
allocation of loss was made for the year ended
December 31, 2016
since the holders of the participating securities do not participate in losses.
The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units not classified as participating securities. As of
December 31, 2018
, there were
912,315
shares of Class A restricted stock units and
866,011
Class A stock options outstanding and considered to be potentially dilutive securities. As of
December 31, 2017
there were
660,999
shares of Class A restricted stock units and
371,893
Class A stock options outstanding and considered to be potentially dilutive securities. As of
December 31, 2016
there were
485,223
shares of Class A restricted stock units and
1,114,103
Class A stock options outstanding and considered to be potentially dilutive securities.
Class B
There are
no
participating securities or potentially dilutive securities relating to the Class B Common Stock. The Class B shares were all converted to Class A shares in May 2016.
|
|
|
|
|
|
65
|
Overseas Shipholding Group, Inc.
|
The components of the calculation of basic earnings per share and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Income/(loss) from continuing operations
|
$
|
13,489
|
|
|
$
|
55,978
|
|
|
$
|
(1,059
|
)
|
|
(Loss)/income from discontinued operations
|
—
|
|
|
—
|
|
|
(292,555
|
)
|
|
Net income/(loss)
|
$
|
13,489
|
|
|
$
|
55,978
|
|
|
$
|
(293,614
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
Class A common stock - basic
|
88,394,580
|
|
|
87,834,769
|
|
|
90,949,577
|
|
|
Class A common stock - diluted
|
89,045,734
|
|
|
88,082,978
|
|
|
90,949,577
|
|
|
Class B common stock - basic
|
—
|
|
|
—
|
|
|
533,758
|
|
|
Class B common stock - diluted
|
—
|
|
|
—
|
|
|
533,758
|
|
Reconciliations of the numerator of the basic and diluted earnings per share computations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Net income/(loss) from continuing operations allocated to:
|
|
|
|
|
|
|
|
|
|
Class A Common Stockholders
|
$
|
13,489
|
|
|
$
|
55,957
|
|
|
$
|
(1,002
|
)
|
|
Class B Common Stockholders
(2)
|
—
|
|
|
—
|
|
|
(57
|
)
|
|
Participating securities
(1)
|
—
|
|
|
21
|
|
|
—
|
|
|
|
$
|
13,489
|
|
|
$
|
55,978
|
|
|
$
|
(1,059
|
)
|
|
|
|
|
|
|
|
|
Net (loss)/income from discontinued operations allocated to:
|
|
|
|
|
|
|
Class A Common Stockholders
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(295,001
|
)
|
|
Class B Common Stockholders
(2)
|
—
|
|
|
—
|
|
|
2,426
|
|
|
Participating securities
(1)
|
—
|
|
|
—
|
|
|
20
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(292,555
|
)
|
|
|
|
|
(1)
|
For the year ended December 31, 2017, income from continuing operations allocated to participating securities relates to unvested restricted stock. For the year ended December 31, 2016, income from discontinued operations allocated to participating securities relates to amounts equivalent to the cash dividends declared.
|
|
|
|
|
(2)
|
The December 31, 2016 income allocated to Class B common stockholders includes amounts equivalent to the special cash dividends declared on the Class B common stock shares.
|
For annual earnings per share calculations, there were
651,154
and
248,209
dilutive equity awards outstanding for the years ended December 31, 2018 and 2017. Awards of
469,112
,
732,690
and
1,074,548
shares of common stock for
2018
,
2017
and
2016
, respectively, were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.
NOTE 5 — DISCONTINUED OPERATIONS
As discussed in Note 1, on November 30, 2016 the Company completed the separation of its business into two independent publicly-traded companies through the spin-off of INSW. In connection with the spin-off, OSG and INSW entered into a number of agreements that provide a framework for governing the relationships between the parties going forward.
Separation and Distribution Agreement
OSG entered into a separation and distribution agreement (the “Separation and Distribution Agreement”) with INSW, which among other things, sets forth other agreements that govern the aspects of the relationship as follows.
|
|
|
|
|
|
66
|
Overseas Shipholding Group, Inc.
|
Transfer of Assets and Assumption of Liabilities
. The Separation and Distribution Agreement identified certain transfers of assets and assumptions of liabilities that were necessary in advance of the spin-off of INSW from OSG so that OSG and INSW retained the assets of, and the liabilities associated with, their respective businesses. The Separation and Distribution Agreement also provided for the settlement or extinguishment of certain liabilities and other obligations between OSG and INSW.
Legal Matters and Claims; Sharing of Certain Liabilities.
Subject to any specified exceptions, each party to the Separation and Distribution Agreement has assumed the liability for, and control of, all pending and threatened legal matters related to its own business, as well as assumed or retained liabilities, and has indemnified the other party for any liability arising out of or resulting from such assumed legal matters.
Other Matters.
In addition to those matters discussed above, the Separation and Distribution Agreement, among other things, (i) governs the transfer of assets and liabilities generally, (ii) terminates all intercompany arrangements between OSG and INSW except for specified agreements and arrangements that follow the Distribution, (iii) contains further assurances, terms and conditions that require OSG and INSW to use commercially reasonable efforts to consummate the transactions contemplated by the Separation and Distribution Agreement and the ancillary agreements, (iv) releases certain claims between the parties and their affiliates, successors and assigns, (v) contains mutual indemnification clauses and (vi) allocates expenses of the spin-off between the parties.
Transition Services Agreement
OSG and INSW entered into a transition services agreement (the “TSA” or “Transition Services Agreement”) pursuant to which both parties agreed to provide each other with specified services for a limited time to help ensure an orderly transition following the Distribution. The Transition Services Agreement specified the calculation of the costs for these services. Pursuant to the terms of the agreement, OSG provided certain administrative services, including administrative support services related to benefit plans, human resources and legal services, for a transitional period after the spin-off. Similarly, INSW had agreed to provide certain limited transition services to OSG, including services relating to accounting activities and information and data provision services. The Transition Services Agreement provided for termination
30 days
after the expiration or termination of all of the services provided thereunder. During the second quarter of 2017, the Transition Services Agreement terminated.
Employee Matters Agreement
OSG and INSW entered into an employee matters agreement (the “Employee Matters Agreement”), which addressed the allocation and treatment of assets and liabilities relating to employees and compensation and benefit plans and programs in which INSW employees participated, including equity incentive plans. The Employee Matters Agreement also governed the transfer of employees between OSG and INSW in connection with the Distribution, and set forth certain obligations for reimbursements and indemnities between OSG and INSW. During the second quarter of 2017, the Employee Matters Agreement terminated.
|
|
|
|
|
|
67
|
Overseas Shipholding Group, Inc.
|
Results of Discontinued Operations
The table below presents statements of operations data for INSW, which has been classified as discontinued operations for the year ended December 31, 2016.
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
Shipping revenues:
|
|
|
|
Pool revenues
|
$
|
226,329
|
|
|
Time and bareboat charter revenues
|
88,786
|
|
|
Voyage charter revenues
|
50,005
|
|
|
|
365,120
|
|
|
Operating expenses:
|
|
|
Voyage expenses
|
11,219
|
|
|
Vessel expenses
|
129,914
|
|
|
Charter hire expenses
|
32,790
|
|
|
Depreciation and amortization
|
73,039
|
|
|
General and administrative
|
17,900
|
|
|
Technical management transition costs
|
—
|
|
|
Spin-off related costs
|
16,763
|
|
|
Severance costs
|
243
|
|
|
Loss/(gain) on disposal of vessels and other property, including impairments
|
382,163
|
|
|
Total Operating Expenses
|
664,031
|
|
|
(Loss)/Income from Vessel Operations
|
(298,911
|
)
|
|
Equity in Income of Affiliated Companies
|
44,067
|
|
|
Operating (Loss)/Income
|
(254,844
|
)
|
|
Other (Expense)Income
|
(968
|
)
|
|
(Loss)/Income before Interest Expense, Reorganization Items and Taxes
|
(255,812
|
)
|
|
Interest expense
|
36,430
|
|
|
(Loss)/Income before Reorganization Items and Income Taxes
|
(292,242
|
)
|
|
Reorganization Items, net
|
—
|
|
|
(Loss)/Income before Income Taxes
|
(292,242
|
)
|
|
Income Tax Provision
|
313
|
|
|
Net (Loss)/Income
|
$
|
(292,555
|
)
|
Corporate administrative expenses, reorganization costs, employee compensation and benefits related costs, severance costs and depreciation for certain administrative fixed assets were allocated to INSW through November 30, 2016, in accordance with the "Shared Services and Cost Sharing Agreement" and the "Cost Sharing Agreement" by and among, OSG, INSW and OBS. However, in accordance with the accounting standards for discontinued operations, only costs directly attributable to INSW are to be reported in the results from discontinued operations. As such, the allocated costs in the table above will differ from the costs allocated to INSW (and reported or to be reported by INSW) in accordance with the aforementioned cost sharing agreements as discussed further in Note 13, “Related Parties.” Total indirect costs allocated to INSW that are included in continuing operations in the consolidated statement of operations are
$15,380
for the year ended December 31,
2016
. Such amounts include reorganization items, net of
$131
for the year ended December 31, 2016.
Also, in accordance with the discontinued operations accounting standards, approximately
$12,264
of one-time separation costs incurred by OSG and that are directly attributable to the spin-off transaction have been classified in the loss from discontinued operations and are included in the table above.
|
|
|
|
|
|
68
|
Overseas Shipholding Group, Inc.
|
Vessel and Investment in Joint Venture Impairments – Held for Sale Basis (Disposal Group)
ASC 845 requires that the accounting for the distribution of nonmonetary assets to owners of an entity in a spinoff be based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value). Based on ASC 505, the nonmonetary distribution of the assets of INSW constitute the disposal of a business. Accordingly, OSG's distribution of the shares of INSW to its stockholders on November 30, 2016 was recorded based on the carrying value of the INSW disposal group, after reduction for net impairment charges recognized for the excess of the carrying value of the INSW disposal group over its fair value, calculated on a held for sale basis.
The determination of fair value is highly judgmental. In estimating the fair value of INSW’s vessels as of November 30, 2016 the Company considered the market and income approaches by using a combination of third party appraisals and discounted cash flow models prepared by the Company. In preparing the discounted cash flow models, the Company used a methodology consistent with the methodology and assumptions detailed in the “Vessel Impairment – Held for Use Basis” section below, and discounted the cash flows using its current estimate of INSW’s weighted average cost of capital, of
9%
.
The INSW disposal group includes an approximate
50%
interest in two joint ventures. One joint venture operates four LNG Carriers. The other joint venture converted two ULCCs to Floating Storage and Offloading Service (“FSO”) vessels. In estimating the fair value of INSW’s investments in and advances to these joint ventures as of November 30, 2016, the Company utilized an income approach since there is a lack of comparable market transactions for the specially built assets held by the joint ventures, by preparing discounted cash flow models. In preparing the discounted cash flows models the Company used a methodology largely consistent with the methodology and assumptions detailed in the “Vessel Impairment – Held for Use Basis” section below, with the exception being that as the assets owned by the joint ventures serve under specific service contracts, the estimated charter rates for periods after the expiry of the existing contracts are based upon management’s internally forecasted rates. The cash flows were discounted using the current estimated weighted average cost of capital for each joint venture, which ranged from
8.7%
to
9.5%
and took into consideration country risk, entity size and uncertainty with respect to the cash flows for periods beyond the current charter expiries.
Accordingly, the Company recorded a charge in the fourth quarter of 2016, as part of income/(loss) from discontinued operations of
$332,562
to reduce the carrying value of the disposal group to its estimated fair value, calculated on a held for sale basis.
Vessel Impairment – Held for Use Basis
For INSW’s International Flag fleet, the Company monitored the industry wide decline in vessel valuations during 2016 and specifically from June 30, 2016 to September 30, 2016, as well as the decline in forecasted near term charter rates, and concluded that declines in vessel valuations of up to
20%
during the quarter ended September 30, 2016 for
28
vessels in its International Flag fleet with carrying values in excess of their estimated market values, constituted an impairment trigger event for these vessels as of September 30, 2016. In developing estimates of undiscounted future cash flows for performing Step 1 of the impairment tests, the Company made assumptions about future performance, with significant assumptions including charter rates, ship operating expenses, utilization, drydocking requirements, residual value and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations. The estimated daily time charter equivalent rates used for unfixed days were based on a combination of (i) internally forecasted rates that are consistent with forecasts provided to the Company’s senior management and Board of Directors, and (ii) the trailing 12-year historical average rates, based on quarterly average rates published by a third party maritime research service. The internally forecasted rates were based on management’s evaluation of current economic data and trends in the shipping and oil and gas industries. In estimating the fair value of the vessels for the purposes of step 2 of the impairment tests, the Company developed fair value estimates that utilized a market approach which considered an average of two vessel appraisals. Based on the tests performed, impairment charges totaling
$49,640
were recorded on
two
LR1s, an Aframax and a Panamax to write-down their carrying values to their estimated fair values at September 30, 2016. The aggregate fair value of the
four
impaired vessels totaling
$68,875
was determined using the market approach, which considers the expected sales prices of the vessels obtained from third-party appraisals.
The remaining
24
vessels tested had estimated undiscounted future cash flows in excess of their carrying values.
Because the determination of the fair value of the disposal group was based in part on an income approach, which utilized cash flow projections consistent with the most recent projections of the Company, such fair value estimate is considered to be Level 3 in the fair value hierarchy (See Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures” for fair value hierarchy definitions).
|
|
|
|
|
|
69
|
Overseas Shipholding Group, Inc.
|
NOTE 6 — VESSELS, OTHER PROPERTY AND DEFERRED DRYDOCK
Vessels and other property consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
Vessels, at cost
|
$
|
845,868
|
|
|
$
|
849,713
|
|
|
Accumulated depreciation
|
(248,939
|
)
|
|
(217,633
|
)
|
|
Vessels, net
|
596,929
|
|
|
632,080
|
|
|
|
|
|
|
|
Other property, at cost
|
5,895
|
|
|
5,630
|
|
|
Accumulated depreciation and amortization
|
(5,165
|
)
|
|
(5,201
|
)
|
|
Other property, net
|
730
|
|
|
429
|
|
|
Total vessels and other property
|
$
|
597,659
|
|
|
$
|
632,509
|
|
On January 2, 2019, the Company entered into a
10
-year bareboat charter agreement for a U.S. flagged product tanker. The Company's annual commitments under the bareboat charter agreement are
$2,782
(2019),
$4,172
(2020),
$4,161
(2021),
$4,161
(2022),
$4,161
(2023) and
$21,352
thereafter.
On December 6, 2018, the Company sold one ATB and one barge for
$2,367
, net of broker commission of
$61
. As a result of the sale, the Company recognized a gain of
$877
, which is included in (gain)/loss on disposal of vessels and other property, including impairments in the consolidated statements of operations.
In July 2018, the Company signed binding contracts with Hyundai Mipo Dockyard Company Ltd. for the construction of
two
50,000
deadweight tons class product chemical tankers for anticipated delivery to the Company during the second half of
2019
. The Company's annual commitments under the contracts are
$60,000
in
2019
, of which the majority is due when the vessels are accepted by the Company.
Additionally, in July 2018, the Company signed a binding contract with Gunderson Marine LLC for the construction of
one
approximately
204,000
BBL, oil and chemical tank barge for anticipated delivery to the Company during the first half of 2020. The Company's annual commitments under the contract are
$39,213
in
2019
and
$5,059
in
2020
.
In January 2019, the Company exercised an option to construct a second approximately
204,000
BBL, oil and chemical tank barge for anticipated delivery to the Company during the second half of 2020. The Company's annual commitments under the contract are
$19,622
in 2019 and
$31,343
in 2020.
In June 2018,
one
of the Company's ATBs was berthed to the dock when a third-party ship transiting the channel hit the Company's ATB causing structural damage to the Company's ATB and damage to the dock. The cost of repairs has been covered by existing insurance policies. The Company has filed a lawsuit against the third-party ship seeking recovery of its costs of repairs as well as its lost earnings from the ATB being off-hire for
46
repair days.
On November 20, 2017, the Company sold one rebuilt ATB for
$1,055
, net of broker commission of
$27
. As a result of the sale, the Company recognized a loss of
$7,322
, which is included in (gain)/loss on disposal of vessels and other property, including impairments in the consolidated statements of operations.
At
December 31, 2018
, the Company’s owned vessel fleet with a weighted average age of
10.2 years
, consisted of
four
Handysize Product Carriers,
two
lightering ATBs and
five
clean ATBs. These vessels are pledged as collateral under the term loan agreements and OBS ABL Facility and have an aggregate carrying value of
$588,733
.
|
|
|
|
|
|
70
|
Overseas Shipholding Group, Inc.
|
Vessel activity, excluding construction in progress, for the three years ended
December 31, 2018
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel Cost
|
|
Accumulated
Depreciation
|
|
Net Book
Value
|
|
Balance at December 31, 2015
|
$
|
1,156,117
|
|
|
$
|
(313,392
|
)
|
|
$
|
842,725
|
|
|
Impairment
|
(264,095
|
)
|
|
163,563
|
|
|
|
|
Depreciation
|
—
|
|
|
(58,489
|
)
|
|
|
|
Balance at December 31, 2016
|
892,022
|
|
|
(208,318
|
)
|
|
683,704
|
|
|
Impairment
|
(6,957
|
)
|
|
1,079
|
|
|
|
|
Depreciation
|
—
|
|
|
(37,681
|
)
|
|
|
|
Disposals
|
(35,352
|
)
|
|
27,287
|
|
|
|
|
Balance at December 31, 2017
|
849,713
|
|
|
(217,633
|
)
|
|
632,080
|
|
|
Depreciation
|
—
|
|
|
(33,851
|
)
|
|
|
|
Disposals
|
(3,845
|
)
|
|
2,545
|
|
|
|
|
Balance at December 31, 2018
|
$
|
845,868
|
|
|
$
|
(248,939
|
)
|
|
$
|
596,929
|
|
The total of vessel additions can differ from expenditures for vessels as shown in the consolidated statements of cash flows because of the timing of when payments were made.
Drydocking activity for the three years ended
December 31, 2018
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Balance at January 1
|
$
|
23,914
|
|
|
$
|
31,172
|
|
|
$
|
58,166
|
|
|
Additions
|
14,031
|
|
|
8,787
|
|
|
2,626
|
|
|
Sub-total
|
37,945
|
|
|
39,959
|
|
|
60,792
|
|
|
Drydock amortization
|
(11,846
|
)
|
|
(16,045
|
)
|
|
(25,747
|
)
|
|
Impairments
|
—
|
|
|
—
|
|
|
(3,873
|
)
|
|
Balance at December 31
|
$
|
26,099
|
|
|
$
|
23,914
|
|
|
$
|
31,172
|
|
NOTE 7 — EQUITY METHOD INVESTMENT
Investment in affiliated company is comprised of the Company’s
37.5%
interest in Alaska Tanker Company, LLC, which manages vessels carrying Alaskan crude for BP West Coast Products, LLC (“BP”). In the first quarter of 1999, OSG, BP, and Keystone Shipping Company formed Alaska Tanker Company, LLC (“ATC”) to manage the vessels carrying Alaskan crude oil for BP. ATC provides marine transportation services in the environmentally sensitive Alaskan crude oil trade. Each member in ATC is entitled to receive its respective share of any incentive charter hire payable by BP to ATC. The Company has accounted for the investment in ATC as an equity–method investment because the Company does not individually retain the power to significantly impact the economic performance of ATC and the Company’s maximum exposure to losses in ATC is limited to their initial capital investment in ATC, which is not material. As of December 31, 2018, the carrying value of the Company’s investment in ATC was
$3,585
, which includes the Company’s respective share of distribution of
$3,538
.
Under Rule 3-09 of Regulation S-X, the Company is required to file separate audited financial statements of Alaska Tanker Company, LLC, for the year ended December 31, 2018. The Company expects to file those financial statements by amendment to our Annual Report on Form 10-K/A on or before March 29, 2019.
|
|
|
|
|
|
71
|
Overseas Shipholding Group, Inc.
|
A condensed summary of the assets and liabilities of the equity method investment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
Current assets
|
$
|
38,949
|
|
|
$
|
38,091
|
|
|
Total assets
|
$
|
38,949
|
|
|
$
|
38,091
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
21,652
|
|
|
$
|
20,555
|
|
|
Non-current liabilities
|
17,286
|
|
|
18,814
|
|
|
Equity/(deficiency)
|
11
|
|
|
(1,278
|
)
|
|
Total liabilities and equity
|
$
|
38,949
|
|
|
$
|
38,091
|
|
A condensed summary of the results of operations of the equity method investments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Shipping revenues
|
$
|
105,115
|
|
|
$
|
106,894
|
|
|
$
|
110,503
|
|
|
Ship operating expenses
|
(95,315
|
)
|
|
(97,903
|
)
|
|
(100,752
|
)
|
|
Income from vessel operations
|
9,800
|
|
|
8,991
|
|
|
9,751
|
|
|
Net income
|
$
|
9,461
|
|
|
$
|
9,993
|
|
|
$
|
9,751
|
|
|
|
|
|
|
|
|
72
|
Overseas Shipholding Group, Inc.
|
|
NOTE 8 — INTANGIBLE ASSETS
Intangible Assets
Intangible assets activity for three years ended
December 31, 2018
is summarized as follows:
|
|
|
|
|
|
|
|
|
Total
|
|
Balance at January 1, 2016
|
$
|
50,217
|
|
|
Amortization
|
(4,600
|
)
|
|
Balance at December 31, 2016
|
45,617
|
|
|
Amortization
|
(4,600
|
)
|
|
Balance at December 31, 2017
|
41,017
|
|
|
Amortization
|
(4,600
|
)
|
|
Balance at December 31, 2018
|
$
|
36,417
|
|
As discussed in Note 3, “Summary of Significant Accounting Policies,” the Company’s intangible assets at
December 31, 2018
and
2017
consist of long-term customer relationships acquired as part of the 2006 purchase of Maritrans, Inc. The gross intangible assets were
$92,000
at
December 31, 2018
and
2017
. The unamortized balance of the Company's intangible assets at December 31, 2018 will be recognized over the remaining useful life, which is
eight years
. Amortization of intangible assets for the
five
years subsequent to December 31, 2018 is expected to approximate
$4,600
per year.
NOTE 9 — DEBT
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
Term loan, due 2023, net of unamortized discount and deferred costs of $7,528
|
$
|
317,472
|
|
|
$
|
—
|
|
|
Term loan, due 2026, net of unamortized discount and deferred costs of $124
|
27,376
|
|
|
—
|
|
|
7.5% Election 2 notes due 2021, net of unamortized discount and deferred costs of $4 and $6
|
297
|
|
|
295
|
|
|
7.50% notes due 2024
|
390
|
|
|
390
|
|
|
OBS term loan net of unamortized discount and deferred costs of $7,037
|
—
|
|
|
448,251
|
|
|
Total debt
|
345,535
|
|
|
448,936
|
|
|
Less current installments of long-term debt
|
23,240
|
|
|
28,160
|
|
|
Total long-term debt
|
$
|
322,295
|
|
|
$
|
420,776
|
|
The weighted average interest rate for debt outstanding at
December 31, 2018
and
2017
was
7.49%
and
5.51%
, respectively.
Exit Financing Facilities and Term Loans
Capitalized terms used hereafter have the meaning given in this Annual Report on Form 10-K or in the respective transaction documents referred to below, including subsequent amendments thereto.
As discussed in Note 2, “Chapter 11 Filing and Emergence from Bankruptcy,” to support the Equity Plan, OSG and certain of its subsidiaries entered into secured debt facilities including: (i) a secured asset-based revolving loan facility of
$75,000
, among the Parent Company, OBS, certain OBS subsidiaries, Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders party thereto (the “OBS ABL Facility”), secured by a first lien on substantially all of the U.S. Flag assets of OBS and its subsidiaries and a second lien on certain other specified U.S. Flag assets; and (ii) a secured term loan of
$603,000
, among the Parent Company, OBS, certain OBS subsidiaries, Jefferies Finance LLC (“Jefferies”), as Administrative Agent, and other lenders party thereto (the “OBS Term Loan”), secured by a first lien on certain specified U.S. Flag assets of OBS and its subsidiaries and a second lien on substantially all of the other U.S. Flag assets of OBS and its subsidiaries and collectively with the OBS ABL Facility and the OBS Term Loan, (the “Exit Financing Facilities”), among OSG, Jefferies, as Administrative Agent, and other lenders party thereto.
|
|
|
|
|
|
73
|
Overseas Shipholding Group, Inc.
|
Interest on the Exit Financing Facilities was calculated, at the Company’s option, based upon (i) an alternate base rate (“ABR”) plus the applicable margin or (ii) Adjusted LIBOR plus the applicable margin. ABR is defined as the highest of (i) the Base Rate (the prime rate published in The Wall Street Journal), (ii) the Federal Funds Effective Rate plus
0.50%
, (iii) the one-month Adjusted LIBOR Rate plus
1.00%
and (iv)
2.00%
per annum. The OBS ABL Facility applicable margin varies based upon undrawn availability under the commitment and is subject to certain pricing adjustments. The OBS ABL Facility provides for quarterly payment of commitment fees at a rate of
0.50%
for each quarter during which the daily average Total Revolving Exposure is less than 50% of Total Revolving Commitments or
0.375%
for each quarter during which the daily average the Total Revolving Exposure is greater than or equal to 50% of Total Revolving Commitments.
On March 16, 2018 and March 29, 2018, the Company made a mandatory prepayment of
$28,166
and optional prepayment of
$47,000
on its OBS Term Loan, respectively. The aggregate net loss of
$981
realized on these transactions during the year ended December 31, 2018 reflects a write-off of unamortized original issue discount and deferred financing costs associated with the principal reductions and is included in other expense in the consolidated statements of operations.
On November 19, 2018, two of the Company's subsidiaries closed on a loan from Wintrust Commercial Finance, a division of Wintrust Asset Finance Inc. (“Wintrust”), in the amount of
$27,500
. The loan is secured by first preferred ship mortgages on the Overseas Mykonos and Overseas Santorini, and a guaranty from the Company. The loan bears interest at a rate equal to the prevailing 30-Day LIBOR plus
4.00%
and matures on November 19, 2026.
In addition, on November 19, 2018, the Company used the proceeds from the Wintrust loan to make a voluntary prepayment of
$27,500
on its OBS Term Loan. The aggregate net loss of
$191
realized on this transaction reflects a write-off of unamortized original issue discount and deferred financing costs associated with the principal reductions and is included in other expense in the consolidated statements of operations for the year ended December 31, 2018.
On December 21, 2018, OSG, as the Parent Company (as a guarantor), OSG Bulk Ships, Inc. (“OBS”) and certain OBS subsidiaries (the “Borrowers”) closed on a
five
-year
$325,000
term loan credit facility with The Prudential Insurance Company of America and other syndicate lenders (the “Term Loan Credit Agreement”). The Company used the proceeds from the Term Loan Credit Agreement, along with a cash payment of
$27,623
to payoff its existing OBS Term Loan. The Term Loan Credit Agreement bears interest at a rate equal to the prevailing 30-Day LIBOR plus
5.00%
and matures on December 21, 2023. The aggregate net loss of
$2,227
on this transaction reflects a write-off of original issue discount and deferred financing costs associated with the principal reductions and is included in other expense in the consolidated statements of operations for the year ended December 31, 2018.
The Borrowers' obligations under the Term Loan Credit Agreement (the “Guaranteed Obligations”) are guaranteed by OSG, and OSG has pledged the issued and outstanding shares of capital stock of OBS as security for the Guaranteed Obligations pursuant to a pledge agreement between the Company and PGIM, Inc. as collateral agent. The Borrowers’ obligations are also secured by security interests in all of the Borrowers’ assets and by mortgages covering two tankers, eight tugs and seven barges.
Upon 30 days’ prior written notice, the Borrowers may prepay the outstanding indebtedness in full (or in part) at par plus accrued interest and an additional sum as a premium that varies based on the date of the prepayment. Any amount prepaid under the Term Loan Credit Agreement may not be reborrowed. Additionally, certain events, such as the sale of vessels serving as collateral, will require a mandatory partial or full repayment. No prepayment premium shall apply to any such mandatory prepayment.
In connection with the Term Loan Credit Agreement, OSG and its affiliates also entered into an amendment to the OBS ABL Facility among OSG, OBS as administrative borrower, certain subsidiaries of OBS as co-borrowers, other guarantors, lender, Wells Fargo Bank, National Association, as administrative agent. Pursuant to such amendment, the OBS ABL Facility agreement was amended to permit the transactions contemplated under the Term Loan Credit Agreement, reduce the maximum credit line from
$75,000
to
$30,000
, reduce the number of vessels that serve as collateral and extend the term through August 2, 2019. At December 31, 2018 and 2017,
no
amounts had been drawn under the OBS ABL Facility.
The applicable margins and floor interest rates for the Exit Financing Facilities and term loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
OBS
ABL Facility
|
|
OBS
Term Loan
|
|
Term loan,
due 2023
|
|
Term loan,
due 2026
|
|
Rate
|
ABR
|
|
LIBOR
|
|
ABR
|
|
LIBOR
|
|
ABR
|
|
LIBOR
|
|
ABR
|
|
LIBOR
|
|
Floor
|
None
|
|
None
|
|
2.00%
|
|
1.00%
|
|
None
|
|
0.00%
|
|
None
|
|
0.00%
|
|
Applicable Margin
|
1.25% - 1.75%
|
|
2.25% - 2.75%
|
|
3.25%
|
|
4.25%
|
|
None
|
|
4.00%
|
|
None
|
|
5.00%
|
|
|
|
|
|
|
|
74
|
Overseas Shipholding Group, Inc.
|
|
Unsecured Senior Notes
The Company had the following unsecured notes issued and outstanding as of
December 31, 2018
and
2017
.
7.5% Notes (the “7.5% Notes”) –
These notes were issued on March 7, 2003 and consisted of
$146,000
in face value, which were due on
February 15, 2024
. Pursuant to the Equity Plan, the Company issued two series of
7.50%
Notes due
February 15, 2021
, one series in an aggregate principal amount of
$6,508
(the “Election 1 Notes”) and the other series in an aggregate principal amount of
$138,708
(the “Election 2 Notes” and together with the Election 1 Notes, the “Election Notes”) to holders of the
7.50%
Notes due 2024 (the “2024 Notes”) that elected to receive Election 1 Notes or Election 2 Notes, as the case may be. The outstanding Election 1 notes were repurchased and retired during the year ended December 31, 2015.
The Election 2 Notes have substantially the same terms as the 2024 Notes, other than the (i) the maturity date and (ii) definitions and provisions related to a holder’s right to require the Company to repurchase such holder’s Election 2 Notes upon the occurrence of certain changes in the ownership or control of OSG. Under the Third Supplemental indenture, such right is triggered only upon the occurrence of both, a Change of Control and a Rating Decline (each as defined in the Third Supplemental Indenture). The Election 2 Notes (i) accrue interest at the rate of
7.50%
per annum from August 5, 2014, payable on February 15 and August 15 of each year, beginning on February 15, 2015, to holders of record on the immediately preceding February 1 and August 1; (ii) are the Company’s general, unsecured obligations and rank equally and ratably in right of payment with its existing and future unsecured senior indebtedness; (iii) may not be redeemed prior to their maturity dates; (iv) are subject to repurchase upon certain changes of ownership or control (the provisions of which, as noted above, are different between the two series of notes); (v) are subject to certain covenants and limitations, including that the Company may not, directly or indirectly, Incur as such term (and all capitalized terms hereafter in this paragraph) are defined within the applicable indenture, assume or suffer to exist any Mortgage on or with respect to any property or assets, now owned or hereafter acquired, to secure any present or future Designated Debt without making effective provision for securing the notes in certain circumstances; and (vi) restrict the Company’s ability to merge or consolidate with another person.
Debt Repurchases, Extinguishments and Modifications
In October 2015, the Board of Directors of the Company adopted and approved resolutions relating to a consent solicitation (the “Consent Solicitation”) and a tender offer (the “Tender Offer”), whereby the Company was authorized to repurchase certain amounts of the Company’s Unsecured Senior Notes. In addition, the Company also solicited consents from registered holders of the Unsecured Senior Notes to approve certain amendments to the applicable indenture governing such series of Unsecured Senior Notes. During the years ended December 31, 2017 and 2016, the Company repurchased and retired an aggregate principal amount of
$0
and
$294
, respectively, of its
7.50%
notes due 2024 and
$55,202
and
$37,345
, respectively, of its
8.125%
notes due 2018. The aggregate losses of
$2,495
and
$2,463
realized on these transactions during the years ended December 31, 2017 and 2016, respectively, are included in other expense in the consolidated statements of operations. The net losses reflect a
$504
and
$784
write-off of unamortized deferred finance costs associated with the repurchased debt during the years ended December 31, 2017 and 2016, respectively.
On December 27, 2017, the Company deposited cash in the amount of
$27,491
with The Bank of New York Mellon Trust Company, N.A., as trustee, to pay the principal of
$26,417
plus accrued and unpaid interest of
$514
on all of the outstanding
8.125%
Notes ("Remaining Notes") on their stated maturity. As a result, the Company's obligations under the indenture and the Remaining Notes were satisfied and the indenture was cancelled and discharged. The aggregate loss of
$742
realized on this transaction during the year ended December 31, 2017 is included in other expense in the consolidated statements of operations. The net loss reflects a
$182
write-off of unamortized deferred finance costs.
|
|
|
|
|
|
|
75
|
Overseas Shipholding Group, Inc.
|
|
The following table summarizes interest expense, including amortization of issuance and deferred financing costs, commitment, administrative and other fees, recognized during the three years ended
December 31, 2018
with respect to the Company’s debt facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Debt facility
|
2018
|
|
2017
|
|
2016
|
|
OBS Facilities
|
$
|
29,769
|
|
|
$
|
30,308
|
|
|
$
|
32,460
|
|
|
Term loan, due 2023
|
801
|
|
|
—
|
|
|
—
|
|
|
Term loan, due 2026
|
210
|
|
|
—
|
|
|
—
|
|
|
7.50% notes due 2021-2024
|
252
|
|
|
102
|
|
|
121
|
|
|
8.125% notes
|
—
|
|
|
5,568
|
|
|
10,200
|
|
|
Total expense on debt facilities
|
$
|
31,032
|
|
|
$
|
35,978
|
|
|
$
|
42,781
|
|
As of
December 31, 2018
, the aggregate annual principal payments required to be made on the Company's debt are as follows:
|
|
|
|
|
|
|
|
2019
|
$
|
23,244
|
|
|
2020
|
28,929
|
|
|
2021
|
29,229
|
|
|
2022
|
28,929
|
|
|
2023
|
231,012
|
|
|
Thereafter
|
11,848
|
|
|
Total
|
$
|
353,191
|
|
Interest paid was
$29,052
,
$31,283
and
$37,875
in
December 31, 2018
,
2017
and
2016
, respectively.
|
|
|
|
|
|
|
76
|
Overseas Shipholding Group, Inc.
|
|
NOTE 10 — FAIR VALUE OF FINANCIAL INSTRUMENTS, DERIVATIVES AND FAIR VALUE DISCLOSURES
The following methods and assumptions were used to estimate the fair value of each class of financial instrument.
Cash and cash equivalents and restricted cash—
The carrying amounts reported in the consolidated balance sheets for interest-bearing deposits approximate their fair value.
Debt—
The fair values of the Company’s publicly traded and non-public debt are estimated based on quoted market prices.
ASC 820,
Fair Value Measurements and Disclosures
, relating to fair value measurements, defines fair value and established a framework for measuring fair value. The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity and the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, which for the liabilities described below includes the Company's own credit risk.
The levels of the fair value hierarchy established by ASC 820 are as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities
Level 2 - Quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The estimated fair values of the Company’s financial instruments, other than derivatives, that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, at
December 31, 2018
and
2017
, are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Fair Value
|
|
|
|
Level 1
|
|
Level 2
|
|
December 31, 2018:
|
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|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
(1)
|
$
|
80,641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total
|
$
|
80,641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Term loan agreement, due 2023
|
$
|
317,472
|
|
|
$
|
—
|
|
|
$
|
325,000
|
|
|
Term loan agreement, due 2026
|
27,376
|
|
|
—
|
|
|
26,500
|
|
|
7.5% Election 2 notes due 2021
|
297
|
|
|
—
|
|
|
229
|
|
|
7.5% notes due 2024
|
390
|
|
|
—
|
|
|
296
|
|
|
Total
|
$
|
345,535
|
|
|
$
|
—
|
|
|
$
|
352,025
|
|
|
|
|
|
|
|
|
77
|
Overseas Shipholding Group, Inc.
|
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|
|
|
|
|
|
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|
|
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|
|
|
|
|
Carrying
Value
|
|
Fair Value
|
|
|
|
Level 1
|
|
Level 2
|
|
December 31, 2017:
|
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|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
(1)
|
$
|
166,269
|
|
|
$
|
166,269
|
|
|
$
|
—
|
|
|
Total
|
$
|
166,269
|
|
|
$
|
166,269
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
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|
OBS Term loan
|
448,251
|
|
|
—
|
|
|
441,630
|
|
|
7.5% Election 2 notes due 2021
|
295
|
|
|
—
|
|
|
305
|
|
|
7.5% notes due 2024
|
390
|
|
|
—
|
|
|
380
|
|
|
Total
|
$
|
448,936
|
|
|
$
|
—
|
|
|
$
|
442,315
|
|
(1)
Includes current and non-current restricted cash aggregating
$224
and
$275
at
December 31, 2018
and
2017
, respectively.
Derivatives
Interest Rate Risk
OBS was party to an interest rate cap agreement (“Interest Rate Cap”) with a start date of February 15, 2015 with a major financial institution covering a notional amount of
$375,000
to limit the floating interest rate exposure associated with the OBS Term Loan. The Interest Rate Cap terminated on February 5, 2018. The Interest Rate Cap was designated and qualified as a cash flow hedge, contained no leverage features and had a cap rate of
2.5%
through February 5, 2017, at which time the cap rate increased to
3.0%
through the termination date of February 5, 2018.
The effect of cash flow hedging relationships recognized in other comprehensive income/(loss) excluding amounts reclassified from accumulated other comprehensive loss (effective portion), including hedges of equity method investees, for the year ended December 31,
2016
was a decrease to continuing operations of
$97
and a decrease to discontinued operations of
$5,797
. For the year ended December 31, 2017, there was an immaterial effect of cash flow hedging relationships recognized in other comprehensive income/(loss) excluding amounts reclassified from accumulated other comprehensive loss (effective portion), including hedges of equity method investees.
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|
78
|
Overseas Shipholding Group, Inc.
|
|
The effect of cash flow hedging relationships on the consolidated statements of operations is presented excluding hedges of equity method investees. The effect of the Company’s cash flow hedging relationships on the consolidated statement of operations for the years ended December 31,
2018
,
2017
and 2016 is shown below:
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Statement of Operations
|
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|
Effective Portion of Gain/(Loss)
Reclassified from
Accumulated Other Comprehensive
Loss
|
|
Ineffective Portion
|
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|
|
Location
|
|
Amount of
Loss
|
|
Location
|
|
Amount of
Loss
|
|
For the year ended December 31, 2018:
|
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|
|
|
|
|
|
|
|
|
|
Interest Rate Cap
|
|
Interest expense
|
|
$
|
(181
|
)
|
|
Interest expense
|
|
$
|
—
|
|
|
Total
|
|
|
|
$
|
(181
|
)
|
|
|
|
$
|
—
|
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|
|
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|
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|
For the year ended December 31, 2017:
|
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|
|
|
|
|
|
|
|
Interest Rate Cap
|
|
Interest expense
|
|
$
|
(1,423
|
)
|
|
Interest expense
|
|
$
|
—
|
|
|
Total
|
|
|
|
$
|
(1,423
|
)
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
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|
For the year ended December 31, 2016:
|
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|
|
|
|
|
|
|
|
Interest Rate Cap
|
|
Interest expense
|
|
$
|
(339
|
)
|
|
Interest expense
|
|
$
|
—
|
|
|
Interest rate caps
|
|
Net (loss)/income from discontinued operations
|
|
(408
|
)
|
|
|
|
—
|
|
|
|
|
|
|
$
|
(747
|
)
|
|
|
|
$
|
—
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|
See Note 15, “Accumulated Other Comprehensive Loss,” for disclosures relating to the impact of derivative instruments on accumulated other comprehensive loss.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Vessel Impairments
During the year ended
December 31, 2018
, the Company gave consideration as to whether events or changes in circumstances had occurred since
December 31, 2017
that could indicate the carrying amounts of the vessels in the Company's fleet may not be recoverable as of
December 31, 2018
. The Company concluded that no such events or changes in circumstances had occurred.
Based on the sale of one of the Company's ATBs during the fourth quarter of 2017 (see Note 6, “Vessels, Other Property and Deferred Drydock”), the Company noted declines in the current fair market value for scrap metal in the U.S. for these vessel types. In addition, the Company determined that
five
of the Company's ATBs are more likely than not to be sold or disposed of during the next
six
to
18
months, which is either at or towards the end of their estimated useful lives, at this lower scrap value. These factors were viewed as impairment triggering events for
seven
of the Company's rebuilt ATBs as of December 31, 2017. The indicators discussed above were not considered to be impairment triggering events for the other ATBs and tankers in the Company’s fleet as these vessels (i) were fairly recently built and do not face the same commercial obsolescence issues faced by the rebuilt ATBs, and (ii) are currently operating under long-term charters or contracts of affreightment.
In developing estimates of undiscounted future cash flows for performing Step 1 of the impairment tests, management made assumptions about future performance, including estimated charter rates, ship operating expenses, utilization, drydocking requirements, salvage value and the estimated remaining useful lives of the vessels. The assumptions about the estimated remaining useful lives of the seven ATBs reflects management’s current belief that the Company would dispose of these ATBs at the expiry of associated charters or before the performance of the next required drydocking. Based on tests performed, the sum of the undiscounted cash flows for four of the seven ATBs were less than their December 31, 2017 carrying values. Accordingly, the Company recorded an impairment charge of
$5,878
, which is included in loss on disposal of vessels and other property, including impairments in the consolidated statements of operations, to write down the carrying values of the four
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79
|
Overseas Shipholding Group, Inc.
|
|
ATBs to their estimated fair values as of December 31, 2017, using estimates of discounted future cash flows for each of the vessels.
During the quarter ended September 30, 2016, the Company considered changes in circumstances that appeared to be indicative of a continued weakening of the Jones Act crude oil transportation market. Such indicators included a decline in the number of Jones Act tank vessels transporting crude oil, which led to (i) increased competition for clean cargoes and the idling of some Jones Act vessels; (ii) a sharp decrease in estimated spot rates for Jones Act Product Carriers and large ATBs between July and September 2016; and (iii) a significant decline in forecasted near term TCE rates reported by a leading third party industry analyst. These factors were viewed as an impairment triggering event for the Company’s
eight
rebuilt ATBs at September 30, 2016. In addition, given the uncertainty around how long the weak market conditions discussed above could last taking into consideration the large number of newbuildings scheduled for delivery, management believed it was more likely than not that some of the rebuilt ATBs will be laid-up, scrapped or disposed of before the end of their estimated useful lives, which currently ranged between 2019 and 2020. The indicators discussed above were not considered to be impairment triggering events for the other ATBs and tankers in the Company’s fleet as these vessels (i) were fairly recently built and do not face the same commercial obsolescence issues faced by the rebuilt ATBs, and (ii) are currently operating under long-term charters or contracts of affreightment.
In developing estimates of undiscounted future cash flows for performing Step 1 of the impairment tests, management made assumptions about future performance, with significant assumptions including charter rates, ship operating expenses, utilization, drydocking requirements, residual value and the estimated remaining useful lives of the vessels. The assumptions about the estimated remaining useful lives of the ATBs reflected management’s belief that the Company would scrap these ATBs at the expiry of their time charters. Based on tests performed, the sum of the undiscounted cash flows for seven of the eight rebuilt ATBs were less than their September 30, 2016 carrying values. Accordingly, the Company recorded an impairment charge of
$97,782
(including
$3,873
recorded as a reduction in deferred drydock costs) to write down the carrying values of the seven ATBs to their estimated fair values as of September 30, 2016, using estimates of discounted future cash flows for each of the vessels (income approach) since the secondhand sale and purchase market for the type of vessels owned by OSG is not considered to be robust.
During the fourth quarter of 2016, the Company gave consideration as to whether events or changes in circumstances had occurred since September 30, 2016 that could indicate that the carrying amounts of the vessels in the Company’s fleet may not be recoverable. The Company concluded that the decline in previously forecasted cash flows on
one
of the seven ATBs discussed above, due to a change in its expected deployment, constituted an impairment trigger event as of December 31, 2016. Based on the tests performed, an additional impairment charge of
$6,623
was recorded in December 2016.
The principal assumptions used in the Company's cash flow projections of our vessels mentioned above for the three years ended December 31, 2018 are considered to be Level 3 inputs.
Valuation of Intangible Assets
The Company’s intangible assets at
December 31, 2018
and
2017
consisted of long-term customer relationships acquired as part of the 2006 purchase of Maritrans, Inc. The long-term customer relationships are being amortized on a
straight-line basis
over
20 years
.
During the year ended
December 31, 2018
, the Company gave consideration as to whether events or changes in circumstances had occurred since
December 31, 2017
that could indicate the carrying value of the Company's intangible assets may not be recoverable as of
December 31, 2018
. The Company concluded that no such events or changes in circumstances had occurred.
In 2017, the factors that were determined to be impairment triggering events for the Company's vessels discussed above were also considered impairment triggering events for the carrying value of the Company's intangible asset. The Company reduced its estimates of undiscounted future cash flows to reflect consideration of the impairment triggering events. Based on the results of the recoverability test performed, no intangible asset impairment was recorded in 2017 as the net undiscounted cash flows from the asset group, attributable to these relationships, were in excess of the carrying value of the asset group. The principal assumptions used in the undiscounted future cash flows for our intangible assets, which were similar to those used in our cash flow projections of our vessels, are considered Level 3 inputs.
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|
80
|
Overseas Shipholding Group, Inc.
|
|
NOTE 11 — ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
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|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
Accounts payable
|
$
|
3,360
|
|
|
$
|
3,825
|
|
|
Payroll and benefits
|
12,454
|
|
|
10,444
|
|
|
Interest
|
1,010
|
|
|
4,129
|
|
|
Insurance
|
639
|
|
|
1,096
|
|
|
Accrued drydock and repair costs
|
900
|
|
|
151
|
|
|
Bunkers and lubricants
|
953
|
|
|
2,341
|
|
|
Charter revenues received in advance
|
6,731
|
|
|
5,217
|
|
|
Accrued vessel expenses
|
3,304
|
|
|
2,311
|
|
|
Accrued general and administrative, primarily professional fees
|
1,998
|
|
|
1,011
|
|
|
Accrued deferred payment obligation for chartered in vessels
|
1,944
|
|
|
1,944
|
|
|
Other
|
1,385
|
|
|
1,902
|
|
|
|
$
|
34,678
|
|
|
$
|
34,371
|
|
NOTE 12 —TAXES
As described in Note 5, INSW has been classified as discontinued operations and as a result the income tax impacts of INSW are not included in the below disclosures.
The benefit for income taxes on the loss from continuing operations before income taxes consists of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Current
|
$
|
(1,080
|
)
|
|
$
|
(1,420
|
)
|
|
$
|
(2,296
|
)
|
|
Deferred
|
18,794
|
|
|
59,047
|
|
|
67,394
|
|
|
Total
|
$
|
17,714
|
|
|
$
|
57,627
|
|
|
$
|
65,098
|
|
The current income tax expense is primarily attributable to state income taxes and the deferred income tax benefit is primarily attributable to the settlement of the 2012-2015 U.S. federal income tax audit offset, in part, by an increase in state valuation allowance.
|
|
|
|
|
|
81
|
Overseas Shipholding Group, Inc.
|
The reconciliations between the U.S. federal statutory income tax rate and the effective tax rate follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
U.S. federal statutory income tax rate
|
21.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
|
|
|
|
|
|
|
Adjustments due to:
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
(21.4
|
)%
|
|
76.5
|
%
|
|
(1.5
|
)%
|
|
Change in valuation allowance
|
(59.0
|
)%
|
|
(11.5
|
)%
|
|
—
|
%
|
|
Equity awards
|
(14.2
|
)%
|
|
(10.7
|
)%
|
|
(1.7
|
)%
|
|
Return to provision
|
(13.8
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
Nondeductible expenses
|
(11.4
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
Tax examination settlement
|
505.7
|
%
|
|
—
|
%
|
|
—
|
%
|
|
U.S. income subject to tonnage tax
|
14.0
|
%
|
|
123.7
|
%
|
|
1.4
|
%
|
|
Other
|
(1.7
|
)%
|
|
(7.1
|
)%
|
|
(1.1
|
)%
|
|
Interest on unrecognized tax benefits
|
—
|
%
|
|
(5.9
|
)%
|
|
1.8
|
%
|
|
Remeasurement of deferred tax liabilities
|
—
|
%
|
|
3,292.9
|
%
|
|
—
|
%
|
|
Nondeductible reorganization costs
|
—
|
%
|
|
—
|
%
|
|
(9.0
|
)%
|
|
Unremitted earnings of foreign subsidiaries
|
—
|
%
|
|
—
|
%
|
|
73.5
|
%
|
|
Effective tax rate
|
419.2
|
%
|
|
3,492.9
|
%
|
|
98.4
|
%
|
In July 2018, the 2012 through 2015 U.S. federal income tax return audit process was completed. As a result, the tax benefit that had been previously reserved because of a failure to meet the “more likely than not” measurement threshold was recognized during the third quarter of 2018. The Company reduced its unrecognized tax benefits by
$36,671
and recognized a corresponding tax benefit of
$21,720
which was reduced due to the revaluation of net operating losses that historically offset the liability.
The significant components of the Company’s deferred tax liabilities and assets follow:
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|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Vessels and other property
|
$
|
128,226
|
|
|
$
|
133,347
|
|
|
Prepaid expenditures
|
7,108
|
|
|
7,236
|
|
|
Other—net
|
4
|
|
|
6
|
|
|
Total deferred tax liabilities
|
135,338
|
|
|
140,589
|
|
|
Deferred tax assets:
|
|
|
|
|
Loss carryforwards
|
66,737
|
|
|
53,006
|
|
|
Employee compensation and benefit plans
|
4,287
|
|
|
5,507
|
|
|
Financing and professional fees
|
1,859
|
|
|
268
|
|
|
Accrued expenses and other
|
51
|
|
|
5,762
|
|
|
Total deferred tax assets
|
72,934
|
|
|
64,543
|
|
|
Valuation allowance
|
10,961
|
|
|
7,625
|
|
|
Net deferred tax assets
|
61,973
|
|
|
56,918
|
|
|
Net deferred tax liabilities
|
$
|
73,365
|
|
|
$
|
83,671
|
|
As of
December 31, 2018
, the Company had U.S. federal net operating loss carryforwards of
$250,264
which are available to reduce future taxes, if any. The federal net operating loss carryforwards begin to expire in
2034
. Additionally, as of
December 31, 2018
, the Company had U.S. state net operating loss carryforwards of
$246,128
. These U.S. state net operating loss carryforwards expire in various years ending from December 31, 2018 through December 31, 2036. The Company has net operating loss carryforwards in additional jurisdictions for which the Company has not recorded a deferred tax asset or corresponding valuation allowance because the Company conducts insufficient business in those jurisdictions to generate
|
|
|
|
|
|
|
82
|
Overseas Shipholding Group, Inc.
|
|
sufficient taxable income to realize the benefit of the losses prior to their expiration. Included in the financing and professional fees deferred income assets above are U.S. federal interest expense deductions with an indefinite carryforward period.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. Under U.S. GAAP, deferred taxes must be adjusted for enacted changes in tax laws or rates during the period in which new tax legislation is enacted. As the TCJA was effective in the fourth quarter of 2017, the Company prepared an estimate of the accounting for the impacts of the TCJA as of December 31, 2017. The Company recognized a non-cash tax benefit of
$54,328
based on our preliminary assessment of the TCJA. During the fourth quarter of 2018, the Company filed its 2017 federal income tax return which resulted in an immaterial adjustment to the deferred tax liability and tax expense. Accordingly, the Company completed its accounting for the income tax effects of the TCJA as of December 22, 2018. The Company elected to early adopt ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. As a result, the Company reclassified
$1,483
from accumulated other comprehensive income to retained earnings during the fourth quarter of 2018.
In connection with the emergence from bankruptcy in 2014, under applicable tax regulations, the Company underwent an ownership change. As a result, there is an annual limitation on the use of pre-ownership change net operating losses, tax credits and certain other tax attributes to offset taxable income earned after the ownership change. The annual limitation is equal to the product of the applicable long-term tax-exempt rate and the value of the Company’s stock immediately before the ownership change. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and losses for the year. The Company does not believe that the limitations imposed will impact its ability to utilize any pre-ownership change net operating losses before the carryforward period expires but could cause the timing of utilization to be impacted.
The Company assessed all available positive and negative evidence to determine whether sufficient future taxable income will be generated to permit use of existing deferred tax assets. For U.S. federal deferred tax assets, the Company concluded that sufficient positive evidence existed, primarily the result of reversing deferred tax liabilities during the carryover period. However, for certain state deferred tax assets, the negative evidence in the form of cumulative losses incurred over the preceding three-year period and lack of positive evidence of reversing deferred tax liabilities during the carryover period resulted in the Company establishing a valuation allowance of
$10,961
and
$7,625
as of December 31, 2018 and 2017, respectively, to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The valuation allowance increased by
$3,336
during 2018 largely due to the Company's assessment of its ability to utilize state losses in the applicable carryforward periods.
During the years ended December 31, 2018, 2017 and 2016, the Company paid (net of refunds received)
$1,313
,
$1,177
and
$833
, respectively, of income taxes.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (excluding interest and penalties):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Balance of unrecognized tax benefits as of January 1,
|
$
|
37,240
|
|
|
$
|
36,671
|
|
|
$
|
36,535
|
|
|
Increases for positions taken in prior years
|
657
|
|
|
569
|
|
|
136
|
|
|
Amount of decreases related to settlements
|
(36,671
|
)
|
|
—
|
|
|
—
|
|
|
Balance of unrecognized tax benefits as of December 31,
|
$
|
1,226
|
|
|
$
|
37,240
|
|
|
$
|
36,671
|
|
Included in the balances of unrecognized tax benefits as of
December 31, 2018
and
2017
are
$220
and
$36,884
, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
The Company records interest and penalties on unrecognized tax benefits in its provision for income taxes. Accrued interest and penalties are included within the related liability for unrecognized tax benefit line in the consolidated balance sheet. As of the years ended December 31, 2018, 2017 and 2016, we accrued interest of
$0
,
$76
and
$58
, respectively, and recorded liabilities for interest and penalties of
$0
,
$911
and
$835
, respectively.
After taking into consideration tax attributes, such as net operating loss carryforwards and interest, the Company’s unrecognized tax benefits represent a noncurrent reserve for uncertain tax positions of
$220
and
$3,205
as of
December 31, 2018
and
2017
, respectively.
|
|
|
|
|
|
|
83
|
Overseas Shipholding Group, Inc.
|
|
The Internal Revenue Service completed its audit of tax years 2012 through 2015 this year. The Company conducts business and files income tax returns in numerous states that periodically perform audits and is currently under state tax exam in one jurisdiction; however, we do not expect any events to occur that would cause a change to the Company's unrecognized tax benefits within the next twelve months. The future utilization of state NOLs could potentially subject the Company to state examinations prior to the otherwise applicable statute of limitation. States vary in carryforward periods but can extend up to 20 years.
|
|
|
|
|
|
|
84
|
Overseas Shipholding Group, Inc.
|
|
NOTE 13 — RELATED PARTIES
Transition Services Agreement and Other Spin-off Related Activity
The outstanding amounts related to the transactions between OSG and INSW were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
Receivable from INSW
|
$
|
34
|
|
|
$
|
372
|
|
Receivables due from INSW as of
December 31, 2018
are in relation to guarantee fees as discussed below.
OSG earned fees totaling
$126
for services provided to INSW pursuant to the terms of the Transition Services Agreement for the year ended December 31, 2017. Approximately
$31
of such fees were earned as of December 31, 2016. OSG incurred fees totaling
$53
during the term of the TSA for services received from INSW for the year ended December 31, 2017. Approximately
$27
of such fees were incurred as of December 31, 2016.
In connection with the Distribution, payments were made to or received from INSW totaling
$1,969
and
$9,857
, respectively, for the settlement of allocated one-time separation costs, the transfer of assets and liabilities between OSG and INSW and amounts due for costs allocated pursuant to the "Shared Services and Cost Sharing Agreement" and the "Cost Sharing Agreement" by and among, OSG, INSW and OBS, that was in effect during the eleven months ended November 30, 2016.
Guarantees
INSW entered into guarantee arrangements in connection with the spin-off on November 30, 2016, in favor of Qatar Liquefied Gas Company Limited (2) (‘‘LNG Charterer’’) and relating to certain LNG Tanker Time Charter Party Agreements with the LNG Charterer and each of Overseas LNG H1 Corporation, Overseas LNG H2 Corporation, Overseas LNG S1 Corporation and Overseas LNG S2 Corporation (such agreements, the ‘‘LNG Charter Party Agreements,’’ and such guarantees, collectively, the ‘‘LNG Performance Guarantees’’).
OSG continues to provide a guarantee in favor of the LNG Charterer relating to the LNG Charter Party Agreements (such guarantees, the "OSG LNG Performance Guarantees"). INSW will indemnify OSG for liabilities arising from the OSG LNG Performance Guarantees pursuant to the terms of the Separation and Distribution Agreement. The maximum potential liability associated with this guarantee is not estimable because obligations are only based on future non-performance events of charter arrangements. In connection with the OSG LNG Performance Guarantees, INSW will pay a per year fee of
$145
per year to OSG, which is subject to escalation after 2019 and will be terminated if OSG ceases to provide the OSG LNG Performance Guarantees.
NOTE 14 — CAPITAL STOCK AND STOCK COMPENSATION
Change in Capital Structure
See Note 2, “Chapter 11 Filing and Emergence from Bankruptcy,” for information relating to the Equity Plan and Rights Offering. After its emergence from Bankruptcy, the Company had two classes of common stock whereby the holders of our common stock were entitled to one vote per share, and holders of the Class A common stock and Class B common stock were entitled to vote together as a class, on any matter to be voted upon by the stockholders, other than as described below.
Reflecting the impact of the Reverse Split Amendment discussed below, each Class A warrant represents the right to purchase one share of Class A common stock, subject in each case to the adjustments as provided pursuant to the terms thereof. The warrants may be exercised at a price per share of Class A common stock, as applicable, of
$0.01
, which shall be paid pursuant to a cashless exercise procedure. Warrants may be exercised at any time or from time to time on or before August 5, 2039, and will expire thereafter. Until they exercise their warrants, except as otherwise provided in the warrants, the holders of the warrants will not have the rights or privileges of holders of the Company’s common stock, including any voting rights. Warrants may only be exercised by holders who establish to OSG's reasonable satisfaction that they or the person designated to receive the shares is a U.S. person or to the extent shares deliverable upon exercise would not constitute Non-Complying Shares (as defined in OSG's Amended and Restated Certificate of Incorporation). As of
December 31, 2018
, the Company had
20,603,654
Class A warrants outstanding, convertible into
3,914,694
shares of Class A common stock.
|
|
|
|
|
|
85
|
Overseas Shipholding Group, Inc.
|
The Company's Class B common stock carried an entitlement to distribution of a percentage of the proceeds from the malpractice lawsuit against Proskauer Rose LLP (“Proskauer”) and four of its partners.
On May 13, 2016, all holders of Class B common stock and Class B warrants as of May 9, 2016 received a distribution from the Company representing their pro-rata share of the Net Litigation Recovery. On May 27, 2016, pursuant to the Company’s Amended and Restated Certificate of Incorporation, and the warrant agreement governing the Class B warrants, each Class B common share and Class B warrant automatically converted to a Class A common share and Class A warrant, respectively.
On June 2, 2016, the Board authorized the Company to take action to transfer the listing of its Class A common stock to the New York Stock Exchange from the NYSE MKT (the “Transfer”). In conjunction with the Transfer, the Board approved the Reverse Split Amendment to the Company’s Amended and Restated Certificate of Incorporation. The Reverse Split Amendment effected a one (1) for six (6) reverse stock split and corresponding reduction of the number of authorized shares of Class A common stock and Class B common stock, par value
$0.01
per share. On June 7, 2016, the Company filed the Reverse Split Amendment with the Secretary of State of the State of Delaware. The Reverse Split Amendment became effective on June 13, 2016. As previously reported, the Company’s stockholders approved the filing of the Reverse Split Amendment at the Company’s annual meeting of stockholders held on June 9, 2015. The Transfer was approved by the New York Stock Exchange on June 23, 2016. In order to account for the impact of the reverse stock split, holders of the Company’s outstanding Class A warrants will receive, upon exercise,
0.190
shares of Class A common stock per warrant exercised.
Unless otherwise noted, all of the share and per share information below has been recast to reflect the impact of the reverse stock split.
On November 30, 2016, the Company completed the separation of its business into two independent publicly-traded companies through the spin-off of INSW. On the Distribution Date, each holder of OSG common stock received
0.3333
shares of INSW’s common stock for every share of OSG common stock held on the Record Date. Each holder of OSG warrants received
0.3333
shares of INSW’s common stock for every one share of OSG common stock they would have received if they exercised their warrants immediately prior to the Distribution.
Ownership Restrictions
In order to preserve the status of OSG as a Jones Act company, the percentage of each class of its common stock that may be owned by non-U.S. citizens is limited. In addition, the Company has established policies and procedures to ensure compliance with the Jones Act. In order to provide a reasonable margin for compliance with the Jones Act, our Board of Directors has determined that until further action by our Board, at least
77%
of the outstanding shares of each class of capital stock of the Company must be owned by U.S. citizens. At and during such time that the limit is reached with respect to shares of Class A common stock as applicable, we will be unable to issue any further shares of such class of common stock or approve transfers of such class of common stock to non-U.S. citizens until the holdings of non-U.S. citizens falls below the maximum percentage allowable.
Dividends
On
February 29, 2016
, the Company’s Board of Directors declared a cash dividend of
$0.08
per share of common stock payable prior to the end of March 2016. In addition, in connection with the cash dividend, in accordance with the terms of the outstanding warrants for OSG’s Class A and Class B common stock, those warrants were automatically adjusted so that exercising holders received additional shares of Class A common stock reflecting the payment of the cash dividend.
Share and Warrant Repurchases
During the year ended December 31, 2018, in connection with the vesting of restricted stock units in January, February, March and December, the Company repurchased
638,502
shares of Class A common stock at an average cost of
$2.15
per share (based on the market prices on the dates of vesting) from certain members of management to cover withholding taxes.
During the year ended December 31, 2017, in connection with the vesting of restricted stock units in March, November and December, the Company repurchased
246,461
shares of Class A common stock at an average cost of
$4.55
per share (based on the market prices on the dates of vesting) from certain members of management to cover withholding taxes.
|
|
|
|
|
|
|
86
|
Overseas Shipholding Group, Inc.
|
|
During the year ended December 31, 2016, in connection with the vesting of restricted stock units in January, March, April and September, the Company repurchased
25,885
shares of Class A common stock at an average cost of
$14.06
per share (based on the market prices on the dates of vesting) from certain members of management to cover withholding taxes.
During the year ended December 31, 2016, the Company repurchased
106,350
shares of its Class A common stock in open-market purchases on the NYSE MKT at an average price of
$12.23
per share, for a total cost of
$1,301
. In addition, during the year ended December 31, 2016, the Company repurchased
55,306,351
Class A warrants in private transactions with non-affiliates at an average per share equivalent cost of
$11.31
for a total cost of
$118,041
.
Warrant Conversions
During the years ended
December 31, 2018
,
2017
and
2016
, the Company issued
5,628,650
,
7,629,319
and
8,247,648
shares of Class A common stock, respectively, as a result of the exercise of
29,461,648
,
40,269,797
and
43,835,170
Class A warrants, respectively.
During the year ended December 31, 2016, the Company issued
7,833
shares of Class B common stock as a result of the exercise of
46,997
Class B warrants.
Management Incentive Compensation Plan and Non-Employee Director Incentive Compensation Plan
On September 23, 2014, the Committee approved the Overseas Shipholding Group, Inc. Management Incentive Compensation Plan (the “Management Compensation Plan”) and the Overseas Shipholding Group, Inc. Non-Employee Director Incentive Compensation Plan (the “Director Plan” and together with the Management Compensation Plan, the “Incentive Plans”). OSG stockholders approved the Incentive Plans on June 9, 2015. On June 6, 2017, at the annual stockholders meeting, the Company's stockholders approved an increase to the maximum number of shares for issuance under the Director Plan by
1,500,000
shares.
The Incentive Plans contain anti-dilution provisions whereby in the event of any change in the capitalization of the Company, the number and type of securities underlying outstanding share based payment awards must be adjusted, as appropriate, in order to prevent dilution or enlargement of rights. The impact of these provisions resulted in a modification of all outstanding share based payment awards upon the stock dividend, reverse stock split and spin-off transactions described above. As the fair value of the awards immediately after the stock dividend, reverse stock split and spin off transactions, did not increase when compared to the fair value of such awards immediately prior to such transactions, no incremental compensation costs were recognized as a result of such modifications. Pursuant to the Employee Matters Agreement described in Note 5, “Discontinued Operations,” and below, unvested share based payment awards of OSG employees that transitioned to INSW were assumed by INSW and converted into equivalent awards of INSW’s equity.
The purpose of the Incentive Plans is to promote the interests of the Company and its stockholders by providing certain employees and members of the Board, who are largely responsible for the management, growth and protection of the business of the Company, with incentives and rewards to encourage them to continue in the service of the Company. The Incentive Plans permit the Committee to grant to eligible employees and directors of the Company, as applicable, any of the following types of awards (or any combination thereof): cash incentive awards, nonqualified stock options, incentive stock options and other stock-based awards, including, without limitation, stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units and share-denominated performance units.
Stock Compensation
The Company accounts for stock compensation expense in accordance with the fair value based method required by ASC 718,
Compensation – Stock Compensation
. Such fair value based method requires share based payment transactions to be measured based on the fair value of the equity instruments issued.
Director Compensation - Restricted Stock Units and Restricted Common Stock
The Company awarded a total of
170,400
and
253,700
restricted stock units for the years ended December 31, 2018 and 2017, respectively and
74,201
restricted Class A common stock shares during the years ended December 31,
2016
, respectively, to its non-employee directors. The weighted average fair value of the Company’s stock on the measurement date of such awards was
$3.61
(
2018
)
$2.68
(
2017
) and
$11.64
(
2016
) per share. Such restricted stock units and restricted Class A common stock shares vest in full on the earlier of the next annual meeting of the stockholders or the first anniversary of the grant date, subject to each director continuing to provide services to the Company through such date. The restricted stock units and restricted Class A
|
|
|
|
|
|
|
87
|
Overseas Shipholding Group, Inc.
|
|
common stock shares granted may not be transferred, pledged, assigned or otherwise encumbered prior to vesting. Prior to the vesting date, a holder of restricted share awards has all the rights of a stockholder of the Company, including the right to vote such shares and the right to receive dividends paid with respect to such shares at the same time as common stockholders generally.
Management Compensation
Restricted Stock Units
During the years ended
December 31, 2018
,
2017
and
2016
, the Company awarded
365,584
,
165,017
and
381,922
time-based restricted stock units (“RSUs”) to certain of its employees, including senior officers. The average grant date fair value of these awards was
$1.70
(
2018
),
$4.04
(
2017
) and
$9.93
(
2016
), per RSU. Each RSU represents a contingent right to receive one share of Class A common stock upon vesting. Each award of RSUs will vest in equal installments on each of the first
three
anniversaries of the grant date. RSUs may not be transferred, pledged, assigned or otherwise encumbered until they are settled. Settlement of vested RSUs may be in either shares of Class A common stock or cash, as determined at the discretion of the Human Resources and Compensation Committee, and shall occur as soon as practicable after the vesting date. If the RSUs are settled in shares of common stock, following the settlement of such shares, the grantee will be the record owner of the shares of Class A common stock and will have all the rights of a stockholder of the Company, including the right to vote such shares and the right to receive dividends paid with respect to such shares of Class A common stock. RSUs which have not become vested as of the date of a grantee’s termination from the Company will be forfeited without the payment of any consideration, unless otherwise provided for.
In addition, during the years ended December 31, 2018 and 2017, the Company awarded
688,877
and
103,945
shares, respectively, to certain of its senior officers of the Company's common stock, net of all taxes, which vested immediately. The average grant date fair value of these awards was
$1.91
and
$2.81
.
During the years ended December 31, 2018 and 2017, the Company awarded
142,060
and
63,532
performance-based RSUs, respectively, to its senior officers. Each performance stock unit represents a contingent right to receive RSUs based upon continuous employment through the end of a
three
-year performance period (the “Performance Period”) and shall vest as follows: (i) one-half of the target RSUs shall vest and become nonforfeitable subject to OSG’s return on invested capital (“ROIC”) performance in the three-year ROIC performance period relative to a target rate (the “ROIC Target”) set forth in the award agreements (the formula for ROIC is net operating profit after taxes divided by the net of total debt plus stockholders equity less cash); and (ii) one-half of the target RSUs will be subject to OSG’s three-year total stockholder return (“TSR Target”) performance relative to that of a performance index over a three-year TSR performance period. For the 2018 awards, 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. For the 2017 awards, the index
consists of companies that comprise the Standard and Poor’s Transportation Select Index during the Performance Period. Vesting is subject in each case to the Human Resources and Compensation Committee’s certification of achievement of the performance measures and targets.
Both the ROIC Target RSUs and the TSR Target RSUs are subject to an increase up to a maximum of
106,545
and
47,647
target RSUs, respectively, (aggregate
213,090
and
95,294
target RSU’s, respectively) or decrease depending on performance against the applicable measure and targets. The ROIC performance goal is a performance condition which, as of December 31, 2018, management believed was considered probable of being achieved. Accordingly, compensation costs have been recognized. The grant date fair value of the performance awards was
$1.70
and
$4.04
per RSU, respectively.
During the year ended December 31, 2016, the Company awarded
119,853
performance-based RSUs to its senior officers. Each performance stock unit represents a contingent right to receive RSUs based upon the covered employees being continuously employed through the end of the period over which the performance goals are measured and shall vest as follows: (i) one-third of the target RSUs shall vest on December 31, 2018, subject to OSG’s three-year earnings per share (“EPS”) performance in the three-year EPS performance period relative to a compounded annual growth rate (the “EPS Target”) set forth in the award agreements; (ii) one-third of the target RSUs shall vest on December 31, 2018, subject to OSG’s ROIC performance in the three-year ROIC performance period relative to a ROIC Target set forth in the award agreements; and (iii) one-third of the target RSUs will be subject to OSG’s TSR performance relative to that of a performance peer group over a three-year TSR performance period. Vesting is subject in each case to the Human Resources and Compensation Committee’s certification of achievement of the performance measures and targets no later than March 31, 2019. The grant date fair value of the TSR based performance awards was
$11.82
per RSU. At December 31, 2016, no compensation costs were recognized as management believed the EPS Target and ROIC Target performance conditions were not probable of being achieved.
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|
|
|
|
|
|
88
|
Overseas Shipholding Group, Inc.
|
|
In addition, during the year ended December 31, 2016, the Company granted
38,547
performance-based RSUs to certain members of senior management. The grant date fair value of the performance awards was determined to be
$11.82
per RSU. Each performance stock unit represents a contingent right to receive RSUs based upon certain performance related goals being met and the covered employees being continuously employed through the end of the period over which the performance goals are measured. These performance awards vested on December 31, 2016, subject in each case to the Human Resources and Compensation Committee’s certification of achievement of the performance measures and targets no later than March 31, 2017. Achievement of the performance condition in this award was considered probable and accordingly, compensation cost was recognized commencing on March 30, 2016, the grant date of the award. However, as a result of the INSW spin off transaction, the outstanding unvested performance based RSU awards held by the members of senior management that remained with OSG, but terminated employment with the Company shortly after the spinoff date, were forfeited. As noted above, the awards granted to former members of OSG senior management that transitioned to INSW were cancelled.
Stock Options
During the year ended
December 31, 2018
, the Company awarded
494,118
stock options to one of its senior officers, which vested immediately. Each stock option represents an option to purchase one share of Class A common stock for an exercise price of
$1.70
per share. The call option value of the options was
$0.92
per option. Under the grant agreement, the stock options have a holding requirement until the earliest to occur of (i) a change in control; (ii) the separation from service date, in the event of a termination of the grantee's employment by the Company without cause or by the grantee for good reason and (iii) the third anniversary of the grant date. The stock options expire on the business day immediately preceding the tenth anniversary of the award date. If a stock option grantee’s employment is terminated for cause (as defined in the applicable Form of Grant Agreement), stock options (whether then vested or exercisable or not) will lapse and will not be exercisable. If a stock option grantee’s employment is terminated for reasons other than cause, the option recipient may exercise the vested portion of the stock option but only within such period of time ending on the earlier to occur of (i) the 90th day ending after the option holder’s employment terminated and (ii) the expiration of the options, provided that if the option holder’s employment terminates for death or disability the vested portion of the option may be exercised until the earlier of (i) the first anniversary of employment termination and (ii) the expiration date of the options.
During the years ended
December 31, 2017
and
2016
, the Company awarded to certain senior officers an aggregate of
135,084
and
528,304
stock options, respectively. Each stock option represents an option to purchase one share of Class A common stock for an exercise price of
$4.04
per share for 2017 and an exercise price that ranged between
$3.73
and
$12.69
per share for 2016. The average grant date fair value of the options was
$1.89
per option in
2017
and
$10.83
per option in
2016
. Stock options may not be transferred, pledged, assigned or otherwise encumbered prior to vesting. Each stock option will vest in equal installments on each of the first three anniversaries of the award date. The stock options expire on the business day immediately preceding the tenth anniversary of the award date. If a stock option grantee’s employment is terminated for cause (as defined in the applicable Form of Grant Agreement), stock options (whether then vested or exercisable or not) will lapse and will not be exercisable. If a stock option grantee’s employment is terminated for reasons other than cause, the option recipient may exercise the vested portion of the stock option but only within such period of time ending on the earlier to occur of (i) the 90th day ending after the option recipient’s employment terminated and (ii) the expiration of the options, provided that if the Optionee’s employment terminates for death or disability the vested portion of the option may be exercised until the earlier of (i) the first anniversary of employment termination and (ii) the expiration date of the options.
The fair values of the options granted were estimated on the dates of grant using the
Black-Scholes option pricing model
with the following weighted average assumptions for
2018
,
2017
and
2016
grants: risk free interest rates of
2.72%
,
2.09%
and
1.65%
, respectively, dividend yields of
0.0%
, expected stock price volatility factors of
.55
,
.47
and
.40
, respectively, and expected lives of
6.0 years
.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Since the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
Employee Terminations and Retirements and Impact of Spinoff
On July 29, 2016, Mr. Henry Flinter retired from his position as President of the Company’s U.S. Flag operations. Pursuant to his employment agreement, as amended on March 30, 2016, all of his unvested stock option awards, time-based RSUs and performance-based RSUs vested in full (per the terms of his agreement, performance-based RSUs vested at target performance)
|
|
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|
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|
89
|
Overseas Shipholding Group, Inc.
|
|
on July 29, 2016. The incremental compensation expense recognized as a result of the accelerated vesting and the difference between the grant date fair value of the vested shares and the fair value of the Company’s Class A common stock on July 29, 2016 was approximately
$23
. The Human Resources and Compensation Committee of the Company’s Board elected to settle the vested equity awards (with the exception of certain performance-based RSUs that by their terms are not settled until the first quarter of 2018) in cash. Severance costs of approximately
$2,238
were recognized during the year in relation to Mr. Flinter’s separation from the Company, of which
$789
was as a result of the accelerated vesting of his share based compensation awards. Also see Note 19, “Severance and Agreements with Executive Officers.”
On December 29, 2016, Captain Ian Blackley retired from his position as Chief Executive Officer of the Company. Pursuant to his employment agreement, as amended on March 30, 2016 and August 3, 2016, all of his unvested stock option awards and time-based RSUs vested in full on December 29, 2016. Stock compensation expense, net of forfeitures, totaling
$1,251
was recognized in December 2016 as a result of the accelerated vesting of his time-based RSU and stock option awards offset by the related forfeitures of his unvested performance-based RSU awards.
On December 29, 2016, Mr. Rick Oricchio retired from his position as Chief Financial Officer of the Company. Pursuant to his employment agreement, as amended on March 30, 2016 and August 3, 2016, all of his unvested stock option awards, and time-based RSU awards vested in full on December 29, 2016. Stock compensation expense, net of forfeitures, totaling
$984
was recognized in December 2016 as a result of the accelerated vesting of his share based compensation awards and the related forfeitures of his unvested performance-based RSU awards.
The spin-off transaction resulted in the Human Resources and Compensation Committee, as required by the Management and Director Incentive Plans, adjusting the number and the type of securities underlying the outstanding awards at November 30, 2016, in each case as it considered appropriate, in order to prevent dilution or enlargement of rights. The adjustments resulted in a
430,841
increase in restricted stock and restricted stock units and a
581,332
increase in stock options. Additionally, as a result of certain employees transferring from OSG to INSW,
177,635
restricted stock units and
205,427
stock options were cancelled.
For the Incentive Plans, compensation expense is recognized over the vesting period, contingent or otherwise, applicable to each grant, using the straight-line method. Compensation expense as a result of the restricted shares and RSU awards described above was
$1,646
,
$2,107
and
$5,198
during each of the years ended
December 31, 2018
,
2017
and 2016, respectively.
Activity with respect to restricted common stock and restricted stock units under the Incentive Plans during the three years ended
December 31, 2018
is summarized as follows:
|
|
|
|
|
|
|
|
Activity for the three years ended December 31, 2018
|
|
Class A common
shares
|
|
Nonvested Shares Outstanding at December 31, 2015
|
|
807,989
|
|
|
Granted
(1)
|
|
614,523
|
|
|
Vested ($2.87 to $21.90 per share)
(1)
|
|
(1,025,212
|
)
|
|
Forfeited
|
|
(88,228
|
)
|
|
INSW Spin off modification
|
|
430,841
|
|
|
Cancellations related to INSW Spin-off
|
|
(177,635
|
)
|
|
Nonvested Shares Outstanding at December 31, 2016
|
|
562,278
|
|
|
Granted
|
|
586,194
|
|
|
Vested ($2.28 to $4.04 per share)
|
|
(323,086
|
)
|
|
Forfeited ($2.48 to $2.97 per share)
|
|
(164,387
|
)
|
|
Nonvested Shares Outstanding at December 31, 2017
|
|
660,999
|
|
|
Granted
|
|
1,366,921
|
|
|
Vested ($1.70 to $2.74 per share)
|
|
(1,108,180
|
)
|
|
Forfeited ($2.39 to $2.44 per share)
|
|
(7,425
|
)
|
|
Nonvested Shares Outstanding at December 31, 2018
|
|
912,315
|
|
|
|
|
|
(1)
|
Share information has been recast to reflect the 2016 reverse stock split and 2015 stock dividend.
|
|
|
|
|
|
|
|
90
|
Overseas Shipholding Group, Inc.
|
|
Activity with respect to stock options under the Incentive Plans during the three years ended
December 31, 2018
is summarized as follows:
|
|
|
|
|
|
|
|
Activity for the three years ended December 31, 2018
|
|
Class A common
shares
|
|
Options Outstanding at December 31, 2015
|
|
268,539
|
|
|
Granted
(1)
|
|
528,304
|
|
|
Forfeited
|
|
(2,674
|
)
|
|
Expired
|
|
(55,971
|
)
|
|
Exercised
|
|
—
|
|
|
INSW Spin off modification
|
|
581,332
|
|
|
Cancellations related to INSW Spin-off
|
|
(205,427
|
)
|
|
Options Outstanding at December 31, 2016
|
|
1,114,103
|
|
|
Granted
|
|
135,804
|
|
|
Forfeited ($2.84 per share)
|
|
(140,345
|
)
|
|
Expired ($3.35 to $4.00 per share)
|
|
(737,669
|
)
|
|
Exercised
|
|
—
|
|
|
Options Outstanding at December 31, 2017
|
|
371,893
|
|
|
Granted
|
|
494,118
|
|
|
Options Outstanding at December 31, 2018
|
|
866,011
|
|
|
Options Exercisable at December 31, 2018
|
|
717,353
|
|
|
|
|
|
(1)
|
Share information has been recast to reflect the 2016 reverse stock split and 2015 stock dividend.
|
The weighted average remaining contractual life of the outstanding stock options at
December 31, 2018
was
7.92 years
. The range of exercise prices of the stock options outstanding at
December 31, 2018
was between
$1.70
and
$5.57
per share (which reflects an adjustment as a result of the stock dividend and reverse spin modification and INSW spin off described above). The weighted average exercise prices of the stock options outstanding at
December 31, 2018
,
2017
and
2016
were
$3.23
,
$5.27
and
$6.69
per share, respectively. Stock options of
494,118
which vested during the year ended
December 31, 2018
were “in-the-money.”
Compensation expense as a result of the grants of stock options described above was
$255
,
$281
and
$2,243
during each of the years ended
December 31, 2018
,
2017
, and
2016
, respectively.
As of
December 31, 2018
, there was
$1,199
of unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of
1.73 years
.
NOTE 15 — ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss, net of related taxes, in the consolidated balance sheets follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Unrealized losses on derivative instruments
|
|
$
|
—
|
|
|
$
|
(112
|
)
|
|
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement benefit plans)
|
|
(7,192
|
)
|
|
(6,350
|
)
|
|
|
|
$
|
(7,192
|
)
|
|
$
|
(6,462
|
)
|
|
|
|
|
|
|
|
91
|
Overseas Shipholding Group, Inc.
|
|
The following tables present the changes in the balances of each component of accumulated other comprehensive loss, net of related taxes, for the three years ended
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses
on cash flow
hedges
|
|
Items not yet
recognized as a
component of net
periodic benefit cost
(pension and other
postretirement
plans)
|
|
Total
|
|
Balance as of December 31, 2017
|
$
|
(112
|
)
|
|
$
|
(6,350
|
)
|
|
$
|
(6,462
|
)
|
|
Current period change, excluding amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
300
|
|
|
300
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
112
|
|
|
341
|
|
|
453
|
|
|
Adoption of accounting standard - reclassification adjustment to retained earnings (Note 12)
|
—
|
|
|
(1,483
|
)
|
|
(1,483
|
)
|
|
Total change in accumulated other comprehensive loss
|
112
|
|
|
(842
|
)
|
|
(730
|
)
|
|
Balance as of December 31, 2018
|
$
|
—
|
|
|
$
|
(7,192
|
)
|
|
$
|
(7,192
|
)
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
$
|
(1,019
|
)
|
|
$
|
(7,141
|
)
|
|
$
|
(8,160
|
)
|
|
Current period change, excluding amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
438
|
|
|
438
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
907
|
|
|
353
|
|
|
1,260
|
|
|
Total change in accumulated other comprehensive loss
|
907
|
|
|
791
|
|
|
1,698
|
|
|
Balance as of December 31, 2017
|
$
|
(112
|
)
|
|
$
|
(6,350
|
)
|
|
$
|
(6,462
|
)
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
$
|
(54,620
|
)
|
|
$
|
(18,841
|
)
|
|
$
|
(73,461
|
)
|
|
Current period change, excluding amounts reclassified from accumulated other comprehensive loss
|
(5,982
|
)
|
|
(4,055
|
)
|
|
(10,037
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
16,293
|
|
|
700
|
|
|
16,993
|
|
|
Distribution of International Seaways, Inc.
|
43,290
|
|
|
15,055
|
|
|
58,345
|
|
|
Total change in accumulated other comprehensive loss
|
53,601
|
|
|
11,700
|
|
|
65,301
|
|
|
Balance as of December 31, 2016
|
$
|
(1,019
|
)
|
|
$
|
(7,141
|
)
|
|
$
|
(8,160
|
)
|
|
|
|
|
|
|
|
92
|
Overseas Shipholding Group, Inc.
|
|
The following table presents information with respect to amounts reclassified out of accumulated other comprehensive loss for the three years ended
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
Accumulated Other Comprehensive Loss Component
|
2018
|
|
2017
|
|
2016
|
|
Statement of Operations
Line Item
|
|
Unrealized losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps entered into by the Company's equity method joint venture investees
|
—
|
|
|
—
|
|
|
(15,664
|
)
|
|
Net (loss)/income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps entered into by the Company's subsidiaries
|
(181
|
)
|
|
(1,421
|
)
|
|
(339
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps entered into by the Company's subsidiaries
|
—
|
|
|
—
|
|
|
(408
|
)
|
|
Net (loss)/income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
Items not yet recognized as a component of net periodic benefit cost (pension and other postretirement plans):
|
|
|
|
|
|
|
|
|
Net periodic benefit costs associated with pension and postretirement benefit plans for shore-based employees
|
(465
|
)
|
|
(666
|
)
|
|
(645
|
)
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs associated with pension and postretirement benefit plans for shore-based employees
|
—
|
|
|
—
|
|
|
(365
|
)
|
|
Net (loss)/income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs associated with pension and postretirement benefit plans for seagoing employees
|
166
|
|
|
150
|
|
|
131
|
|
|
Other expense
|
|
|
(480
|
)
|
|
(1,937
|
)
|
|
(17,290
|
)
|
|
Total before tax
|
|
|
933
|
|
|
677
|
|
|
297
|
|
|
Tax provision
|
|
|
$
|
453
|
|
|
$
|
(1,260
|
)
|
|
$
|
(16,993
|
)
|
|
Total net of tax
|
The following amounts are included in accumulated other comprehensive loss at
December 31, 2018
, which have not yet been recognized in net periodic cost: unrecognized prior service credits of
$1,845
(
$1,458
net of tax) and unrecognized actuarial losses
$11,121
(
$8,786
net of tax). The prior service credit and actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic cost during 2019 are a gain of
$229
(
$181
net of tax) and a loss of
$662
(
$523
net of tax), respectively.
See Note 10, “Fair Value of Financial Instruments, Derivatives and Fair Value,” for additional disclosures relating to derivative instruments.
|
|
|
|
|
|
|
93
|
Overseas Shipholding Group, Inc.
|
|
The income tax benefit/(expense) allocated to each component of other comprehensive loss follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(losses)/gains on cash
flow hedges
|
|
Items not yet recognized
as a component of net
periodic benefit cost
|
|
For the year ended December 31, 2018:
|
|
|
|
|
|
|
|
Current period change excluding amounts reclassified from accumulated other comprehensive loss
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
69
|
|
|
—
|
|
|
Total change in accumulated other comprehensive loss
|
|
$
|
69
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017:
|
|
|
|
|
|
Current period change excluding amounts reclassified from accumulated other comprehensive loss
|
|
$
|
—
|
|
|
$
|
(203
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
(513
|
)
|
|
(164
|
)
|
|
Total change in accumulated other comprehensive loss
|
|
$
|
(513
|
)
|
|
$
|
(367
|
)
|
|
|
|
|
|
|
|
For the year ended December 31, 2016:
|
|
|
|
|
|
Current period change excluding amounts reclassified from accumulated other comprehensive loss
|
|
$
|
30
|
|
|
$
|
(388
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
(118
|
)
|
|
(179
|
)
|
|
Total change in accumulated other comprehensive loss
|
|
$
|
(88
|
)
|
|
$
|
(567
|
)
|
NOTE 16 — LEASES
Charters-in
As of
December 31, 2018
, the Company had commitments to charter in
10
vessels. All of the charters-in are accounted for as operating leases and all are bareboat charters. Lease expense relating to charters-in is included in charter hire expenses in the consolidated statements of operations. The Company holds options for the charters-in that can be exercised for
one
,
three
or
five years
with the
one year
option only usable once, while the
three
and
five
year options are available forever. The lease payments for the charters-in are fixed throughout the option periods and the options are on a vessel by vessel basis that can be exercised individually. The option on one of the Company's vessels has been extended until June 2025. For the remaining
nine
vessels, on December 10, 2018, the Company declared its extensions of the charter agreements. The charter agreements were extended for
five
of the vessels for additional
three
year terms ending December 2022 and
four
of the vessels were extended for additional
one year
terms ending December 2020.
The future minimum commitments and related number of operating days under these operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
Amount
|
|
Operating Days
|
|
2019
|
$
|
91,338
|
|
|
3,650
|
|
2020
|
89,503
|
|
|
3,580
|
|
2021
|
55,329
|
|
|
2,190
|
|
2022
|
71,819
|
|
|
2,090
|
|
2023
|
9,143
|
|
|
365
|
|
Thereafter
|
13,702
|
|
|
547
|
|
Net minimum lease payments
|
$
|
330,834
|
|
|
12,422
|
The bareboat charters-in provide for the payment of profit share to the owners of the vessels calculated in accordance with the respective charter agreements. Because such amounts and the periods impacted are not reasonably estimable, they are not currently reflected in the table above. Due to reserve funding requirements and current rate forecasts, no profits are currently expected to be paid to the owners in respect of the charter term within the next year.
|
|
|
|
|
|
|
94
|
Overseas Shipholding Group, Inc.
|
|
Charters-out
The future minimum revenues, before reduction for brokerage commissions and which include rent escalations, expected to be received on noncancelable time charters and the related revenue days (revenue days represent calendar days, less days that vessels are not available for employment due to repairs, drydock or lay-up) are as follows:
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
Amount
|
|
Revenue
Days
|
|
2019
|
$
|
217,679
|
|
|
4,084
|
|
2020
|
42,032
|
|
|
543
|
|
2021
|
26,624
|
|
|
324
|
|
2022
|
30,675
|
|
|
365
|
|
2023
|
31,405
|
|
|
365
|
|
Thereafter
|
46,059
|
|
|
521
|
|
Net minimum lease receipts
|
$
|
394,474
|
|
|
6,202
|
Revenues from a time charter are not generally received when a vessel is off-hire, including time required for normal periodic maintenance of the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
Office space
The Company has lease obligations for office space that generally require fixed annul rental payments and may also include escalation clauses and renewal options.
The future minimum commitments under lease obligations for office space as of December 31, 2018 and for each of the next five years ended December 31 and thereafter, are as follows:
|
|
|
|
|
|
|
|
At December 31, 2018
|
Amount
|
|
2019
|
$
|
658
|
|
|
2020
|
630
|
|
|
2021
|
631
|
|
|
2022
|
649
|
|
|
2023
|
474
|
|
|
Thereafter
|
1,186
|
|
|
Net minimum lease payments
|
$
|
4,228
|
|
The rental expense for office space, which is included in general and administrative expenses in the consolidated statements of operations, amounted to
$659
in
2018
,
$647
in
2017
and
$1,324
in
2016
.
NOTE 17 — PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
For the years ended
December 31, 2018
and 2017, pension and other benefit liabilities are included in other liabilities in the consolidated balance sheets.
Pension Plans
In connection with the November 2006 acquisition of Maritrans, the Company assumed the obligations under the defined benefit retirement plan of Maritrans Inc. (“the Maritrans Plan”). As of December 31, 2006, the Company froze the benefits under the Maritrans Plan. At
December 31, 2018
, the Maritrans Plan is the only domestic defined benefit pension plan in existence at the Company. The Maritrans Plan was noncontributory and covered substantially all shore-based employees and substantially all of the seagoing supervisors who were supervisors in 1984, or who were hired in, or promoted into, supervisory roles between 1984 and 1998 for that period of time. Beginning in 1999, the seagoing supervisors’ retirement benefits are provided through contributions to an industry-wide, multiemployer union sponsored pension plan. Upon retirement, those seagoing supervisors are entitled to retirement benefits from the Maritrans Plan for service periods between 1984 and 1998 and
|
|
|
|
|
|
95
|
Overseas Shipholding Group, Inc.
|
from the multiemployer union sponsored plan for other covered periods. Retirement benefits are based primarily on years of service and average compensation for the five consecutive plan years that produce the highest results.
Multiemployer Pension and Postretirement Benefit Plans
The Company’s subsidiaries are parties to collective-bargaining agreements that require them to make contributions to
three
jointly managed (Company and union) multiemployer pension plans covering seagoing personnel of U.S. Flag vessels. All three plans, the American Maritime Officers (“AMO”) Pension Plan, the Seafarers Pension Plan (“SIU”) and the Marine Engineers’ Beneficial Association (“MEBA”) Defined Benefit Pension Plan, are deemed individually significant by management.
Plan level information is available in the public domain for each of the multiemployer pension plans the Company participates in. The table below provides additional information about the Company’s participation in the above multi-employer pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection Act
Zone Status
|
|
|
|
Contributions made
by the Company
|
|
Pension Plan
|
EIN / Pension
Plan Number
|
|
2018
|
|
2017
|
|
Rehabilitation
Plan Status
|
|
2018
|
|
2017
|
|
2016
|
|
AMO Pension Plan
|
13-1936709
|
|
Yellow
(1)
|
|
Yellow
(1)
|
|
Implemented
|
|
$
|
880
|
|
|
$
|
984
|
|
|
$
|
1,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEBA Pension Plan
|
51-6029896
|
|
Green
(1)
|
|
Green
(1)
|
|
None
|
|
1,450
|
|
|
1,411
|
|
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seafarers Pension Plan
|
13-6100329
|
|
Green
(1)
|
|
Green
(1)
|
|
None
|
|
345
|
|
|
400
|
|
|
434
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
2,675
|
|
|
$
|
2,795
|
|
|
$
|
2,855
|
|
|
|
|
|
(1)
|
A "Yellow" Zone Status plan is a plan that has a funding ratio between 65% and 80%. A "Green" Zone Status plan is a plan that is 80% funded or more.
|
The plan years for the three union plans end as follows: MEBA and SIU on December 31 and AMO on September 30. The Company has
no
future minimum contribution requirements under the three multiemployer pension plans shown above as of
December 31, 2018
and any future contributions are subject to negotiations between the employers and the unions.
Under the Employee Retirement Income Security Act of 1974 (“ERISA”) as amended by the Pension Protection Act of 2006 (“PPA”) and the Multiemployer Pension Reform Act of 2014 (“MPRA”), on March 31, 2015, the actuary of the MEBA Pension Plan (“Plan”) certified the Plan as being in neither endangered nor critical status as of January 1, 2015. The actuary also certified that the Plan was projected to be in critical status in at least one of the five succeeding Plan years. Under MPRA, a multiemployer pension plan that has been actuarially projected to be in critical status within the succeeding five plan years may elect to be in critical status for the current plan year within
30
days of the actuary’s certification. In accordance with applicable law, on April 30, 2015 the Plan’s Board of Trustees (“Trustees”) elected that the Plan enter critical status for the plan year beginning January 1, 2015. The Plan entered into a Rehabilitation Plan (“RP”) whereby lump sum payment options previously available under the Plan will no longer be paid to beneficiaries, and each employer became obligated to pay a
5%
contribution surcharge to the Plan, effective with respect to contributions for work performed on or after June 1, 2015. On October 27, 2015, the Company received correspondence from MEBA indicating that Federal law requires that the Trustees adopt an RP with a schedule of increases in contributions and reductions in future benefits that will help the Plan emerge from critical status. However, because the Plan’s actuary has projected that the Plan will emerge from critical status without any contribution increases or benefit reductions; the RP does not include any. The letter also indicated that since the Company signed a Memorandum of Understanding on October 21, 2015 whereby the Company and MEBA amended their collective bargaining agreement to adopt the preferred schedule of the RP that was adopted by the Pension Plan’s Board of Trustees on October 21, 2015, the surcharges required to be paid to the Plan by the Company since June 1, 2015 ceased as of October 31, 2015. During April 2016, the Company received correspondence from MEBA indicating that due to the actions of the Trustees, the Plan’s actuaries certified in March 2016 that the Plan has emerged from critical status, and the Plan is not in endangered, critical, or critical and declining status for the plan year commencing January 1, 2016. As a result, the rehabilitation plan period has terminated.
|
|
|
|
|
|
|
96
|
Overseas Shipholding Group, Inc.
|
|
ERISA requires employers who are contributors to U.S. multiemployer plans to continue funding their allocable share of each plan’s unfunded vested benefits in the event of withdrawal from or termination of such plans. Based on information received from the trustees of the SIU Pension Plan, the Company is not subject to withdrawal liabilities under that plan. Based on the actuarial report received from the trustees of the MEBA Pension Plan, as of December 31, 2017, the Company’s estimated withdrawal liability would have been approximately
$23,985
had the Company elected to withdraw from the plan in 2018. Based on the actuarial report received from the trustees of the AMO Pension Plan, as of September 30, 2017, the Company’s estimated withdrawal liability would have been approximately
$21,592
had the Company elected to withdraw from the plan in 2018. The Company has no intentions of terminating its participation in any of the three multiemployer pension plans and has no expectations that the plans will be terminated. Accordingly,
no
provisions have been made for the estimated withdrawal liability as of
December 31, 2018
.
The SIU – Tanker Agreement, SIU – Tug Agreement, AMO and MEBA collective bargaining agreements expire in June 2022 and March 2021, respectively. The collective bargaining agreements also require the Company to make contributions to certain other postretirement employee benefit plans the unions offer to their members. Such contributions were not material during the three years ended
December 31, 2018
.
Postretirement Benefit Plans
The Company also provides certain postretirement health care and life insurance benefits to qualifying domestic retirees and their eligible dependents. The health care plan for shore-based employees and their dependents and seagoing licensed deck officers (“Deck Officers”) and their dependents is contributory at retirement, while the life insurance plan for all employees is noncontributory. In general, postretirement medical coverage is provided to shore-based employees hired prior to January 1, 2005 and all Deck Officers who retire and have met minimum age and service requirements under a formula related to total years of service. The Company no longer provides prescription drug coverage to its retirees or their beneficiaries once they reach age
65
. The Company does not currently fund these benefit arrangements and has the right to amend or terminate the health care and life insurance benefits at any time.
Information with respect to the domestic pension and postretirement benefit plans for which the Company uses a December 31 measurement date, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
At December 31,
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
48,500
|
|
|
$
|
47,468
|
|
|
$
|
4,548
|
|
|
$
|
4,094
|
|
|
Cost of benefits earned (service cost)
|
—
|
|
|
—
|
|
|
119
|
|
|
113
|
|
|
Interest cost on benefit obligation
|
1,673
|
|
|
1,830
|
|
|
142
|
|
|
165
|
|
|
Actuarial (gains)/losses
|
(3,456
|
)
|
|
1,788
|
|
|
(1,206
|
)
|
|
389
|
|
|
Benefits paid
|
(2,702
|
)
|
|
(2,586
|
)
|
|
(202
|
)
|
|
(213
|
)
|
|
Benefit obligation at year end
|
44,015
|
|
|
48,500
|
|
|
3,401
|
|
|
4,548
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
35,591
|
|
|
32,013
|
|
|
—
|
|
|
—
|
|
|
Actual return on plan assets
|
(1,882
|
)
|
|
5,082
|
|
|
—
|
|
|
—
|
|
|
Employer contributions
|
922
|
|
|
1,082
|
|
|
202
|
|
|
213
|
|
|
Benefits paid
|
(2,702
|
)
|
|
(2,586
|
)
|
|
(202
|
)
|
|
(213
|
)
|
|
Fair value of plan assets at year end
|
31,929
|
|
|
35,591
|
|
|
—
|
|
|
—
|
|
|
Unfunded status at December 31
|
$
|
(12,086
|
)
|
|
$
|
(12,909
|
)
|
|
$
|
(3,401
|
)
|
|
$
|
(4,548
|
)
|
|
|
|
|
|
|
|
97
|
Overseas Shipholding Group, Inc.
|
|
Information for defined benefit pension plans with accumulated benefit obligations in excess of plan assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
2018
|
|
2017
|
|
Projected benefit obligation
|
$
|
44,015
|
|
|
$
|
48,500
|
|
|
Accumulated benefit obligation
|
44,015
|
|
|
48,500
|
|
|
Fair value of plan assets
|
31,929
|
|
|
35,591
|
|
Information for defined benefit pension plans and other postretirement benefit plans net periodic cost/(benefit) follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
For the year ended December 31,
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
Components of expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of benefits earned
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
119
|
|
|
$
|
113
|
|
|
$
|
138
|
|
|
Interest cost on benefit obligation
|
1,673
|
|
|
1,830
|
|
|
1,893
|
|
|
142
|
|
|
165
|
|
|
189
|
|
|
Expected return on plan assets
|
(2,517
|
)
|
|
(2,258
|
)
|
|
(2,309
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior-service costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(229
|
)
|
|
(229
|
)
|
|
(271
|
)
|
|
Recognized net actuarial loss
|
483
|
|
|
688
|
|
|
688
|
|
|
45
|
|
|
56
|
|
|
97
|
|
|
Curtailment
|
—
|
|
|
—
|
|
|
97
|
|
|
—
|
|
|
—
|
|
|
(149
|
)
|
|
Net periodic benefit cost
|
$
|
(361
|
)
|
|
$
|
260
|
|
|
$
|
369
|
|
|
$
|
77
|
|
|
$
|
105
|
|
|
$
|
4
|
|
The weighted-average assumptions used to determine benefit obligations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
At December 31,
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Discount rate
|
4.25
|
%
|
|
3.55
|
%
|
|
4.40
|
%
|
|
3.70
|
%
|
The selection of a single discount rate for the Maritrans Plan was derived from bond yield curves, which the Company believed as of such dates to be appropriate for ongoing plans with a long duration, such as the Maritrans Plan, and that generally mirror the type of high yield bond portfolio the Company could acquire to offset its obligations under the Maritrans Plan.
The weighted-average assumptions used to determine net periodic benefit cost follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
For the year ended December 31,
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
Discount rate
|
3.55
|
%
|
|
3.95
|
%
|
|
4.00
|
%
|
|
3.70
|
%
|
|
4.15
|
%
|
|
4.25
|
%
|
|
Expected (long-term) return on plan assets
|
7.25
|
%
|
|
7.25
|
%
|
|
7.25
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
The assumed health care cost trend rate for measuring the benefit obligation included in Other Benefits above is an increase of
7.00%
as of
December 31, 2018
, with the rate of increase declining to an ultimate trend rate of
4.75%
per annum by 2027. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A
1%
change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
1% increase
|
|
1% decrease
|
|
Effect on total of service and interest cost components in 2018
|
$
|
50
|
|
|
$
|
(35
|
)
|
|
Effect on postretirement benefit obligation as of December 31, 2018
|
$
|
442
|
|
|
$
|
(255
|
)
|
|
|
|
|
|
|
|
98
|
Overseas Shipholding Group, Inc.
|
|
Expected benefit payments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2019
|
$
|
2,842
|
|
|
$
|
168
|
|
|
2020
|
2,935
|
|
|
168
|
|
|
2021
|
3,016
|
|
|
167
|
|
|
2022
|
3,047
|
|
|
173
|
|
|
2023
|
3,095
|
|
|
179
|
|
|
Years 2024-2027
|
15,817
|
|
|
942
|
|
|
Total
|
$
|
30,752
|
|
|
$
|
1,797
|
|
The expected long-term rate of return on plan assets is based on the current and expected asset allocations. Additionally, the long-term rate of return is based on historical returns, investment strategy, inflation expectations and other economic factors. The expected long-term rate of return is then applied to the market value of plan assets.
The fair values of the Company’s pension plan assets at
December 31, 2018
, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Fair Value
|
|
Level 1
|
|
Cash and cash equivalents
|
$
|
466
|
|
|
$
|
466
|
|
|
Equity securities:
|
|
|
|
|
Large cap exchange traded fund
|
11,595
|
|
|
11,595
|
|
|
Small company - mid value
|
1,767
|
|
|
1,767
|
|
|
Small company - mid growth
|
1,804
|
|
|
1,804
|
|
|
International value
|
2,182
|
|
|
2,182
|
|
|
International growth
|
2,302
|
|
|
2,302
|
|
|
Fixed income and preferred stock:
|
|
|
|
|
Intermediate term bond fund
|
11,764
|
|
|
11,764
|
|
|
Small company - mid value - preferred stock
|
49
|
|
|
49
|
|
|
Total
|
$
|
31,929
|
|
|
$
|
31,929
|
|
Plan fiduciaries of the Retirement Plan of Maritrans, Inc. set investment policies, strategies and oversee its investment allocation, which includes selecting investment managers and setting long term strategic targets. The primary strategic investment objective is to maximize total return while maintaining a broadly diversified portfolio for the primary purpose of satisfying obligations for future benefit payments. Equities are the primary holdings of the Plan. Other investments, including fixed income investments, provide diversification, and, in certain cases, lower the volatility of returns. In general, equity can range from 55 to 75 percent of total plan assets, fixed income securities can range from 25 to 45 percent of total plan assets, and cash can be held in amounts up to 5 percent of plan assets. Actual asset allocation within the approved ranges varies from time to time based on economic conditions (both current and forecast) and the advice of professional advisors.
The Company contributed
$921
,
$1,082
and
$0
to the Maritrans Plan in
2018
,
2017
and
2016
, respectively. The Company expects to make contributions of approximately
$721
to the Maritrans Plan in 2019.
Defined Contribution Plans
The Company also had defined contribution plans covering all eligible employees. Contributions are limited to amounts allowable for income tax purposes. Commencing in 2006, employer contributions include both employer contributions made regardless of employee contributions and matching contributions to the plans. All contributions to the plans are at the discretion of the Company. The Company's contributions to the plan were
$1,956
and
$2,244
for the years ended December 31, 2018 and 2017, respectively.
The Company also has an unfunded, nonqualified supplemental savings plan covering highly compensated U.S. shore-based employees of the Company, which was terminated in connection with the Company’s filing for bankruptcy in 2012. This plan provided for levels of hypothetical employer contributions that would otherwise have been made under the Company’s defined
|
|
|
|
|
|
|
99
|
Overseas Shipholding Group, Inc.
|
|
contribution plans in the absence of limitations imposed by income tax regulations. The Company’s unfunded obligations under this plan at
December 31, 2018
and
2017
were not material.
NOTE 18 — OTHER EXPENSE
Other expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
Interest
|
$
|
1,970
|
|
|
$
|
1,183
|
|
|
$
|
534
|
|
|
Gain on sale of investments
|
—
|
|
|
—
|
|
|
46
|
|
|
|
1,970
|
|
|
1,183
|
|
|
580
|
|
|
Loss on repurchases and extinguishment of debt
(1)
|
(3,399
|
)
|
|
(3,237
|
)
|
|
(2,988
|
)
|
|
Pension and post retirement items
(2)
|
532
|
|
|
128
|
|
|
(290
|
)
|
|
OSG LNG performance guarantee fees
|
135
|
|
|
135
|
|
|
—
|
|
|
Miscellaneous—net
|
3
|
|
|
38
|
|
|
17
|
|
|
|
$
|
(759
|
)
|
|
$
|
(1,753
|
)
|
|
$
|
(2,681
|
)
|
|
|
|
|
(1)
|
See Note 9, “Debt,” for disclosures relating to loss on repurchase of debt.
|
|
|
|
|
(2)
|
As discussed further in Note 3, “Summary of Significant Accounting Policies,” the Company adopted ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASC 715), on January 1, 2018. Accordingly, the prior periods have been adjusted to conform to current period presentation.
|
NOTE 19 — SEVERANCE COSTS AND AGREEMENTS WITH EXECUTIVE OFFICERS
Severance
Severance related costs are recognized over the period commencing on the date on which the affected employees are notified and ending on the date when required services are completed.
Activity relating to the reserves for the severance arrangements incurred during the three years ended December 31, 2018 is summarized as follows:
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$
|
7,694
|
|
|
Utilized
|
(6,440
|
)
|
|
Balance at December 31, 2017
|
1,254
|
|
|
Utilized
|
(1,188
|
)
|
|
Balance at December 31, 2018
|
$
|
66
|
|
The above table excludes related professional fees which are expensed as incurred.
Severance costs for termination benefits and share based compensation costs recognized during the year ended December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
Benefits
|
|
Share Based
Payment
Expense
|
|
Total
Severance
Charges
|
|
Terminations as a result of spin-off and related restructuring
|
$
|
8,218
|
|
|
$
|
4,778
|
|
|
$
|
12,996
|
|
See below for additional discussion on termination agreements with executive officers. Charges relating to employee termination benefits and severance are presented separately in the consolidated statement of operations.
|
|
|
|
|
|
|
100
|
Overseas Shipholding Group, Inc.
|
|
Agreements with Executive Officers
On December 29, 2016 Captain Ian T. Blackley stepped down from his role as President, Chief Executive Officer and Director of the Company. In connection with his departure from the Company, Captain Blackley entered into a letter agreement with the Company that provides for a general release and waiver of claims against the Company in addition to the payment of certain benefits that were consistent with the terms of his employment agreement, as amended including: (a) a cash payment of
$1,350
in substantially equal installments over a period of twenty-four (24) months; (b) a lump sum cash payment of
$3,214
; (c) a lump sum cash payment of
$475
pursuant to the Company’s Retention Bonus Plan; and (d) any benefits to which he is entitled under the Company’s nonqualified supplemental savings plan. Captain Blackley also received accelerated vesting of time-based equity awards. Charges recognized as part of severance costs in relation to the accelerated vesting of his time-based equity awards totaled
$2,313
. During the years ended
December 31, 2018
and 2017, severance related amounts of $675 and
$5,333
, respectively, were paid to Captain Blackley.
On December 29, 2016, Mr. Rick Oricchio stepped down from his role as Senior Vice President and Chief Financial Officer of the Company. In connection with his departure, Mr. Oricchio entered into a letter agreement with the Company containing, among other things, a general release and waiver of claims against the Company, in addition to the payment of certain benefits that were consistent with the terms of his employment agreement, as amended including: (a) a cash payment of
$475
in substantially equal installments over a period of twelve months; (b) a lump sum cash payment of
$1,012
; (c) the pro rata portion of Mr. Oricchio’s second anniversary bonus in a lump sum cash payment of
$386
and (d) Mr. Oricchio’s annual incentive bonus for fiscal year 2016, to be determined based on actual performance of previously established performance metrics and paid in accordance with the Company’s normal practice. Mr. Oricchio also received accelerated vesting of time-based equity awards. Charges recognized as part of severance costs in relation to the accelerated vesting of his time-based equity awards totaled
$1,676
. During the year ended December 31, 2017, severance related amounts of
$3,342
were paid to Mr. Oricchio. For the year ended December 31, 2018, severance related amounts paid to Mr. Oricchio were not material.
On July 29, 2016, Mr. Henry Flinter retired from his position as President of the Company’s U.S. Flag operations. Pursuant to his employment agreement, as amended on March 30, 2016, all of his unvested stock option awards, time-based RSUs and performance-based RSUs vested in full (per the terms of his agreement, performance-based RSUs vested at target performance) on July 29, 2016. The incremental compensation expense recognized as a result of the difference between the grant date fair value of the vested shares and the fair value of the Company’s Class A common stock on July 29, 2016 was approximately
$23
. The Human Resources and Compensation Committee of the Company’s Board elected to settle the vested equity awards (with the exception of certain performance-based RSUs that by their terms are not settled until the first quarter of 2018) in cash. Severance costs of approximately
$2,238
were recognized during the quarter in relation to Mr. Flinter’s separation from the Company, of which
$789
was as a result of the accelerated vesting of his share based compensation awards. In addition, Mr. Flinter is eligible for any benefits to which he is entitled under the Company’s nonqualified supplemental savings plan.
|
|
|
|
|
|
|
101
|
Overseas Shipholding Group, Inc.
|
|
NOTE 20 —
2018
AND
2017
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Data for the Quarter Ended
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping revenues
|
$
|
101,030
|
|
|
$
|
95,367
|
|
|
$
|
80,536
|
|
|
$
|
89,230
|
|
|
Gain on disposal of vessels and other property, including impairments
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
(877
|
)
|
|
Income/(loss) from vessel operations
|
13,571
|
|
|
10,529
|
|
|
(4,127
|
)
|
|
3,913
|
|
|
Interest expense
|
(8,076
|
)
|
|
(7,497
|
)
|
|
(7,828
|
)
|
|
(7,489
|
)
|
|
(Provision)/benefit for taxes from continuing operations
(2)
|
(1,202
|
)
|
|
(362
|
)
|
|
23,385
|
|
|
(4,107
|
)
|
|
Net income/(loss)
|
3,662
|
|
|
3,055
|
|
|
11,948
|
|
|
(5,176
|
)
|
|
Basic and Diluted net income/(loss) per share - Class A
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
(1)
|
As discussed in Note 6, “Vessels, Other Property and Deferred Drydock,” the Company recognized a gain on the sale of two ATBs.
|
|
|
|
|
(2)
|
As discussed in Note 12, “Taxes,” the Company recognized a tax benefit of
$21,720
in the third quarter of 2018 related to the completion of the IRS' examination of the Company's tax returns for fiscal years 2012 through 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Data for the Quarter Ended
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping revenues
|
$
|
108,116
|
|
|
$
|
96,225
|
|
|
$
|
93,270
|
|
|
$
|
92,815
|
|
|
Loss on disposal of vessels and other property, including impairments
(1)
|
—
|
|
|
—
|
|
|
7,353
|
|
|
5,847
|
|
|
Income from vessel operations
(2)
|
19,383
|
|
|
14,345
|
|
|
559
|
|
|
(339
|
)
|
|
Interest expense
|
(9,357
|
)
|
|
(9,445
|
)
|
|
(9,474
|
)
|
|
(9,125
|
)
|
|
Reorganization items, net
|
(235
|
)
|
|
(9
|
)
|
|
46
|
|
|
8
|
|
|
(Provision)/benefit for taxes from continuing operations
(3)
|
(3,569
|
)
|
|
(1,593
|
)
|
|
3,110
|
|
|
59,679
|
|
|
Net income/(loss)
|
5,429
|
|
|
3,211
|
|
|
(6,307
|
)
|
|
53,645
|
|
|
Basic and Diluted net income/(loss) per share - Class A
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.61
|
|
|
|
|
|
(1)
|
As discussed in Note 6, “Vessels, Other Property and Deferred Drydock,” the Company recognized a loss on the sale of an ATB. In addition, as discussed in Note 10, "Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures," the Company recorded an impairment charge to write down the carrying values of five ATBs to their estimated fair values as of December 31, 2017.
|
|
|
|
|
(2)
|
As discussed further in Note 3, “Summary of Significant Accounting Policies,” the Company adopted ASU No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASC 715)
,
on January 1, 2018. Accordingly, the prior periods have been adjusted to conform to current period presentation.
|
|
|
|
|
(3)
|
As discussed in Note 12, “Taxes,” the Company has recognized a one-time non-cash tax benefit of approximately
$54,300
in the fourth quarter of the fiscal year ended December 31, 2017. This tax benefit is based on the Company’s assessment of the impact of the TCJA, which reduced the federal corporate income tax rate from 35.0% to 21.0%.
|
NOTE 21 — COMMITMENTS AND CONTINGENCIES
At December 31, 2018, the Company had aggregate capital commitments of
$155,237
, net of progress payments already made aggregating
$21,323
, for the construction of four vessels: two tankers scheduled for delivery in September 2019 and two barges scheduled for delivery in the second quarter of 2020 and in the fourth quarter of 2020. The contracts for these vessels require progress payments during the construction periods with a final payment due on delivery. The Company has made all required progress payments to date, and the Company expects to make remaining payments, including those due on delivery, with financing that the Company will need to obtain, operating cash flow and cash on hand. The Company is currently in discussion with potential lenders to obtain such financing, but the Company has not yet obtained the necessary financing.
|
|
|
|
|
|
|
102
|
Overseas Shipholding Group, Inc.
|
|
Class Action Lawsuits and Derivative Actions
The Company has fully and finally resolved all potential direct claims by members of the putative class of securities claimants relating to the bankruptcy filing of November 14, 2012 through a settlement effectuated through the Equity Plan, which became effective on August 5, 2014. Under the terms of that settlement, the Equity Plan provided for full satisfaction of the claims of the putative class and all payments have been made, with no actions remaining to be taken. On December 2, 2015, the United States District Court for the Southern District (the “Southern District”) entered orders that approved the settlements relating to the class action and orders of judgment dismissing the remaining defendants from the action. The Equity Plan and orders of the Bankruptcy Court foreclose the defendants in the Southern District from pursuing any other or further remedies against the Company.
See Note 2, “Chapter 11 Filing and Emergence from Bankruptcy,” for additional information relating to these matters.
Proskauer Action
On February 23, 2014, Proskauer and four of its partners (the “Proskauer Plaintiffs”) filed an action in the Supreme Court of the State of New York, County of New York (the “Supreme Court”) against certain of the Company’s former officers relating to the Company’s malpractice suit against Proskauer and certain of its partners filed on November 18, 2013 in the Bankruptcy Court. On March 3, 2016, pursuant to a settlement agreement with the Proskauer Plaintiffs, the Supreme Court entered an order discontinuing the Proskauer action with prejudice, which order has become final and nonappealable.
See Note 2, “Chapter 11 Filing and Emergence from Bankruptcy,” for additional information.
SEC Investigation
On November 13, 2012, the Company received from the staff of the SEC’s Division of Enforcement (the “Staff”) a request for documents relating to the statements in the Company’s October 22, 2012 Form 8-K. On January 29, 2013, the SEC issued a formal order of private investigation of the Company. The Company provided documents to the SEC and cooperated fully with the SEC’s investigation.
On July 25, 2016, the staff of the SEC provided a “Wells Notice” to the Company’s counsel in connection with the above-referenced investigation, advising that the staff had made a preliminary determination to recommend that the Commission file an enforcement action against the Company.
On January 23, 2017, the SEC commenced an administrative proceeding, with the Company’s consent, that fully resolved the SEC’s investigation. The Company neither admitted nor denied the SEC’s allegations that the Company violated certain provisions of the Securities Act, the Exchange Act and related rules. After receiving Bankruptcy Court approval, the Company paid a
$5,000
civil penalty relating to the investigation in February 2017, which was fully accrued as of December 31, 2016. The agreement does not require any further changes to the Company’s historical financial statements. Any indemnification or contribution claims by officers or directors of the Company that could be asserted in connection with the SEC’s investigation have been released or otherwise resolved pursuant to the Equity Plan and order of the Bankruptcy Court.
Legal Proceedings Arising in the Ordinary Course of Business
The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries (including without limitation exposure to asbestos and other toxic materials), wrongful death, collision or other casualty and to claims arising under charter parties. A substantial majority of such personal injury, wrongful death, collision or other casualty claims against the Company are covered by insurance (subject to deductibles not material in amount). Each of the claims involves an amount which, in the opinion of management, are not expected to be material to the Company’s financial position, results of operations and cash flows.
|
|
|
|
|
|
|
103
|
Overseas Shipholding Group, Inc.
|
|
NOTE 22 — REVENUE RECOGNITION
Adoption of ASC 606
On
January 1, 2018
, the Company adopted ASC 606 applying the modified retrospective method to all contracts not completed as of
January 1, 2018
. Results for reporting periods beginning after
January 1, 2018
are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.
The impact of adopting the new standard primarily related to a change in the timing of revenue recognition for voyage charter contracts. In the past, the Company recognized revenue from voyage charters ratably over the estimated length of each voyage, calculated on a discharge-to-discharge basis. Under the new standard, the Company recognizes revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. In addition, the adoption of ASC 606 resulted in a corresponding change in the timing of recognition of voyage expenses for voyage charter contracts.
The cumulative effect of the changes made to the Company's consolidated
January 1, 2018
balance sheet for the adoption of ASC 606 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
Adjustments Due to ASC 606
|
|
Balance at January 1, 2018
|
|
Assets
|
|
|
|
|
|
|
Voyage receivables
|
$
|
24,209
|
|
|
$
|
1,336
|
|
|
$
|
25,545
|
|
|
Liabilities
|
|
|
|
|
|
|
Deferred income taxes
|
83,671
|
|
|
(108
|
)
|
|
83,563
|
|
|
Equity
|
|
|
|
|
|
|
Accumulated deficit
|
(265,758
|
)
|
|
(1,228
|
)
|
|
(266,986
|
)
|
For the year ended
December 31, 2018
, revenues increased by
$1,418
, net income increased by
$1,101
and basic and diluted net income per share increased by
$0.01
as a result of applying ASC 606.
Shipping Revenues
Revenues are recognized when control of the promised services are transferred to the Company's customers in an amount that reflects the consideration that the Company expects to receive in exchange for those services.
Time Charter Revenues
The Company enters into time charter contracts under which a customer pays a fixed daily or monthly rate for a fixed period of time for use of a vessel. The Company recognizes revenues from time charters as operating leases ratably over the non-cancellable contract term. Customers generally pay voyage expenses such as fuel, canal tolls and port charges. The Company also provides the charterer with services such as technical management expenses and crew costs. While there are lease and service (non-lease) components related to time charter contracts, the predominant component of the contract is the charterer’s lease of the vessel. The non-lease components of the contract have the same timing and pattern of transfer as the underlying lease component; therefore, the Company recognizes revenue related to this service ratably over the life of the contract term.
Voyage Charter Revenues
The Company enters into voyage charter contracts, which are charters under which a customer pays a transportation charge, voyage freight, for the movement of a specific cargo between two or more specified ports. The Company's performance obligation under voyage charters, which consists of moving cargo from a load port to a discharge port, is satisfied over time. Accordingly, under ASC 606, the Company recognizes revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. The transaction price is in the form of a fixed fee at contract inception, which is the transportation charge. Voyage charter contracts also include variable consideration primarily in the form of demurrage, which is additional revenue the Company receives for delays experienced in loading or unloading cargo that are not deemed to be the responsibility of the Company, calculated in accordance with specific charter terms. The Company does not include demurrage in the transaction price for voyage charters as it is considered constrained since it is highly susceptible to factors outside the Company's influence. Examples of when demurrage is incurred include unforeseeable weather conditions and
|
|
|
|
|
|
|
104
|
Overseas Shipholding Group, Inc.
|
|
security regulations at ports. The uncertainty related to this variable consideration is resolved upon the completion of the voyage, the duration of which is generally less than
30 days
.
U.S. Maritime Security Program
Two
of the Company's reflagged U.S. Flag Product Carriers participate in the U.S. Maritime Security Program ("MSP"), which ensures that privately-owned, military-useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. The Company considers the MSP contract with the U.S. government a service arrangement under ASC 606. Under this arrangement, the Company receives an annual operating-differential subsidy pursuant to the Merchant Marine Act of 1936 for each participating vessel, subject in each case to annual congressional appropriations. The subsidy is intended to reimburse owners for the additional costs of operating U.S. Flag vessels; therefore, the Company has presented this subsidy as an offset to vessel expenses.
Contracts of Affreightment
The Company enters into contracts of affreightment for lightering services and other arrangements based on number of voyages. These contracts are service contracts within the scope of ASC 606 for which underlying performance obligations to transport crude oil are satisfied over time.
The Company’s contracts of affreightment include a fixed monthly or annual minimum barrel volume requirement. The Company is required to transport and the charterer is required to provide the Company with a minimum volume requirement. These contract minimums represent fixed consideration within the contract which is recognized as the product is transferred over time. The Company updates the total transaction price in accordance with changes in total volume expected to be delivered. The Company will adjust revenue recognized for any minimum volume unexercised right.
Contracts of affreightment provide the charterer with options to purchase additional transportation services. If the option is not considered a material right, the Company recognizes revenue related to the optional services at the contractual rate as the product is transferred over time. If the option is considered a material right, the Company updates the estimated total transaction price of the contract as the material right is exercised.
The optional transport services provided to the charterer under these arrangements are consistent with the services provided before the option is elected. Accordingly, the Company applies the practical alternative to allocate the transaction price to the material right. As a result, the Company may recognize revenue related to contracts of affreightment at an amount which is different to the invoiced amount if the Company’s estimated volume to be transported under the contract is in excess of the contractual minimum.
Contracts of affreightment also include variable consideration primarily related to demurrage. The Company does not include this variable consideration in the transaction price for these contracts as the consideration is constrained since the obligation to deliver this service is outside the control of the Company. The uncertainty related to this variable consideration is resolved with the customer over the course of the contract term as individual voyages discharge. Revenue generated by contracts of affreightment is included within voyage charter revenues on the consolidated statements of operations.
Disaggregated Revenue
The Company has disaggregated revenue from contracts with customers into categories which depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Consequently, the disaggregation below is based on contract type. Since the terms within these contract types are generally standard in nature, further disaggregation would not result in increased insight into the economic factors impacting revenue and cash flows.
|
|
|
|
|
|
|
105
|
Overseas Shipholding Group, Inc.
|
|
The following table shows the Company's shipping revenues disaggregated by nature of the charter arrangement for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
Time charter revenues
|
$
|
213,923
|
|
|
Voyage charter revenues
(1)
|
83,542
|
|
|
Contracts of affreightment revenues
|
68,698
|
|
|
Total shipping revenues
(2)
|
$
|
366,163
|
|
|
|
|
|
(1)
|
Voyage charter revenues include approximately
$7,600
of revenue related to short-term time charter contracts in 2018.
|
|
|
|
|
(2)
|
Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 605. Revenue related to contracts of affreightment in fiscal years 2016 and 2017 have been included within voyage charter revenues.
|
Contract Balances
As of
December 31, 2018
and 2017, contract balances from contracts with customers consisted of voyage receivables, including unbilled receivables, of
$12,515
and
$22,860
, respectively, net of allowance for doubtful accounts. For voyage charters, voyage freight is due to the Company upon completion of discharge at the last discharge port. For contracts of affreightment, the Company invoices the customer monthly based on the greater of either cargo transported or the monthly minimum volume requirement in the contract. The Company routinely reviews its voyage receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Voyage receivables are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts have been exhausted.
Costs to Fulfill a Contract
Under ASC 606, for voyage charters and contracts of affreightment, the Company capitalizes the direct costs, which are voyage expenses, of relocating the vessel to the load port to be amortized during transport of the cargo. At
December 31, 2018
, the costs related to voyages that were not yet completed were not material.
Additionally, these contracts include out of pocket expense (i.e. fuel, port charges, canal tolls) incurred by the entity in fulfilling its performance obligation which are reimbursed by the charterer at cost. The reimbursement for these fulfillment costs have been included in the Company's estimated transaction price for the contract and recognized as revenue when performance obligations are satisfied.
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2018, there was an aggregate amount of
$64,687
of revenue under contracts of affreightment greater than a year which the Company will be entitled to providing services in the future. The Company expects to recognize revenue of approximately
$38,698
in 2019,
$22,070
in 2020 and
$3,919
in 2021 under these contracts. These estimated amounts relate to the fixed consideration of contractual minimums within the contracts based on the Company’s best estimate of future services and do not include consideration related to future purchase options which are uncertain.
Practical Expedients and Exemptions
The Company’s voyage charter contracts and some of the Company’s contracts of affreightment have an original expected duration of one year or less; therefore, the Company has elected to apply the practical expedient which provides the Company with the ability to not disclose the portion of the transaction price allocated to the remaining performance obligations within these contracts.
For voyage charters, the Company expenses broker commissions, which are costs of obtaining a contract, when incurred because the amortization period is less than one year. The Company records these costs within voyage expenses in the consolidated statements of operations.
|
|
|
|
|
|
|
106
|
Overseas Shipholding Group, Inc.
|
|
For contracts that were modified before the adoption date, the Company has not retrospectively restated the contract for those contract modifications.
|
|
|
|
|
|
|
107
|
Overseas Shipholding Group, Inc.
|
|