OVERSEAS SHIPHOLDING GROUP INC - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2021

OR

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

For the Transition Period from __________ to __________.

Commission File Number 1-6479-1

OVERSEAS SHIPHOLDING GROUP, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 813-209-0600

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

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

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

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

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

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

The aggregate market value of the common equity held by non-affiliates of the registrant on June 30, 2021, the last business day of the registrant’s most recently completed second quarter, was $131,907,694, based on the closing price of $2.09 per share of Class A common stock on the NYSE exchange on that date. For this purpose, all outstanding shares of common stock have been considered held by non-affiliates, other than the shares beneficially owned by directors, officers and certain 5% stockholders of the registrant; certain of such persons disclaim that they are affiliates of the registrant.

As of March 4, 2022, 87,248,499 shares of the issuer’s Class A common stock were outstanding. Excluded from these amounts are penny warrants, which were outstanding as of March 4, 2022, for the purchase of 3,631,071 shares of Class A common stock without consideration of any withholding pursuant to the cashless exercise procedures.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed by the registrant in connection with its 2022 Annual Meeting of Stockholders are incorporated by reference in Part III

TABLE OF CONTENTS

References in this Annual Report on Form 10-K to the “Company”, “OSG”, “we”, “us”, or “our” refer to Overseas Shipholding Group, Inc. and, unless the context otherwise requires or otherwise is expressly stated, its subsidiaries, including Alaska Tanker Company as of its March 12, 2020 acquisition date.

OSG is currently a smaller reporting company (“SRC”) under SEC rules. As an SRC, OSG is permitted to omit certain disclosures; however, we have provided some disclosures that may be omitted, such as disclosures relating to our risk factors.

A glossary of shipping terms that should be used as a reference when reading this Annual Report on Form 10-K can be found immediately prior to Part I. Capitalized terms that are used in this Annual Report are either defined when they are first used or in the Glossary.

All dollar amounts are stated in thousands of U.S. dollars unless otherwise stated.

AVAILABLE INFORMATION

The Company makes available free of charge through its internet website, www.osg.com, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (the “SEC”). Our website and the information contained on that site, or connected to that site, are not incorporated by reference in this Annual Report on Form 10-K.

The public may also read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 (information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330). The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

The Company also makes available on its website its corporate governance guidelines, its code of business conduct, insider trading policy, anti-bribery and corruption policy and charters of the Audit Committee, Human Resources and Compensation Committee and Corporate Governance and Risk Assessment Committee of the Board of Directors. Except as otherwise noted, neither our website nor the information contained on that site, or connected to that site, is incorporated by reference into this Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make or approve certain forward-looking statements in future filings with the SEC, in press releases, or in oral or written presentations by representatives of the Company. All statements other than statements of historical facts should be considered forward-looking statements. Words such as “may”, “will”, “should”, “would”, “could”, “appears”, “believe”, “intends”, “expects”, “estimates”, “targeted”, “plans”, “anticipates”, “goal”, and similar expressions are intended to identify forward-looking statements but should not be considered as the only means by which these statements may be made. Such forward-looking statements represent the Company’s reasonable expectations with respect to future events or circumstances based on various factors and are subject to various risks, uncertainties, and assumptions relating to the Company’s operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors, many of which are beyond the control of the Company, that could cause the Company’s actual results to differ materially from the expectations expressed or implied in these statements. Undue reliance should not be placed on any forward-looking statements and consideration should be given to the following factors when reviewing such statements. Such factors include, but are not limited to:

Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in this Annual Report on Form 10-K and in other reports hereafter filed by the Company with the SEC under the caption “Risk Factors.” The Company assumes no obligation to update or revise any forward-looking statements except as may be required by law. Forward-looking statements in this Annual Report on Form 10-K and written and oral forward-looking statements attributable to the Company or its representatives after the date of this Annual Report on Form 10-K are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports hereafter filed by the Company with the SEC.

NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY FINANCIAL INFORMATION

The Company reports its financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”). However, the Company has included in this Report certain non-GAAP financial measures and ratios, which it believes provide useful information to both management and readers of this Report in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by GAAP and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other measures determined in accordance with GAAP.

The Company presents four non-GAAP financial measures: time charter equivalent revenues (“TCE”), EBITDA, Adjusted EBITDA and vessel operating contribution. TCE revenues represent shipping revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. EBITDA represents net income/(loss) from continuing operations before interest expense and income taxes and depreciation and amortization expense. Adjusted EBITDA consists of EBITDA adjusted for the impact of certain items that we do not consider indicative of our ongoing operating performance. Vessel operating contribution represents TCE revenues less vessel expenses and charter hire expenses and is used as a measure to reflect our niche markets, which provide a stable operating platform underlying our total US Flag operations. Our niche markets include Delaware Bay lightering, MSP vessels and shuttle tankers.

This Annual Report on Form 10-K includes industry data and forecasts that we have prepared based, in part, on information obtained from industry publications and surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from the Company’s market studies and research reports. Unless we state otherwise, statements about the Company’s relative competitive position in this report are based on our management’s beliefs, internal studies and management’s knowledge of industry trends.

GLOSSARY

Unless otherwise noted or indicated by the context, the following terms used in the Annual Report on Form 10-K have the following meanings:

Articulated Tug Barge or ATB—A tug-barge combination system capable of operating on the high seas, coastwise and further inland. It combines a normal barge, with a bow resembling that of a ship, but having a deep indent at the stern to accommodate the bow of a tug. The fit is such that the resulting combination behaves almost like a single vessel at sea as well as while maneuvering.

Ballast — Any heavy material, including water, carried temporarily or permanently in a vessel to provide desired draft and stability.

Bareboat Charter—A Charter under which a customer pays a fixed daily or monthly rate for a fixed period of time for use of the vessel. The customer pays all costs of operating the vessel, including voyage and vessel expenses. Bareboat charters are usually long term.

b/d—Barrels per day.

CERCLA—The U.S. Comprehensive Environmental Response, Compensation, and Liability Act.

Charter—Contract entered into with a customer for the use of the vessel for a specific voyage at a specific rate per unit of cargo (“Voyage Charter”), or for a specific period of time at a specific rate per unit (day or month) of time (“Time Charter”).

CII - Carbon Intensity Indicator, which is calculated as the ratio of the total mass of CO2 emitted from a vessel to the total transport work undertaken in a given calendar year.

Classification Societies—Organizations that establish and administer standards for the design, construction and operational maintenance of vessels. As a practical matter, vessels cannot trade unless they meet these standards.

Contracts of Affreightment or COAs—An agreement providing for the transportation between specified points for a specific quantity of cargo over a specific time period but without designating specific vessels or voyage schedules, thereby allowing flexibility in scheduling since no vessel designation is required. COAs can either have a fixed rate or a market-related rate. One example would be two shipments of 70,000 tons per month for two years at the prevailing spot rate at the time of each loading.

Crude Oil—Oil in its natural state that has not been refined or altered.

Deadweight tons or dwt—The unit of measurement used to represent cargo carrying capacity of a vessel, but including the weight of consumables such as fuel, lube oil, drinking water and stores.

Demurrage—Additional revenue paid to the shipowner on its Voyage Charters for delays experienced in loading and/or unloading cargo that are not deemed to be the responsibility of the shipowner, calculated in accordance with specific Charter terms.

Double Hull—Hull construction design in which a vessel has an inner and an outer side and bottom separated by void space, usually two meters in width.

Drydocking—An out-of-service period during which planned repairs and maintenance are carried out, including all underwater maintenance such as external hull painting. During the drydocking, certain mandatory Classification Society inspections are carried out and relevant certifications issued. Normally, as the age of a vessel increases, the cost and frequency of drydockings increase.

EEXI - the Energy Efficiency Existing Ship Index, which requires ship operators to assess their ships’ energy consumption and CO2 emissions against specific requirements for energy efficiency for each vessel type.

Exclusive Economic Zone—An area that extends up to 200 nautical miles beyond the territorial sea of a state’s coastline (land at lowest tide) over which the state has sovereign rights for the purpose of exploring, exploiting, conserving and managing natural resources.

Handysize Product Carrier—A small size Product Carrier of approximately 29,000 to 50,000 deadweight tons. This type of vessel generally operates on shorter routes (short haul).

International Maritime Organization or IMO—An agency of the United Nations, which is the body that is responsible for the administration of internationally developed maritime safety and pollution treaties, including MARPOL.

International Flag—International law requires that every merchant vessel be registered in a country. International Flag refers to those vessels that are registered under a flag other that of the United States.

Jones Act—U.S. law that applies to port-to-port shipments within the continental U.S. and between the continental U.S. and Hawaii, Alaska, Puerto Rico, and Guam, and restricts such shipments to U.S. Flag Vessels that are built in the United States and that are owned by a U.S. company that is more than 75% owned and controlled by U.S. citizens, set forth in 46 U.S.C. sections 50501 and 55101.

Jones Act Fleet—A fleet comprised of vessels that comply with the Jones Act regulations.

Lightering—The process of off-loading crude oil or petroleum products from large size tankers, typically Very Large Crude Carriers, into smaller tankers and/or barges for discharge in ports from which the larger tankers are restricted due to the depth of the water, narrow entrances or small berths.

MARAD—The Maritime Administration of the U.S. Department of Transportation.

Maritime Security Program or MSP—The U.S. Maritime Security Program, which ensures that militarily useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. These vessels are required to trade outside the United States but are eligible for government sponsored business. Under the MSP, participants receive an annual fee in exchange for a guarantee that the vessels will be made available to the U.S. government in the event of war or national emergency.

MARPOL—International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto. This convention includes regulations aimed at preventing and minimizing pollution from ships by accident and by routine operations.

MR—An abbreviation for Medium Range. Certain types of vessel, such as a Product Carrier of approximately 45,000 to 53,000 deadweight tons, generally operate on medium-range routes.

MSP vessels—U.S. Flag vessels that participate in the Maritime Security Program.

OPA 90—The U.S. Oil Pollution Act of 1990.

OPEC—Organization of Petroleum Exporting Countries, which is an international organization established to coordinate and unify the petroleum policies of its members.

P&I Insurance —Protection and indemnity insurance is a form of marine insurance provided by a P&I club. A P&I club is a mutual (i.e., a co-operative) insurance association that provides cover for its members, who will typically be ship-owners, ship-operators or bareboat charterers.

Product Carrier—General term that applies to any tanker that is used to transport refined oil products, such as gasoline, jet fuel or heating oil.

Recycling—The disposal of vessels by demolition for recycled metal.

Safety Management System or SMS—A framework of processes and procedures that addresses a spectrum of operational risks associated with quality, environment, health and safety. The SMS is certified by ISM (International Safety Management Code), ISO 9001 (Quality Management) and ISO 14001 (Environmental Management).

Shuttle Tanker—A tanker, usually with special fittings for mooring, which lifts oil from offshore fields and transports it to a shore storage or refinery terminal on repeated trips.

Special Survey—An extensive inspection of a vessel by Classification Society surveyors that must be completed once within every five-year period. Special Surveys require a vessel to be drydocked.

Technical Management—The management of the operation of a vessel, including physically maintaining the vessel, maintaining necessary certifications, and supplying necessary stores, spares, and lubricating oils. Responsibilities also generally include selecting, engaging and training crew, and arranging necessary insurance coverage.

Time Charter—A Charter under which a customer pays a fixed daily or monthly rate for a fixed period of time for use of the vessel. Subject to any restrictions in the Charter, the customer decides the type and quantity of cargo to be carried and the ports of loading and unloading. The customer pays all voyage expenses such as fuel, canal tolls, and port charges. The shipowner pays all vessel expenses such as the Technical Management expenses.

Time Charter Equivalent or TCE—TCE is the abbreviation for Time Charter Equivalent. TCE revenues, which are voyage revenues less voyage expenses, serve as an industry standard for measuring and managing fleet revenue and comparing results between geographical regions and among competitors.

U.S. Flag Fleet — Our Jones Act Fleet together with our MSP vessels.

U.S. Flag Vessel—A vessel that must be crewed by U.S. sailors and owned and operated by a U.S. company.

Vessel Expenses—Includes crew costs, vessel stores and supplies, lubricating oils, maintenance and repairs, insurance and communication costs associated with the operations of vessels.

Voyage Charter—A Charter under which a customer pays a transportation charge for the movement of a specific cargo between two or more specified ports. The shipowner pays all voyage expenses, and all vessel expenses, unless the vessel to which the Charter relates has been time chartered in. The customer is liable for Demurrage, if incurred.

Voyage Expenses—Includes fuel, port charges, canal tolls, cargo handling operations and brokerage commissions paid by the Company under Voyage Charters. These expenses are subtracted from shipping revenues to calculate Time Charter Equivalent revenues for Voyage Charters.

PART I

ITEM 1. BUSINESS

OVERVIEW AND RECENT DEVELOPMENTS

Overseas Shipholding Group, Inc., a Delaware corporation incorporated in 1969, and its wholly owned subsidiaries, including Alaska Tanker Company (“ATC”) as of its March 12, 2020 acquisition date, own and operate a fleet of oceangoing vessels engaged in the transportation of crude oil and petroleum products in the U.S. Flag trade. At December 31, 2021 the Company owned or operated a fleet of 24 vessels totaling an aggregate of approximately 1.7 million dwt. Additional information about the Company’s fleet, including its ownership profile, is set forth under “Fleet Operations— Fleet Summary,” as well as on the Company’s website, www.osg.com.

OSG primarily charters its vessels to customers for voyages for specific periods of time at fixed daily amounts through time charters. The Company also charters its vessels for specific voyages at spot rates. Spot market rates are highly volatile due to utilization while in the spot market, which is driven by market forces, including local and worldwide demand for the commodities carried (such as crude oil or petroleum products), volumes of trade, distances that the commodities must be transported, the amount of available tonnage both at the time such tonnage is required and over the period of projected use, and the levels of seaborne and shore-based inventories of crude oil and refined products. Time charter rates provide more predictable streams of TCE revenues because they are fixed for specific periods of time. For a more detailed discussion on factors influencing spot and time charter markets, see “Fleet Operations—Commercial Management” below.

The ongoing COVID-19 pandemic has severely impacted global and national economies. During 2020, lockdown orders, business closures and travel restrictions among many other events reduced the demand for many products, including petroleum. 2021 was characterized by the introduction of COVID-19 vaccines, business recovery and two different COVID-19 variants that all impacted overall business conditions. During the second half of 2021, there were increases in refinery operations and end user demand for transportation fuels. Demand is expected to continue to increase in 2022 to levels exceeding pre-pandemic levels. Although there has been an increase in demand, business uncertainty for our customers remains which has resulted in a reluctance to enter into longer term transportation commitments. Customers currently favor shorter term agreements. We believe that as their visibility and confidence in the future returns there will be a resumption of more typical customer behavior and time charter activity will rebound.

The ongoing pandemic also resulted in the non-renewal of charters for vessels whose time charters ended late in 2020 and early in 2021. In response to this we placed seven vessels in layup for most of 2021. This allowed us to reduce the operating costs associated with vessels that are without charter. We saw an increase in demand during the second half of 2021. As a result, two of the seven vessels came out of layup in September 2021 and operated in the spot market. One of these two vessels commenced a 26-month time charter in mid-November 2021. A third vessel came out of layup in December 2021 and operated in the spot market. In January 2022 and late February 2022, two more vessels came out of layup. As of March 1, 2022, we have two vessels remaining in layup.

Strategy

We seek to maximize stockholder value by generating strong cash flows through combining the predictability of fixed time charter and contract revenues with opportunistic trading in the spot market; actively managing the size and composition of our fleet over the course of market cycles to increase investment returns and available capital; and entering into value-creating transactions, including acquisitions of competitive or adjacent businesses. The key elements of our strategy are to:

We believe we are well-positioned long-term to generate strong cash flows by identifying and taking advantage of attractive chartering opportunities in the U.S. market. We currently operate one of the largest tanker fleets in the U.S. Flag market, with a strong presence in all major U.S. coastwise trades. Our market position allows us to maintain long-standing relationships with many of the largest energy companies, which in some cases date back many decades. We consider attaining the stability of cash flow offered by medium-term charters and contracts of affreightment to be a fundamental characteristic of the objectives of our chartering approach. This is especially observable in the niche businesses within which many of our assets operate. However, the Jones Act market for larger conventional tankers has shifted over the last five years as marginal demand drivers domestically have become more volatile in both crude and refined product flows. Considerations about the appropriate amount of capacity to remain active in the spot market are a regular management discussion point, and balancing time charter and contract coverage with spot market exposure in an uncertain demand environment has been a persistent challenge. A policy of medium-term charters may not be profitable or prove achievable under certain market conditions. As such, during periods of uncertainty in the markets within which we operate, more of our vessels will be exposed to the more volatile and less predictable spot market with a corresponding impact on the amount of revenue our vessels may earn.

In addition to the observed increased volatility in the markets for our conventional tankers and ATBs, the future of seaborne energy transportation and the type, design and markets for vessels that will be engaged in this business in the future are evolving in ways not yet well defined. While this evolution may impose additional risks and uncertainties on OSG’s existing business lines, the progressive transformation away from a carbon fuels-based economy could present interesting new business niches for OSG to competitively apply its differentiated set of skills. Participating in a broader spectrum of opportunities in the existing and emerging markets for energy and liquid bulk commodities of all types will remain a focus of the Company as the solution set to these complex problems becomes clearer.

We believe that OSG has good standing in the community of our customers, our peers and our regulators, with a long-established reputation for maintaining the highest standards in both protecting the environment and maintaining the health and safety of all of our employees. Continued improvement in these areas is important not only to the constituents directly affected, but equally as important in sustaining a key differentiating competitive factor amongst the customers we serve.

We actively manage the size and composition of our fleet through opportunistic acquisitions and dispositions of vessel assets as part of our effort to achieve attractive returns on capital. We seek to opportunistically grow our fleet through the timely and selective acquisition of high-quality secondhand vessels or new-build contracts when we believe those acquisitions will result in attractive returns on invested capital and increased cash flow. We also seek to engage in opportunistic dispositions or repurposing of our vessel assets where we can achieve attractive values relative to their anticipated future earnings from operations as we assess market cycles and requirements. Taken together, we believe these activities will help us to maintain a diverse, high-quality and modern fleet of crude oil, refined product, and potentially other U.S. Flag vessels with an enhanced return on invested capital. We believe our diverse and versatile fleet, as well as our experience and our long-standing relationships with participants in the crude and refined product shipping industry, position us to identify and take advantage of attractive acquisition opportunities in any vessel class in the U.S. Flag market.

Customers

OSG’s customers include major independent oil traders, refinery operators and U.S. and international government entities. The Company’s top two customers comprised 38.8% of shipping revenues during the year ended December 31, 2021. See Note 2 - “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements set forth in Item 8 for further information regarding the Company’s customers for 2021 and 2020.

FLEET OPERATIONS

Fleet Summary

As of December 31, 2021, OSG’s operating fleet consisted of 24 vessels, 12 of which were owned, with the remaining vessels chartered-in. Vessels chartered-in are on Bareboat Charters.

On December 10, 2021, for five chartered-in vessels with terms ending in December 2022, the Company exercised its option to extend the terms of two of the vessels for an additional year, with terms ending in December 2023, and announced its intention to redeliver three of the vessels at the end of their terms in December 2022.

Commercial Management

Time-Charter Market

The Company’s operating fleet includes a number of vessels that operate on time charters. Within a contract period, time charters provide a predictable level of revenues without the fluctuations inherent in spot-market rates. Once a time charter expires, however, the ability to secure a new time charter may be uncertain and subject to market conditions. Time charters constituted 71% of the Company’s shipping revenues in 2021 and 82% in 2020 and 73% of the Company’s TCE revenues in 2021 and 84% in 2020.

Spot Market

Voyage charters and COAs constituted 29% of the Company’s shipping revenues in 2021, 18% in 2020, and 27% of the Company’s aggregate TCE revenues in 2021 and 16% in 2020. Accordingly, the Company’s shipping revenues are affected by prevailing spot rates for voyage charters in the markets in which the Company’s vessels operate. Spot market rates are highly volatile due to utilization while in the spot market, which is driven by market forces, including local and worldwide demand for the commodities carried (such as crude oil or petroleum products), volumes of trade, distances that the commodities must be transported, the amount of available tonnage both at the time such tonnage is required and over the period of projected use, and the levels of seaborne and shore-based inventories of crude oil and refined products.

Seasonal trends affect oil consumption and consequently vessel demand. While trends in consumption vary with seasons, peaks in demand quite often precede the seasonal consumption peaks as refiners and suppliers try to anticipate consumer demand. The timing of peaks in oil demand vary within the markets in which we operate. Available tonnage is affected over time by the volume of newbuild deliveries, the number of tankers used to store clean products and crude oil, and the removal (principally through recycling or conversion) of existing vessels from service. Recycling is affected by the level of freight rates, recycling prices, vetting standards established by charterers and terminals and by U.S. governmental regulations that establish maintenance standards. Voyage charters include COAs on three vessels. Changes in the percentage contributions are therefore affected by Delaware Bay lightering volumes. In addition, as ships come off of their time charters, they may be forced into short-term trades.

Business Segment

The Company has one reportable business segment. The Company’s active vessel fleet, of which 22 are U.S. Flag vessels, consists of three crude oil tankers doing business in Alaska, two conventional ATBs, two lightering ATBs, three shuttle tankers, ten MR tankers, and two non-Jones Act MR tankers that participate in the U.S. Maritime Security Program. The Company also owns and operates one Marshall Islands flagged MR tanker which trades internationally. Under the Jones Act, shipping between U.S. ports, including the movement of Alaskan crude oil to U.S. ports, is reserved for U.S. Flag vessels that satisfy Jones Act requirements, including requirements that vessels be constructed in the United States and owned by companies that are more than 75% owned and controlled by U.S. citizens. OSG is one of the largest commercial owners and operators of U.S. Flag vessels and participates in U.S. government programs, including the following:

Maritime Security Program—Two non-Jones Act U.S. Flag Product Carriers participate in the U.S. Maritime Security Program, which is designed to ensure that militarily useful U.S. Flag vessels are available to the U.S. Department of Defense in the event of war or national emergency. Each of the vessel-owning companies with a ship that participates in the program receives an annual stipend that is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. Such stipend was $5,250 for each vessel in 2021 and $5,058 on one vessel and $4,607 on one vessel in 2020.

Under the terms of the program, the Company expects to receive up to $5,300 annually for each vessel during 2022. The Company does not receive a stipend with respect to any days for which a vessel operates under a time charter to a U.S. government agency.

Maritime Administration of the U.S. Department of Transportation (“MARAD”) trading restrictions—Two of the modern U.S. Flag ATBs owned by the Company, which are currently used in the Delaware Bay Lightering activity, had their construction financed with the Capital Construction Fund (“CCF”). As such, daily liquidated damages are payable by the Company to MARAD if these vessels operate in contiguous coastwise trades, which is not permitted under trading restrictions currently imposed by the CCF agreement between MARAD and the Company. For the years ended December 31, 2021 and 2020, liquidated damages incurred were not material.

On March 12, 2020, the Company’s subsidiaries completed the purchase of the Alaskan Explorer, Alaskan Legend and Alaskan Navigator from BP Oil Shipping Company USA and AP AMI Leasing Inc. (“BP”) and entered into a bareboat charter with BP for a fourth vessel, the Alaskan Frontier. The Alaskan Frontier is currently in layup. In connection with these transactions, the Company also completed the acquisition of the other members’ interests in ATC, making ATC a wholly owned subsidiary of OSG. Operating results of these vessels are included from that date.

OSG has 11 Handysize product carriers in our U.S. Flag fleet that are chartered-in and provide for the payment of profit share to the owners of the vessels calculated in accordance with the respective charter-in agreements. Due to reserve funding requirements, no profits have yet been paid to the owners or are, based on management’s current forecast, expected to be paid to the owners in the current calendar year.

Technical Management

OSG’s fleet operations are managed in-house. In addition to regular maintenance and repair, crews onboard each vessel and shore side personnel must ensure that the Company’s fleet meets or exceeds regulatory standards established by the IMO and USCG.

The Company recruits, hires and trains the crews on its U.S. Flag vessels. The Company believes that its mandatory training and education requirements exceed the requirements of the USCG. The Company believes its ability to provide professional development for qualified U.S. Flag crew is necessary in a market where skilled labor shortages are expected to remain a challenge. The U.S. Flag fleet is supported by shore side staff that includes fleet managers, marine and technical superintendents, purchasing and marine insurance staff, crewing and training personnel and health, safety, quality and environmental (“SQE”) personnel.

Safety

The Company is committed to providing safe, reliable and environmentally sound transportation to its customers. Integral to meeting standards mandated by regulators and customers is the use of robust SMS by the Company. The SMS is a framework of processes and procedures that addresses a spectrum of operational risks associated with quality, environment, health and safety. The SMS is certified to the International Safety Management Code (“ISM Code”) promulgated by the IMO. To support a culture of compliance and transparency, OSG has an open reporting system on all of its vessels, whereby seafarers can anonymously report possible violations of OSG’s policies and procedures. All open reports are investigated, and appropriate actions are taken when necessary.

HUMAN CAPITAL

Our employees are critical to meeting our commitments. In order to achieve this, it is crucial that we continue to attract and retain experienced and qualified employees. We emphasize ethical behavior and respect and promote equal opportunity by creating a culture of trust, accountability and empowerment. The sense of responsibility shared by OSG’s mariners and the shore-based support team in meeting the essential need to supply transportation fuels to the markets that we serve is commendable.

As of December 31, 2021, the Company had approximately 953 employees comprised of 877 seafarers and 76 shore side staff. The Company has collective bargaining agreements with three different U.S. maritime unions which, as of December 31, 2021, covered 718 of the seafarers employed on the Company’s vessels. These agreements are in effect for periods ending between March 2022 and March 2024. Under the collective bargaining agreements, the Company is obligated to make contributions to pension and other welfare programs.

Compensation and Benefits Program. Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our shareholders. We provide employees with competitive compensation packages that include base salary as well as employees benefits such as life and health (medical, dental and vision) insurance, paid time off, paid parental leave, and certain postretirement benefits.

Training and Education. Our seafarers are highly trained, with many officers having both USCG licenses as well as business or engineering degrees. Regardless of position, specialized training to work in the industry based on USCG requirements, as well as vessel-specific training within our fleet is a necessity. Years of experience are required in order to move into higher levels of authority on our vessels. Our training and education programs are designed to address applicable regulations as well as the specific hazards and work environments of each of our vessels.

Health and Safety. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This includes providing personal protective equipment, minimizing crew changes, managing the locations where crew members board and depart from our vessels, certifications by crew members to disclose symptoms and the health of those they have been in contact with, sanitization of the vessels, mandating face coverings, social distancing and temperature checks, and requiring testing and quarantining in certain instances. Protocols were developed with the coordination and assistance of the unions in order to provide consistency within the industry.

Having a well-maintained fleet is also critical to create an environment where our crew can work safely. Our fleets undergo regular and frequent surveys by classification societies and regulatory bodies as well as vettings by our customers on an ongoing basis. Issues identified are swiftly addressed. Our seafarers are encouraged to provide transparent reporting of issues in order to remedy conditions as soon as they are observed. We regularly conduct safety reviews to ensure compliance with applicable regulations and all policies and procedures.

COMPETITION

OSG’s primary competitors are operators of U.S. Flag oceangoing barges and tankers, operators of rail transportation for crude oil, and operators of refined product pipelines systems that transport refined petroleum products directly from U.S. refineries to markets in the United States. In addition, indirect competition comes from International Flag vessels transporting imported refined petroleum products.

CYBER SECURITY

OSG has both on-shore and ship-board systems that are highly dependent on information technology systems. Loss, disruption, or compromise of these systems could significantly impact operations and results.

Our information technology controls are subject to audit by internal and external auditors, as well as the American Bureau of Shipping. OSG annually advises its Board of Directors on information security matters and provides user training and monitoring of system access as part of our compliance program. We have not experienced any material cyber security violation or occurrence over the last three years.

While we continue to invest time, effort and financial resources to secure our systems, networks and communications, our security measures cannot provide absolute assurance that we will be successful in preventing or responding to all cyber security attacks. There can be no assurance that any breach or incident will not have a material impact on our operations and financial results. See Item 1A, “Risk Factors-Interruption, failure or breach of OSG’s information technology and communications systems could impair its ability to operate and adversely affect its business.”

ENVIRONMENTAL, SAFETY AND SECURITY MATTERS

All but one of OSG’s vessels are registered in the United States and are subject to the jurisdictional and regulatory oversight of the USCG (under various protocols and agreements covering certain statutory survey and certification functions). OSG owns and operates one vessel registered in the Marshall Islands that is subject to the jurisdictional oversight of the Republic of Marshall Islands (“RMI”) registry (under various protocols and agreements covering certain statutory survey and certification functions).

OSG is also subject to compliance with several other government agency regulations, including but not limited to the Environmental Protection Agency (“EPA”), the Maritime Administration of the United States Department of Transportation, and the United States Customs and Border Protection Agency. OSG vessels are classed with the American Bureau of Shipping (“ABS”) and are subject to the requirements of the classification society.

The majority of vessels owned and operated by OSG are engaged in U.S. coastwise trade, with some vessels engaged in trade to and from countries outside of the United States. OSG’s vessels operate in a highly regulated environment, subject to international conventions and international, national, state and local laws and regulations in force in the countries such vessels call upon, significantly affecting the operation of the vessels.

Geopolitical reactions to industry-related accidents have historically heightened the level of environmental, health, safety and security awareness among various stakeholders, including insurance underwriters, regulators, and charterers, leading to increased regulatory requirements and more stringent inspection regimes on all vessels. In recognition of this heightened awareness, OSG has set appropriate internal controls intended to monitor regulatory developments and to implement measures intended meet the higher expectations of our stakeholders.

OSG is required to maintain operating standards for all its vessels emphasizing operational safety and quality, environmental stewardship, preventive planned maintenance, continuous training of its officers and crews and compliance with international and United States regulations, including regular and rigorous in-house inspections and audits. In addition, a variety of governmental and private entities subject OSG’s vessels to both scheduled and unscheduled inspections. These entities include USCG, local port state control authorities (harbor master or equivalent), flag states, coastal states, Classification Societies and customers, particularly major oil companies and petroleum terminal operators. Certain of these entities require OSG to obtain permits, licenses and certificates for the operation of its vessels. Failure to maintain necessary documents or approvals could require OSG to incur substantial costs or temporarily suspend operation of one or more of OSG’s vessels.

OSG believes that the operation of its vessels complies with applicable environmental laws and regulations. However, because such laws and regulations are changed frequently, and new laws and regulations impose new or increasingly stringent requirements, OSG cannot predict the cost of complying with requirements beyond those that are currently in force. The impact of future regulatory requirements on operations or the resale value or useful lives of its vessels may result in substantial additional costs in meeting new legal and regulatory requirements. See Item 1A, “Risk Factors-Compliance with complex laws and regulations, including those seeking to reduce the spread of the COVID-19 virus, and environmental laws and regulations, including those relating to the emission of greenhouse gas gases and ballast water treatment, may adversely affect OSG’s business.”

Regulations Preventing Pollution of Seas by Oil

The maritime industry is subject to numerous regulations and conventions intended to prevent pollution of the seas from ships. Regulated pollution sources include but are not limited to oil, hazardous substances, garbage, sewage, ballast water, antifouling paint and biofouling organisms.

The International Convention for the Prevention of Pollution from Ships (“MARPOL”) Annex I addresses requirements for the prevention of pollution by oil and oily materials generated in the engine room and from the cleaning of cargo tanks, while MARPOL Annex II addresses requirements for the prevention of pollution by noxious liquid substances (“NLSs”).

The United States regulates the shipping industry with an extensive regulatory and liability regime for environmental protection and cleanup of oil spills, consisting primarily of the Oil Pollution Act of 1990 (“OPA 90”) and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). OPA 90 amended the Federal Water Pollution Control Act to require owners and operators of vessels to adopt Vessel Response Plans (“VRPs”), including marine salvage and firefighting plans, for reporting and responding to vessel emergencies and oil spill scenarios up to a worst-case scenario. The requirements also require OSG to identify and seek to ensure, through contracts or other approved means, the availability of necessary private response resources to respond to a worst-case discharge. The plans must include contractual commitments with clean-up response contractors and salvage and marine firefighters to ensure an immediate response to an oil spill or vessel emergency. OPA 90 also requires training programs and periodic drills for shore side staff and response personnel and for vessels and their crews. OSG maintains valid USCG approved VRPs for each of its tank and non-tank vessels.

IMO regulations require owners and operators of vessels to adopt Shipboard Oil Pollution Emergency Plans (“SOPEPs”), including periodic training and drills for response personnel and for vessels and their crews. In addition to SOPEPs, OSG has adopted Shipboard Marine Pollution Emergency Plans (“SMPEPs”), which cover potential releases not only of oil but of any NLSs. OSG’s SOPEPs and SMPEPs remain valid.

US Liability Standards and Limits

Under OPA 90, vessel owners, operators and bareboat or demise charterers are responsible parties who are liable, without regard to fault, for all containment and clean-up costs and other damages, including property and natural resource damages and economic loss without physical damage to property, arising from oil spills and pollution from their vessels.

The statute specifically permits individual states to impose their own liability regimes for oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters. CERCLA contains a similar liability regime and provides for cleanup, removal and natural resource damages associated with discharges of hazardous substances (other than oil).

OPA 90 requires owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the limit of their potential strict liability consistent with the limits of liability set forth in the statutes. An owner or operator of more than one vessel is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the vessel having the greatest maximum strict liability under OPA 90 and CERCLA.

OSG has provided the requisite proofs of financial security and has received Certificates of Financial Responsibility from the USCG for each of its vessels required to have one. OSG carries various forms of marine insurance for each of its vessels, with pollution liability insurance in the amount of $1.0 billion, and deductibles ranging from $0.025 million to $0.030 million per vessel per incident. However, a catastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on OSG’s business.

International Liability Standards and Limits

Compensation for oil pollution damage caused by spills from oil tankers is governed by an international regime developed under the auspices of the IMO. The original International Convention on Civil Liability for Oil Pollution Damage of 1969 (the “1969 Convention”) was amended in 1992 (the “1992 Protocol”) and entered into force on May 30, 1996.

Many countries have ratified and follow the liability plan adopted by the IMO as set out in the 1969 Convention yet some of these countries have also adopted the 1992 Protocol. Under both the 1969 Convention and the 1992 Protocol, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. These conventions also limit the liability of the shipowner under certain circumstances.

These conventions calculate liability in terms of Special Drawing Rights currency values. The figures in this section are therefore converted into U.S. dollars based on currency exchange rates on January 18, 2022 and are approximate.

Under the 1992 Protocol, the owner’s liability is limited except where the pollution damage results from its personal act or omission, committed with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result. Liability is limited to $6.3 million for a ship not exceeding 5,000 units of tonnage, $6.3 million plus $886 for each additional gross ton over 5,000 for vessels of 5,000 to 140,000 gross tons, and $126.0 million for vessels over 140,000 gross tons.

Vessels trading in states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. OSG believes that its protection and indemnity insurance will cover any liability under the plan adopted by the IMO.

The International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 is a separate convention adopted to ensure that adequate, prompt and effective compensation is available to persons who suffer damage caused by spills of oil when used as fuel by vessels. The convention applies to damage caused to the territory, including the territorial sea, and in its exclusive economic zones, of states that are party to it. While the United States has not yet ratified this convention, vessels operating internationally would be subject to it, if sailing within the territories of those countries that have implemented its provisions. OSG believes that its vessels comply with these requirements.

Regulations Preventing Pollution of Seas by Sewage

MARPOL Annex IV (“Annex IV”) as well as the U.S. Code of Federal Regulations regulate the discharge of sewage to sea. OSG has implemented all regulatory requirements and believes that its vessels comply with these requirements.

Sewage discharge is also subject to national and local regulations which set forth further restrictions, in some cases prohibiting the discharge of treated sewage and the establishment of No Discharge Zones (“NDZs”). OSG vessels are all equipped with Marine Sanitation Devices compliant with regulatory requirements for each type of vessel, has implemented controls to comply with various international, national and state regulatory requirements.

Regulations Preventing Pollution of Seas by Garbage

MARPOL Annex V as well as the U.S. Code of Federal Regulations regulates the prevention of pollution to sea by garbage and e-waste. OSG has implemented all regulatory requirements and believes that its vessels comply with these requirements.

Regulations Preventing Air Pollution

MARPOL Annex VI (“Annex VI”) addresses air pollution from vessels and sets limits on sulfur oxide (“SOx”) and nitrogen oxide (“NOx”) emissions from ship exhausts. Annex VI also regulates shipboard incineration and the emission of volatile organic compounds (“VOCs”) from tankers. Vessels are subject to further air emission controls within Emission Control Areas (“ECAs”).

Fuel used by all vessels operating in or transiting through the ECA cannot exceed 0.1% m/m sulfur. More stringent NOx emission Tier III emission limits are applicable to engines installed on ships constructed on or after January 1, 2016 operating in ECAs. OSG believes that its vessels comply with the current requirements. If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the EPA or the states where OSG operates, compliance could require or affect the timing of fuel costs associated with operating in another ECA.

Commencing January 1, 2020, the global sulfur cap for ship operations was reduced from 3.5% m/m to 0.5% m/m outside ECAs as legislated by MARPOL Annex VI. In ECAs, the limit remains at 0.1% m/m.

OSG operates one Marshall Islands flag tanker equipped with an open-loop exhaust gas cleaning systems (“EGCS”) designed to burn high-sulfur bunker fuel to comply with the 0.5% sulfur limit. OSG has implemented all regulatory requirements associated with the use of EGCS.

Annex VI includes energy efficiency standards for certain new ships through the designation of an Energy Efficiency Design Index (“EEDI”). The EEDI standards phase in from 2013 to 2025 and are anticipated to result in significant reductions in fuel consumption as well as air and marine pollution. The composition of OSG’s fleet of vessels, as of December 31, 2021, includes one vessel under which the EEDI standards apply.

The EPA has implemented rules comparable to those of Annex VI to increase the control of air pollutant emissions from certain large marine engines by requiring certain new marine-diesel engines installed on U.S. built ships to meet lower NOx standards. EPA Tier 2 standards generally reduced NOx emissions by 27% and introduced a particulate matter limit (“PM”). EPA Tier 3 standards represent a 50% reduction in PM and a 20% reduction in NOx over Tier 2 levels. EPA Tier 4 standards represent a 90% reduction in PM and 80% reduction in NOx compared to Tier 2 levels and generally require advanced technology such as selective catalytic reduction or exhaust gas recirculation. Adoption of these and emerging standards may require substantial modifications to some of OSG’s existing marine diesel engines and may require OSG to incur substantial capital expenditures if the engines are replaced.

The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990 (“CAA”), requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA also requires states to draft State Implementation Plans (“SIPs”), designed to attain national health-based air quality standards in major metropolitan and industrial areas. Several SIPs regulate emissions resulting from tank vessel loading and degassing operations by requiring the installation of vapor control equipment. OSG’s vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. All OSG’s vessels are equipped with vapor control systems that satisfy these requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase its costs, OSG believes, based upon the regulations that have been proposed to date, no material capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required as a result of the SIPs program.

The Delaware Department of Natural Resources and Environment Control (“DNREC”) monitors OSG’s U.S. Flag lightering activities within the Delaware River. Lightering activities in Delaware are subject to Title V of the Coastal Zone Act of 1972 and OSG is the only marine operator with a Title V permit to engage in lightering operations. These lightering activities are monitored and regulated through DNREC’s Title V air permitting process. The regulations are designed to reduce the number of VOCs entering the atmosphere during a crude oil lightering operation through the use of vapor balancing. This defined process has reduced air emissions associated with venting of crude oil vapors to the atmosphere. OSG’s Delaware Lightering fleet is 100% vapor balance capable.

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (the “Kyoto Protocol”) requires adopting countries to implement national programs to reduce emissions of greenhouse gases (“GHGs”) which contribute to global warming. The United Nations Climate Change Conference forged the Paris Agreement with a goal of holding the increase in global average temperature to well below 2 degrees Celsius and pursuing efforts to limit the increase to 1.5 degrees Celsius, to be achieved by aiming to reach a global peaking of greenhouse gas (“GHG”) emissions as soon as possible. To meet these objectives, the participating countries, acting individually or jointly, are to develop and implement successive nationally determined contributions.

Though the Paris Agreement does not specifically mention shipping, the IMO has committed to developing limits on GHGs from international shipping and has implemented mandatory technical and operational measures to achieve these limits. The IMO’s fourth study of GHG emissions was released on August 4, 2020 indicating a 9.6% increase in GHG emissions from global maritime shipping since 2012 and predicted an increase by up to 50% over the next few decades to 2050, relative to 2018, if measures are not taken to reduce GHG emissions from international shipping by at least 50% by 2050 compared to 2008.

In addition, there are regional mandates in ports and certain territorial waters within the European Union (“EU”) regarding reduced SOx emissions. These requirements establish maximum allowable limits for sulfur content on 0.1% m/m in fuel oils used by vessels when operating within certain areas and waters and while at berth in EU ports.

The European Commission has established a working group to develop and assess options for the inclusion of international maritime transport in the GHG reduction commitment of the EU. The EU Monitoring, Reporting, Verification Regulation (“MRV”) creates an EU-wide framework for the monitoring, reporting and verification of carbon dioxide emissions from maritime transport and to collect and later publish verified annual data on carbon dioxide emissions.

The United Kingdom (“UK”) implemented their own MRV which requires the monitoring of UK-related voyages. OSG will be responsible for submitting its first annual emissions report for vessels subject to the UK MRV scheme.

The primary objectives of Ship Energy Efficiency Management Plan (“SEEMP”) is to improve the overall operating efficiency of a ship through the implementation of optimized methods for energy and fuel savings. The requirements are to be administered by the USCG for U.S. Flag vessels and the RMI for Marshall Islands flag vessels. In 2021, OSG submitted its second annual fuel oil consumption data for 2020 to the IMO through USCG’s recognized organization, the American Bureau of Shipping.

In June 2021, the IMO adopted amendments to MARPOL Annex VI, which enter into force on November 22, 2022, introducing a new Energy Efficiency Existing Ship Index (“EEXI”) and a Carbon Intensity Indicator (“CII”) to be used for grading a ship’s CO2 emissions performance. Verification that a ship’s attained EEXI meets the minimum requirement will occur at the first annual, intermediate, or renewal survey for the IAPP Certificate, whichever comes first on or after January 1, 2023. Each ship’s CII must then be calculated annually using IMO DCS data beginning in 2024 (based on 2023 data) whereby a ship is then assigned a letter grade (A, B, C, D, or E). The CII for each ship is required to be reduced in successive years where a grade of “C” or better indicates the ship remains on target to improve CO2 emissions. Ships graded an “E” or a “D” for three consecutive years are required to improve. While IMO is still finalizing the formulas to be used, OSG is working to ensure its vessels will be compliant with the requirements when the regulations enter into force.

OSG believes that its vessels are compliant with the current requirements of Annex VI and the EPA. Additionally, OSG believes for its vessels that operate in the EU, they are compliant with the regional mandates applicable in the EU. Future passage of climate control legislation or other regulatory initiatives by the IMO, EU, United States or other countries where OSG operates that restrict emissions of GHGs could require significant additional capital or operating expenditures and could have operational impacts on OSG’s business. Although OSG cannot predict such expenditures and impacts with certainty at this time, they may be material to OSG’s results of operations.

Ballast Water Pollution Regulations

OSG’s vessels are subject to international, national and local ballast water management regulations. At the international level, the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (“BWM Convention”) is applicable. It defines a discharge standard consisting of maximum allowable levels of critical invasive species designed to protect the marine environment from the introduction of non-native (alien) species as a result of the carrying of ships’ ballast water from one place to another. As tank vessels must take on ballast water in order to maintain their stability and draft and must discharge the ballast water when they load their next cargo, when emptying the ballast water which they carried from the previous port, they may release organisms and pathogens that have been identified as being potentially harmful in the new environment.

This standard will be met by installing treatment systems that render the invasive species non-viable. In addition, each vessel flying the flag of a signatory to the BWM Convention will be required to have on board a valid International Ballast Water Management Certificate, a Ballast Water Management Plan and a Ballast Water Record Book.

The United States is not a signatory to the BWM Convention, and is not expected to be in the future, since it currently regulates ballast water management under two federal, partially overlapping regulatory schemes. One is administered by the USCG under the National Aquatic Nuisance Prevention and Control Act of 1990, as amended by the National Invasive Species Act of 1996, and the other is administered by the EPA under the U.S. Clean Water Act (“CWA”). Several U.S. states also have their own supplemental requirements. The American Bureau of Shipping has been authorized to issue a Statement of Voluntary Compliance (“SOVC”) to any U.S. Flag vessel that has an approved Ballast Water Management Plan that contains the information required by the BWM Convention.

The discharge of ballast water and other substances incidental to the normal operation of vessels in U.S. ports as noted above is subject to CWA permitting requirements. In accordance with the EPA’s National Pollutant Discharge Elimination System (“NPDES”), OSG is subject to a Vessel General Permit (“VGP”), which addresses, among other matters, the discharge of ballast water and effluents including the submission of annual reports for each vessel OSG operates. The VGP identifies twenty-six vessel discharge streams and establishes numeric ballast water discharge limits that generally align with the performance standards implemented under USCG’s 2012 final rule and the IMO Convention. It also sets more stringent effluent limits for oil to sea interfaces and exhaust gas scrubber wastewater. The EPA’s phase-in schedule generally matches that of the USCG. The EPA determined that it will not issue extensions under the VGP, but in December 2013 it issued an Enforcement Response Policy (“ERP”) to address this industry-wide issue. In the ERP, the EPA states that vessels that have missed their compliance dates to meet the numeric discharge limits for ballast, but have received an extension from the USCG, are in compliance with all of the VGP’s requirements, other than the numeric discharge limits, and meet certain other requirements, will be considered a low enforcement priority. While OSG believes that any vessel that is or may become subject to the VGP’s numeric discharge limits while in a USCG extension period will be entitled to such low priority treatment as per the ERP, no assurance can be given that they will do so.

The “Vessel Incidental Discharge Act” (“VIDA”) restructures the way EPA and the USCG are to regulate incidental discharges in the future, including that the discharges will be regulated under a new CWA Section 312(p) program: Uniform National Standards for Discharges Incidental to Normal Operation of Vessels. VIDA is expected to phase out provisions of the VGP and existing USCG regulations over a four-year period, replacing them with EPA-developed National Standards of Performance (“NSPs”) and USCG implementation, compliance and enforcement regulations for those NSPs, which were expected to become effective in December 2022. Due to change in administrations, the effective date of VIDA is anticipated to be delayed.

The USCG promulgated its final rule on ballast water management which requires that treatment systems for domestic and foreign vessels operating in U.S. waters must be type approved by the USCG. Under this rule, a treatment system is required to be installed (or equivalent method of management employed) by the vessel’s first regularly scheduled drydocking after January 1, 2016. The USCG issued over 14,000 extensions for vessels which generally delayed their compliance dates another five years, including various OSG owned and operated vessels. In 2020, OSG began installing ballast water treatment systems on its vessels with the final installation to be completed in 2023.

OSG complies with these regulations through ballast water management plans implemented on each of the vessels it technically manages. To meet existing and anticipated ballast water treatment requirements, including those contained in the BWM Convention, OSG has a fleetwide action plan to comply with IMO, EPA, USCG and possibly more stringent U.S. state mandates as they are implemented and become effective, which may require the installation and use of costly control technologies. OSG anticipates that, in the next several years, compliance with the various conventions, laws and regulations relating to ballast water management that have already been adopted or that may be adopted in the future will require substantial additional capital or operating expenditures and could have operational impacts on OSG’s business.

Safety of Life at Sea

The International Convention for the Safety of Life at Sea (“SOLAS”) convention addresses the safety of merchant ships. Amendments to the SOLAS conventions come into force yearly and flag states are responsible for ensuring that ships under their flag comply with its requirements.

The majority of OSG’s vessels are currently registered in the United States, except for one that is registered in RMI, who in coordination with the classification society, inspect vessels to ensure compliance with SOLAS requirements as well as requirements listed in the Code of Federal Regulations, as applicable. Various certificates are prescribed by the SOLAS convention as proof of compliance and issued to vessels by the U.S. Coast Guard and by the classification society on their behalf.

Under the ISM Code, promulgated by the IMO, vessel operators are required to develop a safety management system that includes, among other things, the adoption of a safety and environmental protection policy describing how the objectives of a functional safety management system will be met. OSG has a safety management system for each of its operating subsidiaries, with instructions and procedures for the safe operation of its vessels, reporting accidents and non-conformities, internal audits and management reviews and responding to emergencies, as well as, defined levels of responsibility. The ISM Code requires OSG to have a Document of Compliance (“DoC”) for the vessels it operates and a Safety Management Certificate (“SMC”) for each vessel it operates. OSG in turn must undergo an annual internal audit and an external verification audit to maintain the DoC. In accordance with the ISM Code, each vessel must also undergo an annual internal audit at intervals not to exceed 12 months and vessels must undergo an external verification audit twice in a five-year period.

OSG maintains a DoC which was reissued for five years on September 17, 2017 with requirements for annual audits by the USCG. ATC maintains a DoC which was reissued for five years on July 11, 2019 with requirements for annual audits by the USCG. OSG is also certified to the SQE requirements of the ABS Guide for Marine Health, Safety, Quality, Environmental and Energy Management, which also includes meeting the requirements of the International Standards of Organization in ISO9001:2015 (Quality Management) and ISO14001:2015 (Environmental Management) for the management of operation of oil tankers, chemical tankers and other cargo ships.

Security Regulations and Practices

The U.S. Maritime Transportation Security Act of 2002 (“MTSA”) requires the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. SOLAS imposes various detailed security obligations on vessels and port authorities, most of which are contained in the International Ship and Port Facilities Security Code (the “ISPS Code”). Among other things, the ISPS Code requires the development of vessel security plans and compliance with flag state security certification requirements. To trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s flag state. All of OSG’s vessels have developed and implemented vessel security plans that have been approved by the USCG, have obtained an ISSC and comply with applicable security requirements.

OSG monitors the waters in which its vessels operate for pirate activity. Company vessels that transit areas where there is a high risk of pirate activity follow best management practices for reducing risk and preventing pirate attacks compliant with protocols established by the naval coalition protective forces operating in such areas.

In recent years, the maritime community has commenced addressing the vulnerability of ship operations to cyber security threats, both at sea and while in port. Exposure to these threats has become pervasive due to the increasing reliance on information and operating technology systems used in the management of ship operations. Because these systems control multiple aspects of ship operations, they become integral parts of system and operational safety. In 2014 IMO’s Maritime Safety Committee supported a Canadian and U.S. recommendation to develop voluntary guidelines on maritime cyber security practices. Since then, a wide variety of regulatory requirements and best practice guidance has been generated by industry stakeholders. In December 2016, the USCG published a cybersecurity policy letter regarding the criteria and process for the reporting of suspicious activity and breach of security and added cybersecurity to the list of security items covered by the MTSA. In June 2017, IMO adopted a resolution to encourage member governments to ensure that cyber risks are appropriately addressed in safety management systems no later than the first annual verification on OSG’s DoC after January 1, 2021. Verification of safety management compliance was conducted in October 2021 with no deficiencies noted.

Security breaches and viruses could expose OSG to claims, litigation and other possible liabilities. Any inability to prevent security breaches (including the inability of our third-party vendors to prevent security breaches) could also cause existing clients to lose confidence in our systems and could adversely affect our reputation, cause losses to us or our clients, damage our brand and increase our costs. OSG completed a fleetwide upgrade of its Information Technology (“IT”) systems in 2020 to further protect its infrastructure against the threat of security breaches and computer viruses. OSG has also implemented a variety of required cyber security protocols and believes that both its operating technology and IT systems are appropriately protected.

INSPECTION BY CLASSIFICATION SOCIETIES

Every oceangoing vessel must be “classed” by a Classification Society. The Classification Society certifies that the vessel is “in class” signifying that the vessel has been built and maintained in accordance with the rules of the Classification Society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the Classification Society will undertake them on application or by official order, acting on behalf of the authorities concerned. The Classification Society also undertakes on request, other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.

Regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed for a vessel to maintain its class certification. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant and where applicable for special equipment classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate. Intermediate surveys are typically conducted two and one-half years after commissioning and upon each class renewal. Intermediate surveys may be carried out on the second or third annual survey.

Vessels are required to dry dock for inspection of the underwater hull at each intermediate survey and at each class renewal survey. For vessels less than 15 years old, Classification Societies permit in water inspections by divers in lieu of dry docking for intermediate surveys, subject to other requirements of such Classification Societies. Class renewal surveys, known as special surveys, are carried out for the ship’s hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of classification for the hull.

At the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the Classification Society would prescribe steel renewals. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period was granted, a shipowner has the option of arranging with the Classification Society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. Upon a shipowner’s request, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class survey period. This process is referred to as continuous class renewal.

If defects are found during any survey, the Classification Society surveyor will issue a “recommendation” which must be rectified by the vessel owner within prescribed time limits.

Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a Classification Society that is a member of the International Association of Classification Societies (“IACS”). In December 2013, the IACS adopted new harmonized Common Structure Rules, which will apply to crude oil tankers and dry bulk carriers to be constructed on or after July 1, 2015. All OSG’s vessels are currently, and OSG expects will be, certified as being “in class” by the ABS, a major classification society. All new and secondhand vessels that OSG acquires must be certified prior to their delivery under OSG’s standard purchase contracts and memorandum of agreement. If the vessel is not certified on the date of closing, OSG has no obligation to take delivery of the vessel.

INSURANCE

Consistent with the prevailing practice in the industry, OSG presently carries protection and indemnity (“P&I”) insurance coverage for pollution of $1.0 billion per occurrence on every vessel in its fleet, as well as for other perils faced by vessel owners and operators in varying limits. Currently, the fleet is entered through membership in four different mutual protection and indemnity associations (“P&I Associations”), all of whom are members of the International Group of P&I clubs. The P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each other’s liabilities. Each P&I Association has capped its exposure to each of its members at approximately $7.5 billion through reinsurance arrangements. As a member of a P&I Association that is a member of the International Group, OSG is subject to calls payable to the P&I Associations based on its claim record as well as the claim records of all other members of the individual P&I Associations of which it is a member, and the members of the pool of P&I Associations comprising the International Group. Each of OSG’s vessels is insured by one of four P&I Associations with deductibles ranging from $0.025 million to $0.150 million per vessel per incident. While OSG has historically been able to obtain pollution coverage at commercially reasonable rates, no definitive assurances can be given that such insurance will continue to be available in the future.

OSG also carries marine hull and machinery and war risks (including piracy) insurance, which includes the risk of actual or constructive total loss, for all of its owned and operated vessels except for one where the risk is borne by the vessel’s owner as noted under the contract. The vessels are each covered up to at least their fair market value, with deductibles ranging from $0.1 million to $0.125 million per vessel per incident. OSG is self-insured for hull and machinery claims in amounts in excess of the individual vessel deductibles up to a maximum aggregate loss of $0.750 million per policy year.

TAXATION OF THE COMPANY

The following U.S. tax law applicable to the Company is based on the provisions of the U.S. Internal Revenue Code of 1986, as amended, existing and U.S. Treasury Department regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report on Form 10-K. No assurance can be given that changes in or interpretation of existing laws will not occur or will not be retroactive or that anticipated future circumstances will in fact occur.

Tonnage Tax

OSG made an election to have the foreign operations of OSG’s U.S. Flag vessels taxed under a “tonnage tax” regime rather than the usual U.S. corporate income tax regime. As a result, OSG’s gross income for U.S. income tax purposes with respect to eligible U.S. Flag vessels does not include (1) income from qualifying shipping activities in U.S. foreign trade (i.e., transportation between the United States and foreign ports or between foreign ports), (2) income from cash, bank deposits and other temporary investments that are reasonably necessary to meet the working capital requirements of qualifying shipping activities, and (3) income from cash or other intangible assets accumulated pursuant to a plan to purchase qualifying shipping assets. OSG’s taxable income with respect to the operations of its eligible U.S. Flag vessels, of which there are two, is based on a “daily notional taxable income,” which is taxed at the highest U.S. corporate income tax rate. The daily notional taxable income from the operation of a qualifying vessel is 40 cents per 100 tons of the net tonnage of the vessel up to 25,000 net tons, and 20 cents per 100 tons of the net tonnage of the vessel in excess of 25,000 net tons. The taxable income of each qualifying vessel is the product of its daily notional taxable income and the number of days during the taxable year that the vessel operates in U.S. foreign trade.

OSG’s Marshall Islands flagged vessel, which trades in the international markets, does not qualify for the U.S. income tax exclusion described in the above paragraph. Therefore, the operations of the vessel are subject to U.S. taxation and included in the calculation of taxable income. In addition, the Marshall Islands flagged vessel will be taxed under the “daily notional taxable income” under the Marshall Islands tonnage tax regime. The daily notional taxable income from the operation of the vessel are $500 for 2,500 net tonnage or less, 20 cents per net tonnage between 2,501 to 5,000 net tonnage, 17 cents per net tonnage between 5,001 to 25,000 net tonnage, 15 cents per net tonnage between 25,001 to 50,000 net tonnage and 12.5 cents per net tonnage over 50,000 net tonnage. The tonnage tax of the vessel is the product of its daily notional taxable income and the percentage of days during the taxable year the vessel operates in U.S. foreign trade.

ITEM 1A. RISK FACTORS

Our business, including our operating results and financial condition, are subject to a wide variety of risks, including risks not currently known to us or that we currently deem to be immaterial but that could materially and adversely affect our business. In assessing these risks, you should also refer to the other information contained in our filings with the SEC, including our financial statements and related notes. Actual dollar amounts are used in this section.

Risks Related to the COVID-19 pandemic

The Company’s business, results of operations and financial condition have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic.

COVID-19 has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders. The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future adversely impact the Company’s business, results of operations and financial condition. The extent to which the COVID-19 pandemic may continue to impact the Company’s operational and financial performance remains uncertain and will depend on many factors outside the Company’s control, including the timing, extent, trajectory and duration of the pandemic, the emergence of new variants, availability, distribution and effectiveness of vaccines and treatments, the imposition or relaxation of protective public safety measures, and the continuing impact of the pandemic on the global economy and demand for petroleum products. Additional future impacts on the Company may include, but are not limited to, material adverse effects on demand for the Company’s vessels, the Company’s ability to execute its strategic plans, and the Company’s financial results.

We have experienced, and there are heightened risks that we will continue to experience for the foreseeable future relating to: (i) unpredictable fluctuations in demand; (ii) uncertainties in the oil trading markets, with volatile and unpredictable oil pricing; (iii) heightened risk of off-hire periods resulting from managing virus-related delays; (iv) incurring costs for testing, cleaning, quarantine, immunization and certifications; (v) ability to comply with what are evolving, and sometimes conflicting, logistical health and safety protocols. (vi) difficulty in easily accessing critical supplies such as face masks and other personal protective equipment; (vii) risks related to the reliability and effectiveness of testing methodologies and PPE; (viii) delays in receiving critical supplies, in receiving services of specialized technicians and inspectors, and in concluding vetting of the vessels; (ix) restrictions on travel to or from countries in which OSG operates, or the inability to access certain areas; (x) reduced availability of airlines and other transportation modes to move our crews into position and increased costs associated with such travel; (xi) challenges getting crew to and from the vessels in a manner that both protects their personal safety and endeavors to assure that a joining crew member is not bringing COVID-19 onboard or is otherwise affecting a vessel’s acceptability in service; (xii) increased costs to develop, implement and enforce policies and procedures to deal with all of these challenges; and (xiii) restricted port policies for pilots, tugs and inspections.

Further risks relate to potential longer-term impacts of the pandemic on our Jones Act trade. The models we typically use to forecast demand may not be reliable in the wake of this health emergency. The shape and speed of fuel demand recovery could have significant negative impacts on our key customers, refineries in particular, which would likely have a material impact on both domestic tank vessel demand as well as on OSG’s expected forward revenue streams.

During most of 2021 we had seven vessels in layup. As of December 31, 2021, we had four vessels remaining in layup. As of March 1, 2022, two additional vessels have been placed back into service due to increased demand and two vessels remain in layup. While laying up a vessel mitigates our risks and lowers our cost, there are costs involved and no offsetting revenue.

Risks Related to Our Company

The Company has incurred significant indebtedness, may not be able to generate sufficient cash to service all of its indebtedness, and could breach covenants in its credit facilities and term loans which could affect our ability to finance operations, pursue desirable business opportunities and successfully run the business in the future, all of which could affect OSG’s ability to fulfill its obligations.

The Company’s earnings, cash flow and the market value of its vessels vary significantly due to direct impacts of the COVID-19 pandemic, general economic, competitive and market conditions affecting the industry, the cyclical nature of the tanker industry, and legislative and regulatory actions - factors beyond the control of the Company. The amount of debt that OSG can manage in some periods may not be appropriate for other periods and OSG’s ability to meet the financial covenants to which it is subject or may be subject in the future may be at risk. Any insufficiency could negatively impact OSG’s business.

Insufficiencies in earnings, cash flow and market value of the vessels could require the Company to make mandatory payments or cause the Company to breach certain covenants. If the Company is unable to remedy the relevant breach or obtain a waiver, the Company’s lenders could accelerate its debts and foreclose on the Company’s owned vessels.

If OSG does not generate sufficient cash flow from operations to satisfy its debt obligations, it may have to undertake alternative financing plans, such as selling tankers or other assets, reducing or delaying investments and capital expenditures, refinancing or restructuring its debt, and/or seeking to raise additional capital. The Company’s ability to restructure or refinance its debt will depend on the condition of the capital markets, its access to such markets and its financial condition at that time. Any future refinancing of debt could be at higher interest rates and might require the Company to comply with more onerous covenants, which could further restrict OSG’s business operations. In addition, the terms of existing or future debt instruments may restrict OSG from adopting certain alternatives. These potential undertakings and alternative measures may not be successful and may not permit OSG to meet its scheduled debt service obligations.

As of December 31, 2021, OSG had $444.7 million of outstanding indebtedness. This substantial indebtedness and interest expense could have important consequences, including (i) limiting OSG’s ability to use cash flow from operations in other areas of its business, such as for working capital, because a substantial portion of these funds are dedicated to service its debt; (ii) requiring the Company to seek to incur additional indebtedness in order to make planned capital expenditures and other expenses or investments; (iii) limiting OSG’s ability to obtain additional financing; (iv) limiting the Company’s flexibility and ability to capitalize on business opportunities or to react to competitive pressures and adverse changes in government regulation, and OSG’s business and industry; (v) increasing OSG’s vulnerability to a downturn and to adverse economic and industry conditions generally; and (vi) limiting the Company’s ability to enter into hedging transactions by reducing the number of counterparties with whom OSG can enter into such transactions as well as the volume of those transactions.

The Company’s inability to generate sufficient cash flow to satisfy its debt obligations, to meet its financial covenants, to reduce debt, and/or to obtain alternative financing, could materially and adversely affect OSG’s business, financial condition, results of operations and cash flows.

The Company’s significant operating leases will be reduced or could be replaced on less favorable terms, and a portion of the vessels leased are in layup.

The Company’s fleet includes ten vessels that have been chartered-in under operating leases. The Company did not exercise options to renew the bareboat charters for three of these ten vessels, which will come into effect in December 2022 and will result in a reduced fleet size. The remaining seven leases expire at various points in the future and may not be replaced at all or on as favorable terms. One of the vessels is currently in layup. The bareboat charter hire continues to be due and paid even if the vessel is in layup, with no corresponding revenue. These circumstances could have a material adverse effect on the Company’s future financial position, profitability, and results of operations and cash flow.

Changes in demand in specialized markets in which the Company currently operates or changes in governmental support may lead the Company to redeploy certain vessels to other markets or put its ability to participate in specialized markets at risk.

The Company conducts lightering operations in the Delaware Bay with one ATB built for these operations. If there is lower demand for this vessel in the Delaware Bay lightering market, the Company might have to redeploy this ATB in other markets in which it may not be able to compete profitably and/or may require substantial modification. In addition, the Company would be required to pay daily liquidated damages to MARAD if this vessel was deployed in the contiguous coastwise trades.

The Company has two vessels participating in the MSP which derive a substantial percentage of revenues earned from transporting cargoes reserved for U.S. Flag vessels under MARAD’s cargo preference program, which is set up to be compliant with certain laws and regulations that require shippers to give U.S.-flag vessels a preference to transport any government-impelled ocean borne cargoes. Among the currently available government–impelled cargoes is a contract the Company has with the Government of Israel (“GOI”) to deliver fuel through December 31, 2022, which the GOI funds with grants from the U.S. government. The Company also seeks other government–impelled cargoes to supplement the GOI business; however, there is no assurance the Company will be able to secure such cargoes. If the OSG is unable to retain the GOI business or is unable to obtain significant other charters for these vessels, the Company may no longer be able to participate in the MSP.

The Company operates three Jones Act MR Shuttle Tankers, two of which are currently operating as shuttle tankers serving offshore oil installations in the Gulf of Mexico. Modifications made to enable these tankers to perform the specialized service of a shuttle tanker required the Company to incur substantial capital costs, which in turn allow the Company to earn a premium to market rates earned by conventional Jones Act tankers. The customers with wells and fields in the Gulf of Mexico have high cash production costs and, as such, are vulnerable to production cuts or shut down in response to persistently low oil prices. While shuttle tankers can serve as conventional tankers without further modification, future reduction in the demand for specialized shuttle tanker services could limit the Company’s ability to earn such premiums.

If OSG is no longer able to participate in any of these niche businesses, the Company’s business, financial condition, results of operations and cash flows may be adversely affected.

Changes in demand have affected Time Charter commitments. OSG may not be able to renew Time Charters when they expire or enter into new Time Charters and vessels may be placed in layup.

As a direct result of the impact of the COVID-19 pandemic on OSG’s business, our customers have been reluctant to commit to long-term Time Charters while the markets remain uncertain. OSG’s ability to obtain new charters or renew expiring contracts will depend on the prevailing market conditions. Renewals or new contracts may be at less favorable rates or for shorter duration. There may be a gap in employment between charters or the vessel may only be able to be employed on the spot market, both of which would affect utilization rates and result in increased costs to the Company. When there is no demand for a vessel, there is also a risk of the necessity to layup the vessel, as demonstrated during the course of 2021. These occurrences would adversely affect the Company’s business, financial condition, results of operations and cash flows.

Inability to attract or retain qualified mariners may adversely affect the Company’s business.

The COVID-19 pandemic has affected the market for qualified mariners. Competition from other shipping sectors, such as container shipping, has led to increasing demand for certain mariners and higher wages being offered potentially detracting certain mariners from OSG’s business. During 2021 while some of OSG’s fleet was laid-up, many of our mariners were laid off and may have found alternative employment elsewhere. Our vessels must be manned by qualified mariners that meet the standards of experience set by our customers. If we are unable to attract or retain qualified mariners, we may not be able to provide the services contracted for, which would have a material adverse effect on our business.

The Company derives a substantial portion of its revenue from a limited number of customers and is subject to credit risks, and the loss of, or reduction in business by, any of these customers could materially adversely affect its business, financial condition and results of operations.

The Company’s largest customers account for a significant portion of its revenues. The Company’s top two customers comprised approximately 38.8% of the Company’s revenues during 2021. Changes in the broader market, such as closures of U.S. refining facilities, have occurred that reduce the locations to and from which oil is delivered or refined oil is sourced.

The Company has entered into, and in the future will enter into, various contracts associated with the operation of its vessels. The ability of each of the Company’s customers, lenders, suppliers, and other counterparties to perform their obligations will depend on a number of factors that are beyond the Company’s control and may include general economic conditions; availability of debt or equity financing; the condition of the maritime and offshore industries; the financial condition of the counterparty; charter rates received for specific types of vessels; and volatile expenses in obtaining supplies. Charterers are sensitive to the commodity markets and may be impacted by market forces affecting commodities such as oil. In addition, as we are currently experiencing, in depressed market conditions, the Company’s charterers and customers may no longer need a vessel that had been under charter or contract or may be able to obtain a comparable vessel at lower rates, or adverse financial conditions may inhibit these entities from entering into new commitments with OSG. As a result, the Company’s customers may fail to pay charter hire or attempt to renegotiate charter rates. If the counterparties fail to meet their obligations, the Company could suffer losses on such contracts which would decrease revenues, cash flows and earnings.

These factors could have a material adverse effect on OSG’s revenues, profitability and cash flows, as well as its borrowing ability and financial condition. The loss of, or reduction in business by, any of these customers and refinery locations could materially adversely affect the Company’s business, financial condition and results of operations.

Operating costs and capital expenses will increase as the Company’s vessels age and due to unexpected drydocks.

In general, capital expenditures, cargo insurance rates and other costs necessary for maintaining a vessel in good operating condition increase as the age of the vessel increases. Changes in governmental regulations and compliance with Classification Society standards may restrict the type of activities in which the vessels may engage and/or may require OSG to make additional expenditures for new equipment. Vessels must be drydocked periodically for inspection and maintenance, and in the event of accidents or other unforeseen damage. The cost of repairs and renewals required at each drydock are difficult to predict with certainty but can be substantial, and the Company’s insurance may not cover these costs. Vessels in drydock will generally not generate any income. In addition, the time when a vessel is out of service for maintenance is determined by a number of factors including regulatory deadlines, market conditions, shipyard availability and customer requirements.

As a result of these factors, OSG may be required to incur substantial costs or take its vessels out of service. Market conditions may not justify such expenditures or permit OSG to operate its vessels profitably even if those vessels remain operational. These cost increases, delays, expenses and off-hire time could have a material adverse effect on OSG’s business, financial condition, results of operations and cash flows.

Interruption, failure or breach of OSG’s information technology and communications systems could impair its ability to operate and adversely affect its business.

OSG has both on-shore and ship-board systems that are highly dependent on information technology systems. The Company collects, stores and transmits data using both internal information technology systems and those of third-party vendors. The secure storage, processing, maintenance, and transmission of sensitive data, including our own proprietary business information and that of our customers, and personally identifiable information of our customers and employees, is critical to the Company’s operations.

Information technology and communication systems are subject to reliability issues, integration and compatibility concerns, and security-threatening intrusions. OSG may experience failures caused by the occurrence of natural disasters, computer hacking or viruses or other unanticipated problems at OSG’s facilities, aboard its vessels or at third-party locations. OSG’s network, or those of our clients or third-party vendors, could be vulnerable to unauthorized access, computer viruses, or targeted attacks intended to steal or destroy data, disrupt or degrade service, sabotage systems or cause other damage.

The Company may be required to spend significant capital and other resources to protect against these threats or to alleviate problems caused by security breaches or viruses. Security breaches and viruses could expose us to claims, litigation and other possible liabilities and could also cause customers to lose confidence in our systems.

OSG has not experienced any material cyber security violation or occurrence over the last three years, and we invest time, effort and financial resources to secure our systems, networks and communications. However, these activities cannot provide absolute assurance that we will be successful in preventing or responding to all cyber security attacks. Any failure of OSG’s or third-party systems could result in interruptions in service, reductions in its revenue and profits, damage to our reputation and brand, or liability for the release of confidential information, and there can be no assurance that any breach or incident will not have a material impact on our operations and financial results.

Delays or disruptions in implementing new technological and management systems could impair the Company’s ability to operate and adversely affect its business.

The Company is currently in the process of transitioning to a new software system for managing ship operations. From time to time the Company implements new systems or upgrades technological resources utilized in running its business. The transition to new technology requires a significant investment in capital and personnel resources and the coordination of numerous software and system providers and internal business teams. The Company may experience difficulties as it manages these changes and transitions to a new system and upgrades its technological resources, including loss or corruption of data, delays, decreases in productivity as personnel implement and become familiar with new systems and processes, and unanticipated expenses. Additionally, the Company could be adversely affected if the new software system it is implementing for managing ship operations or other new or upgraded technological resource are defective, not installed properly, fail to perform as marketed or are not properly integrated into existing operations. In addition, the implementation of a new system may not result in improvements that outweigh the cost of implementation. System implementation failures or operational failures, including unauthorized access by third parties to our new software system (which could have the effects described in the preceding risk factor) could have adverse effects on the Company’s business, financial position, and ability to operate in a complex industry.

We could face significant liability if one or more multiemployer plans in which we participate is reported to have underfunded liabilities and we withdraw from participation in one or more multiemployer pension plans in which we participate.

The Company is a party to collective-bargaining agreements that require contributions to three jointly managed multiemployer pension plans covering seagoing personnel of U.S. Flag vessels. Our required contributions to these plans could increase because of a shrinking contribution base as a result of the insolvency or withdrawal of other companies that currently contribute to these plans, the inability or failure of withdrawing companies to pay their withdrawal liability, low interest rates, lower than expected returns on pension fund assets or other funding deficiencies. Certain of these multiemployer plans are currently underfunded. Significantly underfunded pension plans are required to improve their funding ratios within prescribed intervals based on the level of their under-funding. As a result, OSG’s required contributions to these plans may increase in the future. In addition, a termination of or voluntary withdrawal from or a mass withdrawal of all contributing employers from an underfunded multiemployer pension plan would require OSG to make payments to the plan for our proportionate share of such multiemployer pension plan’s unfunded vested liabilities. See Note 15, “Pension and Other Post Retirement Benefit Plans,” to the Company’s consolidated financial statements set forth in Item 8 for additional information. Requirements to pay increased contributions or withdrawal liabilities could have a material adverse impact on our liquidity and results of operations.

Risks Related to Our Industry

Volatile changes in supply and demand for oil and refined products, charter rates and vessel values, and the factors that influence such changes, could adversely affect the Company’s earnings, liquidity and available cash.

The marine transportation industry is both cyclical and volatile in terms of demand, charter rates and profitability. Fluctuations in charter rates and vessel values result from changes in supply and demand both for tanker capacity and for oil and oil products. Factors affecting these changes in supply and demand are generally outside of the Company’s control. Aside from the impacts of the COVID-19 pandemic, additional factors influencing the demand for tanker capacity, and impacting our costs and profitability, include: (i) supply and demand for, and availability of energy resources such as oil, oil products and natural gas, which affect customers’ need for vessel capacity; (ii) availability of refining capacity and inventories; (iii) changes in the production levels of crude oil; (iv) increases in the supply of Jones Act vessels without a commensurate increase in demand; (v) global and regional economic and political conditions, including armed conflicts, terrorist activities and strikes, and international sanctions, embargoes, import and export restrictions or nationalizations and wars, such as the situation currently occurring with Ukraine and Russia, that create uncertainties in the supply of and demand for oil; (vi) changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported, changes in the price of crude oil and changes to the West Texas Intermediate and Brent Crude Oil pricing benchmarks; and (vii) increasing interest globally, from a regulatory and demand viewpoint, in transitioning to carbon neutral energy sources and the development and use of alternative fuels in order to reduce greenhouse gas emissions that impact the fuel we transport as cargo and use in fueling our own vessels (see further the risk factor, below, relating to compliance with regulations).

Many of the factors that influence the demand for tanker capacity will also, in the longer term, effectively influence the supply of tanker capacity, since decisions to build new capacity, invest in capital repairs, invest in new technologies or equipment, or to retain in service older capacity are influenced by the general state of the marine transportation industry from time to time. Factors influencing the supply of vessel capacity include (i) the number of newbuild deliveries or the conversion of vessels into or out of transporting oil; (ii) the number of vessels removed from service, such as via recycling, scrapping or conversion to storage; and (iii) the availability and pricing of other energy sources such as natural gas for which tankers can be used or to which construction capacity may be dedicated.

The nature, timing and degree of changes in industry conditions are unpredictable and could adversely affect the values of the Company’s vessels or result in significant fluctuations in the amount of charter revenues the Company earns, which could result in significant volatility in OSG’s quarterly results and cash flows.

The market value of vessels fluctuates significantly, which could adversely affect OSG’s liquidity or otherwise adversely affect its financial condition.

While Jones Act and U.S. Flag vessel market values have, on average, generally declined over the past several years, the market value of Jones Act vessels has fluctuated over time. The fluctuating market values of the vessels can impact the Company’s liquidity regardless of whether the Company sells or continues to hold the vessels. For example, selling a vessel at a sale price that is less than the vessel’s carrying amount on the Company’s financial statements will result in a loss on the sale and a reduction in earnings and surplus. Declining values of the Company’s vessels could adversely affect the Company’s liquidity by limiting its ability to raise cash by refinancing vessels. The Company may also experience significant impairment charges upon a decline in vessel value. Any charges relating to such impairments could adversely affect the Company’s results of operations and financial condition.

Changes in fuel prices may adversely affect profits.

Fuel is a significant expense in the Company’s shipping operations when vessels are under voyage charter. Accordingly, an increase in the price of fuel may adversely affect the Company’s profitability if these increases cannot be passed onto customers. Moreover, higher fuel prices could reduce the profitability and competitiveness of the Company’s business compared to other forms of transportation. The price and supply of fuel is unpredictable and fluctuates based on events outside the Company’s control.

OSG conducts certain of its operations internationally, which subjects the Company to changing economic, political and governmental conditions abroad that may adversely affect its business.

The Company conducts certain of its operations internationally, and its business, financial condition, results of operations and cash flows may be adversely affected by changing economic, political and government conditions in the countries and regions where its vessels are employed. OSG must comply with complex foreign and U.S. laws and regulations, such as environmental regulations requiring investments and upgrades, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other local laws prohibiting corrupt payments to government officials, anti-money laundering laws; and anti-competition regulations. OSG’s operations may also subject its employees and agents to extortion attempts. Violations of these laws and regulations could result in fines and penalties, criminal sanctions, restrictions on the Company’s business operations and on the Company’s ability to transport cargo to one or more countries, and could also materially affect the Company’s brand, ability to attract and retain employees, international operations, business and operating results. Although OSG has policies and procedures designed to achieve compliance with these laws and regulations, OSG cannot be certain that its employees, contractors, joint venture partners or agents will not violate these policies and procedures.

Shipping is a business with inherent risks, and OSG’s insurance may not be adequate to cover its losses.

OSG’s vessels and their cargoes are at risk of being damaged or lost due to accidents, bad weather, mechanical failure, human error, and other factors. These hazards may result in death or injury; loss of revenues or property; environmental damage; higher insurance rates; damage to customer relationships and industry reputation; and market disruptions, and delay or rerouting, all of which may also subject OSG to litigation. The operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage and the associated costs could exceed the insurance coverage available to the Company. While the Company carries insurance to protect against certain of these risks, risks may arise against which the Company is not adequately insured. In the past, new and stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable.

Terrorism, piracy, or hostilities could adversely affect the Company’s business.

Although the Company’s fleet operates mainly in U.S. waters, there are occasions when a vessel may be in an area where terrorist or pirate attacks, or hijacking are a concern. If attacks result in regions in which the Company’s vessels are deployed being characterized by insurers as “war risk” zones or Joint War Committee “war and strikes” listed areas, premiums payable for insurance coverage could increase significantly, and such insurance coverage may become difficult to obtain. Crew costs could also increase in such circumstances due to risks of piracy attacks. While OSG believes the charterer remains liable for charter payments when a vessel is seized by pirates, disputes with the charterer may result in the delay or non-payment of charter hire, or cancellation of the charter party. The Company may not be adequately insured to cover losses from these incidents, or an increase in the cost (or unavailability) of insurance for those vessels could have a material adverse impact on OSG’s business, financial condition, results of operations and cash flows. Such attacks may also impact the Company’s customers, which could impair their ability to make payments to the Company under its charters.

Terrorism or international hostilities could cause political instability, damage the world economy, adversely affect the availability of and demand for crude oil and petroleum products and adversely affect both the Company’s ability to charter its vessels and the charter rates payable under any such charters. These factors could also increase the costs to the Company of conducting its business, particularly crew, insurance and security costs, and prevent or restrict the Company from obtaining insurance coverage, all of which could have a material adverse effect on OSG’s business, financial condition, results of operations and cash flows.

Risks Related to Legal and Regulatory Matters

The Company’s business would be adversely affected if it failed to comply with the Jones Act’s limitations on U.S. coastwise trade, or if these limitations were waived, modified or repealed, or if changes in international trade agreements were to occur.

The Company is responsible for monitoring the foreign ownership of its common stock and other interests to ensure compliance with the Jones Act. The Company could lose the privilege of owning and operating vessels in the Jones Act trade if non-U.S. Citizens were to own or control, in the aggregate, more than 25% of the equity interests in the Company. Such loss would have a material adverse effect on the Company’s business and results of operations. In addition, failure to comply with the Jones Act could result in the Company being deemed to have violated other U.S. federal laws that prohibit a foreign transfer of U.S. documented vessels without government approval, resulting in severe penalties, including permanent loss of U.S. coastwise trading privileges or forfeiture of the vessels deemed transferred, and fines.

Maritime transportation services are currently excluded from the General Agreement on Trade in Services (“GATS”) and are the subject of reservations by the United States in the North American Free Trade Agreement (“NAFTA”) and other international free trade agreements. If maritime transportation services were included in GATS, NAFTA or other international trade agreements, or if the restrictions contained in the Jones Act were otherwise repealed or altered, the transportation of maritime cargo between U.S. ports could be opened to international flag or foreign built vessels. Interest groups regularly lobby Congress, and legislation has been introduced, to repeal certain provisions of the Jones Act or to grant extensive waivers so as to facilitate international flag competition for trades and cargoes currently reserved for U.S. Flag vessels under the Jones Act. The Company expects that continued efforts will be made to modify, repeal, or waive the Jones Act. Because international vessels may have lower construction costs, wage rates and operating costs, this could significantly increase competition in the coastwise trade, which could have a material adverse effect on the Company’s business, results of operations, cash flows and financial condition.

The U.S. government could requisition the Company’s vessels during a period of war or emergency, which may negatively impact the Company’s business, financial condition, results of operations and available cash.

The U.S. government could requisition one or more of the Company’s vessels for title or hire, typically occurring during a period of war or emergency. OSG participates in the Maritime Security Program for such purposes. The U.S. government requisition of one or more of the Company’s vessels could impact the Company’s business, financial condition, results of operations and available cash if the charter rates we receive from the government while on requisition are less than the charter rates that are being replaced, or if the government refuses to pay the requisition charter rate, in which case we would seek recovery through our insurance policies.

Compliance with complex laws and regulations, including those seeking to reduce the spread of the COVID-19 virus, and environmental laws and regulations, including those relating to the emission of greenhouse gas gases and ballast water treatment, may adversely affect OSG’s business.

The Company’s operations are affected by extensive and changing international, national and local environmental protection laws, regulations, treaties, conventions and standards designed to reduce the risk of oil spills and water pollution and to regulate air emissions, including emission of greenhouse gases. These requirements impose significant capital and operating costs on OSG. In the United States, the Company is subject to the oversight of government agencies including the U.S. Coast Guard, the Environmental Protection Agency and the Maritime Administration of the U.S. Department of Transportation. OPA 90 affects all vessel owners shipping oil or hazardous material to, from or within the United States. OPA 90 allows for potentially unlimited liability without regard to fault for owners, operators and bareboat charterers of vessels for oil pollution in U.S. waters. Similarly, the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by most countries outside of the United States, imposes liability for oil pollution in international waters. Other significant international conventions to which the United States is signatory are the International Convention for the Prevention of Pollution from Ships (“MARPOL”), the International Convention for the Safety of Life at Sea (“SOLAS”), and the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). Additionally, OPA 90 expressly permits individual states to impose their own liability regimes with regard to hazardous materials and oil pollution incidents occurring within their boundaries. Coastal states in the United States have enacted pollution prevention liability and response laws, many providing for unlimited liability.

Due to concern over the risk of climate change, a number of countries, including the United States, and international organizations, including the IMO and the European Union, have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. Regulations and the reporting mechanisms to measure emissions are evolving as they attempt to standardize the reporting of varying operational factors for many types of vessels and conditions, including such measures as the Energy Efficiency Existing Ship Index (“EEXI”) and the Carbon Intensity Indicator (“CII”). The adoption of such actions could result in significant financial and operational impacts on the Company’s business and on the global industry, including requiring OSG to install new emission controls, to invest in technologies or equipment to retrofit on our vessels, to acquire allowances or to pay taxes related to its greenhouse gas emissions. See Item 1, “Business - Environmental, Safety and Security Matters.”.

In order to comply with laws and regulations, the Company incurs substantial capital and/or operating expenditures and develops contingency arrangements for potential spills or to reduce and control emissions. The Company is in the process of installing ballast water treatment systems on its vessels at substantial capital cost. Although the Company has performed due diligence in choosing the particular systems, there is no assurance that the technologies chosen will perform as expected or be installed without delays.

Environmental laws and regulations can affect the resale value or significantly reduce the useful lives of the Company’s vessels, require a reduction in carrying capacity, ship modifications or operational changes or restrictions (and related increased operating costs) or retirement of service, lead to decreased availability or higher cost of insurance coverage for environmental matters or result in the denial of access to, or detention in, certain jurisdictional waters or ports. Under local, national and foreign laws, as well as international treaties and conventions, OSG could incur material liabilities, including cleanup obligations, natural resource damages, fines and penalties in the event that there is a release of oil, petroleum or other hazardous substances from its vessels or otherwise in connection with its operations. OSG could be subject to personal injury or property damage claims relating to the release of or exposure to hazardous materials associated with its current or historic operations. Violations of or liabilities under environmental requirements also can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of the Company’s vessels.

It can be expected that these regulations will continue to become stricter in the future and will require the Company to incur significant capital expenditures to keep its vessels in compliance, or even to scrap or sell certain vessels altogether. Such expenditures could result in financial and operational impacts that may be material to OSG’s financial statements. The failure to comply with local, domestic and foreign regulations may subject the Company to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.

The employment of the Company’s vessels could be adversely affected by an inability to clear the oil majors’ risk assessment process.

The major oil companies have developed a strict due diligence process for selecting their shipping partners out of concerns for the environmental impact of spills. This vetting process has evolved into a sophisticated and comprehensive risk assessment of both the vessel manager and the vessel. The Company’s charterers require that the Company’s vessels and the technical managers pass vetting inspections and management audits. The Company’s failure to maintain any of its vessels to these standards could put the Company in breach of the applicable charter agreement and lead to termination of such agreement thereby adversely affecting the revenues of the Company.

Transfers or issuances of the Company’s equity may impair or reduce the Company’s ability to utilize its net operating loss carryforwards and certain other tax attributes in the future.

Section 382 of the Internal Revenue Code of 1986, as amended, contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss and tax credit carry forwards and certain built-in losses recognized in years after the ownership change. An “ownership change” is generally defined as any change in ownership of more than 50% of a corporation’s stock over a rolling three-year period by stockholders that own (directly or indirectly) 5% or more of the stock of a corporation or arising from a new issuance of stock by a corporation. If an ownership change occurs, Section 382 imposes an annual limitation on the use of pre-ownership change NOLs, 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. In addition, Section 383 generally limits the amount of tax liability in any post-ownership change year that can be reduced by pre-ownership change tax credit carryforwards. If the Company were to undergo an “ownership change,” it could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease two properties that house offices used in the administration of our operations: a property of approximately 18,300 square feet in Tampa, Florida, and a property of approximately 4,000 square feet in Beaverton, Oregon. We also lease 3.2 acres in Tampa, Florida on which two Company-owned buildings aggregating 15,000 square feet sit and a property of approximately 18,600 square feet in Portland, Oregon used to store spares and parts for our vessels.

We do not own or lease any production facilities, plants, mines or similar real properties.

Vessels:

At December 31, 2021, the Company owned or operated an aggregate of 24 vessels. See tables presented under Item 1, “Business—Fleet Operations.”

ITEM 3. LEGAL PROCEEDINGS

We are party to lawsuits and claims arising out of the normal course of business. In management’s opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on our consolidated results of operations, financial position, or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information, Holders and Dividends

The Company’s Class A common stock is listed on the New York Stock Exchange under the symbol “OSG.”

On March 4, 2022, there were 116 stockholders of record of the Company’s Class A common stock.

The declaration and timing of future cash dividends, if any, will be at the discretion of the Board of Directors and will depend upon, among other things, our future operations and earnings, capital requirements, general financial condition, contractual restrictions, restrictions imposed by applicable law and such other factors as our Board of Directors may deem relevant. In addition, the Company’s ability to pay cash dividends in the future may be limited by certain of the Company’s loan agreements.

Section 170(a) of the Delaware General Corporation Law (“DGCL”) only permits dividends to be declared out of two legally available sources: (1) surplus, or (2) if there is no surplus, net profits for the year in which the dividend is declared or the preceding year (so-called “nimble dividends”). However, dividends may not be declared out of net profits if “the capital of the corporation, computed in accordance with sections 154 and 244 of the DGCL, shall have been diminished by depreciation in the value of its property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets.”

Equity Compensation Plan Information

See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for further information on the number of shares of the Company’s Class A common stock that may be issued under the 2019 Incentive Compensation Plan for Management and the Non-Employee Director Incentive Compensation Plan.

Equity Securities

See Note 12, “Capital Stock and Stock Compensation,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data,” for a description of Class A warrants exercised in exchange for Class A common stock, which is incorporated by reference in this Part I, Item 5.

During the year ended December 31, 2021, in connection with the vesting of restricted stock units in February and March, the Company withheld the following number of shares of Class A common stock from certain members of management to cover withholding taxes:

ITEM 6. RESERVED

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of (i) industry operations that have an impact on the Company’s financial position and results of operations, (ii) the Company’s financial condition at December 31, 2021 and 2020 and its results of operations for the years ended December 31, 2021 and 2020, and (iii) critical accounting policies used in the preparation of the Company’s consolidated financial statements. All dollar amounts are presented in thousands, except daily dollar amounts and per share amounts.

GENERAL

We are a leading provider of energy transportation services, delivering crude oil and petroleum products. Our 24-vessel fleet operates as a single reportable segment. We believe that this is appropriate as our chief operating decision maker makes decisions about resource allocations and reviews and measures our results as one line of business with similar regulatory requirements, customers and commodities transported. Our active vessel fleet, of which 22 are U.S. Flag vessels, consists of three crude oil tankers doing business in Alaska, two conventional ATBs, two lightering ATBs, three shuttle tankers, ten MR tankers, and two non-Jones Act MR tankers that participate in the U.S. Maritime Security Program. The Company also owns and operates one Marshall Islands flagged MR tanker which trades internationally. Revenues are derived predominantly from time charter agreements, which provide a predictable level of revenues. We derived approximately 29% of our total shipping revenues and 27% of our total TCE revenues in the spot market and COAs for 2021.

The ongoing Coronavirus pandemic has severely impacted global and national economies. During 2020, lockdown orders, business closures and travel restrictions among many other events reduced the demand for many products, including petroleum. 2021 was characterized by the introduction of COVID-19 vaccines, business recovery and two different COVID-19 variants that all impacted overall business conditions. During the second half of 2021, there were increases in refinery operations and end user demand for transportation fuels. Demand is expected to continue to increase in 2022 to levels exceeding pre-pandemic levels. Although there has been an increase in demand, business uncertainty for our customers remains, which has resulted in a reluctance to enter into longer term transportation commitments. Customers currently favor shorter term agreements. We believe that as their visibility and confidence in the future returns there will be a resumption of more typical customer behavior and time charter activity will rebound.

The ongoing pandemic also resulted in the non-renewal of charters for vessels whose time charters ended late in 2020 and early in 2021. In response to this we placed seven vessels in layup for most of 2021. This allows us to reduce the operating costs associated with vessels that are without charter. We saw an increase in demand during the second half of 2021. As a result, two of the seven vessels came out of layup in September 2021 and operated in the spot market. One of these two vessels commenced a 26-month time charter in mid-November 2021. A third vessel came out of layup in December 2021 and operated in the spot market. In January 2022 and late February 2022, two more vessels came out of layup. As of March 1, 2022, we have two vessels remaining in layup.

Immediately prior to this filing, recent geopolitical tensions involving Russia and the Ukraine have disrupted markets and resulted in volatile oil prices. The impact of this situation is uncertain and ongoing.

OPERATIONS AND OIL TANKER MARKETS

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

Beginning in the 2020 first quarter, COVID-19 caused material disruptions in demand for and an oversupply of crude oil and refined products. During the second half 2020, large inventory builds around the world ensued. Managed reductions in both crude oil production levels and refinery utilization rates have combined to reduce inventory levels over the past year. As supply has been constrained, crude oil prices in particular have risen strongly in response. As a result, many analysts now consider market conditions to be favorable for increased oil production, and a corresponding rise in the demand for its transportation. These predictions reflect estimates on the prevalence of COVID-19 and the recovery of the global economy. Energy markets are global in nature and the pace and extent of COVID-19 and the changing state of its presence in all markets is an important factor in understanding the timing and extent of recovery of supply and consumption patterns within the U.S. While COVID-19 has presented our industry and markets with significant challenges, we believe that we have thus far managed its impact on our business operations well, with all of our Jones Act and internationally trading vessels able to load, transit and discharge cargo without material interruption.

Despite the foregoing, the ongoing global COVID-19 pandemic continues to weigh on demand and transport pricing dynamics in the global liquid bulk transportation markets. While demand for transportation fuels in the United States has recovered strongly from 2020 lows, weak international markets have contributed to increased imports of both crude oil and refined product into the U.S. when compared with prior periods. Import substitution for domestic supply has dampened demand, especially for conventional Jones Act tankers, and continues to create conditions of business uncertainty for our customers and, accordingly, for our business. Our customers’ reluctance to enter into longer-term transportation commitments has been a continuing condition since the onset of the pandemic. In the face of this soft demand environment, we placed seven vessels in layup. During the second half of 2021, we reactivated three vessels in response to increasing charterer demand. Three tankers and one ATB remained in layup at the end of the fourth quarter of 2021. We have returned two additional vessels to service in January and February 2022. Laying up vessels in times of limited near-term employment opportunities allows us to reduce the costs associated with vessels that are without charter.

While the recovery slope of domestic marine transportation demand levels has been flatter than what had been expected earlier in the 2021 year, we believe that, as our customers’ visibility and confidence in the future returns, the market will tighten and there will be a resumption of more typical customer behavior, and time charter activity will rebound. Timing of the reactivation of vessels remaining in layup is contingent upon increased demand from our domestic customer base. We anticipate that as consumption patterns for transportation fuels globally regains traction, demand for Jones Act tanker domestically should normalize. A normalization of fuel demand patterns consistent with historical levels of consumption is expected to stimulate more marine transportation demand, which in turn should lead to a reactivation of vessels from layup to meet any such increase in demand. The pace and trajectory of demand recovery continues to be influenced by many factors, including progress in resolving the pandemic, both within and outside of the US, and near-term uncertainty will continue to define a wide spectrum of possible vessel reactivation outcomes as we move through the balance of the year.

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

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

COVID-19 induced demand destruction that started in March 2020 resulted in minimal spot market activity for most of 2021. There has been an increase of spot activity in the fourth quarter of 2021 with 30 spot fixtures versus 18 spot fixtures in the third quarter of 2021. For the 30 spot fixtures, 12 were performed by tankers and the remaining were performed by ATBs.

Our vessels, excluding vessels in layup, were employed for 93% of available days during 2021, with 342 of a total 5,174 available days (available days excludes 189 days vessels were offhire due to drydock requirements) seeing vessels idle without employment. Two of our tankers, the Overseas Nikiski and the Overseas Key West, exited layup and returned to service in September 2021. Another tanker, the Overseas Anacortes, exited layup and returned to service in December 2021.

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

Delaware Bay lightering volumes averaged 70,000 b/d in 2021 compared with 58,000 b/d in 2020. Refinery demand for crude oil has increased from the low demand levels in 2020 caused by COVID-19. We have contract minimums with our refinery customers that compensate us for barrels not lightered below specified minimum amounts.

On March 12, 2020, our subsidiaries completed the purchase of the Alaskan Explorer, Alaskan Legend and Alaskan Navigator (the “Alaskan tankers”) from BP Oil Shipping Company USA and AP AMI Leasing Inc. (“BP”) and entered into a bareboat charter with BP for a fourth vessel, the Alaskan Frontier. The Alaskan Frontier is currently in layup. In connection with these transactions, we also completed the acquisition of the other members’ interests in ATC, making ATC a wholly owned subsidiary of OSG. Operating results of these vessels are included from that date.

RESULTS FROM VESSEL OPERATIONS

During the year ended December 31, 2021, shipping revenues decreased by $59,630, or 14.2% compared to 2020. The decrease was primarily a result of (a) a 1,894-day increase in layup days due to seven vessels in layup for most of 2021, a decision taken in light of the lack of demand due to the economic impact of COVID-19, (b) one less MR tanker in our fleet, Overseas Gulf Coast, which was sold during the second quarter of 2021 and (c) two fewer ATBs, which were sold in May 2020 and August 2020. The decrease was offset by (a) a 204-day decrease in scheduled drydocking, (b) the addition to our fleet of three crude oil tankers, Alaskan tankers, which were purchased in March 2020, and two ATBs, OSG 204 and OSG 205, which were delivered at the end of May 2020 and the beginning of December 2020, respectively, (c) an increase in Delaware Bay lightering volumes and (d) five Military Sealift Command voyages, which were longer international voyages, during 2021 compared to two such voyages during 2020. Two of seven vessels came out of layup in September 2021 and operated in the spot market. One of these two vessels commenced a 26-month time charter in mid-November 2021. A third vessel came out of layup in December 2021 and operated in the spot market.

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

Consistent with general practice in the shipping industry, we use TCE revenues, which represents shipping revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. TCE revenues, a non-GAAP measure, provides additional meaningful information in conjunction with shipping revenues, the most directly comparable GAAP measure, because it assists management in decisions regarding the deployment and use of our vessels and in evaluating their financial performance.

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

(a) Excludes one Alaska vessel currently in layup.

During 2021, TCE revenues decreased by $83,284, or 22.1%, to $292,595 from $375,879 in 2020. The decrease was primarily a result of (a) a 1,894-day increase in layup days due to seven vessels in layup for most of 2021, a decision taken in light of the lack of demand due to the economic impact of COVID-19, (b) one less MR tanker in our fleet, Overseas Gulf Coast, which was sold during the second quarter of 2021 and (c) two fewer ATBs, which were sold in May 2020 and August 2020. The decrease was offset by (a) a 204-day decrease in scheduled drydocking, (b) the addition to our fleet of three crude oil tankers, Alaskan tankers, which were purchased in March 2020, and two ATBs, OSG 204 and OSG 205, which were delivered at the end of May 2020 and the beginning of December 2020, respectively, (c) an increase in Delaware Bay lightering volumes and (d) five voyages for Military Sealift Command, which were longer international voyages, during 2021 compared to two such voyages during 2020. Two of seven vessels came out of layup in September 2021 and operated in the spot market. One of these two vessels commenced a 26-month time charter in mid-November 2021. A third vessel came out of layup in December 2021 and operated in the spot market.

Voyage expenses increased by $23,654, or 55.2%, to $66,467 in 2021 from $42,813 in 2020 primarily a result of an increase in expenses for oil pollution mitigation services for the Alaskan tankers as we acquired the vessels on March 12, 2020. These expenses are passed through to the charterer each month. Additionally, voyage expenses increased due to increases in fuel and port expenses related to more voyage charters performed by our vessels in 2021 compared to 2020. The increase was partially offset by a decrease in freight brokerage fees due to more vessels in layup during 2021 compared to 2020.

Vessel expenses decreased by $19,053, or 11.9%, to $140,413 in 2021 from $159,466 in 2020 primarily due to a decrease in crewing costs. The decrease in crewing costs was due to seven vessels in layup for most of 2021, a decision taken in light of the lack of demand due to the economic impact of COVID-19.

Depreciation expense increased by $3,310, or 5.6%, to $61,823 in 2021 from $58,513 in 2020. The increase primarily resulted from an increase in depreciation expense due to the addition of three crude oil tankers, Alaskan tankers, to our fleet in March 2020 and the addition of our newbuild barges, OSG 204 and OSG 205, which entered service during the end of the second quarter of 2020 and fourth quarter of 2020, respectively, and an increase in amortization of drydock costs.

Two reflagged U.S. Flag Product Carriers participate in the U.S. Maritime Security Program, which is designed to ensure 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. Each of the vessel-owning companies receives an annual stipend, subject in each case to annual congressional appropriations, which is intended to offset the increased cost incurred by such vessels from operating under the U.S. Flag. Such stipend was $5,250 for each vessel in 2021 and $5,058 on one vessel and $4,607 on one vessel in 2020.

Under the terms of the program, we expect to receive up to $5,300 for each vessel in 2022. We do not receive a stipend for any days for which either of the two vessels operate under a time charter to a U.S. government agency.

BAD DEBT RECOVERY

Bad debt recovery was $1,080 in 2021 compared to $0 in 2020. In June 2019, one of our lightering customers, Philadelphia Energy Solutions LLC (“PES”), suffered an explosion and fire at its refinery in the Delaware Bay. In July 2019, PES filed a Chapter 11 bankruptcy petition. At the end of the second quarter of 2019, we established a loss provision of $4,300 related to $4,300 in outstanding receivables from PES. In May 2020, the PES bankruptcy process resulted in the sale of the refinery complex, which was permanently closed. During the fourth quarter of 2021, our recovery became determinable and we recognized a recovery of $1,080. The $1,080 payment was received by us in February 2022.

GENERAL AND ADMINISTRATIVE EXPENSES

During 2021, general and administrative expenses decreased by $2,772, or 10.3%, to $24,097 from $26,869 in 2020. The decrease was primarily driven by lower compensation and benefits costs and lower consulting and accounting fees.

LOSS ON DISPOSAL OF VESSELS AND OTHER PROPERTY, INCLUDING IMPAIRMENTS, NET

Loss on disposal of vessels and other property, including impairments, net was $6,276 in 2021 compared to $982 in 2020. The increase primarily was a result of the sale of the Overseas Gulf Coast during the second quarter of 2021 for $32,128, net of broker commissions and other fees, resulting in a loss, and an impairment charge of $1,000 recorded on two of the Company’s leased vessels. During 2020, losses were recognized due to the sale of two ATBs.

GAIN ON TERMINATION OF PRE-EXISTING ARRANGEMENT

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

LOSS ON EXTINGUISHMENT OF DEBT, NET

Loss on extinguishment of debt, net was $8,031 in 2021 compared to $793 in 2020. The increase was due to a $5,295 write-off of unamortized deferred financing costs and $2,736 of prepayment fees related to the pay off of our term loans, due 2023 and 2026, a prepayment made on our Alaska tankers term loan, due 2025, during the third quarter of 2021, and a prepayment made on our OSG 204 LLC term loan, due 2025, during the fourth quarter of 2021. During 2020, losses were recognized due to a write-off of unamortized deferred financing costs related to mandatory prepayments on our term loan, due 2023, as a result of the sale of two of our ATBs.

INTEREST EXPENSE

Interest expense increased $5,158, or 21.4%, to $29,203 in 2021 from $24,045 in 2020. The increase in interest expense was primarily related to the addition of the OSG 205 LLC and OSG Courageous II LLC term loan, due 2027, in the fourth quarter of 2020 and less interest capitalized during 2021 compared to 2020. The increase was offset by a decrease due to the pay off of the term loan on the Overseas Gulf Coast during the third quarter of 2020.

INCOME TAX EXPENSE

The effective tax rates for the years ended December 31, 2021 and 2020 were 28.1% and 17.1%, respectively. The tonnage tax exclusion created a change in the tax rate in 2021 over 2020 due to the change from net income in 2020 to a net loss in 2021. The effective rate also changed as a result of a smaller change in the state related uncertain tax positions.

As of December 31, 2021, we had U.S. federal net operating loss carryforwards of $243,547 that are available to reduce future taxes, if any. The existing federal net operating loss carryforwards begin to expire in 2034.

LIQUIDITY AND SOURCES OF CAPITAL

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

Liquidity

Working capital from continuing operations at December 31, 2021 was approximately $(67,000) compared with approximately $(93,000) at December 31, 2020. Excluding the current portion of operating and finance lease liabilities, working capital was approximately $37,000 at December 31, 2021 compared to $1,700 at December 31, 2020. The increase in working capital was primarily due to (a) an increase in cash and cash equivalents from proceeds received on the term loan, due 2028, we entered into on September 29, 2021 as discussed below, (b) a decrease in current installments of long-term debt due to the replacement and pay off of our term loan, due 2023, and term loan, due 2026, with the term loan, due 2028, which reduced our principal payments and (c) an increase in receivables related to the timing of collection from our customers at December 31, 2021 compared to December 31, 2020.

As of December 31, 2021, we had total liquidity on a consolidated basis comprised principally of $83,172 of cash and cash equivalents. We manage our cash in accordance with our intercompany cash management system. Our cash and cash equivalents, as well as our restricted cash balances, generally exceed Federal Deposit Insurance Corporation insurance limits. We place our cash, cash equivalents and restricted cash in what we believe to be creditworthy financial institutions. In addition, certain of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government or its agencies. Restricted cash as of December 31, 2021 and 2020 was related to requirements under the Unsecured Senior Notes.

As of December 31, 2021, we had total debt outstanding (net of deferred financing costs) of $444,740 and a total debt to total capitalization of 56.7%, compared to $429,120 and 53.0%, respectively, at December 31, 2020.

Sources, Uses and Management of Capital

We generate significant cash flows from our complementary mix of time charters, voyage charters and contracts of affreightment. Net cash used in operating activities in the year ended December 31, 2021 was $11,832. In addition to operating cash flows, our other current potential sources of funds are additional borrowings, proceeds from the opportunistic sales of our vessels and proceeds from additional issuances of equity securities. In the past, we have also obtained funds from the issuance of long-term debt securities.

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

During the first quarter of 2021 we received a firm offer for the sale of the Overseas Gulf Coast. Based on the negotiated sale terms, we recorded a loss of $5,446 on the planned disposition of this tanker. In April 2021, we entered into a contract to sell the vessel for $31,850, net of broker commissions. The sale of the vessel was completed in June 2021 for $32,128, net of broker commissions and other fees, resulting in an immaterial gain recognized during the second quarter of 2021, which is included in loss on disposal of vessels and other property, including impairments, net on the consolidated statements of operations.

On September 29, 2021, certain subsidiaries (the “Borrowers”) of the Company entered into a seven-year, $325,000 term loan credit facility with Stonebriar Commercial Finance (“Stonebriar $325,000 loan”). Proceeds were used to pay off the Company’s term loan, due 2023, with The Prudential Insurance Company of America, as administrative agent, and certain other lenders, and the Company’s term loan, due 2026, with Wintrust Commercial Finance, for $237,983 and $20,298, respectively. Additionally, the Company used proceeds to make a prepayment of $16,000, to partially refinance a term loan with Banc of America Leasing & Capital, LLC, the Company’s Alaska tankers term loan, due 2025. The remaining proceeds will be used for general working capital purposes. The Company recognized an aggregate net loss of $7,961 on these transactions, which reflects a write-off of unamortized deferred financing costs and prepayment fees. The new term loan bears interest at a rate of 7.75% and matures on October 1, 2028. The performance of the Borrowers’ obligations under the term loan is guaranteed by the Company and certain other subsidiaries and are secured by the Borrowers’ assets, including five tankers, three tugs, and two barges, and by the Company’s equity interests in certain of its subsidiaries.

The Company also completed amendments to the loans on the OSG 205 and OSG Courageous, Overseas Sun Coast and the Alaskan Explorer and Alaskan Navigator conforming the covenants with the Stonebriar $325,000 loan.

In November 2020, two of the Company’s subsidiaries, OSG 205 LLC and OSG Courageous II LLC, entered into a construction loan in the original principal amount of $49,150 of which $46,711 was drawn down to finance a new 204,000-barrel U.S. Flag oil and chemical ATB barge, OSG 205, and to refinance the tug to which the barge was paired, the OSG Courageous. The Company made a prepayment of $15,811, which included accrued interest on its term loan, due 2023. On December 3, 2020, upon completion and delivery of the OSG 205, the remainder of the construction loan was drawn down and the construction loan was converted to a term loan. The term loan had a fixed rate of interest of 6.37%. In March 2021, the Company obtained an amendment for certain financial covenants of the term loan. In connection with the amendment, the interest rate was updated to a fixed interest rate of 6.87% until the end of the first quarter of 2022. Beginning in the second quarter of 2022, the interest rate returns to a fixed interest rate of 6.37%. The loan is guaranteed by the Company and has a seven-year term maturing on December 1, 2027. The lenders hold a perfected first priority security interest and preferred ship mortgage against the barge and tug.

In June 2020, one of the Company’s subsidiaries, OSG 204 LLC, entered into a loan with Wintrust Commercial Finance in the aggregate original principal amount of $32,933 to finance a new 204,000-barrel U.S. Flag oil and chemical ATB barge. The loan had a fixed interest rate of 5.00%. On November 5, 2021, the Company amended the loan to align the term loan’s financial covenants with the Company’s new term loan with Stonebriar. In connection with the amendment, the Company made a prepayment of $3,000 on the outstanding balance of the loan and the loan’s interest rate was updated to a fixed interest rate of 5.75%. The loan is guaranteed by the Company and has a five-year term maturing on June 1, 2025. The lender holds a perfected first priority security interest and preferred ship mortgage against the vessel.

On March 12, 2020, the Company entered into a loan with Banc of America Leasing & Capital, LLC and other syndicate lenders in the aggregate original principal amount of $54,000 to finance the purchase of three U.S.-flagged crude oil carrier vessels, the Alaskan tankers. The loan is secured by first preferred ship mortgages on the vessels. On September 29, 2021, the Company made a prepayment of $16,000 to release the Alaskan Legend as security. The term loan is secured by first preferred ship mortgages on the Alaskan Explorer and Alaskan Navigator. The loan bears a fixed rate of interest of 4.43% and has a maturity date of March 12, 2025.

Outlook

The Company’s revenues are sensitive to often highly cyclical patterns of supply and demand. In the core Jones Act trades within which the majority of our vessels operate, demand factors for transportation have historically been affected almost exclusively by supply and distribution of refined petroleum products in the United States. The emergence of demand for domestic crude oil and renewable fuels transportation has in recent years added a new dimension to understanding traditional Jones Act trades. Balancing time charter coverage with spot market exposure in an uncertain demand environment is a persistent challenge, and considerations about the appropriate amount of capacity to remain active in the spot market are a regular management discussion point. Over the longer term, we consider the “normalized” market in which our vessels trade to be one that should be characterized by stable, longer term chartering relationships with our customer base. Notwithstanding this belief, during periods of surplus of available capacity, as was evident in recent years, low charter rates make medium term charters unattractive or simply unavailable. In such market environments, we have considered the cost of acquiring cash flow visibility by committing vessels to charter contracts at sustained loss-making rates as being too high when measured against what we believed to be an asymmetrical upside potential of being positioned to benefit from a recovery in rates. As time charters expire, it is possible that such time charters will not renew and, even if they do, they may not renew on comparable terms. Increased exposure to spot markets has been, and in the future will likely continue to be a consequence of such thinking. Conversely, as supply and demand move more consistently into balance, and time charters become more available at remunerative rates, an increase in both the number and duration of period charters entered into with our customers can be expected.

Earnings volatility which accompanies spot market exposure has important implications for liquidity management. The retention of relatively high cash balances and efforts to reduce overall levels of debt and operating and administrative costs should be understood as a necessary response to heightened uncertainty. In recent years, we have witnessed a strong trend towards rebalance of supply, as tightening age restrictions imposed by our core customer base has progressively limited the acceptability for use in service of vessels exceeding 20 years of age. A notable decline in the number of available trading vessels has occurred. Further, we have seen demand for domestic crude oil transportation act as an important swing factor in affecting a healthy balance between available vessel supply and overall domestic transportation demand. This recent positive trend has been interrupted by the onset of the COVID-19 pandemic which caused a dramatic drop in domestic and international transportation fuels demand. Changing mobility patterns arising out of stay-at-home and restricted travel policies impacted the refining and distribution industry acutely. The short-term need for marine assets to move fuels in a constrained demand environment was equally affected. These developments resulted in increased volatility and decreased forward visibility of our future earnings, given the uncertainty surrounding the timing and the extent of a future recovery of normalized demand. Notwithstanding these immediately evident uncertainties, the market transition that has seen a rebalancing of supply in the period prior to the onset of the COVID-19 pandemic offers cause for optimism that a return to a market offering an increase in both the number and the duration of time charter contracts for our vessels is foreseeable. Further, the emergence of new demand for transporting renewable fuels, and the prospects for growth in this demand in the years ahead, has introduced a new variable into the equation for determining the balance between future supply and demand. A return to normalized levels of demand in domestic refined product trades, coupled with increased renewable fuels transport activity, should each of these occur, would largely restore the market conditions which we consider to be supportive of our long-term business objectives.

During the third quarter of 2021, we refinanced certain of our debt, including our previously outstanding term loan due in 2023, with a new term loan due in 2028. The refinancing reduced our cash debt service requirements; lengthened the maturity profile of our loans by repaying loans with maturities in 2023 and 2026; and reducing the remaining balance of the Alaska tanker loan due in 2025; and provided additional cash to the Company. Capital investment requirements of our vessels is expected to decrease by approximately $6,000 in 2022 compared to 2021 levels. We believe that these items, coupled with improving operating results, will provide adequate resources to meet our needs.

Off-Balance Sheet Arrangements

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

Carrying Value of Vessels

We believe that the availability, quality and reliability of fair market valuations of U.S Flag vessels are limited given the fact that the U.S. Flag market is relatively small and illiquid with very limited second hand sales and purchases activity from which to benchmark vessel values. As discussed in Note 9, “Fair Value Measurements and Fair Value Disclosures,” to our consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data,” we monitor for any indicators of impairment in regards to the carrying value of our vessels.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments, and opinions of management. Following is a discussion of the accounting policies that involve a higher degree of judgment and the methods of their application. For a description of all of the Company’s material accounting policies, see Note 2, “Summary of Significant Accounting Policies” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data.”

Revenue Recognition

The majority of revenue is generated from time charters and is accounted for as operating leases and are thus recognized ratably over the rental periods of such charters, as service is performed. The Company does not recognize time charter revenues during periods that vessels are off hire.

The Company generates a portion of its revenue from voyage charters. Within the shipping industry, there are two methods used to account for voyage charter revenue: (1) ratably over the estimated length of each voyage and (2) completed voyage. The recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent method of accounting for voyage revenues in the shipping industry and the method used by OSG. Under each method, voyages may be calculated on either a load-to-discharge or discharge-to-discharge basis.

The Company recognizes revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. 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 enters into contracts of affreightment (each a “COA”) to provide transportation services between specified points for a stated quantity of cargo over a specific time period, but without designating voyage schedules. The Company’s COAs include minimum purchase requirements from customers that are expressed in either fixed monthly barrels, annual minimum barrel volume requirements or annual minimum number of voyages to complete. The Company is required to transport and the charterer is required to provide the Company with a minimum volume requirement. These contract minimums represent fixed consideration within the contract which is recognized as the distinct services of delivering barrels or voyages are performed in the series over time. The Company adjusts estimated revenue recognized for any minimum volume unexercised right.

Vessel Lives and Salvage Values

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 an estimated useful life of 25 years (except for new ATBs for which estimated useful lives of 30 years are used) from the date such vessel was originally delivered from the shipyard or 20 years from the date the Company’s ATBs were 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, an extended period of weak markets, the 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. See Note 2, “Summary of Significant Accounting Policies” for further details.

The United States has not adopted the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (the “Convention”). While the Convention is not in effect in the United States, the EPA and the MARAD have, from time to time, required the owners of U.S. Flag vessels to make certifications regarding the presence of certain toxic substances onboard vessels that they are seeking to sell to parties who (a) are not citizens of the United States and (b) intend to recycle the vessels after they have been purchased (the “Recycling Purchasers”). In the event that more stringent requirements are imposed upon the owners of U.S. Flag vessels seeking to sell their vessels to the Recycling Purchasers, such requirements could (a) negatively impact the sales prices obtainable from the Recycling Purchasers or (b) require companies, including OSG, to incur additional costs in order to sell their U.S. Flag vessels to the Recycling Purchasers or to other foreign buyers intending to use such vessels for further trading.

Intangible Assets

The Company allocates the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. The Company’s intangible assets represent long-term customer relationships acquired as part of the 2006 purchase of Maritrans, Inc. See Note 9, “Fair Value Measurements and Fair Value Disclosures,” for further discussion.

Drydocking

Within the shipping industry, there are two methods that are used to account for dry dockings: (1) capitalize drydocking costs as incurred (deferral method) and amortize such costs over the period to the next scheduled drydocking, and (2) expense drydocking costs as incurred. Since drydocking cycles typically extend over two and a half years or five years, management uses the deferral method because management believes it provides a better matching of revenues and expenses than the expense-as-incurred method.

Newly Issued Accounting Standards

See Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data.”

CRITICAL ACCOUNTING ESTIMATES

Acquisition of Alaska Tanker Company, LLC and related transactions

In connection with the Company’s acquisition of three vessels and remaining equity ownership interest in ATC in 2020, the Company accounted for these transactions collectively as an asset acquisition, with substantially all the cost of the acquisition attributed to the three vessels purchased from BP. The accounting for these transactions as an asset acquisition required the Company to estimate the fair value of the acquired vessels and related long term charter arrangements for determining whether the acquired assets were concentrated in a single asset. In doing so, the Company considered various assumptions including estimated salvage value of vessels, insured values of vessels, loan-to-value ratios and gross margin assumptions compared to similar existing arrangements. The Company also considered these estimates when allocating the purchase price to the acquired assets. See Note 6, “Investment in Alaska Tanker Company, LLC,” for further discussion on the Company’s acquisition of ATC.

Income Taxes, Deferred Tax Assets and Valuation Allowance

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes only in the U.S. Significant judgments and estimates are required in determining the consolidated income tax expense.

Deferred income taxes arise from temporary differences between the financial reporting and the tax basis of assets and liabilities and from events that have been recognized in the financial statements and will result in taxable or deductible amounts based on provisions of the tax law in different periods. In evaluating our ability to recover our net deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established to the extent it is more likely than not that some portion or the entire deferred tax asset will not be realized. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.

Pension Benefits

In connection with the acquisition of Maritrans in November 2006, the Company assumed the obligations under the noncontributory defined benefit pension plan that covered eligible employees of Maritrans (“the Maritrans Plan”). The Company froze the benefits payable under the Maritrans Plan as of December 31, 2006. The Company has recorded pension benefit costs based on assumptions and valuations developed with the support of its actuarial consultants. These valuations are based on estimates and key assumptions, including those related to the discount rates, the rates expected to be earned on investments of plan assets and the life expectancy/mortality of plan participants. OSG is required to consider market conditions in selecting a discount rate that is representative of the rates of return currently available on high-quality fixed income investments. A higher discount rate would result in a lower benefit obligation and a lower rate would result in a higher benefit obligation. The expected rate of return on plan assets is management’s best estimate of expected returns on plan assets. A decrease in the expected rate of return will increase net periodic benefit costs and an increase in the expected rate of return will decrease benefit costs. The mortality assumption is management’s best estimate of the expected duration of future benefit payments at the measurement date. The estimate is based on the specific demographics and other relevant facts and circumstances of the Maritrans Plan and considers all relevant information available at the measurement date. Longer life expectancies would result in higher benefit obligations and a decrease in life expectancies would result in lower benefit obligations.

In determining the benefit obligations at the end of the year measurement date, the Company continues to use the equivalent single weighted-average discount rate, rounded to the nearest 5 basis points, that best matches projected benefit payments. See Note 15, “Pension and Other Postretirement Benefit Plans,” for further discussion on the Company’s pension plans.

Vessel Impairment, Including Right-of-Use Assets

The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuilds. Historically, both charter rates and vessel values tend to be cyclical. Management evaluates the carrying amounts of vessels held and used by the Company for impairment only when it determines that it will sell a vessel or when events or changes in circumstances occur that cause management to believe that future cash flows for any individual vessel may be less than its carrying value. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel’s carrying amount. This assessment is made at the individual vessel level as separately identifiable cash flow information for each vessel is available.

In developing estimates of future cash flows, the Company must make assumptions about future performance, with significant assumptions being related to 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. Specifically, in estimating future charter rates, management takes into consideration rates currently in effect for existing time charters and estimated daily time charter equivalent rates for each vessel class for the unfixed days over the estimated remaining lives of each of the vessels. The estimated daily time charter equivalent rates used for unfixed days beyond the expiry of any current time charters are based on internally forecasted rates that take into consideration average annual rates published by a third party maritime research service and are consistent with forecasts provided to the Company’s senior management and Board of Directors. The internally forecasted rates are based on management’s evaluation of current economic data and trends in the shipping and oil and gas industries. Recognizing that the transportation of crude oil and petroleum products is cyclical and subject to significant volatility based on factors beyond the Company’s control, management believes the use of estimates based on the internally forecasted rates to be reasonable.

Estimated outflows for operating expenses and drydocking requirements are based on historical and budgeted costs and are adjusted for assumed inflation. Utilization is based on historical levels achieved and anticipated future demand. Estimates of a residual value are consistent with the pattern of recycling rates used in management’s evaluation of salvage value.

In estimating the fair value of vessels for the purposes of the impairment tests, the Company utilizes estimates of discounted future cash flows for each of the vessels (income approach) since the secondhand sale and purchase market for the type of U.S. Flag vessels owned by OSG is not considered to be robust. See Note 9, “Fair Value Measurements and Fair Value Disclosures,” for further discussion.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable due to our status as a smaller reporting company.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DOLLARS IN THOUSANDS

See notes to consolidated financial statements

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

See notes to consolidated financial statements

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

DOLLARS IN THOUSANDS

See notes to consolidated financial statements

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

DOLLARS IN THOUSANDS

See notes to consolidated financial statements

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY/(DEFICIT)

DOLLARS IN THOUSANDS

See notes to consolidated financial statements

OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES

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”), including Alaska Tanker Company (“ATC”) as of its March 12, 2020 acquisition date. The Company owns and operates a fleet of oceangoing vessels engaged primarily in the transportation of crude oil and refined petroleum products in the U.S. Flag trade. All significant intercompany balances and transactions have been eliminated in consolidation.

The World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic in March 2020. The COVID-19 pandemic is a dynamic and continuously evolving phenomenon and our disclosures throughout describe its effects on our business.

Recent geopolitical tensions involving Russia and the Ukraine have disrupted markets and resulted in volatile oil prices. The impact of this situation is uncertain and ongoing.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. Restricted cash as of December 31, 2021 and 2020 was related to the Company’s Unsecured Senior Notes as defined in Note 8, “Debt”.

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 three years to 15 years.

Interest costs are capitalized to vessels and other property during the period that vessels are under construction and projects are in progress. During the years ended December 31, 2021 and 2020, interest costs capitalized were $1,427 and $3,717, respectively.

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, including right-of-use assets - The carrying amounts of long-lived assets held and used by the Company are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be fully recoverable. In such instances, the requirement for impairment could be triggered if the estimate of the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the asset’s carrying amount. This assessment is made at the individual vessel level since separately identifiable cash flow information for each vessel is available. The impairment charge, if any, would be measured as the amount by which the carrying amount of a vessel exceeded its fair value. A long-lived asset impairment charge results in a new cost basis being established for the relevant long-lived asset. See Note 9, “Fair Value Measurements and Fair Value Disclosures,” for further discussion on the impairment tests performed on our vessels during the two years ended December 31, 2021.

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 9, “Fair Value Measurements and Fair Value Disclosures,” for further discussion on the impairment test performed on the Company’s intangible assets at December 31, 2021.

5. Deferred finance charges - Finance charges incurred in the arrangement and amendment of debt are deferred and amortized to interest expense on an effective interest method over the life of the related debt.

Unamortized deferred financing charges of $5,542 and $6,998 relating to the Company’s term loans are netted against long-term debt in the consolidated balance sheets as of December 31, 2021 and 2020, respectively. Interest expense relating to the amortization of deferred financing charges amounted to $2,099 in 2021 and $2,286 in 2020.

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. Revenues from voyage charter contracts are recognized ratably over the estimated length of each voyage, calculated on a load-to-discharge basis.

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 a stipend pursuant to the Maritime Security Act of 1996 for the two U.S. Flag Product Carriers which participate in the U.S. MSP program. This stipend has been recorded as an offset to vessel expenses which amounted to $10,500 in 2021 and $9,665 in 2020.

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 by performing ongoing credit evaluations. Voyage receivables reflected on the consolidated balance sheets as of December 31, 2021 and 2020 are net of a reserve for doubtful accounts of $150 and $4,604, respectively. In June 2019, one of the Company’s lightering customers, PES, suffered an explosion and fire at their refinery in the Delaware Bay. In July 2019, PES filed a Chapter 11 bankruptcy petition. The reserve for doubtful accounts at December 31, 2020 included a provision of $4,300 on outstanding receivables of $4,300 from PES that we established in the second quarter of 2019. During the fourth quarter of 2021, our recovery became determinable and we recognized a recovery of $1,080. The $1,080 payment was received by us in February 2022.

During the years ended December 31, 2021 and 2020, the Company had two and three individual customers, respectively, who accounted for 10% or more of the Company’s revenues. The customers and their related percentages were Hilcorp North Slope LLC (28.2%) and BP Products North America Inc. (10.6%) for the year ended December 31, 2021 and Monroe Energy LLC (12.6%), BP Exploration Alaska Inc. (11.4%) and SeaRiver Maritime Inc. (10.1%) for the year ended December 31, 2020.

The Company’s cash and cash equivalents balances generally exceed Federal Deposit Insurance Corporation insurance limits. Cash and cash equivalents are placed in what the Company believes to be creditworthy financial institutions. In addition, certain of the Company’s money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government or its agencies.

9. 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 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.

10. Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets, liabilities, equity, revenues and expenses reported in the financial statements and accompanying notes. The most significant estimates relate to the depreciation of vessels and other property, amortization of drydocking costs, estimates used in assessing the recoverability of vessels, intangible assets and other long-lived assets, liabilities incurred relating to pension benefits, and income taxes. Actual results could differ from those estimates.

11. 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 makes decisions about resource allocations and reviews and measures the Company’s results as one line of business with similar regulatory requirements, customers and commodities transported.

12. Inventories - Inventories are included in the inventories and other current assets line item on the consolidated balance sheets. Inventories are accounted for on the first in first out basis and consist of fuel on the Company’s vessels.

13. Acquisition of Alaska Tanker Company, LLC and related transactions - In connection with the Company’s acquisition of three vessels and remaining equity ownership interest in ATC, the Company accounted for these transactions collectively as an asset acquisition, with substantially all the cost of the acquisition attributed to the three vessels purchased from BP. The accounting for these transactions as an asset acquisition required the Company to estimate the fair value of the acquired vessels and related long term charter arrangements for determining whether the acquired assets were concentrated in a single asset. In doing so, the Company considered various assumptions including estimated salvage value of vessels, insured values of vessels, loan-to-value ratios and gross margin assumptions compared to similar existing arrangements. The Company also considered these estimates when allocating the purchase price to the acquired assets. See Note 6, “Investment in Alaska Tanker Company, LLC,” for further discussion on the Company’s acquisition of ATC during 2020.

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

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

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

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

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

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

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

NOTE 3 — EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. As management deemed the exercise price for the Class A of $0.01 per share to be nominal, warrant proceeds are ignored and the shares issuable upon Class A warrant exercise are included in the calculation of Class A basic weighted average common shares outstanding for all periods.

The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units.

Class A

As of December 31, 2021, there were 3,371,177 shares of Class A common stock issuable under outstanding restricted stock units and 1,478,756 shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities. As of December 31, 2020, there were 2,605,263 shares of Class A common stock issuable under outstanding restricted stock units and 1,478,756 shares of Class A common stock issuable under outstanding options, both of which are considered to be potentially dilutive securities.

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

  SCHEDULE OF EARNINGS PER SHARE

There were 1,043,870 dilutive equity awards outstanding for the year ended December 31, 2020. For the year ended December 31, 2021, awards of 2,017,810, which related to restricted stock units and stock options, were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive due to a net loss during the period. Awards of 371,893, which are related to stock options, for the year ended December 31, 2020 were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.

NOTE 4 — REVENUE RECOGNITION

Shipping Revenues

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 noncancellable contract term. Customers generally pay voyage expenses such as fuel, canal tolls and port charges. The Company also provides the charterer with services such as technical management expenses and crew costs. While there are lease and 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 applies the practical expedient of combining lease and non-lease components and recognizes revenue related to this service ratably over the life of the contract term.

Voyage Charter Revenues

The Company enters into voyage charter contracts, under which the customer pays a transportation charge (voyage freight) for the movement of a specific cargo between two or more specified ports. The Company’s performance obligation under voyage charters, which consists of moving cargo from a load port to a discharge port, is satisfied over time. Accordingly, under ASC 606, the Company recognizes revenue from voyage charters ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. The transaction price is in the form of a fixed fee at contract inception, which is the transportation charge. Voyage charter contracts also include variable consideration primarily in the form of demurrage, which is additional revenue the Company receives for delays experienced in loading or unloading cargo that are not deemed to be the responsibility of the Company. The Company does not include demurrage in the transaction price for voyage charters since it is highly susceptible to factors outside the Company’s influence. Examples of when demurrage is incurred include unforeseeable weather conditions and security regulations at ports. The uncertainty related to this variable consideration is resolved upon the completion of the voyage, the duration of which is generally less than 30 days.

U.S. Maritime Security Program

Two of the Company’s U.S. Flag Product Carriers participate in the U.S. Maritime Security Program (“MSP”), which is designed to ensure 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 a stipend pursuant to the Maritime Security Act of 1996 for each participating vessel, subject in each case to annual congressional appropriations. The stipend is intended to reimburse owners for the additional costs of operating U.S. Flag vessels; therefore, the Company has presented this stipend as an offset to vessel expenses.

Contracts of Affreightment

The Company enters into contracts of affreightment (each a “COA”) to provide transportation services between specified points for a stated quantity of cargo over a specific time period, but without designating voyage schedules. The Company has COA arrangements to provide for lightering services and other arrangements based on the number of voyages. These contracts are service contracts within the scope of ASC 606 for which the underlying performance obligation is satisfied as transportation services are provided.

The Company’s COAs include minimum purchase requirements from customers that are expressed in either fixed monthly barrels, annual minimum barrel volume requirements or annual minimum number of voyages to complete. The Company is required to transport and the charterer is required to provide the Company with a minimum volume requirement. These contract minimums represent fixed consideration within the contract which is recognized as the distinct services of delivering barrels or voyages are performed in the series over time. The Company will adjust revenue recognized for any minimum volume unexercised right.

COAs provide the charterer with the opportunity to purchase additional transportation services above the minimum. If this is not considered a material right, the Company recognizes revenue related to the additional services at the contractual rate as the product is transferred over time. If the additional transportation service is considered a material right, the Company allocates the transaction price to the material right. As a result, the Company may recognize revenue related to COAs at an amount different from the invoiced amount if the Company’s estimated volume to be transported under the contract exceeds the contractual minimum.

COAs 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.

At December 31, 2021, the Company did not have deferred revenue related to the Company’s COAs.

Disaggregated Revenue

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

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

  SCHEDULE OF DISAGGREGATION OF REVENUE

Voyage Receivables

As of December 31, 2021 and December 31, 2020, contract balances from contracts with customers consisted of voyage receivables of $8,227 and $9,351, respectively, net of reserve of $150 and $4,604, respectively, for doubtful accounts for voyage charters and lightering contracts. For voyage charters, voyage freight is due to the Company upon completion of discharge at the last discharge port. For lightering contracts, the Company invoices the customers based on the actual barrels of cargo lightered. The Company routinely reviews its voyage receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Voyage receivables are removed from accounts receivable and the reserve for doubtful accounts when they are deemed uncollectible. The Company deems voyage receivables uncollectible when the Company has exhausted collection efforts.

Costs to Fulfill a Contract

Under ASC 606, for voyage charters and contracts of affreightment, the Company capitalizes the direct costs, which are voyage expenses, of relocating the vessel to the load port to be amortized during transport of the cargo. At December 31, 2021, the costs related to voyages that were not yet completed were not material.

Additionally, these contracts include out-of-pocket expense (i.e. fuel, port charges, canal tolls) incurred by the Company in fulfilling its performance obligations, which are reimbursed by the charterer at cost. The reimbursement for these fulfillment costs are 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, 2021, the Company expects to recognize revenue of approximately $27,402 in 2022 under COAs. This estimated amount relates to the fixed consideration of contractual minimums within the contracts based on the Company’s estimate of future services.

Practical Expedients and Exemptions

The Company’s voyage charter contracts and some of the Company’s COAs have an original expected duration of one year or less; therefore, the Company has elected to apply the practical expedient, which permits the Company to not disclose the portion of the transaction price allocated to the remaining performance obligations within these COAs.

The Company expenses broker commissions for voyage charters, which are costs of obtaining a contract, as they are incurred because the amortization period is less than one year or are otherwise amortized as the underlying performance obligation is satisfied. The Company records these costs within voyage expenses on the consolidated statements of operations.

NOTE 5 — VESSELS, OTHER PROPERTY AND DEFERRED DRYDOCK

Vessels and other property consist of the following:

  SCHEDULE OF VESSELS AND OTHER PROPERTY

During the first quarter of 2021, the Company received a firm offer for the sale of the Overseas Gulf Coast. Based on the negotiated sale terms, the Company recorded a loss of $5,446 on the planned disposition of this tanker. In April 2021, the Company entered into a contract to sell the vessel for $31,850, net of broker commissions. The sale of the vessel was completed in June 2021 for $32,128, net of broker commissions and other fees, resulting in an immaterial gain recognized during the second quarter of 2021, which is included in loss on disposal of vessels and other property, including impairments, net on the consolidated statements of operations.

During the first and second quarters of 2020, the Company established terms to sell for scrap the OSG 243, OSG Independence and the OSG 244. Based on the negotiated sale terms, the Company recorded losses, which were not material and included in loss on disposal of vessels and other property, including impairments, net on the consolidated statements of operations.

The Company took delivery of two 204,000-barrel capacity oil and chemical tank barges in 2020, one in May and the other in December. The barges, named the OSG 205 and OSG 204, have been paired with existing tugs within the Company’s fleet, the OSG Courageous and OSG Endurance. The ATB units operate in the Jones Act trade.

In May 2020 and August 2020, the Company sold two of its ATBs for $1,407, net of broker commissions. As a result of the sales, the Company recognized losses, which were not material and are included in loss on disposal of vessels and other property, including impairments, net on the consolidated statements of operations.

On March 12, 2020, subsidiaries of OSG, as the Parent Company, completed the purchase of three U.S.-flagged crude oil carrier vessels, the Alaskan Explorer, Alaskan Legend, and Alaskan Navigator, from BP for total consideration of $54,000 and entered into a bareboat charter with BP for a fourth vessel, the Alaskan Frontier. The vessels purchased continue to be operated by ATC under time charters with Hilcorp North Slope, LLC (formerly BP Exploration (Alaska), Inc.), with firm charter periods lasting until October 2022, March 2025 and August 2026. Each charter also provides for five one-year extension options.

At December 31, 2021, the Company’s owned vessel fleet with a weighted average age of 13.5 years, consisted of five Handysize Product Carriers, three crude oil tankers, two lightering ATBs and two ATBs. These vessels were pledged as collateral under term loan agreements and have an aggregate carrying value of $714,306.

Vessel activity, excluding construction in progress, for the two years ended December 31, 2021 is summarized as follows:

  SUMMARY OF VESSEL ACTIVITY EXCLUDING CONSTRUCTION PROGRESS

The total of vessel additions can be different from expenditures for vessels as shown in the consolidated statements of cash flows because of the timing of when payments were made. For the years ended December 31, 2021 and 2020, the Company had approximately $1,341 and $1,820 of non-cash investing activities for the accrual of capital expenditures related to the Company’s vessels.

Drydocking activity for the two years ended December 31, 2021 is summarized as follows:

SUMMARY OF DRYDOCKING ACTIVITY

NOTE 6 — INVESTMENT IN ALASKA TANKER COMPANY, LLC

In December 2019, the Company entered into an agreement with BP to purchase three U.S.-flagged crude oil carrier vessels (Alaskan Explorer, Alaskan Legend and Alaskan Navigator) for total cash consideration of $54,000. In March 2020, the purchase of the vessels was financed by borrowing $54,000 under a five-year term loan as discussed in Note 8, “Debt”.

In connection with the purchase of the vessels from BP, the Company agreed to time charter arrangements with BP for terms of 2.5 years to 6.4 years at a fixed daily rate with an annual escalation and five renewal options for one year each. The time charter arrangements are treated as operating leases under ASC 842. The Company also entered into a bareboat charter with BP for a fourth vessel, the Alaskan Frontier, which is currently in layup. In connection with these transactions, the Company also acquired the remaining equity ownership of ATC, making ATC a wholly owned subsidiary of the Company.

The Company accounted for the purchase of the three vessels and remaining equity ownership interest in ATC collectively as an asset acquisition, with substantially all the cost of the acquisition attributed to the three vessels purchased from BP. The pre-existing ATC arrangements with a minimum term through December 2023 were terminated, and a non-cash gain equal to the value of the remaining arrangement of $19,172 was recognized, with a corresponding increase in the value of the vessels acquired from BP in a manner consistent with how ASC 805, Business Combinations, would be applied to the settlement of a pre-existing arrangement.

As part of the acquisition of ATC on March 12, 2020, the Company assumed liabilities of $9,898 related to a pension and postretirement plan and $8,812 related to a deferred compensation plan. See Note 15, “Pension, Other Postretirement Benefit Plans and Benefit Liabilities” for further discussion on these plans.

NOTE 7 — INTANGIBLE ASSETS

Intangible assets activity for the two years ended December 31, 2021 is summarized as follows:

SCHEDULE OF INTANGIBLE ASSETS

As discussed in Note 2, “Summary of Significant Accounting Policies,” the Company’s intangible assets at December 31, 2021 and 2020 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, 2021 and 2020. The unamortized balance of the Company’s intangible assets at December 31, 2021 will be recognized over the remaining useful life, which is five years. Amortization of intangible assets for the five years subsequent to December 31, 2021 is expected to approximate $4,600 per year.

NOTE 8 — DEBT

Debt consists of the following:

 SCHEDULE OF LONG-TERM DEBT INSTRUMENTS

The weighted average interest rate for debt outstanding at December 31, 2021 and 2020 was 7.20% and 5.21%, respectively.

Term Loans

Capitalized terms used hereafter have the meaning given in this Annual Report on Form 10-K or in the respective transaction documents referred to below, including subsequent amendments thereto.

Term loan, due 2028 - On September 29, 2021, certain subsidiaries (the “Borrowers”) of the Company entered into a seven-year, $325,000 term loan credit facility with Stonebriar Commercial Finance. Proceeds were used to pay off the Company’s term loan, due 2023, with The Prudential Insurance Company of America, as administrative agent, and certain other lenders, and the Company’s term loan, due 2026, with Wintrust Commercial Finance, for $237,983 and $20,298, respectively. Additionally, the Company used proceeds to make a prepayment of $16,000, to partially prepay a term loan with Banc of America Leasing & Capital, LLC, the Company’s Alaska tankers term loan, due 2025. The remaining proceeds will be used for general working capital purposes. The Company recognized an aggregate net loss of $7,961 on these transactions, which reflects a write-off of unamortized deferred financing costs and prepayment fees. The new term loan bears interest at a rate of 7.75% and matures on October 1, 2028. The performance of the Borrowers’ obligations under the term loan is guaranteed by the Company and certain other subsidiaries and are secured by the Borrowers’ assets, including five tankers, three tugs, and two barges, and by the Company’s equity interests in certain of its subsidiaries.

OSG 205 LLC and OSG Courageous II LLC term loan, due 2027 - In November 2020, two of the Company’s subsidiaries, OSG 205 LLC and OSG Courageous II LLC, entered into a construction loan in the original principal amount of $49,150 of which $46,711 was drawn down to finance a new 204,000-barrel U.S. Flag oil and chemical ATB barge, OSG 205, and to refinance the tug to which the barge is being paired, the OSG Courageous. The Company made a prepayment of $15,811, which included accrued interest on its term loan, due 2023. The aggregate net loss realized on this transaction, which was not material, reflects a write-off of unamortized original issue discount and deferred financing costs associated with the principal reduction and is included in loss on extinguishment of debt, net on the consolidated statements of operations for the year ended December 31, 2020. On December 3, 2020, upon completion and delivery of the OSG 205, the remainder of the construction loan was drawn down and the construction loan was converted to a term loan. The term loan had a fixed rate of interest of 6.37%. In March 2021, the Company obtained an amendment for certain financial covenants of the term loan. In connection with the amendment, the interest rate was updated to a fixed interest rate of 6.87% until the end of the first quarter of 2022. Beginning in the second quarter of 2022, the interest rate returns to a fixed interest rate of 6.37%. The loan is guaranteed by the Company and has a seven-year term maturing on December 1, 2027. The lenders hold a perfected first priority security interest and preferred ship mortgage against the barge and tug. In November 2021, the Company completed an amendment on the term loan to conform the covenants with the Stonebriar $325,000 loan.

OSG 204 LLC term loan, due 2025 - In June 2020, one of the Company’s subsidiaries, OSG 204 LLC, entered into a loan with Wintrust Commercial Finance in the aggregate original principal amount of $32,933 to finance a new 204,000-barrel U.S. Flag oil and chemical ATB barge. The loan had a fixed interest rate of 5.00%. On November 5, 2021, the Company amended the loan to conform the covenants with the Stonebriar $325,000 loan. In connection with the amendment, the Company made a prepayment of $3,000 on the outstanding balance of the loan and the loan’s interest rate was updated to a fixed interest rate of 5.75%. The loan is guaranteed by the Company and has a five-year term maturing on June 1, 2025. The lender holds a perfected first priority security interest and preferred ship mortgage against the vessel.

Alaska tankers term loan, due 2025 - On March 12, 2020, the Company entered into a loan with Banc of America Leasing & Capital, LLC and other syndicate lenders in the aggregate original principal amount of $54,000 to finance the purchase of three U.S.-flagged crude oil carrier vessels, the Alaskan Explorer, Alaskan Legend, and Alaskan Navigator. The loan is secured by first preferred ship mortgages on the vessels. On September 29, 2021, the Company made a prepayment of $16,000 to release the Alaskan Legend as security. The loan bears a fixed rate of interest of 4.43% and has a maturity date of March 12, 2025. In November 2021, the Company completed an amendment on the term loan to conform the covenants with the Stonebriar $325,000 loan.

Term loan, due 2024 - In August 2019, two of the Company’s subsidiaries entered into term loans in an aggregate principal amount of $50,000 with a five-year term maturing on September 30, 2024 to finance the Overseas Gulf Coast and the Overseas Sun Coast. On July 30, 2020, the Company repaid, using cash on hand, its $24,000 term loan secured by the Overseas Gulf Coast. The remaining term loan is secured by a first preferred ship mortgage on the Overseas Sun Coast and a guaranty by the Company. The term loan bears a fixed rate of interest of 5.54%. In November 2021, the Company completed an amendment on the term loan to conform the covenants with the Stonebriar $325,000 loan.

Term loan, due 2023 – In December 2018, the Company and several of its subsidiaries entered into a term loan with PGIM, Inc. as Administrative Agent for a syndication of lenders, which was secured by a guarantee from the Company. The loan had an aggregate original principal amount of $325,000 and a five-year term. As discussed above, this loan was paid off in September 2021.

In May 2020 and August 2020, in connection with the Company’s sale of two of its ATBs, the Company made mandatory prepayments of $1,307 on its term loan due in 2023. The aggregate losses realized on these transactions, which related to the write-off of unamortized deferred finance costs, were not material.

Term loan, due 2026 – In November 2018, two of the Company’s subsidiaries, Mykonos Tanker LL and Santorini Tanker LLC, entered into a loan with Wintrust Commercial Finance which was guaranteed by the Company. The loan had an aggregate original principal amount of $27,500 and a seven-year term. As discussed above, this loan was paid off in September 2021.

Unsecured Senior Notes

7.5% Notes – The unsecured senior notes were issued on March 7, 2003 and consisted of $146,000 in face value, which are 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”) to holders of the 7.50% Notes due 2024 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 matured in February 2021 and the Company paid off the remaining balance of $301. At December 31, 2021, the remaining outstanding balance is related to the 7.50% Notes due 2024.

Interest Expense

The following table summarizes interest expense, including amortization of issuance and deferred financing costs, commitment, administrative and other fees, recognized during the two years ended December 31, 2021 with respect to the Company’s debt facilities:

 SCHEDULE OF DEBT EXPENSES

Cash paid for interest expense was $25,609 and $23,134 in the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the aggregate annual principal payments required to be made on the Company’s debt are as follows:

 SCHEDULE OF AGGREGATE ANNUAL PRINCIPAL PAYMENTS

NOTE 9 — FAIR VALUE MEASUREMENTS AND FAIR VALUE DISCLOSURES

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

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

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

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

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

Debt— The fair values of the Company’s publicly traded and non-public debt are estimated based on similar instruments.

The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, at December 31, 2021 and 2020, are as follows:

 SCHEDULE OF HIERARCHY CATEGORIZED ON FAIR VALUE