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Section 1: 10-K/A (10-K/A)

Document


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-K/A
(Amendment No. 1)

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2017

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)
 

Delaware
 
13-2637623
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
302 Knights Run Avenue, Tampa, Florida
 
33602
(Address of principal executive offices)
 
(Zip Code)

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

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

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

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  ý

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  o  No  ý

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 ý   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, 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  ý  No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

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):

Large accelerated filer  o
Accelerated filer  x
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company  o
Emerging growth company  o

If 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. o

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

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  ý  No  o

The aggregate market value of the common equity held by non-affiliates of the registrant on June 30, 2017, the last business day of the registrant’s most recently completed second quarter, was $121,143,471, based on the closing price of $2.66 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.

The number of shares outstanding of the issuer’s Class A common stock, as of January 31, 2018: Class A common stock, par value $0.01 – 78,361,687 shares. Excluded from these amounts are penny warrants, which were outstanding as of January 31, 2018, for the purchase of 9,558,118 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 2018 Annual Meeting of Stockholders are incorporated by reference in Part III.

EXPLANATORY NOTE

Overseas Shipholding Group, Inc. (“OSG”) is filing this Amendment No. 1 on Form 10-K/A (“Amended 10-K”) to its Annual Report on Form 10-K for the year ended December 31, 2017 (“Original 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”) on March 12, 2018 to include the financial statements and related notes of Alaska Tanker Company, LLC (“ATC”), an unconsolidated joint venture.

OSG owns a 37.5% non-controlling interest in ATC and accounts for ATC using the equity method of accounting. Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, as amended, provides that if a 50 percent-or-less-owned person accounted for by the equity method meets the first or third condition of the significant subsidiary tests set forth in Rule 1-02(w) of Regulation S-X, substituting 20 percent for 10 percent, separate financial statements for such 50 percent-or-less-owned person shall be filed. ATC met the significant subsidiary test described above for fiscal year ended December 31, 2017. The Original 10-K is being amended by this Amended 10-K to include as exhibits: (i) the ATC audited financial statements for fiscal years ended December 31, 2017 and 2016 prepared in accordance with generally accepted accounting principles in the United States; (ii) the consent of the independent auditor of ATC; and (iii) certifications by our Chief Executive Officer and Chief Financial Officer. This Amended 10-K does not otherwise update any exhibits as originally filed and does not otherwise reflect events that occurred after the filing date of the Original 10-K.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  
(a)(1)
The following consolidated financial statements of the Company are filed in response to Item 8.
 
 
 
Consolidated Balance Sheets at December 31, 2017 and 2016.
 
 
 
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015.
 
 
 
Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2017, 2016 and 2015.
 
 
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015.
 
 
 
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015.
 
 
 
Notes to Consolidated Financial Statements.
 
 
  
Reports of Independent Registered Public Accounting Firms.
 
 
(a)(2)
I – Condensed Financial Information of Parent Company
 
All other schedules of the Company have been omitted since they are not applicable or are not required.
 
 
(a)(3)
The following exhibits are included in response to Item 15(b):
 
 
2.1
 
 





3.1
 
 
3.2
 
 
4.1
 
 
4.2
 
 
4.3
 
 
4.4
 
 
4.5
 
 
4.6
 
 
4.7
 
 
4.8
 
 
4.9
 
 
4.1
 
 
4.11
 
 
4.12
 
 





4.13
 
 
4.14
 
 
4.15
 
 
10.1
 
 
10.2
 
 
10.3
 
 
10.4
 
 
*10.5
 
 
*10.6
 
 
10.7
 
 
*10.8
 
 
*10.9
 
 
*10.10
 
 
*10.11





 
 
*10.12
 
 
*10.13
 
 
*10.14
 
 
*10.15
 
 
*10.16
 
 
*10.17
 
 
*10.18
 
 
*10.19
 
 
*10.20
 
 
*10.21
 
 
*10.22
 
 
*10.23
 
 
*10.24
 
 
*10.25
 
 





*10.26
 
 
*10.27
 
 
*10.28
 
 
*10.29
 
 
*10.30
 
 
*10.31
 
 
*10.32
 
 
*10.33
 
 
*10.34
 
 
*10.35
 
 
*10.36
 
 
*10.37
 
 
*10.38
 
 
*10.39
 
 





*10.40
 
 
*10.41
 
 
*10.42
 
 
*10.43
 
 
*10.44
 
 
*10.45
 
 
*10.46
 
 
*10.47
 
 
*10.48
 
 
10.49
 
 
10.50
 
 
*10.51
 
 
*10.52
 
 
*10.53
 
 
*10.54





 
 
*10.55
 
 
*10.56**
 
 
*10.57
 
 
*10.58
 
 
*10.59**
 
 
*10.60**
 
 
*10.61**
 
 
*10.62**
 
 
*10.63**
 
 
*10.64**
 
 
*10.65**
 
 
21**
 
 
23.1**
 
 
23.2**
 
 
23.3***
 
 
31.1**
 
 
31.2**
 
 
31.3***
 
 
31.4***
 
 
32**
 
 





32.1***
 
 
99***
 
 
101.INS**
XBRL Instance Document.
 
 
101.SCH**
XBRL Taxonomy Schema.
 
 
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase.
 
 
101.DEF**
XBRL Taxonomy Extension Definition Linkbase.
 
 
101.LAB**
XBRL Taxonomy Extension Label Linkbase.
 
 
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase.

 
 
 
(1)
The Exhibits marked with one asterisk (*) are a management contract or a compensatory plan or arrangement required to be filed as an exhibit.
 
 
 
(2)
The Exhibits marked with two asterisks (**) are incorporated by reference to the corresponding exhibit to the Original 10-K.
 
 
 
(3)
The Exhibits marked with three asterisks (***) are filed or furnished with the Amended 10-K.






Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: March 30, 2018
 
 
OVERSEAS SHIPHOLDING GROUP, INC.
 
By:
/s/ RICHARD TRUEBLOOD
 
 
Richard Trueblood
 
 
Vice President
 
 
and Chief Financial Officer



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Section 2: EX-23.3 (EXHIBIT 23.3)

Exhibit


EXHIBIT 23.3

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the registration statements (Nos. 333-208736 and 333-218554) on Form S-8 and the registration statement (Nos. 333-213035) on Form S-3 of Overseas Shipholding Group, Inc. of our report dated March 28, 2018, with respect to the balance sheets of Alaska Tanker Company, LLC as of December 31, 2017 and 2016, and the related statements of comprehensive income, members’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes, which report appears in the December 31, 2017 annual report on Form 10-K/A of Overseas Shipholding Group, Inc. expected to be dated March 30, 2018.

/s/KPMG LLP
Portland, Oregon
March 28, 2018



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Section 3: EX-31.3 (EXHIBIT 31.3)

Exhibit


EXHIBIT 31.3
 
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED
 
I, Samuel H. Norton, certify that:
 

1
I have reviewed this annual report on Form 10-K/A of Overseas Shipholding Group, Inc.;
2
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and
3
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report.

Date: March 30, 2018
/s/ SAMUEL H. NORTON
 
Samuel H. Norton
 
Chief Executive Officer



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Section 4: EX-31.4 (EXHIBIT 31.4)

Exhibit


EXHIBIT 31.4
 
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a), AS AMENDED
 
I, Richard Trueblood, certify that:
 

1
I have reviewed this annual report on Form 10-K/A of Overseas Shipholding Group, Inc.;
2
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and
3
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report.
 

Date: March 30, 2018
/s/ RICHARD TRUEBLOOD
 
Richard Trueblood
 
Chief Financial Officer


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Section 5: EX-32.1 (EXHIBIT 32.1)

Exhibit


EXHIBIT 32.1
 
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
Each of the undersigned, the Chief Executive Officer and the Chief Financial Officer of Overseas Shipholding Group, Inc. (the “Company”), hereby certifies, to the best of his knowledge and belief, that the Form 10-K/A of the Company for the annual period ended December 31, 2017 (the “Periodic Report”) accompanying this certification fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose.
 
Date: March 30, 2018
/s/ SAMUEL H. NORTON
 
Samuel H. Norton
 
Chief Executive Officer
 
 
Date: March 30, 2018
/s/ RICHARD TRUEBLOOD
 
Richard Trueblood
 
Chief Financial Officer




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Section 6: EX-99 (EXHIBIT 99)

Exhibit

ALASKA TANKER COMPANY, LLC
Financial Statements
December 31, 2017 and 2016
(With Independent Auditors’ Report Thereon)







392833728_osgkpmgaudit.jpg





ALASKA TANKER COMPANY, LLC
Balance Sheets
December 31, 2017 and 2016
Assets
 
2017
 
2016
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
$
12,578,314
 
19,124,066
 
Investments in trading securities, at fair value (note 9)
 
7,985,618
 
5,936,759
 
Due from members:
 
 
 
 
 
 
BP Oil (note 8)
 
17,269,581
 
12,306,498
 
Other receivables
 
6
 
25,303
 
Prepaid expenses
 
257,359
 
287,396
 
 
 
 
 
Total current assets
 
38,090,878
 
37,680,022
 
 
 
 
 
Total assets
$
38,090,878
 
37,680,022
Liabilities and Members’ Deficit
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
5,130,231
 
5,892,283
 
Due to members:
 
 
 
 
 
 
Accrued dividend
 
9,992,786
 
9,751,286
 
Accrued expenses (note 4)
 
5,431,748
 
5,953,125
 
 
 
 
 
Total current liabilities
 
20,554,765
 
21,596,694
Long-term liabilities:
 
 
 
 
 
Benefit liabilities (note 10)
 
8,948,830
 
7,738,141
 
Other liabilities (note 7)
 
9,865,709
 
10,301,231
 
 
 
 
 
Total long-term liabilities
 
18,814,539
 
18,039,372
 
 
 
 
 
Total liabilities
 
39,369,304
 
39,636,066
Commitments and contingencies (note 5)
 
 
 
 
Members’ deficit:
 
 
 
 
 
Members’ equity
 
100,000
 
100,000
 
Accumulated other comprehensive loss
 
(1,378,426)
 
(2,056,044)
 
 
 
 
 
Members’ deficit
 
(1,278,426)
 
(1,956,044)
 
 
 
 
 
Total liabilities and members’ deficit
$
38,090,878
 
37,680,022
See accompanying notes to financial statements.
 
 
 
 

2



ALASKA TANKER COMPANY, LLC
Statements of Comprehensive Income
Years ended December 31, 2017 and 2016
 
 
 
 
 
 
 
 
2017
 
2016
Revenues
$
106,893,983
 
110,503,309

Preoperating revenues (outside time charters)
 
1,961,083
 

 
 
 
 
 
Total revenues
 
108,855,066
 
110,503,309

Cost of operations:
 
 
 
 
 
Fuel
 
31,811,399
 
24,925,256

 
Payroll
 
29,385,346
 
30,810,501

 
Port charges
 
 
11,817,625
 
10,874,646

 
Vessel repairs
 
9,002,456
 
7,102,545

 
Drydock and customs
 
5,514
 
6,538,705

 
Project expenses
 
473,362
 
3,451,553

 
Consumables
 
2,706,686
 
3,669,228

 
Insurance, net
 
1,037,325
 
1,232,378

 
Other
 
 
 
 
1,109,721
 
1,269,711

 
 
 
 
 
Total cost of operations
 
87,349,434
 
89,874,523

Administrative costs
 
10,553,299
 
11,434,772

Severance costs
 
1,961,083
 

 
 
 
 
 
Operating income
 
8,991,250
 
9,194,014

Other income (expense):
 
 
 
 
 
Investment income
 
177,169
 
232,753

 
Realized gain (loss) on investments in trading securities
 
310,516
 
(4,820)

 
Unrealized gain on investments in trading securities
 
513,851
 
329,339

 
 
 
 
 
Net income
 
9,992,786
 
9,751,286

Other comprehensive income:
 
 
 
 
 
Employee benefit plans:
 
 
 
 
 
 
Actuarial gain (loss)
 
965,849
 
(541,784)

 
 
Prior service (cost) credit
 
(288,231)
 
1,215,018

 
 
 
 
 
Comprehensive income
$
10,670,404
 
10,424,520

Dividend declared to members
$
9,992,786
 
9,751,286

See accompanying notes to financial statements.
 
 
 
 

3



ALASKA TANKER COMPANY, LLC
Statements of Members’ Deficit
Years ended December 31, 2017 and 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Members’
 
comprehensive
 
Members’
 
 
 
 
 
 
 
 
OSG
 
Keystone
 
BP Oil
 
equity
 
loss
 
deficit
Balance, December 31, 2015
$
37,500

 
37,500

 
25,000

 
100,000

 
(2,729,278)

 
(2,629,278)
 
Net income
 
 
3,656,732

 
3,656,732

 
2,437,822

 
9,751,286

 

 
9,751,286
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee benefit plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
 

 

 

 

 
(541,784)

 
(541,784)
 
 
 
Prior service credit
 

 

 

 

 
1,215,018

 
1,215,018
 
Dividend declared to members
 
(3,656,732)

 
(3,656,732)

 
(2,437,822)

 
(9,751,286)

 

 
(9,751,286)
Balance, December 31, 2016
 
37,500

 
37,500

 
25,000

 
100,000

 
(2,056,044)

 
(1,956,044)
 
Net income
 
 
3,747,295

 
3,747,295

 
2,498,196

 
9,992,786

 

 
9,992,786
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee benefit plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial gain
 

 

 

 

 
965,849

 
965,849
 
 
 
Prior service cost
 

 

 

 

 
(288,231)

 
(288,231)
 
Dividend declared to members
 
(3,747,295)

 
(3,747,295)

 
(2,498,196)

 
(9,992,786)

 

 
(9,992,786)
Balance, December 31, 2017
$
37,500

 
37,500

 
25,000

 
100,000

 
(1,378,426)

 
(1,278,426)
See accompanying notes to financial statements.
 
 
 
 
 
 
 
 
 
 


4



ALASKA TANKER COMPANY, LLC
Statements of Cash Flows
Years ended December 31, 2017 and 2016
 
 
 
 
 
 
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
 
Net income
 
$
9,992,786

 
9,751,286

 
Adjustments to reconcile net income to net cash provided by
 
 
 
 
 
 
(used in) operating activities:
 
 
 
 
 
 
 
Investment income
 
(177,169)

 
(232,753)

 
 
 
Net realized (gain) loss on investments
 
(310,516)

 
4,820

 
 
 
Net unrealized gain on investments
 
(513,851)

 
(329,339)

 
 
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Due from members and other receivables
 
(4,937,786)

 
(2,189,501)

 
 
 
 
Prepaid expenses
 
30,037

 
(12,111)

 
 
 
 
Accounts payable
 
(762,052)

 
697,704

 
 
 
 
Due to members
 

 
(13,616,949)

 
 
 
 
Accrued expenses and benefit liabilities
 
689,312

 
2,098,955

 
 
 
 
Other liabilities
 
242,096

 
482,512

 
 
 
 
 
Net cash provided by (used in) operating activities
 
4,252,857

 
(3,345,376)

Cash flows from investing activities:
 
 
 
 
 
Purchases of investments
 
(7,321,246)

 
(312,753)

 
Investment income
 
177,169

 
232,753

 
Proceeds from sale of investments
 
6,096,754

 
80,000

 
 
 
 
 
Net cash provided by investing activities
 
(1,047,323)

 

Cash flows from financing activities:
 
 
 
 
 
Payment of dividend to members
 
(9,751,286)

 
(10,063,966)

 
 
 
 
 
Net cash used in financing activities
 
(9,751,286)

 
(10,063,966)

 
 
 
 
 
Net change in cash
 
(6,545,752)

 
(13,409,342)

Cash and cash equivalents, beginning of year
 
19,124,066

 
32,533,408

Cash and cash equivalents, end of year
$
12,578,314

 
19,124,066

Supplemental disclosure of cash flow information:
 
 
 
 
 
Noncash items:
 
 
 
 
 
 
Dividends declared
$
9,992,786

 
9,751,286

See accompanying notes to financial statements.
 
 
 
 


5

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

(1)
Organization and Purpose
Alaska Tanker Company, LLC (ATC or the Company) was organized effective March 30, 1999 as a limited liability company in the state of Delaware for the purpose of chartering and operating vessels for the transportation of Alaskan produced crude oil to destinations designated by vessel charterers and to provide tonnage planning and ship scheduling services to such vessel charterers.
The members of the Company and their respective ownership interests are BP Oil Shipping Company USA, Inc. (BP Oil), which owns 25.0%, Keystone Alaska, LLC (Keystone), which owns 37.5% and OSG America, LP (OSG), which owns 37.5%. Total capital contributions of $100,000 were made upon formation of ATC and each member contributed its percentage of initial contribution based on their proportionate ownership.
The term of the Company shall be perpetual unless dissolved or terminated by the members pursuant to the limited liability company agreement (the Agreement). Disposition of a member’s interest can be made only in accordance with the Agreement, which provides, among other things, that any member who wants to dispose of its membership interest (other than to an affiliate of the member) must (i) obtain approval of all of the other members; (ii) receive a bona fide offer to purchase its membership interest from a third party; and (iii) offer to the other members to sell its membership interest on the same terms as the offer from the third party.
Pursuant to the Agreement, each member has agreed it will not resign, retire, or withdraw from the Company, except that BP Oil may withdraw as a member from the Company without cause, upon at least 120 days prior notice to the other members. The withdrawal of BP Oil will not affect the time charters (note 3) with BP Oil and the associated guarantees or other contractual relationships then in place.
Income, loss, and distributions are allocated among the members in accordance with their sharing ratios in effect at the time (currently BP Oil 25.0%, Keystone 37.5%, and OSG 37.5%).
The management of the Company is vested in the member committee, which is composed of three representatives, one from each of the members of the Company. The representatives of Keystone and OSG have one and one half (1½) votes each and the representative of BP Oil has one (1) vote. The member committee may delegate and has delegated certain operating responsibilities and authority to employees of the Company.
(2)
Summary of Significant Accounting Policies
(a)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include assets and liabilities related to employee benefits and certain accrued liabilities. Actual results could differ from those estimates.

6    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

(b)
Revenue Recognition
Revenue is recorded pursuant to time charters (note 3) as expenses are incurred and incentive hire is earned. As discussed in note 3, payments under bareboat charters are not recorded by the Company in the accompanying financial statements as an expense nor is the corresponding revenue recorded.
(c)
Income Taxes
The Company is taxed as a partnership; accordingly, all income taxes are the responsibility of the members.
(d)
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash includes cash in banks and cash held onboard vessels in Master Cash Accounts. Cash equivalents consists of highly liquid investments in money market accounts.
(e)
Prepaid Expenses
Prepaid expenses include primarily prepaid insurance costs as of December 31, 2017 and 2016.
(f)
Furniture, Fixtures, and Equipment
All expenditures for furniture, fixtures, and equipment are reimbursed by BP Oil. Accordingly, the net carrying value of furniture, fixtures, and equipment is zero as of December 31, 2017 and 2016, respectively. As part of the formation of ATC, BP Oil provided approximately $853,000 of furniture, fixtures, and equipment to the Company for use in the administration of its operations. The Company has been provided the furniture, fixtures, and equipment from BP Oil for no charge. Additionally, certain equipment is being leased by the Company under operating leases (note 5).
(g)
Drydock Expense
Drydock is the regular maintenance performed on a ship. It is required by the US Coast Guard for the ships to be overhauled twice every five years for older ships and once every five years for new builds. The expenditures related to the overhauls are expensed as incurred.
(h)
Project Expenses
The Company incurs certain expenses for Alaska Class vessels, which are currently operated by the Company to ensure they meet all safety criteria established by the Company. These expenses are subject to approval by BP Oil prior to being incurred and are separately recorded for financial reporting purposes, as BP Oil owns these vessels.
(i)
Investments in Trading Securities
Investments held as of December 31, 2017 and 2016 consist of equity securities and are recorded at fair value. Realized and unrealized gains and losses arising from the sale, collection, or other disposition of investments, as well as all dividends, interest, and other investment income, are included in earnings.

7    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

(j)
Fair Value Measurements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels in accordance with Accounting Standards Update (ASU) No. 2011‑04 (see note 9 to the financial statements):
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
(k)
New Accounting Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016‑02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right‑of‑use asset representing the right to the underlying asset for the lease term. For leases with a term of 12 months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The standard is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the effects ASU No. 2016‑02 will have on its consolidated financial statements and related disclosures. The Company does not plan to adopt the standard early.
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The main objective of ASU No. 2014-09 is to provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The standard is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the effects ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company does not plan to adopt the standard early.
(3)
Charter Operations
ATC was formed to operate vessels that were chartered to BP Oil in the Alaskan crude oil trade. As of December 31, 2017, there were four remaining bareboat charters. A bareboat charter is a charter in which the owner leases an unmanned ship for a long period of time at a rate that covers any depreciation and a nominal return. The charterer mans, procures all supplies and provisions, insures, maintains, and repairs the vessel, and pays for all operating expenses.

8    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016


The Company in turn charters the vessels under time charters to BP Oil. A time charter is a form of charter where the bareboat charterer leases the vessel and crew to the time charterer for a stipulated period of time. The charterer pays for the vessels’ fuel and port charges in addition to the time charter hire.
Each of the Company’s bareboat charters has a corresponding time charter with BP Oil covering identical periods. The time charters contain a basic charter hire payment, which is the same as the charter hire payment required by the corresponding bareboat charter. ATC, as allowed by the time charters, has assigned the bareboat charter hire payments to be made directly by BP Oil to the shipowners or other person as designated by the shipowner. In addition, if a bareboat charter is terminated by the Company, the termination payment required under the bareboat charter will be paid by BP Oil pursuant to the corresponding time charter. The time charters also include supplemental charter hire payments, which consist primarily of reimbursement of the Company’s operating expenses. In addition, as discussed below, the time charters contain a provision for an incentive hire payment. The maximum incentive hire payment available per vessel for the year ended December 31, 2017 is $2,622,119 (adjusted annually by the consumer price index).
As ATC is merely an operator of the vessels under the time charters, the accompanying financial statements reflect only the operating expenses for the vessels and administration costs as well as the revenues from BP Oil to fund those operations plus the incentive hire. BP Oil is responsible for paying all operating costs incurred by ATC. Total bareboat charter payments made directly by BP Oil to the shipowners, or others as designated, are not reflected in the accompanying financial statements for the years ended December 31, 2017 and 2016 were approximately $110,148,000 and $110,450,000, respectively. This includes approximately $22,030,000 attributable to BP Oil as a result of their 80% ownership in the Alaskan Legend.
The bareboat and time charter periods are the same for each individual vessel and expire on varying dates through 2023.
As noted above, the time charters between ATC and BP Oil make provisions for the payment of incentive hire payments. These payments are made upon meeting certain performance measure parameters as contractually defined in the time charter. The performance targets and assessment of achievement are agreed upon annually by the member committee. For the years ended December 31, 2017 and 2016, the Company achieved incentive hire payments totaling $9,992,786 and $9,751,286, respectively, which are included in revenues in the statements of comprehensive income. The amount is shared by the members of the Company based upon their sharing ratios and is shown as dividends declared to members in the accompanying financial statements. ATC does not own any vessels nor does it have any options to acquire vessels under the bareboat charter.

9    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

(4)
Accrued Expenses
Accrued expenses consist of the following as of December 31, 2017 and 2016:
 
 
 
 
 
 
 
 
2017
 
2016
Administrative expenses
$
1,677,512
 
1,827,390

Drydock and vessel repairs
 
83,510
 
841,050

Other
 
 
 
 
 
1,122,265
 
1,408,615

Salaries and wages
 
1,056,830
 
1,058,913

Postretirement plan
 
279,135
 
288,270

Voyage expenses
 
223,025
 
128,451

Retiree medical plan
 
395,680
 
400,436

Severance costs
 
593,791
 

 
 
 
 
 
Total
$
5,431,748
 
5,953,125



(5)
Commitments and Contingencies
(a)
Operating Leases
The Company leases certain office space, equipment, and vehicles under noncancelable operating lease agreements. The lease terms vary as do the Company’s renewal options. Expenses related to the leases totaled approximately $361,800 and $381,800 for the years ended December 31, 2017 and 2016, respectively. Future annual lease payments are summarized as follows:
Year ending December 31:
 
 
 
2018
 
 
 
$
350,584

 
2019
 
 
 
 
321,685

 
2020
 
 
 
 
75,997

 
2021
 
 
 
 

 
 
 
 
 
 
 
$
748,266


(b)
Contingencies
The Company is currently a party to various claims and legal proceedings. If management believes that a loss arising from these matters is probable and can reasonably be estimated, it records the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or future periods.

10    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

(6)
401(k) Plan
The Company has a defined contribution plan with 401(k) provisions covering all full time employees other than those subject to collective bargaining with a union and independent contractors. Employees become eligible upon completion of one year of employment, 1,000 hours of service and age 21. Eligible employees may contribute in increments of 1% of eligible compensation, depending on their eligibility, subject to certain Internal Revenue Service (IRS) imposed limitations. The Company will match each dollar of employee savings with $0.75 up to a maximum of 6% of eligible compensation. The Company may, in its sole discretion, change the percentage of its contribution on a prospective basis. The employee contributions are always 100% vested. Company contributions to the 401(k) plan are vested upon the completion of three years of service. For the years ended December 31, 2017 and 2016, the Company contributed approximately $1,357,000 and $1,427,000, respectively.
(7)
Retirement Plans
(a)
Postretirement Plan
The Company has a postretirement medical and life insurance plan (the Postretirement Plan) that provides benefits to shore based employees and nonunion licensed deck officers at least 55 years of age with 10 years or more of service, as defined.
During 2016, the mortality table was changed from the RP 2014 White Collar tables, adjusted backwards to 2006 with MP 2014 and projected forward to 2015 using MP 2015 the RP 2014 table projected using the MP 2016 improvement scale. The MP 2016 was released by the Society of Actuaries on October 20, 2016 and served as an update to the previously issued mortality table. Additionally, during 2016 the Postretirement Plan was amended to reduce benefits for the pre‑65 and post‑65 participants, notional accounts, which represent a participant’s monthly allowance in excess of premiums paid, were frozen as of December 31, 2016, and the Postretirement Plan was closed to new entrants as of January 1, 2017. This resulted in a credit to prior service costs.
During 2017, the mortality table used was the RP 2014 White Collar tables with generational projection using Scale MP 2017. The MP 2017 was released by the Society of Actuaries on October 20, 2017 and served as an update to the previously issued mortality table.
The following are the amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost:
 
 
 
 
 
 
 
 
2017
 
2016
Net actuarial loss
$
3,097,917
 
4,063,766
Net prior service credit
 
(1,719,491)
 
(2,007,722)
 
 
 
 
 
 
 
$
1,378,426
 
2,056,044


11    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

Amounts recognized in accumulated other comprehensive loss are as follows:
 
 
 
 
 
 
 
 
2017
 
2016
Actuarial (gain) loss
$
(965,849)
 
541,784
Prior service cost (credit)
 
288,231
 
(1,215,018)
 
 
 
 
 
 
 
$
(677,618)
 
(673,234)
The estimated net loss that will be amortized from accumulated other comprehensive loss into net actuarial losses and net prior service credit over the next fiscal year is $203,604 and $186,862, respectively.
The following is a breakdown of certain aggregate components of the Postretirement Plan at December 31, 2017 and 2016 (measurement date of the Postretirement Plan is December 31):
 
 
 
 
 
 
 
 
2017
 
2016
Projected benefit obligation
$
(10,144,844)

 
(10,589,501)

Fair value of plan assets
 

 

 
 
 
 
 
Funded status
$
(10,144,844)

 
(10,589,501)

Accumulated benefit obligation
$
(10,144,844)

 
(10,589,501)

Amounts recognized in the balance sheets at December 31 are as follows:
 
 
 
 
 
 
 
 
2017
 
2016
Current liabilities
$
(279,135)  
 
(288,270)  
Noncurrent liabilities
 
(9,865,709)  
 
(10,301,231)  
Accumulated other comprehensive loss
 
1,378,426   
 
2,056,044   
 
 
 
 
 
Net amount recognized
$
(8,766,418)  
 
(8,533,457)  
Unrecognized prior service costs are attributed to participants qualified to be participants in prior plans sponsored by the members of the Company.
The following is a breakdown of postretirement benefits for the years ended December 31, 2017 and 2016:
 
 
 
 
 
 
 
 
2017
 
2016
Benefit cost
 
 
$
479,122
 
792,887
Employer and employee contributions
 
246,161
 
305,033
Benefits paid
 
246,161
 
305,033

12    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

The weighted average assumptions used to determine the benefit obligation as of December 31, 2017 and 2016 are as follows:
 
 
 
 
 
 
 
 
2017
 
2016
Discount rate
 
 
3.70 %
 
4.15 %
The weighted average assumptions used to determine the net benefit cost for the years ended December 31, 2017 and 2016 are as follows:
 
 
 
 
 
 
 
 
2017
 
2016
Discount rate
 
 
4.15 %
 
4.30 %
The Company is assisted by actuaries who determine the discount rate utilizing a yield‑curve model.
The initial healthcare cost trend rate at December 31, 2017 was 7.5%, decreasing yearly by 0.5% to 5.0% in 2022. A 1% increase in the assumed healthcare cost trend would increase the benefit cost by $34,627 and the benefit obligation by $271,377. A 1% decrease in the assumed healthcare cost trend would reduce the benefit cost by $26,164 and the benefit obligation by $204,229.
(i)
Cash Flows
The Company’s expected contributions to the Postretirement Plan in 2017 are equal to net claims.
The following benefit payments, which reflect expected future services, as appropriate, are expected to be paid by the Postretirement Plan:
2018
 
 
$
284,252
2019
 
 
 
328,174
2020
 
 
 
375,922
2021
 
 
 
412,071
2022
 
 
 
441,394
2023–2027
 
2,487,627
(b)
Multiemployer Plans
In addition to the pension and postretirement benefit plans above, the Company contributes to a number of multiemployer defined benefit pension plans. The risks of participating in these multiemployer plans differ from those of single employer plans in a number of ways. These risks include the following: (1) contributions to the multiemployer plan by the Company may be used to provide benefits to employees of other participating employers; (2) unfunded obligations of other employers participating in the plan may be borne by the participating Company; (3) if the plan is underfunded when a participant leaves a plan they may be required to pay additional amounts referred to as withdrawal liabilities.

13    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

The Company’s participation in the multiemployer plans is comprised of six plans, two of which comprise the majority of current year contributions and employee coverage: the MEBA Pension Trust – Defined Benefit Plan (EIN 51 6029896 and plan number 001) and the Seafarers Pension Trust (EIN 13 6100329 and plan number 001). The contributions to these two plans were approximately $2,696,000 and $2,823,000 for the years ended December 31, 2017 and 2016, respectively.
Total contributions made to other plans were approximately $434,000 and $463,000 for the years ended December 31, 2017 and 2016, respectively. Total contributions to all plans were approximately $3,130,000 and $3,286,000 for the years ended December 31, 2017 and 2016, respectively. The Company’s contributions to the plans represent less than five percent of the total contributions to the plans by all participants as indicated in the plan’s most recently available annual report for the year ended December 31, 2016.
The MEBA Pension Trust required a minimum contribution of approximately $863,000 for the year ended December 31, 2017, which was specified in the collective bargaining agreement that expires on June 15, 2024. The plan had Green Zone status for the years ended December 31, 2017 and 2016, respectively, which is defined as at least 80% funded. Accordingly, the plan does not have a funding improvement plan in place. The Company’s contributions to this plan were approximately $863,000 and $925,000 for the years ended December 31, 2017 and 2016, respectively. The Company has paid $0 and $0 in surcharges to the plan for the years ended December 31, 2017 and 2016, respectively. The Company’s withdrawal liability associated with the MEBA Pension Trust was $9.5 million and $8.4 million for the years ended December 31, 2017 and 2016, respectively. The withdrawal liability is representative of the Company’s proportionate share of the plan’s unfunded vested liability should the Company, or a significant number of other plan participants, decide to withdraw from the plan.
The Seafarers Pension Trust requires a minimum contribution of approximately $1,833,000 for the year ended December 31, 2017, which was specified in the collective bargaining agreement that expires on June 30, 2022. The plan had Green Zone status for the years ended December 31, 2017 and 2016, respectively, which is defined as at least 80% funded. Accordingly, the plan does not have a funding improvement plan in place. The Company’s contributions to this plan were approximately $1,833,000 and $1,898,000 for the years ended December 31, 2017 and 2016, respectively. The Company has paid no surcharges to the plan for the years ended December 31, 2017 and 2016. The Company’s withdrawal liability associated with the Seafarers Pension Trust was $0 for the years ended December 31, 2017 and 2016.
(8)
Related Party Transactions
The Company’s revenues are derived primarily from time charter hire revenues received from BP Oil. For the years ended December 31, 2017 and 2016, BP Oil billed the Company $19,840,452 and $10,773,886, respectively, for bunker fuel and $679,116 and $1,646,263, respectively, for consumable lube products, vetting inspections and premium reimbursement. In addition, for the years ended December 31, 2017 and 2016, the Company had $5,360,373 and $2,530,676 due from (to) BP Oil related to the under (over) funding of operating expenses.


14    (Continued)

ALASKA TANKER COMPANY, LLC
Notes to Financial Statements
December 31, 2017 and 2016

(9)
Investments in Trading Securities
Investments held as of December 31, 2017 and 2016 consist of equity securities classified in Level 1 of the fair value hierarchy as defined in note 2 (j), and were measured using quoted market prices at the reporting date multiplied by the quantity held.
(10)
Benefit Liabilities
Benefit liabilities as of December 31, 2017 and 2016 are primarily related to the Deferred Compensation Plan and are classified as long‑term based on having an expected timing of payout greater than one year. The Company has a Deferred Compensation Plan, which is an unfunded, nonqualified plan that allows eligible employees to defer up to 100% of their Gain share award or defer up to 50% (5% minimum) of their salary and select the deemed investments for their deferral and determine when to be paid out. Eligible employees can elect to receive payment either on a specified date, or on a specified date after termination of employment, and either in a lump sum or annual installments, with a maximum deferral period of 20 years.
(11)
Severance Costs
In 2017, the Company offered a Voluntary Separation Program to various shore and sea based staff. The Voluntary Separation Program was approved by BP Oil and termination benefits were communicated to the affected employees prior to year end. Employee severance costs included primarily severance pay and benefits. Severance costs of $1,961,083 were expensed in 2017 of which $593,791 is included in other accrued expenses. The majority of the remaining costs will be expended in the first quarter of 2018.
(12)
Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through March 28, 2018, the date at which the financial statements were issued, and determined there are no other items to disclose.


15
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