First Quarter 2010 Results
Highlights
• First quarter TCE revenues were $229.9 million, down 21% from $292.8 million in the year ago period
• First quarter Loss was $9.4 million, or $0.34 per diluted share and included Special Items that increased the Loss by $6.8 million, or $0.25 per diluted share
• Adjusted for Special Items, first quarter 2010 Loss was $2.5 million, or $0.09 per diluted share
• Debt and equity market transactions during the quarter strengthened the Company's capital structure and generated nearly $450 million, net of expenses
• The Company repaid $400 million on its unsecured credit facility
• OSG 350 and Overseas Cascade delivered and commenced long-term contracts
NEW YORK, May 04, 2010 (BUSINESS WIRE) --Overseas Shipholding Group, Inc. (NYSE: OSG), a market leader in providing energy transportation services, today reported results for the first quarter of fiscal 2010 ended March 31, 2010.
For the quarter ended March 31, 2010, the Company reported TCE1 revenues of $229.9 million, a 21% decline from $292.8 million in 2009. The decline in TCE revenues was due to lower average daily TCE rates earned by all the Company's international flag vessel classes except VLCCs. Crude Oil TCE revenues were $132.1 million, a 17% decline from $160.0 million in the same period a year ago; Products TCE revenues were $50.1 million, a 30% decline from $71.2 million; and U.S. Flag TCE revenues were $45.7 million, a 23% decline from $59.7 million. Revenue days decreased quarter-over-quarter by 1,216 days due to a net reduction in the operating fleet of 11 vessels from March 31, 2009, and six U.S. Flag vessels that were in layup for substantially all of the first quarter. Net loss attributable to the Company (Loss2) for the quarter ended March 31, 2010, was $9.4 million, or $0.34 per diluted share, compared with net income attributable to the Company (Earnings2) of $121.8 million, or $4.53 per diluted share, in the same period a year ago. First quarter 2009 results included a gain on vessel sales of $129.9 million. Adjusted for Special Items, first quarter 2010 Loss was $2.5 million, or $0.09 per diluted share, compared with Earnings in the first quarter of 2009 of $26.9 million, or $1.00 per diluted share. Details on Special Items are provided later in this press release.
Quarterly Events
Capital Market Transactions
OSG strengthened its capital structure by raising approximately $450 million during the first quarter. In doing so, the Company diversified its funding sources, lengthened its average debt maturity and gained greater flexibility for future investment and expansion opportunities.
• On March 29, 2010, the Company issued $300 million of senior unsecured notes due 2018 with a coupon of 8.125%. The Company received proceeds of approximately $290 million after deducting underwriting discounts, commissions and other expenses. Proceeds from the offering were used to reduce debt outstanding.
• On March 9, 2010, OSG completed the sale of 3.5 million shares of its common stock outstanding at $45.33 per share and received net proceeds of $158.2 million.
Impairment Charge
Theoutlook for theU.S. Jones Act market is expected to remain weak through 2010. The market outlook, continuing commercial discrimination for single hull vessels and pending 2010 drydocks on two of such vessels as well as an older double hull tanker, resulted in the decision to record a charge of $3.6 million to write down the carrying values of two of these U.S. Flag vessels to their estimated net fair values as of March 31, 2010. As of May 3, 2010, the Company had five U.S. Flag vessels in layup.
Select Income Statement Detail
• Vessel expenses decreased to $64.1 million, or 13%, from $73.5 million principally due to the redelivery of 11 older product carriers and reduced levels of expenses for U.S. Flag vessels in layup;
• Charter hire expenses were $90.6 million, a 19% decrease from $111.3 million, principally due to the redelivery of a net 10 (weighted by ownership) vessels and significantly lower profit share due to owners;
• General and administrative expenses were $26.8 million, well in line with the Company's annual guidance of $100 to $115 million. Companywide cost control efforts continue with process improvement and cost reduction initiatives expected to generate additional savings beginning in the second half of 2011. The Company provides annual guidance on certain expense items, which can be found in its earnings call presentation materials located on http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.osg.com&esheet=6274281&lan=en_US&anchor=www.osg.com&index=1&md5=0862b14cc4d64b3389cb021cc4e662a6.
• In 2008, the joint venture with Euronav NV (Euronext Brussels: EURN) in which the Company has a 50% interest (FSO Joint Venture) entered into a secured credit facility to partially finance the purchase of two ULCCs and their subsequent conversion to FSOs. The FSO Joint Venture subsequently entered into floating-to-fixed interest rate swap agreements (Swaps). As a result of the delay in the completion, conversion and commencement of the service contract associated with the FSO Africa, the Swaps related to the FSO Africa debt were deemed ineffective as of March 31, 2010. The dedesignation of such Swaps resulted in a charge of $4.5 million, which impacted Equity in income / (loss) of affiliated companies. Commencing in the second quarter of 2010, these Swaps will be marked-to-market at the end of each reporting period with the future change being reflected in the results of the joint venture.
Special Items
Special items that affected reported results in the first quarter of 2010 increased the quarterly Loss by an aggregate of $6.8 million, or $0.25 per share. A detailed schedule of these special items in the current and corresponding historical period is posted in Webcasts and Presentations in the Investor Relations section of http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.osg.com&esheet=6274281&lan=en_US&anchor=www.osg.com&index=2&md5=b175c6c0f128789f9f71d9287f90523f.
• $4.5 million, or $0.16 per diluted share, associated with the de-designation of Swaps by the FSO Joint Venture; and
• $2.3 million, or $0.08 per diluted share, associated with impairment charges on two U.S. Flag vessels, net of asset sales.
Liquidity and Other Key Metrics
• Cash and cash equivalents totaled $340 million, a decrease from $525 million at year end (which included short-term investments). Uses of cash during the period included payments for vessels under construction, cash contributed to the FSO Joint Venture in connection with the conversion of the FSO Africa and collateral posted in connection with the FSO Joint Venture debt facility;
• Total debt was $1.7 billion, down from $1.8 billion as of December 31, 2009;
• Liquidity3, including undrawn bank facilities, was approximately $1.9 billion and liquidity-adjusted debt to capital4 was 39.8%, a decrease from 40.1% as of December 31, 2009; and
• Construction contract commitments were $413 million, a decrease of $109 million from $522 million as of December 31, 2009.
Segment Activity
Crude Oil
• On January 4, 2010, the FSO Asia commenced a service contract with MOQ that ends in 2017. On March 14, 2010, the conversion of the FSO Africa was completed. As previously disclosed, on January 21, 2010, Maersk Oil Qatar AS (MOQ) notified the FSO Joint Venture that it was canceling the service contract for the FSO Africa, a right the joint venture partners contest. Discussions with various parties concerning employment of the FSO Africa are ongoing. In connection with the debt outstanding on the FSO Africa, during the quarter OSG advanced $72 million to the joint venture related to collateral that was required to be posted on the debt outstanding.
• On February 10, 2010, the Overseas Everest, a 297,000 dwt VLCC delivered. The vessel trades in the Tankers International commercial pool.
Products
• During the quarter, OSG reached an agreement with Cido Tanker Holding Co., a privately held shipping company, to cancel two newbuild MR product carriers that were time chartered-in for seven years and scheduled to deliver in first quarter 2011 (Hulls 2135 and 2136). In exchange, OSG agreed to time charter-in two 2009-built MR product/chemical carriers for periods of eight years. The 51,000 dwt Adriatic Wave delivered on April 5, 2010 and the 51,000 dwt Aegean Wave is expected to deliver in May 2010. The swap resulted in a reduction in charter hire obligations of approximately $6 million.
• On February 25, 2010, the Overseas Mykonos delivered. The 52,000 dwt owned MR has upgraded features that enhance the safety and environmental performance, including an improved and larger oily water separator, high expansion foam system in the engine room, a cargo tank gas detection system and alpha lubricators that increases the fuel efficiency of the ship. The vessel is IMO III certified.
U.S. Flag
• On March 27, 2010, the Overseas Cascade completed conversion to a shuttle tanker and on April 1, 2010 the vessel commenced a five-year charter to Petrobras America, Inc.
• On March 19, 2010, the OSG Vision / OSG 350 articulated tug barge (ATB) delivered. The vessel, the largest ATB in the U.S. Flag fleet, has specialized vapor balancing equipment that reduce emissions of Volatile Organic Compounds, or VOCs, and is fully compliant with the Delaware Department of Natural Resources and Environmental Control (DNREC) Title V Air Quality Permit. The OSG 350 commenced long-term employment in the Delaware Bay.
Detailed report at: www.osg.com
About OSG
Overseas Shipholding Group, Inc. (NYSE: OSG), a Dow Jones Transportation Index company, is one of the largest publicly traded tanker companies in the world. As a market leader in global energy transportation services for crude oil, petroleum and gas products in the U.S. and International Flag markets, OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world's most customer-focused marine transportation companies and is headquartered in New York City, NY. More information is available at http://www.osg.com.
OSG - Overseas Shipholding Group, Inc.