Overseas Shipholding Group Reports Fourth Quarter and Fiscal 2009 Results.
Overseas Shipholding Group, Inc., a market leader in providing energy transportation services, yesterday reported results for the fourth quarter and fiscal year ended December 31, 2009. For the fiscal year ended December 31, 2009, the Company reported time charter equivalent revenues (TCE1) of $952.6 million, a 38% decrease from $1.5 billion in 2008. The year-over-year decline in TCE revenues was due to lower average daily TCE rates earned by nearly all of the Company"s international flag vessel classes. Revenue days decreased year-over-year by 1,810 days. Average daily TCE rates earned by the Company"s international crude oil tankers declined 50% to $26,307 per day compared with $52,344 per day in the year earlier period and international product carriers declined 21% to $17,976 per day compared with $22,803 per day. Net income attributable to the Company (Earnings2) for fiscal year 2009 was $70.2 million, or $2.61 per diluted share, compared with Earnings of $317.7 million, or $10.65 per diluted share, a year ago. Earnings in the fiscal year 2009 included Special Items that increased Earnings by $93.3 million, or $3.47 per diluted share, compared with Special Items that decreased Earnings by $116.8 million, or $2.70 per share, in fiscal 2008.
For the quarter ended December 31, 2009, the Company reported TCE revenues of $204.1 million, a 41% decline from $348.7 million in 2008. The decline in TCE revenues was due to lower average daily TCE rates earned by nearly all of the Company"s international flag vessel classes. Revenue days decreased quarter-over-quarter by 1,577 days due to a net reduction in the operating fleet from December 31, 2008 of 16 vessels. Net loss attributable to the Company (Loss2) for the quarter ended December 31, 2009, was $23.2 million, or $0.86 per diluted share, compared with Loss of $79.5 million, or $2.89 per diluted share, in the same period a year ago. Special Items that increased fourth quarter Loss totaled $7.3 million, or $0.27 per diluted share. Special items that increased the fourth quarter 2008 Loss totaled $156.2 million, or $4.89 per diluted share. Details on Special Items are provided later in this press release.
Morten Arntzen, President and CEO, said, ?2009 was one of the most difficult tanker markets of the last 20 years. The slowdown in worldwide economic activity that began in 2008 continued throughout 2009. As a result, global oil demand was down, notably in North America, and refinery utilization levels were painfully low in Europe, Japan and the U.S. This combined with substantial OPEC production cuts and a 6% increase in the global tanker fleet, combined to produce a very tough rate environment.? Arntzen added, ?While market conditions were tough last year, the commercial, financial and operational platforms of OSG performed well and enabled OSG to enter 2010 in solid shape. Indeed, we commenced the year with a fully financed newbuilding program, a modern fleet, a cash and short-term investments position of $525 million and liquidity of approximately $1.6 billion. Shareholders, creditors, customers and employees can count on us to continue prudent financial discipline and to maintain our long standing commitment to operate the safest, cleanest and most reliable fleet in the industry.?
Quarterly Events & Select Income Statement Detail
Tender for OSG America L.P.
On November 5, 2009, OSG initiated a tender offer for the 6,999,565 outstanding publicly held common units of OSG America L.P., a Delaware limited partnership formed by the Company, for $10.25 in cash per unit. At the time of the tender offer, the Company effectively owned 77.1% of OSG America L.P. The number of common units (Units) validly tendered in the initial offering period satisfied the non−waivable condition that more than 4,003,166 Units be validly tendered, such that OSG owned more than 80% of the outstanding Units. OSG exercised its right pursuant to the partnership agreement to purchase all of the remaining Units that were not tendered in the Offer and acquired the remaining outstanding Units on December 17, 2009. As a result, the Company became the owner of 100% of OSG America L.P. The Company financed the purchase price of $71.8 million through funds drawn under its $1.8 billion credit facility.
Vessel expenses decreased to $73.8 million, or 13%, from $84.5 million principally due to a reduction in costs related to a fixed rate technical management agreement with DHT Maritime, Inc. (that was renegotiated in early 2009), the redelivery of 11 older product carriers, and reduced levels of expenses for U.S. Flag vessels in lay up during the fourth quarter. In addition, in the fourth quarter of 2009, the Company recorded a reserve of $3.4 million for a probable assessment in 2010 (based on the 2009 pension plan valuation) by a multi-employer pension plan covering British crew members that served as officers onboard OSG"s vessels (as well as vessels of other owners) in prior years;
Charter hire expenses were $86.8 million, a 28% decrease from $120.5 million, principally due to the redelivery of a net 10 (weighted by ownership) vessels during 2009 and significantly lower profit share due to owners;
Depreciation and amortization was $42.7 million, an 11% decline from $47.8 million, principally due to two U.S. Flag vessels being classified as held for sale (for which depreciation ceased) and the redelivery of 11 single hull MR product carriers subsequent to December 31, 2008; and G&A expenses decreased 9% to $36.4 million from $39.8 million. Lower G&A was due to Companywide cost control efforts that included reductions in compensation and benefits paid to shoreside staff and lower consulting, legal, travel and entertainment and other discretionary expenditures. Reductions in G&A were offset by several fourth quarter expenses including $4.6 million associated with the tender of OSG America L.P., $1.8 million in advisory services associated with the Aker settlement announced December 11, 2009 and $1.2 million related to OSG"s share of additional costs associated with the management of the FSO conversion project.
Equity in income / (loss) of affiliated companies decreased significantly in the fourth quarter of 2009 from third quarter 2009 levels principally due to OSG"s share of costs incurred related to the conversion the two FSO service vessels. Although the FSO Asia completed conversion in mid-November, the vessel did not commence FSO services until 2010, resulting in liquidated damages paid in connection with the late delivery of the two FSO units. In addition, the Company took a charge related to hedge ineffectiveness on interest rate swaps associated with the $500 million secured term loan established by the joint venture.
The tax benefit for 2009 reflects the income statement impact of a carryback of approximately $34 million (the cash carryback is approximately $42 million) of 2009 tax losses against earnings generated in 2004. On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 was enacted, which included a provision allowing taxpayers to elect an increased carryback for net operating losses incurred in 2009.