For the quarter ended March 31, 2009, Overseas Shipholding Group reported time charter equivalent (TCE) revenues of $292.8 million, an $83 million, down 22%, compared with $375.8 million in the year-ago quarter. The decline in TCE revenues was mainly because of lower TCE rates earned across most vessel classes. Earnings rose to $121.8 million, or 8%, from $112.4 million, and diluted EPS increased to $4.53 per share, or by 26% from $3.60 per share in the year-ago quarter. Earnings in the first quarter 2009 benefited from a gain on vessel sales of $129.9 million, or $4.83 per diluted share and a positive change in the mark-to-market balance of unrealized freight derivative positions of $1.1 million, or $0.04 per diluted share. Shipyard contract termination costs related with Overseas Shipholding Group US flag unit decreased earnings by $35.9 million, or $1.34 per diluted share. Period-over-period diluted EPS benefited from Overseas Shipholding Group repurchase of 13.2% of total shares outstanding since March 31, 2008.
Morten Arntzen, president and chief executive officer said, “Our first quarter financial performance was solid. Earnings were up quarter-over-quarter, cash balances increased by $244 million to $588 million from year end and EBITDA was at similar levels to last year’s first quarter. In these challenging times OSG’s solid financial position and strong operating platform enable us to focus on running the business well day-to-day and position us to exploit opportunities that will arise in these turbulent markets.”
Segment Information
TCE revenues for the first quarter of 2009 for the crude oil segment were $160 million, a decline of $88.9 million, or 36%, from $248.9 million in the year-ago quarter. The decrease was mainly due to considerably lower average spot rates earned by VLCCs, Aframaxes and Panamaxes, equalized by a raise of 249 revenue days. Quarter-over-quarter spot charter rates for VLCCs decreased 52% to $47,228 per day, Aframaxes declined by 22% to $28,449 per day and Panamaxes decreased 21% to $27,318 per day. TCE revenues for the product carrier segment were $71.2 million, up $4.8 million, or 7%, from $66.4 million in the year earlier period. The increase was mainly attributable to a raise of 254 revenue days, equalized by a marginal decline in average rates earned. TCE revenues for the US flag segment were $59.7 million, a raise of $6.9 million, or 13%, from $52.8 million in the year-ago quarter. The raise was mainly because of the addition of three vessels subsequent to March 31, 2008.
Operating Expenses
Total operating expenses, excluding the shipyard contract termination charges and gains from vessel sale activity, rose to 2%, or $6.9 million, to $290.2 million from $283.3 million from the corresponding quarter in 2008. Period-over-period changes included:
Voyage expenses declined to $32 million, or 8%, from $34.8 million, mainly due to lower fuel costs. Lower fuel costs were attributable, partly, to the Suezmaxes moving from the spot market to Suezmax International after March 31, 2008, and the removal of the Overseas Integrity and M 300 from service in the fourth quarter of 2008;
Charter hire expenses raised to $111.3 million, or 23%, from $90.7 million mainly because of 10 additional ships being chartered-in offset by reduced profit share due to owners;
Depreciation and amortization was $43.9 million, an 8% decline from $47.6 million, mainly because of two vessels being classified as held for sale (for which depreciation ceases), the sale of the Donna and redelivery of four older Handysize product carriers after March 31, 2008;
Severance and relocation costs related to Overseas Shipholding Group US flag segment of $2.2 million in the existing quarter; and
G&A expenses reduced by $10 million, or 27%, to $27.3 million from $37.3 million. Lower G&A was due to companywide cost control efforts that comprised reductions in compensation and benefits paid to shoreside staff, and lower legal, consulting, travel and entertainment and other discretionary expenditures.
Morten Arntzen further commented, “In addition to solid progress in reducing G&A at the Company, we have taken a number of actions that will add to the bottom line in 2009 and 2010, including the FSO project, which begins service in the second half of this year; expansion of our U.S. Gulf Lightering business; and the completion of two ATBs for our Jones Act lightering business in the Delaware Bay. We also expect freight rates to rebound next year as the world’s single hull tanker fleet is phased out.”
Liquidity and Other Key Financial Metrics
Liquidity and Credit Metrics – At March 31, 2009, total equity estimated $2 billion and liquidity, including undrawn bank facilities, was $1.7 billion. Total debt as of March 31, 2009 was $1.4 billion, unchanged from December 31, 2008. Liquidity-adjusted debt to capital3 was 27.6% as of March 31, 2009, a decline from 35.5% as of December 31, 2008, adjusted to reflect the reclassification of the noncontrolling interest to equity in accordance with FAS 160, which became effective in 2009. Overseas Shipholding Group’s disciplined financial strategy, its balance sheet strength and superior financial condition has enabled it to be a predominantly unsecured borrower with only 29.7% of net book value of vessels pledged as collateral. The company has $947 million available in borrowing capacity under its $1.8 billion seven-year unsecured credit facility and $165 million in borrowing capacity under its $200 million secured credit facility. Principal debt repayment obligations are less than $35 million per annum through 2011.
Fixed Revenue – Aggregate future revenues related with noncancelable time charters as of March 31, 2009, totaled $1 billion, down from $1.3 billion at March 31, 2008. Future 2009 fixed revenue totals $278 million and includes $241 million of time charter revenues and $37 million from time charters entered into by certain of Overseas Shipholding Group’s commercial pools. The company’s share of future revenues from term contracts related to its Gas segment and the floating storage offloading (FSO) project aggregate about $1.8 billion. Overseas Shipholding Group level of fixed revenue, expected cash generated from operations, including asset sales, and current debt capacity, well exceed its lease, debt, capital and other operating commitments in 2009.
Quarterly Dividend Announced- On April 23, 2009, the board has declared a quarterly dividend of $0.4375 per share. The dividend is payable on May 28, 2009 to stockholders of record on May 12, 2009.
Share Repurchase Program – There was no share repurchase activity for the period January 1, 2009 through March 31, 2009. The existing $250 million share repurchase program, announced June 9, 2008, has a total of $37.2 million remaining. Since authorizing a share repurchase program on June 9, 2006, Overseas Shipholding Group has repurchased 13.1 million shares, or 33% of total shares outstanding, at a total cost of about $826.5 million.
3 Liquidity-Adjusted debts are defined as long-term debt reduced by cash and the capital construction fund.
Quarterly Events and Other Activities
Overseas Shipholding Group continues to focus on executing its balanced growth strategy through expansion and renewal of its fleet across all segments and generating returns for shareholders through timely asset sales, which generated $239.5 million in cash proceeds and $129.9 million, or $4.83 in gains during the quarter. Overseas Shipholding Group also closely manages its portfolio of chartered-in vessels, giving it flexibility in uncertain market conditions.
