HIGHLIGHTS
-- TCE revenues increased 31% to $255 million, compared with the same
quarter last year
-- Diluted EPS of $2.29 per share reflects strong rates in both Crude
Transportation and Product Carrier segments and an increase in legal
reserves of $27.0 million, or $0.68 per diluted share
-- Gains on vessel sales and sale of securities added $15.8 million, or
$0.39 per diluted share
-- Hart-Scott-Rodino approval received on pending Maritrans acquisition
-- Three Product Carrier charter-in commitments announced
NEW YORK, Nov. 2, 2006 (PRIMEZONE) -- Overseas Shipholding Group, Inc. (NYSE:OSG), a market leader in providing energy transportation services, today reported results for the third quarter of 2006.
For the quarter ended September 30, 2006, Time Charter Equivalent(1) revenues increased by 31% to $254.8 million from $194.8 million in the third quarter of 2005. TCE revenue performance was the result of strong rates across the Company's VLCC, Aframax, Panamax and Handysize Product Carrier fleets. EBITDA(1) for the third quarter was $135.6 million compared with $135.4 million in the third quarter of 2005. Net income for the quarter ended September 30, 2006 was $90.8 million, or $2.29 per diluted share, compared with $72.1 million, or $1.82 per diluted share, for the third quarter of 2005. The current quarter benefited from gains on vessel sales and sale of securities of $15.8 million or $0.39 per diluted share, compared with $22.4 million, or $0.46 per diluted share, in the same period a year ago. In addition, the current quarter reflects the impact of a $27.0 million, or $0.68 per diluted share, increase in the reserve related to the U.S. Department of Justice investigation as more fully described later in this press release.
For the first nine months ended September 30, 2006, the Company reported a 9% increase in TCE revenues to $751.2 million from $690.5 million in the comparable period of 2005. EBITDA for the first nine months of 2006 decreased to $424.8 million from $535.1 million in the first nine months of 2005 and included the above mentioned increase in the reserve. Net income for the nine month period ended September 30, 2006 was $279.4 million, or $7.06 per diluted share, compared with $351.1 million or $8.89 per diluted share in the comparable 2005 period. The first nine months of 2006 benefited from gains on vessel sales and sale of securities of $21.1 million, or $0.44 per diluted share, compared with $60.7 million, or $1.31 per diluted share, in the comparable period of 2005. In addition, the first nine months of 2006 reflects the impact of a $27.0 million, or $0.68 per diluted share, increase in the reserve related to the U.S. Department of Justice investigation, compared with $4.0 million, or $0.10 per diluted share, in the comparable period of 2005.
(1) See Appendix 1 for a reconciliation of TCE revenues to shipping revenues and Appendix 2 for a reconciliation of EBITDA to net income.
Morten Arntzen, President and Chief Executive Officer, stated, "Third quarter TCE revenues were largely the result of a strong spot rate environment in both the crude and product transportation sectors and additions to our product carrier fleet. The increase in operating income before gains and special charges reflects the benefits from OSG's diverse fleet and chartering strategy." Arntzen continued, "Our objective to achieve a market leadership position in the U.S. Flag sector will be realized upon the completion of the Maritrans acquisition. This is another example of our ongoing efforts to transform OSG which began nearly three years ago. Our shareholders will continue to benefit from OSG's leadership position, fleet diversification and spot/time-charter mix that will ensure competitive returns not only in a strong rate environment but throughout all market cycles."
TCE revenues in the third quarter of 2006 for the International Crude Tanker segment were $175.9 million, an increase of 42% quarter-over-quarter, principally due to increases in the daily TCE rates earned on all classes of the segment's vessels. The higher daily rates were partially offset by a decrease in revenue days for VLCCs as a result of increased drydocking and repair days and the sale of three older Aframax tankers. TCE revenues for the International Product Carriers segment increased 25% to $55.0 million from $44.2 million in the year earlier period, principally as a result of an increase in the average TCE rates earned by the Handysize and Panamax Product Carriers, partially offset by an increase in drydocking and repair days. U.S. segment TCE revenues decreased 7% quarter-over-quarter to $19.0 million from $20.4 million in the same period a year ago, principally due to the sale of two crude oil tankers in the fourth quarter of 2005.
Income from vessel operations was $88.9 million in the third quarter of 2006, compared with $82.9 million in the same period a year earlier. For the quarter ended September 30, 2006, total ship operating expenses increased $56.6 million to $176.9 million from $120.3 million in the corresponding quarter in 2005, of which $27.0 million relates to the reserve taken for the U.S. Department of Justice investigation. As a result of the Company expanding its fleet in a capital-efficient manner through sale and leaseback arrangements and time and bareboat charters-in, time and bareboat charter hire expenses increased quarter-over-quarter. Vessel expenses increased quarter-over-quarter principally due to higher crew costs. General and administrative expenses increased principally due to an increase in compensation associated with additional personnel and the change in recognition of targeted cash incentive compensation from an annual to a quarterly basis, expenses incurred in connection with the U.S. Department of Justice investigation and increases in legal, accounting and consulting services.
RECENT ACTIVITIES AND QUARTERLY HIGHLIGHTS
-- On September 25, 2006, OSG announced a definitive merger agreement
with Maritrans Inc. (NYSE:TUG), a leading U.S. Flag crude oil and
petroleum product shipping company that owns and operates one of the
largest fleets of double hull vessels serving the East Coast and U.S.
Gulf Coast trades. Under the terms of the merger agreement, OSG will
acquire Maritrans in an all-cash transaction for $37.50 per share.
On October 16, 2006, the transaction was granted early termination of
the Hart-Scott-Rodino waiting period. Consummation of the transaction
remains subject to other customary conditions, including approval of
Maritrans' stockholders at a meeting to be held November 28, 2006.
-- The Company entered into a number of transactions during the quarter
in furtherance of its strategy to balance the mix of owned and
chartered-in tonnage and to capitalize on the strong market for
second-hand tonnage. Fleet acquisition and disposition activity
during the period resulted in proceeds of vessel sales of $169 million
resulting in gains taken during the period of $14.3 million.
-- The Pacific Sapphire, a 1994-built Aframax, was sold on
July 13, 2006 and the Overseas Keymar, a 1993-built Aframax tanker,
was sold on August 25, 2006.
-- On September 6, 2006, the Overseas Crown, a 1996-built VLCC, was
sold and chartered back. The gain from the sale was deferred and
is being recognized over the term of the charter.
-- The Overseas Hercules and the Overseas Orion, two 2006-built 51,000
dwt Handysize Product Carriers time chartered-in from Parakou
Shipping, were delivered on August 16, 2006 and September 14, 2006,
respectively. Both vessels immediately commenced time
charters-out through August 2008 and September 2009, respectively.
-- On August 16, 2006, the Company agreed to bareboat charter-in three
50,000 dwt Handysize Product Carriers from Capital Maritime and
Trading, Inc. for 10 years. The Overseas Serifos, the Overseas
Sifnos and the Overseas Kimolos will be constructed at the STX
Shipyard in Chinhae, South Korea. The vessels are slated for
delivery in 2008.
-- The sale of the Majestic Unity, previously announced on
June 28, 2006, is expected to close in late November or early
December 2006, at which time the Company will recognize a gain of
approximately $28.0 million.
-- The October 17, 2006 announcement of two Jones Act Product Carriers
chartered out to Tesoro, brings the total number of OSG's 10-ship
fleet being built at the Aker Philadelphia Shipyard that have been
chartered by major oil and refinery companies, to eight.
-- Future revenues associated with time and bareboat charters as of
September 30, excluding the Gas segment, totaled $899.8 million up
from $746.1 million as of December 31, 2005. This amount represented
30,497 revenue days.
-- OSG has purchased no shares as of today's earnings release date under
the $300 million share repurchase program authorized by the Company's
Board of Directors in June 2006.
-- On September 12, 2006, the Board declared a $0.25 per share dividend
to shareholders of record on November 7, 2006, payable on
November 28, 2006.
FLEET METRICS AND STATISTICS
-- As of September 30, 2006, OSG had an operating fleet of 91
International Flag and U.S. Flag vessels. Fifty-two percent, or 47
vessels, were owned, compared with 64%, or 59 vessels, as of
September 30, 2005.
-- Revenue days in the quarter totaled 7,329, a decrease of 8% over the
same period a year earlier, principally due to the sale of older
tankers and an increase in drydock and repair days.
Three Months Ended Nine Months Ended
Sept.30, Sept. 30,
------------------------------------------------
Revenue Days 2006 2005 2006 2005
---------------------------------------------------------------------
Crude Tankers 3,849 4,225 11,869 12,249
Product Carriers 2,671 2,721 7,896 7,640
U.S. 625 824 1,759 2,587
Other 184 188 546 549
------------------------------------------------
Total 7,329 7,958 22,070 23,025
-- OSG's newbuild program of chartered-in and owned vessels totals 27
and spans all lines of business and includes four International Flag
Aframax tankers; nine International Flag Product Carriers; 10 Jones
Act Product Carriers (collectively representing 1.4 million deadweight
tons), and four LNG carriers (representing 864,800 cubic meters).
Updates on most vessels under construction can be found in the
Fleet section of www.osg.com.
FINANCIAL PROFILE
During 2006, shareholders' equity increased by $242.1 million to $2.1 billion and liquidity, including undrawn bank facilities, increased to more than $2.27 billion. Total long-term debt as of September 30, 2006 was $799.4 million compared with $965.7 million at December 31, 2005. Liquidity adjusted debt to capital was 9.7% as of September 30, 2006, an improvement from 24.5% as of December 31, 2005.
UPDATE ON THE U.S. DEPARTMENT OF JUSTICE INVESTIGATION
In 2004 and the first quarter of 2005, the Company made provisions totaling $10 million for anticipated fines and contributions to environmental protection programs associated with a possible settlement of the U.S. Department of Justice investigation. In the third quarter of 2006, the Company, based on discussions with the U.S. Department of Justice that resumed in August 2006, made an additional $27 million provision for such items. The Company continues to cooperate with the government with the goal of reaching a comprehensive settlement of the investigation. Negotiations with the U.S. Department of Justice are continuing but there can be no assurance that a satisfactory settlement can be achieved. While management believes that the total fines and contributions associated with a possible settlement of the investigation will approximate the total provision of $37 million, no assurance can be given that the provision will be sufficient to cover such items.
AVERAGE TCE RATES ACHIEVED
The following table shows time charter equivalent revenues per day and revenue days (defined as ship operating days less lay-up, repair and drydock days) for the Company's International Flag fleet for the three and nine months ended September 30, 2006 compared with the same periods of 2005.
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC
Average TCE Rate(a,b) $68,433 $34,676 $65,295 $54,285
Number of Revenue Days 1,519 1,714 4,785 4,720
Aframax
Average TCE Rate(a) $33,560 $24,973 $32,651 $30,812
Number of Revenue Days 1,350 1,508 4,191 4,592
Panamax
Average TCE Rate(a) $26,939 $24,090 $27,210 $25,157
Number of Revenue Days 980 1,003 2,893 2,769
---------------------------------------------------------------------
Trade - Refined Petroleum Products
---------------------------------------------------------------------
Panamax
Average TCE Rate(a) $18,308 $16,335 $21,194 $28,600
Number of Revenue Days 184 184 543 594
Handysize
Average TCE Rate(a,b) $21,167 $17,194 $20,683 $17,564
Number of Revenue Days 2,487 2,537 7,353 7,046
(a) Includes vessels operating on voyage charters and period
charters.
(b) Includes the effect of forward freight agreements, which are
used to create synthetic time charters.
SPOT AND TIME CHARTER TCE RATES ACHIEVED
The following table provides a breakdown of TCE rates achieved for the third quarters of 2006 and 2005 between spot and time charter rates. The information is based, in part, on information provided by the pools or commercial joint ventures in which the vessels participate.
Three Months Ended Three Months Ended
Sept. 30, 2006 Sept. 30, 2005
---------------------------------------
Spot Time Spot Time
Charter Charter Charter Charter
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC
Average TCE Rate $68,433 -- $34,676 --
Number of Revenue Days 1,519 -- 1,714 --
Aframax
Average TCE Rate $34,743 $29,925 $26,371 $21,760
Number of Revenue Days 1,018 332 1,051 457
Panamax
Average TCE Rate $29,263 $25,093 $27,801 $21,033
Number of Revenue Days 434 546 453 550
---------------------------------------------------------------------
Trade - Refined Petroleum Products
---------------------------------------------------------------------
Panamax
Average TCE Rate -- $18,308 -- $16,335
Number of Revenue Days -- 184 -- 184
Handysize
Average TCE Rate $27,173 $18,763 $23,901 $16,318
Number of Revenue Days 711 1,776 293 2,244
2006 TCE RATES
The Company has achieved the following average estimated TCE rates for the percentage of days booked for vessels operating through October 20, 2006. The information is based, in part, on information provided by the pools or commercial joint ventures in which the vessels participate. All numbers provided are estimates and may be adjusted for a number of reasons, including the timing of any vessel acquisitions or disposals and the timing and length of drydocks and repairs.
Fourth Quarter Revenue Days
--------------------------------------
Fixed Open
Vessel Class and Average as of as of % Days
Charter Type TCE Rates 10/20/06 10/20/06 Total Booked
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC - Spot $68,000 879 676 1,555 57%
Aframax - Spot $32,500 291 727 1,018 29%
Aframax - Time $30,500 297 -- 297 100%
Panamax - Spot $29,500 171 252 423 40%
Panamax - Time $25,000 533 -- 533 100%
---------------------------------------------------------------------
Trade - Refined Petroleum Products
---------------------------------------------------------------------
Panamax - Time $19,000 184 -- 184 100%
Handysize - Spot $22,000 317 456 773 41%
Handysize - Time $18,000 1,848 -- 1,848 100%
The following table shows average estimated time charter TCE rates and associated days booked as of October 20, 2006 for 2007.
Fixed Rates and Revenue Days
as of 10/20/06
------------------------------------
Q107 Q207 Q307 Q407
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC
Average TCE Rate -- -- -- --
Number of Revenue Days -- -- -- --
Aframax
Average TCE Rate $29,000 $29,000 $29,000 $28,500
Number of Revenue Days 266 234 233 188
Panamax
Average TCE Rate $25,500 $25,500 $29,500 $29,500
Number of Revenue Days 540 389 184 135
---------------------------------------------------------------------
Trade - Refined Petroleum Products
---------------------------------------------------------------------
Panamax
Average TCE Rate $19,000 $19,000 $19,000 $19,000
Number of Revenue Days 180 182 184 184
Handysize
Average TCE Rate $18,000 $18,000 $18,000 $17,500
Number of Revenue Days 1,810 1,638 1,633 1,413
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
---------------------- ----------------------
($ in thousands,
except per share
amounts) Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Shipping Revenues:
Pool revenues $165,849 $104,879 $491,956 $420,938
Time and bareboat
charter revenues 70,353 80,203 209,453 235,248
Voyage charter
revenues 29,662 18,121 86,234 60,808
---------- ---------- ---------- ----------
265,864 203,203 787,643 716,994
---------- ---------- ---------- ----------
Operating Expenses:
Voyage expenses 11,056 8,443 36,422 26,449
Vessel expenses 52,255 42,866 155,046 126,938
Provision for
settlement 27,000 -- 27,000 4,000
Time and bareboat
charter hire
expenses 46,022 26,403 127,249 78,226
Depreciation and
amortization 33,981 39,995 104,195 116,444
General and
administrative 20,871 13,495 67,952 45,032
Gain on disposal
of vessels (14,270) (10,869) (10,651) (36,945)
---------- ---------- ---------- ----------
Total Operating
Expenses 176,915 120,333 507,213 360,144
---------- ---------- ---------- ----------
Income from Vessel
Operations 88,949 82,870 280,430 356,850
Equity in Income
of Affiliated
Companies 5,585 1,851 16,913 32,188
---------- ---------- ---------- ----------
Operating Income 94,534 84,721 297,343 389,038
Other Income 7,048 10,683 23,234 29,577
---------- ---------- ---------- ----------
101,582 95,404 320,577 418,615
Interest Expense 14,552 22,639 52,293 71,039
---------- ---------- ---------- ----------
Income before
Federal Income
Taxes 87,030 72,765 268,284 347,576
Provision/(Credit)
for Federal
Income Taxes (3,800) 700 (11,141) (3,569)
---------- ---------- ---------- ----------
Net Income $90,830 $72,065 $279,425 $351,145
========== ========== ========== ==========
Weighted Average
Number of Common
Shares Outstanding:
Basic 39,538,118 39,445,347 39,530,097 39,442,633
Diluted 39,630,655 39,513,752 39,596,964 39,508,564
Per Share
Amounts:
Basic net income $2.30 $1.83 $7.07 $8.90
Diluted net
income $2.29 $1.82 $7.06 $8.89
Cash dividends
declared $0.25 -- $0.925 $0.525
2005 has been reclassified to conform with the 2006 presentation.
TCE REVENUE BY SEGMENT
The following table reflects TCE revenues generated by the Company's three reportable segments for the three and nine months ended September 30, 2006 and 2005, respectively, and excludes the Company's proportionate share of TCE revenues of joint ventures. See Appendix 1 for reconciliations of Time Charter Equivalent Revenues to Shipping Revenues.
Three Months Ended September 30,
---------------------------------------------
($ in thousands) 2006 % of 2005 % of
Total Total
---------------------------------------------------------------------
International Flag
Crude Tankers $175,878 69.0 $124,074 63.7
Product Carriers 55,048 21.6 44,181 22.7
Other 4,893 1.9 6,120 3.1
U.S. 18,989 7.5 20,385 10.5
--------------------------------------------
Total TCE Revenues $254,808 100.0 $194,760 100.0
Nine Months Ended September 30,
---------------------------------------------
($ in thousands) 2006 % of 2005 % of
Total Total
---------------------------------------------------------------------
International Flag
Crude Tankers $528,726 70.4 $472,885 68.5
Product Carriers 160,938 21.4 136,856 19.8
Other 14,495 1.9 19,249 2.8
U.S. 47,062 6.3 61,555 8.9
--------------------------------------------
Total TCE Revenues $751,221 100.0 $690,545 100.0
INCOME FROM VESSEL OPERATIONS BY SEGMENT
The following table reflects income from vessel operations accounted for by each reportable segment. Income from vessel operations is before general and administrative expenses, gain on disposal of vessels and the Company's share of income from affiliated companies.
Three Months Ended September 30,
--------------------------------------------
($ in thousands) 2006 % of 2005 % of
Total Total
---------------------------------------------------------------------
International Flag
Crude Tankers $102,091 106.8 $58,226 68.1
Product Carriers 15,896 16.6 16,850 19.7
Other(a) (26,111) (27.3) 2,334 2.7
U.S. 3,674 3.9 8,086 9.5
--------------------------------------------
Total Income from
Vessel Operations $95,550 100.0 $85,496 100.0
============================================
(a) Reflects reserves related to a Department of Justice
investigation and the settlement of certain crew benefits.
Nine Months Ended September 30,
-------------------------------------------
($ in thousands) 2006 % of 2005 % of
Total Total
---------------------------------------------------------------------
International Flag
Crude Tankers $306,348 90.7 $281,666 77.2
Product Carriers 49,998 14.8 57,734 15.8
Other(a) (25,353) (7.5) 2,630 0.7
U.S. 6,738 2.0 22,907 6.3
--------------------------------------------
Total Income from
Vessel Operations $337,731 100.0 $364,937 100.0
(a) Reflects reserves related to a Department of Justice
investigation and the settlement of certain crew benefits.
Reconciliations of income from vessel operations of the segments to income before federal income taxes as reported in the consolidated statements of operations follow:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------------------------------------------
($ in thousands) 2006 2005 2006 2005
---------------------------------------------------------------------
Total income from
vessel operations
of all segments $95,550 $85,496 $337,731 $364,937
General and
administrative
expenses (20,871) (13,495) (67,952) (45,032)
Gain on disposal
of vessels 14,270 10,869 10,651 36,945
--------------------------------------------
Consolidated
income from
vessel operations 88,949 82,870 280,430 356,850
Equity in income
of affiliated
companies 5,585 1,851 16,913 32,188
Other income 7,048 10,683 23,234 29,577
Interest expense (14,552) (22,639) (52,293) (71,039)
--------------------------------------------
Income before
federal income
taxes $87,030 $72,765 $268,284 $347,576
============================================
CONSOLIDATED BALANCE SHEETS
Sept. 30, December 31,
($ in thousands) 2006 2005
---------- ----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $403,428 $188,588
Voyage receivables 146,225 157,334
Other receivables 72,340 22,202
Inventories and prepaid expenses 22,615 16,763
---------- ----------
Total Current Assets 644,608 384,887
Capital Construction Fund 302,032 296,126
Vessels and other property 2,070,069 2,288,481
Vessels held for sale 60,479 --
Vessels under Capital Leases 32,542 36,267
Deferred drydock expenditures,
net 33,635 19,805
---------- ----------
Total Vessels, Deferred
Drydock and Other Property 2,196,725 2,344,553
---------- ----------
Investments in Affiliated
Companies 275,007 269,657
Other Assets 66,710 53,457
---------- ----------
Total Assets $3,485,082 $3,348,680
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, sundry
liabilities and accrued
expenses $167,304 $105,173
Short-term debt and current
installments of long-term debt 23,224 20,066
Current obligations under
capital leases 7,473 6,968
---------- ----------
Total Current Liabilities 198,001 132,207
Long-term Debt 763,348 923,612
Obligations under Capital Leases 36,008 42,043
Deferred Gain on Sale and
Leaseback of Vessels 230,301 233,456
Deferred Federal Income Taxes
and Other Liabilities 139,319 141,334
Shareholders' Equity 2,118,105 1,876,028
---------- ----------
Total Liabilities and
Shareholders' Equity $3,485,082 $3,348,680
========== ==========
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands) Nine Months Ended Sept. 30,
--------------------------
2006 2005
----------- -----------
Cash Flows from Operating Activities:
Net income $279,425 $351,145
Items included in net income not
affecting cash flows:
Depreciation and amortization 104,195 116,444
Amortization of deferred gain on
sale and leasebacks (31,611) (2,356)
Deferred compensation relating to
restricted stock and stock option
grants 2,915 1,521
Deferred federal income tax credit (4,700) (2,732)
Undistributed earnings of affiliated
companies 7,095 (8,380)
Other - net (9,465) (16,322)
Items included in net income related
to investing and financing
activities:
Gain on sale of securities - net (10,420) (23,714)
Gain on disposal of vessels (10,651) (36,945)
Payments for drydocking (27,402) (9,945)
Changes in operating assets and
liabilities 10,200 (29,775)
----------- -----------
Net cash provided by operating
activities 309,581 338,941
----------- -----------
Cash Flows from Investing Activities:
Expenditures for vessels (52,014) (1,905)
Proceeds from disposal of vessels 168,969 434,641
Acquisition of interest in affiliated
company that owned four V-Pluses -- (69,145)
Acquisition of Stelmar Shipping Ltd. -- (742,433)
Expenditures for other property (6,292) (6,395)
Investments in and advances to
affiliated companies (7,071) (8,439)
Distributions from affiliated
companies 1,573 20,853
Purchases of other investments (660) (709)
Proceeds from dispositions of other
investments 905 15,946
Other - net (1,207) (680)
----------- -----------
Net cash provided by/(used in)
investing activities 104,203 (358,266)
----------- -----------
Cash Flows from Financing Activities:
Issuance of debt, net of issuance
costs 83,642 781,268
Payments on debt and obligations
under capital leases (246,296) (1,080,061)
Cash dividends paid (26,691) (20,710)
Issuance of common stock upon
exercise of stock options 237 187
Other - net (9,836) (420)
----------- -----------
Net cash (used in) financing
activities (198,944) (319,736)
----------- -----------
Net increase/(decrease) in cash and
cash equivalents 214,840 (339,061)
Cash and cash equivalents at beginning
of year 188,588 479,181
----------- -----------
Cash and cash equivalents at end of
period $403,428 $140,120
=========== ===========
2005 has been reclassified to conform with the 2006 presentation.
FLEET
On September 30, 2006, OSG was the second largest publicly traded oil tanker company in the world as measured by number of vessels. OSG's fleet of 118 vessels, including newbuilds, aggregates 12.9 million deadweight tons and 865,000 cbm. Adjusted for OSG's participation interest in joint ventures and chartered-in vessels, the fleet totaled 109.85 vessels. For current fleet information, which is updated on a quarterly basis, refer to the Company's website at www.osg.com.
Vessels Vessels Total at
Owned Chartered-in September 30, 2006
--------------------------------------------------
Total Vessels Total
Vessel Type No. WBO No. WBO Vessels WBO Dwt
---------------------------------------------------------------------
VLCC (including
V-Plus) 11 11 11 7.25 22 18.25 6,994,410
Aframax 7 7 10 7.60 17 14.60 1,776,413
Panamax 9 9 2 2.00 11 11.00 764,083
Summary
International
Flag Crude
Tankers 27 27 23 16.85 50 43.85 9,534,906
Panamax 2 2 0 0 2 2.00 140,626
Handysize 12 12 15 15.00 27 27.00 1,176,834
Summary
International
Flag Product
Carriers 14 14 15 15.00 29 29.00 1,317,460
International
Flag Dry Bulk
Carriers 0 0 2 2.00 2 2.00 319,843
Total
International
Flag
Operating
Fleet 41 41 40 33.85 81 74.85 11,172,209
U.S. Flag
Operating
Fleet(a) 6 6 4 4.00 10 10.00 386,047
Total Operating
Fleet 47 47 44 37.85 91 84.85 11,558,256
Newbuild Fleet
International
Flag
Aframax Crude
Tankers 4 4 0 0 4 4.00 456,000
Handysize
Product
Carriers 0 0 9 9.00 9 9.00 440,000
U.S. Flag
Product
Carriers 0 0 10 10.00 10 10.00 460,000
Subtotal of
Crude Tankers,
Product Carriers
and Dry Bulk
Carriers 51 51 63 56.85 114 107.85 12,914,256
Newbuild LNG
Carriers 4 2 0 0 4 2.00 864,800
cbm
Total Operating
and Newbuild
Fleet 55 53 63 56.85 118 109.85 --
WBO = Weighted by Ownership
(a) Includes three owned Product Carriers that trade
internationally, thus the associated revenue is included in the
Product Carrier segment.
Average Age of International Flag Operating Fleet
OSG has one of the youngest International Flag fleets in the industry. The Company believes its modern, well maintained fleet is a significant competitive advantage in the global market. The table below reflects the average age of the Company's owned International Flag fleet compared with the world fleet.
Average Age of Average Age of
OSG's Owned World Fleet
Vessel Class Fleet at 9/30/06 at 9/30/06(a)
--------------------------------------------------------------------
VLCC 6.1 years 8.8 years
Aframax 7.9 years 9.0 years
Panamax(b) 3.5 years 9.9 years
Handysize 5.7 years 12.3 years
(a) Source: Clarkson database as of October 1, 2006.
(b) Includes Panamax tankers that trade crude oil and refined
petroleum products.
Drydock Schedule
In addition to regular inspections by OSG personnel, all vessels are subject to periodic drydock, special survey and other scheduled maintenance. The table below sets forth anticipated days off-hire for these events by class for the Company's owned and bareboat chartered-in vessels.
Q406 Q306
------------------------------
Actual Projected
Days Days No. of
Off-Hire Off-Hire Vessels
--------------------------------------------------------------------
Trade - Crude Oil
--------------------------------------------------------------------
VLCC 123 83 3
Aframax 39 25 2
Panamax 32 55 3
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Trade - Refined
Petroleum Products
--------------------------------------------------------------------
Panamax 0 0 0
Handysize 241 209 6
U.S. 20 30 3
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Total 455 402 17
MARKET OVERVIEW
Worldwide oil demand during the third quarter of 2006 was approximately 84.2 million barrels per day ("b/d"), an increase of 1.0 million barrels per day, or 1.2%, compared with the third quarter of 2005. This pickup in demand reflects a 3.3% increase in non-OECD countries, partially offset by a decrease of 0.3% in OECD areas. China's energy demand continues to grow, especially in transportation fuels, with third quarter demand increasing by approximately 7.2%, or 480,000 b/d, compared with the year earlier quarter. Middle East demand continued to grow with a third quarter increase of 320,000 b/d, or 5.1%, primarily due to fuel subsidies that have kept prices in Middle East countries significantly below world prices. North American oil demand increased by 0.2% against a third quarter 2005 demand base that reflected the adverse impact from the hurricanes that hit the U.S. Gulf Coast area, dampening demand in both the third and fourth quarters of 2005. Third quarter OECD Europe and OECD Asia demand declined, however, 0.9% and 0.4%, respectively. High prices and bad weather in Japan reduced diesel and gasoline demand while higher natural gas liquid imports, due to lower prices, resulted in a reduction in fuel oil usage. The decline in European demand reflects reduced transportation fuel use, mainly gasoline, as well as a reduction in fuel oil requirements in Italy as power generation needs were met by an increase in lower cost alternatives.
Worldwide oil demand for the first nine months of 2006 increased by 0.8% compared with the first nine months of 2005. Demand declined in all OECD areas by 0.8%, as fuel substitutions combined with lower transportation fuel demand did not offset increases in demand for aviation gasoline. Therefore, non-OECD demand growth of 3% accounted for the growth in worldwide oil consumption during the first nine months of 2006. The non-OECD increase was led by growth of 6.6% in China, 5.4% in the Middle East and 1.2% in Brazil.
Tanker supply has increased by 4.4%, or 13.4 million dwt (4.1 million dwt during the first quarter, 4.6 million dwt in the second quarter and 4.7 million dwt in the third quarter of 2006) from year-end 2005 levels. The largest percentage increase occurred in the Panamax sector, where tonnage has increased by 11.8% since the beginning of the year. VLCCs, on the other hand, experienced the lowest percentage growth at 2.9%. The additional tonnage in each vessel category exerted downward pressure on TCE rates during the first nine months of 2006.
Changing supply patterns in the crude oil market during 2006 have had a favorable impact on tonne-mile demand and fleet utilization rates. Venezuela has reduced its exports to the U.S. by almost 6% through the third quarter, redirecting them to Asia. Crude oil movements from the Atlantic Basin to Asia have also risen significantly this year. Deliveries to Asia from Central and South America increased from 80,000 b/d to about 150,000 b/d. Exports from West Africa to Asia in the first nine months of 2006 increased by almost 30% relative to the same 2005 period, with China accounting for much of this increase. These changes in supply patterns are likely to persist as Venezuela seeks to expand its presence in Asia while continuing to reduce its dependence on the U.S. and as additional investments are made in Africa and South America by Asian national oil companies desiring a secure access to crude supplies.
Third quarter 2006 rates in all vessel categories were higher than rates realized during the same quarter of 2005. Rates in the VLCC and Aframax sectors were favorably impacted by the August announcement of BP's partial shutdown of production in the Prudhoe Bay fields in Alaska due to pipeline corrosion problems. Some U.S. West Coast refineries that utilize Alaskan North Slope ("ANS") crude began to source alternative supplies from the Middle East, increasing demand for VLCCs. New Caspian Sea production transported through the Baku-Tbilisi-Ceyhan ("B-T-C") pipeline to the port of Ceyhan boosted the utilization of Aframaxes operating in the Mediterranean. Third quarter product carrier rates were positively influenced by higher aviation gasoline imports into China, increased movement of products from Asia to the U.S. West Coast and arbitrage opportunities for diesel exports from the U.S. to Europe. Panamax rates benefited from increases in crude oil shipments from the Caribbean to the U.S. West Coast to replace shut-in ANS crude oil production.
Newbuilding vessel prices continued to strengthen during the third quarter of 2006, with increases ranging from 1% for VLCCs and Panamaxes to 4% for Aframaxes relative to the previous quarter. Relative to a year ago, current newbuilding prices have increased 4% for VLCCs, 2% for Aframaxes, 8% for Panamaxes and 10% for Handysize Product Carriers. Prices for second hand vessels also remained strong, with prices for some modern vessels exceeding newbuilding prices as buyers continued to be willing to pay premiums for prompt delivery. Newbuilding prices are likely to remain high as shipyards operate at or near full capacity with orderbooks extending out as far as three to three and one-half years.
EARNINGS CONFERENCE CALL INFORMATION
The Company plans to host a conference call at 12:00 p.m. ET on November 2, 2006 to discuss results for the third quarter. All shareholders and other interested parties are invited to call into the conference call, which may be accessed by calling +1 866-425-6195 within the United States, or +1 973-935-8752 for international participants. A live webcast of the conference call and accompanying slide presentation will be available on Overseas Shipholding Group's website at www.osg.com in the Investor Relations Webcasts and Presentations section or via www.viavid.net. The webcast will be available for 90 days and requires Windows Media Player.
An audio replay of the conference call will be available from 2:00 p.m. ET on Thursday, November 2, through midnight ET on Thursday, November 9, 2006 by calling +1 877-519-4471 within the United States or +1 973-341-3080 for international callers. The password for the replay is 7959321.
ABOUT OSG
Overseas Shipholding Group, Inc. (NYSE:OSG) is one of the largest publicly traded tanker companies in the world with a combined owned, operated and newbuild fleet of 118 vessels aggregating 12.9 million dwt and 865,000 cbm, as of today's date. As a market leader in global energy transportation services for crude oil and petroleum 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, with offices in Athens, London, Manila, Montreal, Newcastle, New York City and Singapore. More information is available at www.osg.com.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements regarding the Company's prospects, including the outlook for tanker markets, changing oil trading patterns, prospects for certain strategic alliances and investments, the likelihood of closing the acquisition of Maritrans Inc. and integrating its operations with OSG's operations, estimated TCE rates achieved for the fourth quarter of 2006, anticipated levels of newbuilding and scrapping, projected drydock schedule, the projected growth of the world tanker fleet and the forecast of world economic activity and world oil demand. Factors, risks and uncertainties that could cause actual results to differ from the expectations reflected in these forward-looking statements are described in the Company's Annual Report on Form 10-K.
APPENDIX 1 -- TCE RECONCILIATION
Reconciliations of time charter equivalent revenues of the segments to shipping revenues as reported in the consolidated statements of operations follow:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
-----------------------------------------
($ in thousands) 2006 2005 2006 2005
-------------------------------------------------------------------
Time charter equivalent
revenues $254,808 $194,760 $751,221 $690,545
Add: Voyage expenses 11,056 8,443 36,422 26,449
------------------------------ --------
Shipping revenues $265,864 $203,203 $787,643 $716,994
=========================================
Consistent with general practice in the shipping industry, the
Company uses time charter equivalent revenues, which represents
shipping revenues less voyage expenses, as a measure to compare
revenue generated from a voyage charter to revenue generated from a
time charter. Time charter equivalent revenues, a non-GAAP measure,
provides additional meaningful information in conjunction with
shipping revenues, the most directly comparable GAAP measure,
because it assists Company management in making decisions regarding
the deployment and use of its vessels and in evaluating their
financial performance.
APPENDIX 2 -- EBITDA RECONCILIATION
The following table shows reconciliations of net income, as reflected in the consolidated statements of operations, to EBITDA:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------------------------------------------
($ in thousands) 2006 2005 2006 2005
---------------------------------------------------------------------
Net income $90,830 $72,065 $279,425 $351,145
Provision/(credit) for
federal income taxes (3,800) 700 (11,141) (3,569)
Interest expense 14,552 22,639 52,293 71,039
Depreciation and
amortization 33,981 39,995 104,195 116,444
--------------------------------------------
EBITDA $135,563 $135,399 $424,772 $535,059
============================================
EBITDA represents operating earnings, which is before interest
expense and income taxes, plus other income and depreciation and
amortization expense. EBITDA is presented to provide investors with
meaningful additional information that management uses to monitor
ongoing operating results and evaluate trends over comparative
periods. EBITDA should not be considered a substitute for net income
or cash flow from operating activities prepared in accordance with
accounting principles generally accepted in the United States or as
a measure of profitability or liquidity. While EBITDA is frequently
used as a measure of operating results and performance, it is not
necessarily comparable to other similarly titled captions of other
companies due to differences in methods of calculation.
APPENDIX 3 -- CAPITAL EXPENDITURES
The following table presents information with respect to OSG's capital expenditures for the three and nine months ended September 30, 2006 and 2005.
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------------------------------------
($ in thousands) 2006 2005 2006 2005
---------------------------------------------------------------------
Expenditures for vessels $46,620 $690 $52,014 $1,905
Acquisition of interests
in affiliated companies -- -- -- 69,145
Investments in and advances
to affiliated companies 7,071 953 7,071 8,439
Payments for drydockings 6,123 2,353 27,402 9,945
--------------------------------------
$59,814 $3,996 $86,487 $89,434
======================================