OSG America L.P. (OSG America or the Partnership) (NYSE: OSP),
the largest operator of U.S. Flag product carriers and ocean-going
barges transporting refined petroleum products, today reported
financial results for the second quarter and six months ended June
30, 2009.
For the second quarter ended June 30, 2009, the Partnership
reported net income of $4.7 million, a 5% decrease from $4.9
million in the same period of 2008. Net income in the second
quarter of 2009 included $772,000 of charges related to the loss on
sale of one vessel and severance and relocation costs. Time charter
equivalent (TCE)1 revenues were $64.2 million, up 7% from $59.9
million. The increase in TCE revenues was principally due to
additional revenue days and higher TCE rates associated with the
newly delivered Jones Act product carriers, partially offset by the
lay up in the second quarter of 2009 of one ATB and reduced daily
TCE rates earned on the two non- Jones Act product carriers.
President and CEO Myles Itkin stated, “The U.S. Flag market
continues to face significant challenges as U.S. oil demand in the
second quarter fell quarter-over-quarter for the sixth consecutive
quarter. We are taking aggressive steps to reduce costs in response
to these market conditions, including placing vessels in lay up.
However, we expect the Jones Act vessel supply/demand balance to
continue to weaken through 2010. Despite these near-term
challenges, OSG America’s modern fleet, technical excellence,
strong client relationships and industry leadership will allow us
to succeed over the long term.”
For the six months ended June 30, 2009, the Partnership reported
net income of $10.9 million, a 25% increase from $8.7 million in
the same period of 2008. TCE revenues were $131.7 million, an
increase of 17% from $112.3 million in the same period of 2008.
Higher TCE revenues reflect an increase of 547 revenue days due
primarily to four Jones Act product carriers that delivered after
the first quarter of 2008. Additionally, the OSG 243 re-entered
service in April 2008 following completion of its 12-month
conversion to double hull. Income from vessel operations totaled
$12.1 million, up 23% from $9.8 million in the first half of
2008.
Quarterly and Recent Events
Proposed Tender of OSG America L.P. – On July 29, 2009, Overseas
Shipholding Group, Inc. (OSG; NYSE: OSG), which owns a 77.1%
interest in the Partnership, announced its intention to tender for
all of the outstanding common units of OSG America held by the
public. In a letter received by the independent members of the
Board of Directors of OSG America LLC, OSG America’s general
partner, OSG, communicated its intention to initiate a tender offer
in late August for all the publicly held common units at a price of
$8.00 in cash per unit, representing a premium of approximately
12.7% above the closing unit price of OSG America on July 29, 2009
and 11.1% above the average closing price of the units for the
preceding 90 trading days.
Vessel Delivery – The Overseas Nikiski, a newly built 46,815 dwt
U.S. Flag Jones Act product carrier, was delivered on June 11, 2009
by American Shipping Company ASA (“AMSC”). The vessel is on a
three-year time charter to Tesoro.
Update on Vessels in Lay up – As a result of weak market
conditions, the Partnership placed the Overseas Galena Bay, a
single hull vessel, in lay up during July 2009 upon the completion
of a time charter to SeaRiver. The barge OSG 214 has remained in
lay up since April 2009. In addition, OSG, the time charterer of
the Overseas New Orleans and the Overseas Puget Sound, both single
hull vessels, requested that the Partnership place both vessels in
lay up in April. OSG America continues to receive time charter
revenues from OSG for these vessels but at reduced rates reflecting
a pass-back to OSG of vessel expense savings realized during the
lay up period. The Overseas Puget Sound will begin a grain voyage
in August.
Negotiations with AMSC – OSG and AMSC (collectively the
“parties”) are negotiating to resolve a number of issues
outstanding between them, including among other things, the
arbitration previously disclosed in the Partnership’s filings with
the Securities and Exchange Commission. In February, the parties
signed a Nonbinding Agreement in principle to settle all of their
outstanding commercial disagreements, including the arbitration.
The parties failed to implement the Nonbinding Agreement by the
agreed upon date and thus the terms of the Nonbinding Agreement
ceased to be operative. While the parties continue to seek to
resolve the issues outstanding between them, which may involve
materially altering the prior agreements between the parties, no
assurance can be given that OSG will enter into a definitive
agreement to resolve such issues, including the arbitration. The
arbitration may be resumed by either party at any time.
Seven AMSC-owned product carriers are included in the
Partnership’s operating fleet, and another one is part of its
newbuild fleet. The Partnership has options to acquire from OSG the
equity of the entities that have rights to bareboat charter from
AMSC up to four product carriers, two of which would be converted
to shuttle tankers by OSG.
Declaration of Cash Distribution
On July 29, 2009, the Board of Directors of OSG America LLC, the
general partner of OSG America L.P., declared a quarterly
distribution to all unitholders in the amount of $0.375 per unit
for the three months ended June 30, 2009. The distribution of
approximately $11.5 million will be paid on August 14, 2009 to
unitholders of record on August 7, 2009. The Partnership generated
$11.9 million of distributable cash flow for the second quarter of
2009, resulting in a distribution coverage ratio of 104%.
Myles Itkin, President and CEO of OSG America stated, “After
much discussion, the Board decided to maintain the dividend for the
second quarter for both common and subordinated units. Management’s
current forecast indicates that distributable cash flow in the
second half of 2009 through 2010 will be below that required to
cover the Partnership’s historical quarterly distribution on the
common and subordinated Partnership units. Recent deterioration of
the Jones Act market resulting from lower U.S. oil demand and
suspended or cancelled refinery expansion projects present near-
and medium-term challenges for the Partnership. In addition, six
vessels in the Partnership’s operating fleet will come off term
charters by the end of 2009 and are expected to enter the spot
market. The Board of Directors will continue to carefully evaluate
the appropriate level of future distributions based on the
Partnership’s financial condition, capital needed for future growth
and earnings, and the general economic and financial market
environment.”
Key Debt Metrics
As of June 30, 2009, total debt outstanding was $75 million, and
$170 million was available under the Partnership’s $200 million
senior secured revolving credit facility. The debt to total capital
ratio at quarter end was 14.8%.
Fleet Information and Key Metrics
At June 30, 2009, the Partnership’s fleet totaled 30 vessels,
aggregating 1.3 million deadweight tons, including one newbuild and
six vessels for which the Partnership has options to purchase the
equity of entities that own or bareboat charter-in such vessels
within one year of each vessel’s delivery to OSG. See OSG America’s
website for a detailed fleet list, which includes charter-in and
charter-out dates and newbuild delivery dates.
Vessel Type
No. of
Vessels Owned
No. of Vessels
Chartered-In
Total as of
Jun. 30, 2009
Total Dwt Jones Act ATBs 8 1
9 280,126 Jones Act Product Carriers 5
7 12 554,757 Non-Jones Act Product Carriers 2
- 2 93,224
Total Operating Fleet
15 8 23
928,107 Jones Act ATBs 2 - 2 91,112 Jones Act
Product Carriers/Shuttle Tankers - 5
5 234,075
Total Dropdown and Newbuild
Fleet 2 5
7 325,187 TOTAL OPERATING, DROPDOWN
AND NEWBUILD FLEET 17 13
30 1,253,294
Utilization2 during the second quarter of 2009 for the Jones Act
ATBs, Jones Act product carriers, and non-Jones Act product
carriers was 90.7%, 99.0% and 98.9%, respectively. Second quarter
utilization for Jones Act ATBs was negatively impacted by the lay
up of the OSG 214 since April 2009.
The following tables provide information with respect to average
daily TCE rates earned, revenue days, average daily vessel expenses
and operating days for the three and six months ended June 30, 2009
and 2008.
Three Months Ended
Jun. 30, 2009
Three Months Ended
Jun. 30, 2008
Six Months Ended Jun. 30, 2009
Six Months Ended Jun. 30, 2008
Revenue
Days
Average Daily
TCE Rates
Revenue
Days
Average Daily
TCE Rates
Revenue
Days
Average Daily
TCE Rates
Revenue
Days
Average Daily
TCE Rates
Jones Act ATBs 743 $30,416 801 $32,764
1,534 $30,778 1,396 $32,539 Jones Act
Product Carriers 1,011 $36,231 782 $34,077 1,939 $37,751 1,590
$34,246 Non-Jones Act Product Carriers 180 $27,661
155 $45,400
360 $31,264 300
$41,487 1,934 1,738
3,833
3,286
In the second quarter of 2009, TCE rates for Jones Act ATBs were
approximately $2,300 per day below the second quarter of 2008 due
to lower Delaware Bay lightering volumes, which negatively affected
two ATBs, and charter renewals at lower rates affecting another two
ATBs. Jones Act product carriers were approximately $2,200 per day
above rates in the same period of 2008. The increase in average TCE
rates for the product carriers reflects the higher rate time
charter contracts that were executed in 2006 for the vessels that
have entered the fleet since the end of the first quarter in 2008.
Lower rates for non-Jones Act product carriers reflect a
combination of reduced worldwide oil demand and increased fleet
tonnage, which have adversely impacted the international product
carrier market in which these two vessels compete approximately
half the time.
Three Months Ended
Jun. 30, 2009
Three Months Ended
Jun. 30, 2008
Six Months Ended Jun. 30, 2009
Six Months Ended Jun. 30, 2008
Operating
Days
Average Daily
Vessel
Expenses
Operating
Days
Average Daily
Vessel
Expenses
Operating
Days
Average Daily
Vessel
Expenses
Operating
Days
Average Daily
Vessel
Expenses
Jones Act ATBs 819 $ 9,140 876 $ 8,352
1,629 $ 9,421 1,604 $ 7,981 Jones Act
Product Carriers 1,021 $14,531 900 $16,627 1,962 $16,294 1,719
$16,932 Non-Jones Act Product Carriers 182 $10,835
182 $13,681
362 $ 9,459 364
$14,398 2,022 1,958
3,953
3,687
Higher daily operating expenses for Jones Act ATBs in the second
quarter of 2009 compared with the second quarter of 2008 are
primarily due to the charter-in from OSG of the OSG 400, which
charter-in was converted from a time charter to a bareboat charter
in November 2008. The larger size of the ATB plus the complexity of
the lightering trade, the trade in which the OSG 400 operates,
requires a larger than average crew, resulting in higher average
daily vessel expenses. Lower quarter-over-quarter daily expenses on
Jones Act product carriers reflects lower expenses associated with
the vessels in lay up. If the vessels in lay up were excluded,
average daily operating expenses for the Jones Act product carriers
and ATBs in the second quarter of 2009 would have been $16,042 and
$9,527, respectively. Lower daily operating expenses for the
non-Jones Act product carriers reflect an increase in the subsidy
from the U.S. Government, which lowered expenses by approximately
$800 per day compared with the same period of last year. In
addition, in 2008 daily operating costs for the six-month period
reflected increased repair costs of $1,000 per day.
Off Hire and Scheduled Drydocks
All U.S. Flag vessels are subject to periodic drydock, special
survey and other scheduled maintenance. The table below sets forth
actual days off hire for the second quarter of 2009 and anticipated
days off hire for the Partnership’s owned and bareboat chartered-in
vessels for the balance of 2009, by quarter. Actual off hire days
in the second quarter of 2009 varied by 28 days from the prior
projection of 116 days due to shorter than projected repair periods
for the Jones Act ATBs. Projected off hire days for the third and
fourth quarters of 2009 increased significantly from the prior
projection because of the lay up of the Overseas Galena Bay and
extension of the lay up of the OSG 214.
Actual Days
Off Hire
Projected Days Off Hire Q209
Q309 Q409 Jones Act ATBs
76 140 135 Jones Act Product carriers 10 99 137 Non-Jones Act
Product Carriers 2 - 3 Total 88
239 275
The OSG 252 and the OSG 242 are scheduled to drydock in the
third and fourth quarter, respectively.
Statement of Operations
Three Months Ended Six Months
Ended ($ in thousands, except per unit amounts)
Jun. 30,
2009
Jun. 30,
2008
Jun. 30,
2009
Jun. 30,
2008
Shipping Revenues: Time charter
revenues $45,679 $36,592 $90,846 $69,098 Voyage charter revenues
23,778 35,636 52,719
66,162 69,457 72,228
143,565 135,260
Operating Expenses: Voyage
expenses 5,249 12,298 11,897 22,938 Vessel expenses 24,294 23,534
50,738 45,968 Charter hire expenses 15,556 12,169 29,171 18,845
Depreciation and amortization 13,026 13,679 25,620 26,700 General
and administrative 5,332 5,119 11,241 11,005 Severance and
relocation costs 74 — 2,100 — Loss on sale of vessel 698
— 698 — Total operating
expenses 64,229 66,799 131,465
125,456 Income from vessel operations 5,228 5,429
12,100 9,804 Equity income of affiliated companies 573
1,030 1,138 1,623
Operating income 5,801 6,459 13,238 11,427 Other income (13)
60 3 121 5,788 6,519
13,241 11,548 Interest expense 1,122 1,594
2,373 2,858 Net income $4,666
$4,925 $10,868 $8,690
General partner’s interest in net income $94 $99 $218 $174
Limited partners’ interest in net income $4,572 $4,826 $10,650
$8,516 Weighted-average units outstanding – basic and
diluted 30,004,500 30,002,250 30,004,500 30,002,250
Balance Sheets
($ in thousands)
As of
Jun. 30, 2009
As of
Dec. 31, 2008
Assets Current Assets: Cash and cash
equivalents $13,339 $10,529 Voyage receivables 12,960 18,900 Other
receivables 4,010 4,129 Inventory 2,192 1,855 Prepaid expenses and
other current assets 5,967 4,770 Total current assets
38,468 40,183 Vessels, less accumulated depreciation 397,709
404,462 Vessel held for sale — 1,310 Deferred drydock expenditures,
net 18,914 26,536 Investment in Alaska Tanker Company, LLC 1,175
5,382 Intangible assets, less accumulated amortization 80,117
82,417 Other assets 18,901 14,271 Total assets
$555,284 $574,561
Liabilities and Partners’
Capital Current Liabilities: Accounts payable, accrued
expenses and other
current liabilities
$28,203 $19,282 Advances from affiliated companies 11,592 12,586
Current portion of debt 3,098 3,007 Total current
liabilities 42,893 34,875 Long-term debt 72,174 88,746 Other
non-current liabilities 8,356 7,994 123,423 131,615
Partners’ Capital 431,861 442,946 Total
liabilities and partners’ capital $555,284 $574,561
Cash Flow Statement
Six Months Ended ($ in thousands)
Jun. 30,
2009 Jun. 30, 2008 Cash Flows
from Operating Activities: Net income $10,868 $8,690 Items
included in net income not affecting cash flows: Depreciation and
amortization 25,620 26,700 Undistributed earnings of affiliated
companies 4,207 4,121 Other – net 1,400 785 Loss on sale of vessel
698 — Payments for drydocking (213) (17,082) Changes in operating
assets and liabilities: Decrease in receivables 6,059 8,173
Increase in other assets (1,548) (944) Increase in accounts
payable, accrued expenses and other liabilities 10,283
959
Net cash provided by operating
activities
57,374 31,402
Cash Flows from
Investing Activities: Expenditures for vessels (14,752)
(32,329) Proceeds from sale of vessel 626 —
Net cash used in investing activities (14,126)
(32,329)
Cash Flows from Financing Activities: Net
(repayments on)/proceeds from borrowings under revolving credit
facility (15,000) 59,000 Payments on debt and obligations under
capital leases (1,481) (31,617) Cash distributions paid (22,963)
(17,221) Payments for initial public offering transaction costs —
(241) Payments for deferred financing costs — (143) Change in
advances from affiliates (994) (2,608) Net
cash (used in)/provided by financing activities (40,438)
7,170 Increase in cash and cash equivalents 2,810
6,243 Cash and cash equivalents at beginning of period 10,529
3,380 Cash and cash equivalents at end of
period $13,339 $9,623
Use of Non-GAAP Financial Information
Distributable Cash Flow
Distributable cash flow represents net income adjusted for
depreciation and amortization expense, undistributed income from
affiliated companies, non-cash charter hire expense and estimated
capital expenditure reserves. Distributable cash flow is a
quantitative standard used in the publicly traded partnership
investment community to assist in evaluating a partnership’s
ability to make quarterly cash distributions. Distributable cash
flow is not required by accounting principles generally accepted in
the United States and should not be considered as an alternative to
net income or any other indicator of the Partnership’s performance
required by accounting principles generally accepted in the United
States.
The table below reconciles distributable cash flow to net income
as reported in the statements of operations:
($ in thousands)
Three Months Ended
Jun. 30, 2009
Six Months Ended
Jun. 30, 2009
Net income $4,666 $10,868 Add: Depreciation and amortization 13,026
25,620 Interest expense 1,122 2,373 Distributions from affiliated
companies
-
5,346
Loss on sale of vessel 698 698 Less: Equity in income from
affiliated companies (573) (1,138) Charter hire expense 1,859 3,566
Cash interest expense (1,038) (2,206) Drydocking capital
expenditure reserve (4,352) (8,704) Replacement capital expenditure
reserve (3,520) (7,040) Cash available for
distribution $11,888 $29,383
TCE Reconciliation
Consistent with general practice in the shipping industry, the
Partnership uses TCE revenues, which represents shipping revenues
less voyage expenses, as a measure to compare revenues generated
from voyage charters to revenues generated from time charters. TCE
revenues, a non-U.S. GAAP measure, provides additional meaningful
information in conjunction with shipping revenues, the most
directly comparable U.S. GAAP measure, because it assists
management in making decisions regarding the deployment and use of
our vessels and in evaluating their financial performance.
The following table reconciles TCE revenues to shipping
revenues, as reported in the statements of operations:
Three Months Ended
Six Months Ended ($ in thousands)
Jun. 30, 2009
Jun. 30, 2008 Jun. 30,
2009 Jun. 30, 2008 TCE revenues $64,208
$59,930 $131,668 $112,322 Voyage
expenses 5,249 12,298 11,897
22,938 Shipping revenues $69,457
$72,228 $143,565 $135,260
EBITDA
EBITDA represents operating earnings, which is before interest
expense, plus other income and depreciation and amortization
expense. EBITDA is presented to provide investors with meaningful
additional information that management uses to monitor ongoing
operating results and evaluate trends over comparative periods.
EBITDA should not be considered a substitute for net income or cash
flow from operating activities prepared in accordance with
accounting principles generally accepted in the United States or as
a measure of profitability or liquidity. While EBITDA is frequently
used as a measure of operating results and performance, it is not
necessarily comparable to other similarly titled captions of other
companies due to differences in methods of calculation.
The following table reconciles EBITDA to net income, as reported
in the statements of operations:
($ in thousands)
Three Months Ended
Six Months Ended Jun.
30, 2009 Jun. 30, 2008
Jun. 30, 2009 Jun. 30, 2009 Net
income $4,666 $4,925 $10,868 $8,690 Interest expense 1,122 1,594
2,373 2,858 Depreciation and amortization 13,026
13,679 25,620 26,700 EBITDA
$18,814 $20,198 $38,861
$38,248
Forward-Looking Statements - This press release may
contain forward-looking statements regarding the Partnership’s
prospects, including the outlook for U.S. tanker and articulated
tug barge markets, the outcome of negotiations with AMSC, OSG’s
intention to tender for the outstanding common units of OSG
America, the payment of cash distributions, the timely delivery of
newbuilds in accordance with contracted terms, projected drydocking
schedule, off hire days for the third and fourth quarter of 2009
and projected distributable cash flow for the balance of 2009 and
2010 and the forecast of U.S. economic activity and U.S. oil
demand. These statements are based on certain assumptions made by
the Partnership based on its experience and perception of
historical trends, current conditions, expected future developments
and other factors it believes are appropriate in the circumstances.
Forward-looking statements are subject to a number of risks,
uncertainties and assumptions, many of which are beyond the control
of the Partnership, which may cause actual results to differ
materially from those implied or expressed by the forward-look
statements. Factors, risks and uncertainties that could cause
actual results to differ from expectations reflected in such
forward-looking statements are described in the Partnership’s
Annual Report on Form 10-K for 2008 and those risks discussed in
other reports the Partnership files with the Securities and
Exchange Commission.
Conference Call Information - OSG America has scheduled a
conference call for August 5, 2009 at 1:00 p.m. ET. Dial-in
information for the call is (800) 762-8779 (domestic) and (480)
248-5081 (international). The conference call and supporting
presentation can also be accessed by webcast, which will be
available at www.osgamerica.com in the Investor Relations &
News Webcasts and Presentations section. The webcast will be
available for 90 days. A replay of the call will be available by
telephone through midnight August 12, 2009; the dial-in number for
the replay is (800) 406-7325 (domestic) and (303) 590-3030
(international). The passcode is 4097790.
About OSG America L.P. - OSG America L.P. (NYSE:
OSP) is the largest operator of U.S. Flag product carriers and
ocean-going barges transporting refined petroleum products, based
on barrel-carrying capacity. OSP has an operating fleet of 23
Handysize product carriers and tug barges that trade primarily in
the Jones Act market. OSG America L.P.’s limited partner units are
listed on the New York Stock Exchange and trade under the symbol
“OSP.” More information is available at www.osgamerica.com.
1 Time charter equivalent (TCE) revenues, distributable cash
flow and EBITDA are non-GAAP financial measures. See Appendix for a
description or reconciliation of these non-GAAP measures to the
most directly comparable GAAP financial measures.
2 Utilization is defined as revenue days (the number of calendar
days during the period less days off hire for drydock, repair and
lay up multiplied by the number of vessels) divided by the sum of
operating days (the total number of calendar days multiplied by the
number of vessels, excluding time chartered-in vessels) and time
chartered-in days. Excluded from utilization is six revenue days
for a time-chartered in conventional tug-barge unit.
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