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 third quarter and nine months ended
September 30, 2009.
For the third quarter ended September 30, 2009, the Partnership
reported a net loss of $10.1 million, compared with a net loss of
$9.7 million in the same period of 2008. Net loss in the third
quarter of 2009 included impairment charges totaling $12.5 million
related to the Overseas Philadelphia and Overseas Diligence. Net
loss in the third quarter of 2008 included a $19.3 million
impairment charge related to the Overseas Integrity, which was sold
in 2009. Time charter equivalent (TCE)1 revenues were $64.5
million, up slightly from $63.7 million. The increase in TCE
revenues was principally due to the delivery of three new product
carriers since the third quarter of last year, which are on
medium-term fixed rate charters, offset by the lay up of three
older single hull product carriers and one smaller double hull ATB,
and lower rates earned on non-Jones Act product carriers. Charter
hire expenses increased 54% quarter-over-quarter to $17.5 million,
principally due to expenses associated with newly delivered Jones
Act product carriers. General and administrative expenses increased
by $1.0 million to $5.9 million, due to $1.3 million of expenses
incurred during the quarter associated with the expected tender
offer by Overseas Shipholding Group, Inc. (OSG; NYSE: OSG), further
discussed later in this press release. OSG owns a 77.1% interest in
the Partnership.
Myles Itkin, President and CEO, said, “U.S oil demand in the
third quarter of 2009 was approximately 18.3 million barrels per
day, down 600,000 barrels per day compared with the third quarter
last year, representing the seventh consecutive quarterly decline
in U.S. oil demand. In addition, U.S. Gulf Coast refining
utilization levels in 2009 have been consistently below those in
2008 except when hurricanes caused damage to the refining
infrastructure and utilization rates fell to approximately 60% in
September 2008. These factors resulted in fewer clean product
seaborne Jones Act movements which increased waiting time for
vessels trading in the spot market. The number of Jones Act vessels
currently in lay up is nine, with two OSG vessels previously in lay
up having commenced grain voyages during the quarter.”
Declining U.S. oil demand and refining margins have caused many
refiners to re-evaluate their previously announced expansion plans
to increase U.S. Gulf Coast refining capacity levels. Announcement
of reductions in capital spending plans began last year and
resulted in the elimination and delay of refinery expansion and
upgrade projects that would have increased the supply of gasoline
and middle distillates and associated demand for U.S. Jones Act
vessels.
For the nine months ended September 30, 2009, the Partnership
reported net income of $0.8 million compared with a net loss of
$1.0 million in the same period of 2008. Net income in the first
nine months of 2009 included severance and relocation costs and
loss on sale or impairment of vessel aggregating $15.3 million. Net
loss in the first nine months of 2008 included an impairment loss
of $19.3 million. TCE revenues increased 11% to $196.2 million from
$176.0 million in the same period of 2008. Higher TCE revenues
reflect an increase of 595 revenue days due primarily to four Jones
Act product carriers that delivered during 2008 and 2009.
Quarterly and Recent Events
Elimination of Quarterly Dividend
On October 29, 2009, the Board of Directors of OSG America L.P.
in a four-to-three vote, approved the suspension of the third
quarter distribution to both common and subordinated unitholders.
The three independent board members voted against the suspension of
distributions to the common unitholders.
Update on Vessels in Lay Up
During the quarter, the Overseas Galena Bay and Overseas Puget
Sound were taken out of lay up to perform grain voyages. The OSG
214 and Overseas New Orleans remain in lay up. OSG America
continues to receive time charter revenues from OSG for the
Overseas New Orleans, but at a reduced daily rate reflecting a
pass-back to OSG of vessel expense savings realized during the lay
up period.
Vessel Impairments
The Partnership’s fleet includes four single hull product
carriers with limited remaining useful lives (two are to be phased
out in 2012 and two in 2013) and one 1977-built double hull tanker
with a less efficient gas turbine engine. As a result of negative
market factors and current recessionary economic conditions, the
Partnership has put three of its four single hull product carriers
in lay up for varying amounts of time in 2009 and has had to
evaluate future employment opportunities for the Overseas
Diligence, the above mentioned 1977-built tanker, after it
completes its service in lightering, which is expected to occur in
the first half of 2010. The Partnership was recently informed that
the time charter for the Overseas Philadelphia, a single hull
vessel, will not be extended beyond its current expiry in January
2010. This vessel is required to be phased out by May 2012 and its
next special survey is scheduled to occur in the first half of
2010. Accordingly, the Partnership recorded a charge of $12.5
million to write down the carrying amount of the Overseas Diligence
and Overseas Philadelphia to their estimated fair values as of
September 30, 2009.
Tender of OSG America L.P. – On September 24, 2009, OSG
announced an increase in its offer price to tender for all of the
outstanding common units of OSG America held by the public to
$10.25 per unit. The increase represented a 28% increase over the
original proposed offer price of $8.00 per unit, and a premium of
approximately 44% over the closing price of OSG America on July 29,
2009, the date the proposed tender was initially announced. OSG has
stated that the tender offer is expected to commence the first week
of November after all necessary documentation is completed.
Negotiations with AMSC – On August 31, 2009, OSG and American
Shipping Company ASA (AMSC, collectively the “parties”) announced
that a nonbinding settlement proposal had been signed seeking to
settle all outstanding commercial disagreements between OSG and
AMSC. The proposal is intended to resolve certain liquidity issues
previously disclosed by Aker Philadelphia Shipyard ASA (APSI), so
as to allow APSI to complete construction of the remaining five
vessels in the 12-ship program. All 12 vessels have been chartered
out to OSG or OSG America. The proposal also provides for the
dismissal with prejudice of all the claims in the arbitration among
the parties and contains a number of provisions materially altering
the prior agreements among the parties. The proposal is nonbinding.
The parties are negotiating definitive agreements to implement the
proposal but there can be no assurance that definitive agreements
will be entered into. In addition, the proposal is subject to
certain conditions precedent, including the receipt of third party
approvals from various lenders and governmental authorities, the
execution and delivery of satisfactory definitive documentation and
the completion of satisfactory due diligence.
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 will be converted to
shuttle tankers by OSG.
Key Financial Metrics
As of September 30, 2009, total debt outstanding was $74.5
million and $170 million was available under the Partnership’s $200
million senior secured revolving credit facility.
The Partnership generated $8.5 million of distributable cash
flow for the third quarter of 2009, resulting in a distribution
coverage ratio of 74%.
Fleet Information and Key Metrics
At September 30, 2009, the Partnership’s fleet totaled 30
vessels, aggregating 1.25 million deadweight tons, including six
vessels (two ATBs and five product carriers) 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.
Vessel
Type No. of Vessels Owned
No. of
VesselsChartered-In
Total as of Sept. 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 Newbuild and Option Vessels Fleet 2
5 7 325,187 TOTAL
FLEET 17 13 30
1,253,294
Utilization2 during the third quarter of 2009 for the Jones Act
ATBs, Jones Act product carriers, and non-Jones Act product
carriers was 84.8%, 93.4% and 98.4%, respectively. Third quarter
utilization for Jones Act ATBs and Jones Act product carriers was
negatively impacted by the lay up of the OSG 214 and Overseas
Galena Bay, respectively.
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 nine months ended September
30, 2009 and 2008.
Three Months EndedSep.
30, 2009
Three Months EndedSep.
30, 2008
Nine Months Ended Sep. 30, 2009
Nine Months Ended Sep. 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 702 $30,566 776 $30,227 2,236
$30,712 2,172 $31,713 Jones Act Product Carriers 1,031
38,716 906 35,212 2,970 38,086 2,496 34,597 Non-Jones Act Product
Carriers 181 17,232 184 45,353
541 26,571 484
42,957 1,914 1,866
5,747
5,152
- TCE rates for Jones Act product
carriers increased by approximately $3,500 per day compared with
the same period of 2008 reflecting higher time charter rates on
charter agreements executed in 2006 for three vessels that entered
the fleet after the third quarter of 2008 and higher TCE rates
earned on one product carrier performing lightering.
- Significantly 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 trade approximately half the time.
Three Months EndedSep.
30, 2009
Three Months EndedSep.
30, 2008
Nine Months Ended Sep.
30, 2009
Nine Months Ended Sep
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 828 $8,906 840 $8,333 2,457
$9,247 2,444 $ 8,099 Jones Act Product Carriers 1,104 14,602
931 17,878 3,066 15,685 2,650 17,265 Non-Jones Act Product Carriers
184 11,473 184 11,304 546
10,137 548 13,358 2,116
1,955 6,069
5,642
- Daily operating expenses for
Jones Act ATBs in the third quarter of 2009 were $573 per day
higher than in the third quarter of 2008 due primarily due to the
charter-in by 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 OSG 400 plus the complexity of the lightering
trade results in higher average daily vessel expenses. The
operating expense increase from the bareboat charter-in of the OSG
400 was partially offset by the operating expense savings resulting
from the lay up of the OSG 214.
- The decline in
quarter-over-quarter daily expenses on Jones Act product carriers
reflects lower expenses associated with the lay up of the Overseas
Galena Bay, Overseas New Orleans, and Overseas Puget Sound, the
latter two of which are chartered-out to OSG through December 31,
2009. At OSG’s option, the vessels can be placed in lay up and the
resulting savings passed back to OSG as a reduction in the daily
time charter rate paid to the Partnership.
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 third quarter of 2009 and anticipated
days off hire for the Partnership’s owned and bareboat chartered-in
vessels for the fourth quarter. Actual off hire days in the third
quarter of 2009 were 37 days lower than the prior projection of 239
days principally due to the Overseas Galena Bay commencing a grain
voyage during the third quarter. Projected off hire days for the
fourth quarter of 2009 include the lay up of the OSG 214, and the
Overseas Galena Bay upon completion of its current voyage. The OSG
242 is scheduled to drydock in the fourth quarter.
Actual Days Off
Hire
Projected Days
Off Hire
Q309 Q4O9 Jones Act ATBs
126 170 Jones Act Product Carriers 73 64 Non-Jones Act
Product Carriers 3 3 Total 202 237
Total lay up days in the third quarter was 161
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.
Statements of
Operations
Three Months Ended Nine Months
Ended ($ in thousands, except per unit amounts)
Sep. 30,2009
Sep. 30,2008
Sep. 30,2009
Sep. 30,2008
Shipping Revenues: Time charter
revenues $47,774 $43,193 $138,620 $112,291 Voyage charter revenues
23,347 31,019 76,066
97,181 71,121 74,212
214,686 209,472
Operating Expenses: Voyage
expenses 6,629 10,509 18,526 33,447 Vessel expenses 25,606 24,857
76,344 70,825 Charter hire expenses 17,547 11,385 46,718 30,230
Depreciation and amortization 12,759 12,902 38,379 39,602 General
and administrative 5,910 4,857 17,151 15,862 Severance and
relocation costs — — 2,100 — Loss on sale or impairment of vessel
12,500 19,319 13,198
19,319 Total operating expenses 80,951 83,829
212,416 209,285 (Loss)/income
from vessel operations (9,830 ) (9,617 ) 2,270 187 Equity income of
affiliated companies 877 1,127
2,015 2,750 Operating (loss)/income (8,953 ) (8,490 )
4,285 2,937 Other income 14 87
17 208 (8,939 ) (8,403 ) 4,302 3,145 Interest expense
1,143 1,295 3,516 4,153
Net (loss)/income ($10,082 ) ($9,698 )
$786 ($1,008 ) General partner’s interest in net
(loss)/ income ($202 ) ($194 ) $16 ($20 ) Limited partners’
interest in net (loss)/income ($9,880 ) ($9,504 ) $770 ($988 )
Weighted-average units outstanding – basic and diluted
30,004,500 30,002,250 30,004,500 30,002,250
Balance Sheets
($ in thousands)
As of
Sep. 30, 2009
As of
Dec. 31, 2008
Assets Current Assets: Cash and cash
equivalents $11,379 $10,529 Voyage receivables 19,025 18,900 Other
receivables 4,550 4,129 Inventory 2,989 1,855 Prepaid expenses and
other current assets 5,655 4,770 Total current assets
43,598 40,183 Vessels, less accumulated depreciation 377,154
404,462 Vessel held for sale — 1,310 Deferred drydock expenditures,
net 18,563 26,536 Investment in Alaska Tanker Company, LLC 2,051
5,382 Intangible assets, less accumulated amortization 78,967
82,417 Other assets 18,735 14,271 Total assets
$539,068 $574,561
Liabilities and Partners’
Capital Current Liabilities: Accounts payable, accrued
expenses and other
current liabilities
$30,625 $19,282 Advances from affiliated companies 14,190 12,586
Current portion of debt 3,144 3,007 Total current
liabilities 47,959 34,875 Long-term debt 71,371 88,746 Other
non-current liabilities 9,700 7,994 129,030 131,615
Partners’ Capital 410,038 442,946 Total
liabilities and partners’ capital $539,068 $574,561
Cash Flow Statements
Nine Months Ended ($ in thousands)
Sep. 30,2009
Sep. 30,2008
Cash Flows from Operating Activities: Net
income/(loss) $786 {$1,008) Items included in net income/(loss) not
affecting cash flows: Depreciation and amortization 38,379 39,602
Undistributed earnings of affiliated companies 3,331 2,994 Other –
net 2,265 1,261 Loss on sale or impairment of vessel 13,198 19,319
Payments for drydocking (3,663) (21,923) Changes in operating
assets and liabilities: (Increase) /decrease in receivables (547)
8,958 Increase in other assets (2,033) (906) Increase in accounts
payable, accrued expenses and other liabilities 13,785
3,757 Net cash provided by operating activities 65,501
52,054
Cash Flows from Investing
Activities: Expenditures for vessels (15,199) (40,087) Proceeds
from sale of vessel 626 — Net cash used in investing
activities (14,573) (40,087)
Cash Flows
from Financing Activities: Net (repayments on)/proceeds from
borrowings under revolving credit facility (15,000) 78,000 Payments
on debt and obligations under capital leases (2,238) (32,331) Cash
distributions paid (34,444) (28,700) Payments for initial public
offering transaction costs — (241) Payments for deferred financing
costs — (143) Change in advances from affiliates 1,604
1,163 Net cash (used in)/provided by financing activities
(50,078) 17,748 Increase in cash and cash equivalents
850 29,715 Cash and cash equivalents at beginning of period 10,529
3,380 Cash and cash equivalents at end of period
$11,379 $33,095
Use of Non-GAAP Financial Information
Distributable Cash Flow
Distributable cash flow represents net (loss) / income adjusted
for depreciation and amortization expense, undistributed income
from affiliated companies, non-cash charter hire expense and
estimated capital expenditure reserves. Distributable cash flow is
a quantitative standard used in the publicly traded partnership
investment community to assist in evaluating a partnership’s
ability to make quarterly cash distributions. Distributable cash
flow is not required by accounting principles generally accepted in
the United States and should not be considered as an alternative to
net income or any other indicator of the Partnership’s performance
required by accounting principles generally accepted in the United
States.
The table below reconciles distributable cash flow to net income
as reported in the statements of operations:
($ in thousands)
Three Months
Ended
Sep. 30, 2009
Nine Months Ended
Sep. 30, 2009
Net (loss) / income ($10,082) $786 Add: Depreciation and
amortization 12,759 38,379 Interest expense 1,143 3,516
Distributions from affiliated companies
-
5,346 Loss on sale or impairment of vessel 12,500 13,198 Less:
Equity in income from affiliated companies (877) (2,015) Non-cash
charter hire expense 1,967 5,533 Cash interest expense (1,060)
(3,266) Drydocking capital expenditure reserve (4,352) (13,056)
Replacement capital expenditure reserve (3,520)
(10,560) Cash available for distribution $8,478
$37,861
TCE Reconciliation
Consistent with general practice in the shipping industry, the
Partnership uses TCE revenues, which represents shipping revenues
less voyage expenses, as a measure to compare revenues generated
from voyage charters to revenues generated from time charters. TCE
revenues, a non-U.S. GAAP measure, provides additional meaningful
information in conjunction with shipping revenues, the most
directly comparable U.S. GAAP measure, because it assists
management in making decisions regarding the deployment and use of
our vessels and in evaluating their financial performance.
The following table reconciles TCE revenues to shipping
revenues, as reported in the statements of operations:
Three Months Ended
Nine Months Ended
($ in thousands)
Sep. 30, 2009
Sep. 30, 2008
Sep. 30, 2009
Sep. 30, 2008
TCE revenues $64,492 $63,703 $196,160 $176,025 Voyage
expenses 6,629 10,509 18,526 33,447
Shipping revenues $71,121 $74,212 $214,686
$209,472
EBITDA
EBITDA represents operating earnings, which is before interest
expense, plus other income and depreciation and amortization
expense. EBITDA is presented to provide investors with meaningful
additional information that management uses to monitor ongoing
operating results and evaluate trends over comparative periods.
EBITDA should not be considered a substitute for net income or cash
flow from operating activities prepared in accordance with
accounting principles generally accepted in the United States or as
a measure of profitability or liquidity. While EBITDA is frequently
used as a measure of operating results and performance, it is not
necessarily comparable to other similarly titled captions of other
companies due to differences in methods of calculation.
The following table reconciles EBITDA to net income, as reported
in the statements of operations:
($ in thousands)
Three Months Ended
Nine Months Ended
Sep. 30, 2009
Sep. 30, 2008
Sep. 30, 2009
Sep. 30, 2009
Net (loss)/income ($10,082) {$9,698) $786 ($1,008) Interest
expense 1,143 1,295 3,516 4,153 Depreciation and amortization
12,759 12,902 38,379 39,602 EBITDA
$3,820 $4,499 $42,681 $42,747
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 the
Partnership, the payment of cash distributions, the timely delivery
of newbuilds in accordance with contracted terms, projected
drydocking schedule, off hire days for the fourth quarter of 2009
and the forecast of U.S. economic activity and U.S. oil demand.
These statements are based on certain assumptions made by the
Partnership’s management 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-looking
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 November 2, 2009 at 1:00 p.m. ET. Dial-in
information for the call is (877) 941-2069 (domestic) and (480)
629-9713 (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 November 9, 2009; the dial-in number for
the replay is (800) 406-7325 (domestic) and (303) 590-3030
(international). The passcode is 4170580.
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.
Contact Information - For more information contact
Jennifer L. Schlueter, Vice President Investor Relations and
Corporate Communications, OSG Ship Management, Inc. at +1
212.578.1699.
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