HIGHLIGHTS
-- TCE revenues of $961.7 million up 22% year-over-year.
-- EPS (diluted) of $11.77 up 15% year-over-year.
-- EBITDA of $705.5 million up 8% year-over-year.
-- Fourth quarter 2005 TCE revenues declined 2% to $271.1
million from the same period in 2004.
-- Fourth quarter 2005 (diluted) EPS of $2.88 includes
gains on vessel sales and sale of securities of $0.09.
-- Board of Directors states its intention to increase
quarterly dividend by 43% to $0.25 per share, effective
with the next dividend declaration.
NEW YORK, Feb. 28, 2006 (PRIMEZONE) -- Overseas Shipholding Group, Inc. (NYSE:OSG), a market leader providing energy transportation services, today reported results for the fourth quarter and fiscal year ended December 31, 2005.
For the fiscal year ended December 31, 2005, net income was $464.8 million, a 16% increase over $401.2 million in 2004. EPS was $11.77 per diluted share, a 15% increase from $10.24 per diluted share in 2004. Time Charter Equivalent (TCE) revenues were $961.7 million for the period, a 22% increase from $789.6 million in 2004. The increase in revenues was principally due to an additional 13,068 revenue days, a result of 28 net additional vessels added to the Company's fleet during the year, offset by decreases in average daily TCE rates for VLCC and Aframax tankers that trade in the spot market. The average daily TCE rates achieved for VLCCs and Aframaxes in 2005, however, remained at historically high levels. EBITDA rose 8% to $705.5 million from $655.2 million in 2004. See Appendix 3 for a reconciliation of EBITDA.
For the quarter ended December 31, 2005, net income was $113.7 million, or $2.88 per diluted share, a decrease of 46% compared with the fourth quarter of 2004. The fourth quarter of 2004 included a $77.4 million reduction in deferred tax liabilities recorded on enactment of the American Jobs Creation Act of 2004. Excluding gains on vessel sales and securities transactions, EPS in the fourth quarter of 2005 was $2.79 per diluted share compared with $5.13 per diluted share in the year earlier period (see Appendix 1). TCE revenues were $271.1 million compared with $275.7 million, a decrease of 2% year-over-year. TCE revenues during the fourth quarter of 2005 were roughly comparable to the fourth quarter of 2004 despite declines in TCE rates for the Company's VLCC and Aframax tankers of 37% and 33%, respectively (see Average TCE Rates later in this press release), from the exceptionally high levels achieved in last year's fourth quarter. Such declines were offset by growth in the Company's fleet during 2005, principally attributable to the acquisition of Stelmar Shipping, Ltd. (Stelmar). EBITDA for the fourth quarter 2005 was $170.5 million, a decline from $239.8 million in the fourth quarter of 2004. The decline in EBITDA was a result of lower TCE rates in the Company's International Flag crude tanker fleet, an increase in time and bareboat charter expenses as a result of an increase in the portion of the fleet representing chartered-in tonnage, as well as an increase in general and administrative expenses. General and administrative expenses in the fourth quarter of 2005 were $15.1 million higher than in the fourth quarter of 2004 principally as a result of a $5.6 million charge related to the termination the Company's defined benefit plan and the retirement of an executive officer, $2.1 million of expenses incurred in connection with investigations by the U.S. Department of Justice, and $5.7 million in incremental incentive compensation payments and costs related to headcount associated with the Stelmar acquisition. At year-end, the Company had 3,337 employees comprised of 3,187 sea going personnel and 250 shore side staff, compared with 1,696 employees at year end 2004, comprised of 1,530 sea going personnel and 166 shore side staff.
Morten Arntzen, President and CEO of OSG, stated, "I am pleased with our operating and financial performance during 2005. Our numerous achievements in 2005 build upon a corporate-wide strategic focus on capital efficient growth initiatives that will generate sustainable improvements and shareholder value. Our fleet expansion strategy resulted in 50% growth to 107 owned, operated and newbuild vessels. OSG's fleet diversification strategy reduced our risk exposure to any one segment of our operation as evidenced by our dependence on the crude oil segment with revenues declining to 71% of total 2005 revenue, down from 84% a year ago. The expansion of our presence in product carriers helped to increase OSG's noncancelable, future revenues from time charters to $746 million at year end up from $185 million a year ago. We successfully integrated Stelmar, which provides a stronger operational platform to achieve our long term goals. Savings realized from the integration were reinvested in expanding the leadership team, bringing on new talent to support a strategic business unit organization structure, deploying training programs for the crew and shore side staff and to upgrade technology across OSG's fleet ensuring superior service to our customers and operations of our vessels' safety in strict compliance with all environmental laws and regulations."
Arntzen continued, "I believe that our shareholders recognize that OSG's financial and operational results were achieved by actively managing how our assets are deployed to maximize profitability in the strong rate environment in 2005. The strength of our balance sheet and cash flows generated by OSG's modern fleet provides us the ability to increase our dividend level by 43%, the flexibility to invest in operations and new business opportunities to prudently expand our business segments. We remain very confident and excited about OSG's future."
As a result of OSG's exceptional financial performance in 2005 and confidence in the Company's future performance, the Board of Directors announced its intention to increase the quarterly dividend from $.175 to $0.25 per share, a 43% increase, effective with the next dividend declaration.
FOURTH QUARTER AND YEAR-END HIGHLIGHTS
Active Asset Management
To maximize return on invested capital and in support of the Company's strategy to be a market leader in each of the segments in which it operates, OSG actively manages its fleet based on market conditions, including the sale, purchase, or charter-in of tonnage. During the fourth quarter, OSG sold a number of tankers, including three of its older vessels, taking advantage of near all-time high second-hand vessel prices. This activity supported the Company's goal of owning and operating a high quality, modern fleet.
-- As of December 31, 2005, OSG had an operating fleet of 89
International Flag and U.S. Flag vessels. Forty-four percent,
or 39 vessels, were chartered-in under operating or capital
leases compared with 26%, or 16 vessels, as of December 31,
2004. The Company charters in tonnage, enabling it to expand
its fleet without making additional capital commitments.
-- Revenue days in 2005 totaled 30,645, an increase of 74%, or
13,068 days, over 2004.
-- OSG's active asset monetization program in 2005 resulted in
$283.0 million in gains on vessel sales from the sale or sale
and leaseback of 20 vessels; $42.9 million was included in
other income in 2005. Thirteen sale and leaseback transactions
were executed to capture a premium in the market for second
hand vessels, retain control of the assets for a fixed period
of time, and to transfer residual risk to third parties.
-- As previously announced, on October 13, 2005, OSG sold and
chartered back seven tankers in conjunction with Double Hull
Tankers, Inc.'s ("DHT's") initial public offering. OSG
received consideration, after giving effect to the exercise of
the over-allotment option granted to the underwriters, of
$419.9 million in cash and 13.4 million shares in DHT,
representing a 44.5% equity stake. The transaction resulted in
a $232.2 million gain, which is being amortized over the
initial charter terms. The Company used the proceeds from the
transaction to reduce its debt outstanding thus achieving its
goal of returning to leverage ratios and liquidity levels that
existed prior to the January 2005 acquisition of Stelmar. See
the Liquidity section later in this press release
for further details.
-- The Company sold its last two U.S Flag crude tankers, the
Overseas Washington, a 1978-built tanker on November 10, 2005,
and the Overseas New York, a 1977-built tanker on October 12,
2005, and recognized a gain of $6.0 million. Both vessels were
at the end of their commercial lives at the time of the sales.
-- On December 19, 2005, a joint venture in which the Company
participates sold the Front Tobago, the last single hull tanker
in the Company's fleet. The Company recognized a gain in equity
in income from joint ventures of $2.8 million representing OSG's
30% equity stake in the vessel.
Fleet and Charter Type Diversification
The Company significantly diversified its fleet in 2005 thus making it less dependent on any particular market sector. Furthermore, the Company believes that by balancing the mix of TCE revenues generated by voyage charters and time charters, it is able to maximize financial performance throughout the shipping cycles.
-- As of December 31, 2005, 45% of the Company's fleet was
operating on time charters, compared with 32% as of December
31, 2004.
-- In 2005, OSG added 24 product carriers and 13 panamax tankers,
which both diversified its fleet and reduced the Company's
overall spot rate exposure. As a result, TCE revenues derived
from time charters increased to 31% of TCE revenues in 2005
compared with 15% in 2004.
Other Corporate Initiatives
-- In the fall of 2005, OSG established an operational integrity
unit that reports to the Head of Shipping Operations. The group
is responsible for auditing compliance with fleet-wide operating
procedures, environmental regulatory requirements and safety and
maintenance standards. The establishment of the operational
integrity group and the creation of an operational compliance
officer role, reporting directly to the President, underscores
OSG's commitment to ensuring full compliance with all
international environmental and safety standards and the
Company's commitment to technical excellence.
-- During the fourth quarter, OSG announced that four of the ten
U.S. Flag product carriers being built at Aker Philadelphia
Shipyard had been chartered; two to Shell Trading U.S. Company
and two to British Petroleum. Construction has commenced on
the second tanker, which is scheduled for delivery in early 2007.
-- On January 2, 2006, construction commenced on Hull 1605
(Tenbek), OSG's 216,200 cbm LNG carrier being built at Samsung
Heavy Industries Co., Ltd., in Korea. The vessel is expected to
be delivered in late 2007.
FINANCIAL PROFILE
During the year, shareholders' equity increased by $450 million to nearly $1.9 billion and liquidity, including undrawn bank facilities, increased to more than $1.4 billion. Total long-term debt as of December 31, 2005 was $965.7 million compared with $906.2 million at December 31, 2004, before the Stelmar acquisition. By comparison, long-term debt was $1.4 billion at the end of the third quarter of 2005.
Liquidity adjusted debt to capital was 24.5% at December 31, 2005, a significant reduction from a pro forma 50.3% as of December 31, 2004, adjusted to reflect the Stelmar acquisition and the sale of five older product carriers in January 2005. In 2005, the Company used the proceeds of vessel sales to pay down debt. Additionally, OSG expanded its operating and newbuild fleet more than 50% by chartering-in tonnage, with no capital commitments.
On February 15, 2006, the Company announced it had entered into a $1.5 billion seven-year unsecured revolving credit agreement with a group of banks. Borrowings under this facility bear interest at a rate based on LIBOR. The terms, conditions and financial covenants contained therein are generally more favorable than those contained in the Company's existing long-term facilities. In connection with entering into the agreement, the Company agreed to terminate all of its unsecured revolving credit facilities (long-term of $1.285 billion and short-term of $45 million). The facility increases the Company's liquidity by $215 million to $1.6 billion.
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 twelve month periods ended December 31, 2005 compared with the same periods of 2004.
Three Months Ended Year Ended
December 31, December 31,
-----------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------
VLCC
Average TCE Rate(a,b) $ 68,619 $109,578 $ 57,904 $ 75,436
Number of Revenue Days 1,594 1,508 6,314 6,088
Aframax
Average TCE Rate(a,b) $ 38,823 $ 57,579 $ 33,157 $ 38,848
Number of Revenue Days 1,456 1,288 6,048 4,872
Panamax
Average TCE Rate(a) $ 27,731 $ 22,663 $ 25,066 $ 18,792
Number of Revenue Days 1,183 184 4,546 690
Handysize Product Carrier
Average TCE Rate(a,b) $ 18,180 $ 18,588 $ 17,843 $ 18,192
Number of Revenue Days 2,543 368 9,589 1,383
---------------------------------------------------------------------
(a) Includes vessels operating on voyage charters and period
charters.
(b) Includes the effect of forward freight agreements.
The following table provides a breakdown of TCE rates achieved for the fourth quarter of 2005 between spot and time charter rates. The information for VLCCs, Aframaxes and Panamaxes is based, in part, on information provided by the pools or commercial joint ventures in which they participate.
Three Months Ended
December 31, 2005
-------------------------------
Spot Charter Time Charter
----------------------------------------------------------------
VLCC
Average Rate $68,619 --
Number of Revenue Days 1,594 --
Aframax
Average TCE Rate(a) $42,906 $25,845
Number of Revenue Days 1,108 348
Panamax
Average TCE Rate $39,675 $20,476
Number of Revenue Days 447 736
Handysize Product Carrier
Average TCE Rate $29,559 $16,082
Number of Revenue Days 396 2,147
--------------------------------------------------------------
(a) Spot charter TCE results include the effect of forward
freight agreements. Excluding such effect, the average spot
charter TCE rate for the three months ended December 31,
2005 would have been $44,104 per day.
2006 TCE RATES
The Company has achieved the following average estimated TCE rates for the percentage of days booked for vessels operating through February 24, 2006. The information for the VLCCs, Aframaxes and Panamaxes is based, in part, on information provided by the pools or commercial joint ventures in which they participate. All numbers provided are estimates and may be adjusted for a number of reasons, including the timing of any acquisitions or disposals and the timing and length of drydocks and repairs.
First Quarter Revenue Days
-----------------------------------------------
Vessel Class Average Fixed Open
and TCE as of as of % Days
Charter Type Rates 2/24/06 2/24/06 Total Booked
------------------- ------- ------- ------- ------- -------
VLCC - Spot $77,500 1,455 152 1,607 91%
Aframax - Spot $42,500 822 189 1,011 81%
Aframax - Time(a) $27,000 353 -- 353 100%
Panamax - Spot(b) $36,500 166 232 398 42%
Panamax - Time $20,000 720 -- 720 100%
Handysize - Spot(b) $36,000 317 282 613 53%
Handysize - Time $17,500 1,798 -- 1,798 100%
------------------- ------- ------- ------- ------- -------
VLCC and V-Plus tankers trade in the Tankers International pool;
Aframaxes trade in the Aframax International pool and Panamaxes
trade in the Panamax International joint venture.
(a) Includes one vessel fixed on time charter for the entire
period outside the Aframax International pool.
(b) Information for Panamaxes and Handysize Product Carriers is
as of February 8, 2006.
The following table shows average estimated time charter TCE rates and associated days booked, by quarter, for the balance of 2006.
Fixed Rates and Revenue Days Open Days
as of 2/24/06 as of 2/24/06
------------------------- ----------------------
Q2-06 Q3-06 Q4-06 Q2-06 Q3-06 Q4-06
----------------- ------- ------- ------- ----- ----- -----
VLCC
Average TCE
Rate -- -- --
Number of
Revenue Days -- -- -- 1,639 1,668 1,654
Aframax
Average TCE
Rate $29,500 $29,500 $29,500
Number of
Revenue Days 291 292 292 1,165 1,121 1,180
Panamax(b)
Average TCE
Rate $21,500 $21,000 $21,000
Number of
Revenue Days 626 552 549 557 644 616
Handysize Product
Carrier(b)
Average TCE
Rate $17,000 $17,000 $17,500
Number of
Revenue Days 1,684 1,643 1,592 674 876 1,022
---------------------------------------------------------------------
(b) Information for Panamaxes and Handysize Product Carriers is
as of February 8, 2006.
FINANCIAL INFORMATION - SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------
($ in thousands except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
-------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------
Shipping Revenues:
Pool revenues $ 186,097 $ 237,812 $ 607,035 $ 640,449
Time and bareboat
charter revenues 74,223 31,023 309,471 116,957
Voyage charter
revenues 22,989 11,695 83,797 53,429
-------------------------------------------------
283,309 280,530 1,000,303 810,835
Voyage Expenses (12,192) (4,880) (38,641) (21,254)
-------------------------------------------------
Time Charter
Equivalent Revenues 271,117 275,650 961,662 789,581
-------------------------------------------------
Ship Operating
Expenses:
Vessel expenses 46,411 33,906 177,349 108,170
Time and bareboat
charter hire
expenses 42,075 26,043 120,301 65,550
Depreciation and
amortization 35,867 25,079 152,311 100,088
General and
administrative 34,635 19,499 79,667 51,993
-------------------------------------------------
Total Ship Operating
Expenses 158,988 104,527 529,628 325,801
-------------------------------------------------
Income from Vessel
Operations 112,129 171,123 432,034 463,780
Equity in Income of
Joint Ventures 11,619 26,577 43,807 45,599
-------------------------------------------------
Operating Income 123,748 197,700 475,841 509,379
Other Income 10,845 17,064 77,367 45,781
-------------------------------------------------
134,593 214,764 553,208 555,160
Interest Expense 18,450 18,963 89,489 74,146
-------------------------------------------------
Income before Federal
Income Taxes 116,143 195,801 463,719 481,014
Provision/(Credit)
for Federal Income
Taxes 2,459 (15,322) (1,110) 79,778
-------------------------------------------------
Net Income $ 113,684 $ 211,123 $ 464,829 $ 401,236
=================================================
Weighted Average
Number of Common
Shares
Outstanding:
Basic 39,448,336 39,387,097 39,444,059 39,113,040
Diluted 39,499,636 39,454,304 39,506,332 39,176,253
Per Share Amounts:
Basic net income $ 2.88 $ 5.36 $ 11.78 $ 10.26
Diluted net income $ 2.88 $ 5.35 $ 11.77 $ 10.24
Cash dividends
declared and paid $ 0.175 $ 0.175 $ 0.70 $ 0.70
Revenue Days:
International Flag
Crude 4,233 3,046 17,076 11,990
International Flag
Product 2,543 368 9,589 1,383
Other 184 197 733 781
U.S. Flag 660 883 3,247 3,423
-------------------------------------------------
7,620 4,494 30,645 17,577
=================================================
TCE REVENUE BY SEGMENT
The following chart reflects TCE revenues generated by the Company's three reportable segments for quarters and full years ended December 31, 2005 and 2004, respectively, and excludes the Company's proportionate share of TCE revenues of joint ventures.
($ in thousands)
Three Months Ended December 31,
------------------------------------------
% of % of
2005 Total 2004 Total
------------------------------------------------------------------
International Flag
Crude $198,677 73.2 $244,645 88.8
Product 46,233 17.1 6,840 2.5
Other 6,653 2.5 5,589 2.0
U.S. Flag 19,554 7.2 18,576 6.7
------------------------------------------
Total TCE Revenues $271,117 100.0 $275,650 100.0
==========================================
Year Ended December 31,
------------------------------------------
% of % of
2005 Total 2004 Total
------------------------------------------------------------------
International Flag
Crude $683,551 71.1 $665,645 84.3
Product 171,100 17.8 25,159 3.2
Other 25,902 2.7 25,014 3.2
U.S. Flag 81,109 8.4 73,763 9.3
-----------------------------------------
Total TCE Revenues $961,662 100.0 $789,581 100.0
==========================================
INCOME FROM VESSEL OPERATIONS BY SEGMENT
The following chart reflects income from vessel operations accounted for by each reportable segment. Income from vessel operations is before general and administrative expenses and the Company's share of income from joint ventures.
($ in thousands)
Three Months Ended December 31,
-----------------------------------------
% of % of
2005 Total 2004 Total
-----------------------------------------
International Flag
Crude $ 121,680 82.9 $ 186,814 98.0
Product 15,142 10.3 3,261 1.7
Other 2,295 1.6 (5,388) (2.8)(a)
U.S. Flag 7,647 5.2 5,935 3.1
-----------------------------------------
Total Income from
Vessel Operations $ 146,764 100.0 $ 190,622 100.0
=========================================
Year Ended December 31,
-----------------------------------------
% of % of
2005 Total 2004 Total
-----------------------------------------
International Flag
Crude $ 410,837 80.3 $ 474,198 91.9
Product 65,385 12.8 11,642 2.3
Other 4,925 0.9 2,052 0.4
U.S. Flag 30,554 6.0 27,881 5.4
-----------------------------------------
Total Income from
Vessel Operations $ 511,701 100.0 $ 515,773 100.0
=========================================
---------------------------------------------------------------------
(a) Reflects reserves related to Department of Justice
investigations and the settlement of certain crew benefits.
FINANCIAL INFORMATION - CONSOLIDATED BALANCE SHEETS
---------------------------------------------------
($ in thousands )
December 31,
2005 2004
---------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 188,588 $ 479,181
Voyage receivables 157,334 144,237
Other receivables 22,202 12,815
Inventories 1,855 1,132
Prepaid expenses 14,908 8,252
-------------------------
Total Current Assets 384,887 645,617
Capital Construction Fund 296,126 268,414
Vessels and other property, less
accumulated depreciation 2,288,481 1,419,761
Vessels under capital leases, less
accumulated amortization 36,267 34,668
Vessel held for sale -- 9,744
Deferred drydock expenditures, net 19,805 25,339
-------------------------
Total Vessels, Deferred Drydock
and Other Property 2,344,553 1,489,512
-------------------------
Investments in Joint Ventures 269,657 227,701
Other Assets 53,457 49,554
-------------------------
Total Assets $ 3,348,680 $ 2,680,798
=========================
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable, sundry liabilities
and accrued expenses $ 105,173 $ 80,047
Federal income taxes -- 90,943
Short-term debt and current
installments of long-term debt 20,066 25,024
Current obligations under capital leases 6,968 4,729
-------------------------
Total Current Liabilities 132,207 200,743
Long-term Debt 923,612 863,466
Obligations under Capital Leases 42,043 42,717
Deferred Gain on Sale and
Leaseback of Vessels 233,456 3,573
Deferred Federal Income Taxes
and Other Liabilities 141,334 143,927
Shareholders' Equity:
Common stock 40,791 40,791
Paid-in additional capital 199,570 199,054
Retained earnings 1,640,742 1,203,528
Unearned compensation, restricted stock -- (1,360)
-------------------------
1,881,103 1,442,013
Cost of treasury stock 17,019 17,579
-------------------------
1,864,084 1,424,434
Accumulated other comprehensive income 11,944 1,938
-------------------------
Total Shareholders' Equity 1,876,028 1,426,372
-------------------------
Total Liabilities and
Shareholders' Equity $ 3,348,680 $ 2,680,798
=========================
---------------------------------------------------------------------
2004 has been reclassified to conform with the 2005
presentation.
FINANCIAL INFORMATION - CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------
($ in thousands)
Year Ended
---------------------------------
December 31,
2005 2004 2003
---------------------------------
Cash Flows from Operating
Activities:
Net income $ 464,829 $ 401,236 $ 121,309
Items included in net income
not affecting cash flows:
Depreciation and amortization 152,311 100,088 90,010
Amortization of deferred gain
on sale and leasebacks (9,897) (550) (6,888)
Deferred compensation relating
to restricted stock 1,364 425 --
Deferred compensation relating
to stock option grants 720 -- 226
Unrealized loss on write-down
of marketable securities -- -- 4,756
Provision/(credit) for deferred
federal income taxes 675 (53,619) 11,351
Undistributed earnings of
joint ventures (9,307) (28,754) (17,999)
Other -- net (10,856) 3,838 (7,853)
Items included in net income
related to investing and financing
activities:
Gain on sale of securities -- net (23,186) (7,204) (10,439)
(Gain)/loss on disposal of vessels (42,905) (29,222) 6,809
Changes in operating assets
and liabilities:
Decrease/(increase) in receivables 45,319 (84,471) (4,534)
Increase/(decrease) in Federal
income taxes payable (96,435) 76,165 13,172
Net change in prepaid items and
accounts payable, sundry
liabilities and accrued expenses (20,586) 18,893 30,830
---------------------------------
Net cash provided by
operating activities 452,046 396,825 230,750
---------------------------------
Cash Flows from Investing
Activities:
Proceeds from sales of
marketable securities -- -- 34,674
Expenditures for vessels (5,166) (59,439) (87,007)
Payments for drydockings (16,899) (22,354) (5,971)
Proceeds from disposal
of vessels 858,142 99,082 151,143
Acquisitions of interests in
joint ventures that own VLCCs -- (2,292) (10,362)
Acquisition of interest in joint
venture that owned four V-Pluses (69,047) -- --
Acquisition of Stelmar Shipping Ltd. (742,433) -- --
Expenditures for other property (12,257) (2,349) (1,579)
Investments in and advances to
joint ventures (9,495) (214,403) (60,090)
Distributions from joint ventures 20,853 1,988 6,612
Purchases of other investments (847) (669) (919)
Proceeds from dispositions of other
investments 23,271 10,042 27,581
Other -- net (863) (781) (1,744)
---------------------------------
Net cash provided by/(used in)
investing activities 45,259 (191,175) 52,338
---------------------------------
Cash Flows from Financing
Activities:
Issuance of common stock, net
of issuance costs -- 115,513 --
Issuance of debt, net of
issuance costs 781,268 158,730 194,849
Payments on debt and obligations
under capital leases (1,541,293) (49,026) (435,164)
Cash dividends paid (27,615) (27,532) (22,686)
Issuance of common stock upon
exercise of stock options 218 3,716 20,259
Other -- net (476) (1,873) (3,287)
---------------------------------
Net cash provided by/(used in)
financing activities (787,898) 199,528 (246,029)
---------------------------------
Net (decrease)/increase in cash
and cash equivalents (290,593) 405,178 37,059
Cash and cash equivalents at
beginning of year 479,181 74,003 36,944
---------------------------------
Cash and cash equivalents at
end of year $ 188,588 $ 479,181 $ 74,003
---------------------------------------------------------------------
2004 and 2003 have been reclassified to conform with the
2005 presentation
FLEET
At December 31, 2005, OSG was the second largest publicly traded oil tanker company in the world as measured by number of vessels. OSG's fleet of 107 vessels, including newbuilds, aggregates over 12.1 million deadweight tons. Adjusted for OSG's participation interest in joint ventures and chartered-in vessels, the fleet totaled 100.25 vessels. For current fleet information, which is updated on a monthly basis, refer to the Company's website at www.osg.com
Vessels
Vessels Owned Chartered-in
----------------- -----------------
Weighted Weighted
by by
Vessel Type No. Ownership No. Ownership
---------------------------- ----- --------- ----- ---------
VLCC (including V-Plus) 12 12 10 6.25
---------------------------- ----- --------- ----- ---------
Aframax 9 9 8 7.00
---------------------------- ----- --------- ----- ---------
Panamax 11 11 2 2.00
---------------------------- ----- --------- ----- ---------
Summary International
Flag Crude Tankers 32 32 20 15.25
---------------------------- ----- --------- ----- ---------
International Flag
Handysize Product
Carriers 12 12 13 13.00
---------------------------- ----- --------- ----- ---------
International Flag
Dry Bulk Carriers -- -- 2 2.00
---------------------------- ----- --------- ----- ---------
Total International Flag
Operating Fleet 44 44 35 30.25
---------------------------- ----- --------- ----- ---------
U.S. Flag Operating Fleet 6 6 4 4.00
---------------------------- ----- --------- ----- ---------
Total Operating Fleet 50 50 39 34.25
---------------------------- ----- --------- ----- ---------
Newbuild Fleet
----------------------------
International Flag
Handysize Product
Carriers -- -- 4 4.00
---------------------------- ----- --------- ----- ---------
U.S. Flag Product Carriers -- -- 10 10.00
---------------------------- ----- --------- ----- ---------
Subtotal of Crude Tankers,
Product Carriers and
Dry Bulk Carriers 50 50 53 48.25
---------------------------- ----- --------- ----- ---------
Newbuild LNG Carriers 4 2 -- --
---------------------------- ----- --------- ----- ---------
Total Operating and
Newbuild Fleet 54 52 53 48.25
---------------------------- ----- --------- ----- ---------
Total at December 31, 2005
------------------------------------
Vessels
Total Weighted by Total
Vessel Type Vessels Ownership Dwt
-------------------------- ------- ----------- ----------
VLCC (including V-Plus) 22 18.25 6,994,410
-------------------------- ------- ----------- ----------
Aframax 17 16.00 1,758,994
-------------------------- ------- ----------- ----------
Panamax 13 13.00 904,709
-------------------------- ------- ----------- ----------
Summary International
Flag Crude Tankers 52 47.25 9,658,113
-------------------------- ------- ----------- ----------
International Flag
Handysize Product
Carriers 25 25.00 1,074,834
-------------------------- ------- ----------- ----------
International Flag Dry
Bulk Carriers 2 2.00 319,843
-------------------------- ------- ----------- ----------
Total International Flag
Operating Fleet 79 74.25 11,052,790
-------------------------- ------- ----------- ----------
U.S. Flag Operating Fleet 10 10.00 386,047
-------------------------- ------- ----------- ----------
Total Operating Fleet 89 84.25 11,438,837
-------------------------- ------- ----------- ----------
Newbuild Fleet
--------------------------
International Flag
Handysize Product
Carriers 4 4.00 204,000
-------------------------- ------- ----------- ----------
U.S. Flag Product Carriers 10 10.00 460,000
-------------------------- ------- ----------- ----------
Subtotal of Crude Tankers,
Product Carriers and
Dry Bulk Carriers 103 98.25 12,102,837
-------------------------- ------- ----------- ----------
864,000
Newbuild LNG Carriers 4 2.00 cbm
-------------------------- ------- ----------- ----------
Total Operating and
Newbuild Fleet 107 100.25 --
-------------------------- ------- ----------- ----------
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 in comparison with the world fleet.
Average Age of OSG's Average Age of
Owned Fleet at World Fleet
Vessel Class 12/31/05 12/31/04 at 12/31/05(a)
----------------- ---------- ---------- --------------
VLCC (including
V-Plus) 5.7 years 4.7 years 8.5 years
Aframax 8.1 years 7.0 years 9.2 years
Panamax 2.8 years 18.4 years 11.1 years
Handysize Product
Carrier 4.9 years 15.8 years 13.1 years
------------------------------------------------------------------
(a) Source: Clarkson database as of January 1, 2006
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.
Q1-06 Q2-06 Q3-06
----------------- ------------------ ------------------
Projected Projected Projected
Days No. of Days No. of Days No. of
Off-Hire Vessels Off-Hire Vessels Off-Hire Vessels
--------- --------- ------- --------- ------- --------- -------
VLCC 31 2 17 2 14 1
Aframax 55 3 0 0 54 3
Panamax 0 0 0 0 0 0
Handysize 87 1 188 5 73 2
U.S. Flag 99 3 0 0 0 0
--------- --------- ------- --------- ------- --------- -------
Total 272 9 205 7 141 6
--------- --------- ------- --------- ------- --------- -------
Q4-06
------------------
Projected
Days No. of
Off-Hire Vessels
--------- --------- -------
VLCC 14 1
Aframax 0 0
Panamax 31 1
Handysize 130 4
U.S. Flag 0 0
--------- --------- -------
Total 175 6
--------- --------- -------
MARKET OVERVIEW
Similar to 2004, the year 2005 was characterized by significant volatility in shipping markets. Hurricanes in the Gulf of Mexico changed shipping trade flows and caused bottlenecks, while collisions, groundings and the weather caused shipping delays in the Bosporus Straits and the Dardanelles. The ongoing insurgency in Iraq reduced oil production and pipeline shipments to the Mediterranean and caused loading delays in the Arabian Gulf. Civil unrest in Nigeria continued to hamper oil production and exports, while tension between Venezuela and the U.S. increased.
World oil demand grew by a relatively modest 1.3%, or 1.1 million barrels per day ("b/d"), in 2005. The lower growth rate in 2005 resulted primarily from growth slowdowns in the U.S. and China. In the U.S., the slower growth was caused by the effects of the hurricanes during the last half of the year while high oil prices and the inability of refiners in China to recover these costs in the marketplace restrained Chinese demand.
After record growth in 2004, a year in which oil demand increased by 3.0 million b/d, further increases in demand during 2005 put additional pressure on the oil infrastructure. Middle East OPEC supplied most of the incremental barrels as net increases in non-OPEC crude oil production were immaterial. This caused a significant reduction in OPEC's spare producing capacity. At the same time worldwide refining capacity was also constrained.
Both developments were positive for shipping, as they increased ton-mile demand for both crude oil and petroleum products. As a result, although tanker rates in 2005 were highly volatile, they remained well above historical averages despite a significant increase in the world tanker fleet. The supply of new vessels entering the marketplace in 2005, however, exerted downward pressure on rates. The world tanker fleet increased to 307.9 million dwt at the end of the year, 6.2% higher than the 289.9 million dwt at the beginning of 2005. A significant volume of new tankers were delivered throughout the year, while vessel removals were limited. Continued high earnings and a generally favorable market outlook reduced the scrapping of older, single hull tonnage that had been predicted to occur by the April 5, 2005 IMO deadline.
Extreme weather had a significant impact on the tanker market in 2005. In particular, two major hurricanes in the Gulf of Mexico significantly disrupted crude oil production, refinery operations and shipping logistics in the third and fourth quarters of 2005. The effects of hurricanes Katrina and Rita will continue to be felt well into 2006. The hurricanes affected both the crude oil and refined product markets. During October 2005, over one million b/d, or 69% of crude oil production in the Gulf of Mexico, was disrupted. Additional volumes of West African crude oil were transported to the U.S. to replace lost Gulf of Mexico production. Incremental deliveries of West African crude oil are expected to continue until Gulf of Mexico production is fully restored. Initially, the direct impact on crude oil movements as a result of the lost production in the Gulf of Mexico was limited because the significant damage to U.S. Gulf Coast refineries reduced crude oil demand. At one point over four million b/d of refining capacity was affected. The refining downtime in the U.S. resulted in counter-seasonal declines in crude oil imports into the largest oil-consuming nation in the world but necessitated additional product imports to the U.S. The hurricanes also impacted seaborne trades outside the U.S. as well, enhancing overall ton-mile demand.
International Flag VLCCs
Rates for VLCCs trading out of the Arabian Gulf in 2005 averaged $53,600 per day, a decline of 42% from the 2004 average but 12% higher than the 2003 average (rates in this Market Overview section are based on charters entered into in the periods indicated and do not represent TCE earnings). The 2005 average is still one of the best annual average rates in the history of the tanker industry. Fleet expansion in excess of oil demand growth exerted downward pressure on VLCC rates throughout the year. The impact of lower oil demand growth on the VLCC market was moderated because almost all the incremental crude oil was sourced from long-haul OPEC producers. OPEC crude oil production increased by 600,000 b/d to 29.2 million b/d, the highest level since 1979.
The world VLCC fleet expanded to 477 vessels (139.4 million dwt) at December 31, 2005 from 456 vessels (132.7 million dwt) at the beginning of the year as newbuilding deliveries well exceeded the number of vessels deleted from the fleet. In 2005, a total of 37 newbuilding orders were placed (11.2 million dwt). This is a reduction compared with 2004 (43 vessels, 13.0 million dwt) and 2003 (51 vessels, 15.5 million dwt). The declining trend in orders was caused by high contract prices and long delivery lead times due to heavy ordering in other bulk shipping sectors. As of December 31, 2005, the VLCC orderbook totaled 92 vessels (27.9 million dwt), equivalent to 20.0% of the existing VLCC fleet, based on deadweight tons.
International Flag Aframaxes
Rates for Aframaxes operating in the Caribbean during 2005 averaged $33,100 per day, a decrease of 23% from the 2004 average but 6% above the 2003 average. Rates in 2005 were adversely impacted by declines in North Sea crude oil production of 446,000 b/d, as well as stagnating production in Venezuela, two key Aframax loading areas. Production in the Former Soviet Union ("FSU"), which has become an increasingly important source of Aframax employment in recent years, rose by 3.7% in 2005 to 11.6 million b/d. Similarly to VLCCs, fleet expansion in excess of oil demand growth exerted downward pressure on Aframax rates throughout the year.
The world Aframax fleet expanded significantly to 673 vessels (67.9 million dwt) as of December 31, 2005 from 627 vessels (62.5 million dwt) at December 31, 2004, as vessel deliveries far outweighed scrap sales. Rising newbuilding prices further slowed the pace of Aframax ordering to 47 vessels (5.1 million dwt) in 2005 from 66 vessels (7.3 million dwt) in 2004 and the record level of 96 vessels (10.3 million dwt) in 2003. The Aframax orderbook contracted to 153 vessels (16.7 million dwt) at December 31, 2005, equivalent to 24.6% of the existing Aframax fleet, based on deadweight tons.
International Flag Panamaxes
Rates for Panamaxes averaged $37,800 per day, 4% lower than the average in 2004 but 43% above the 2003 average. In 2005, fuel oil demand in the U.S. was largely driven by high natural gas prices that resulted in end users seeking lower cost alternatives to meet their energy requirements. The increase in fuel oil demand boosted the requirements for Panamaxes in the Caribbean, particularly for double hull tonnage, given the more stringent IMO regulations and a preference by the oil majors. The world Panamax Product Carrier fleet at December 31, 2005 increased to 326 vessels (21.6 million dwt) from 290 vessels (19.1 million dwt) as of December 31, 2004. The orderbook for Panamax tankers remains significant. At December 31, 2005, 186 vessels (12.2 million dwt), equivalent to 56.2% of the existing Panamax fleet, based on deadweight tons, were on order.
International Flag Handysize Product Carriers
Rates for Handysize Product Carriers operating in the Caribbean averaged $22,600 per day in 2005, 7% lower than the 2004 average but 41% above the 2003 average. The world Handysize fleet showed little change in 2005, expanding to 527 vessels (21.8 million dwt) at December 31, 2005 from 524 vessels (21.5 million dwt) at December 31, 2004. At December 31, 2005, the newbuilding orderbook for Handysize Product Carriers reached 200 vessels (9.1 million dwt), equivalent to 41.9% of the existing Handysize fleet, based on deadweight tons. U.S. Flag Jones Act Product Carriers Rates in the U.S. coastwise trades that equate to OSG's existing Jones Act Handysize Product Carriers averaged $41,200 in 2005, 23% higher than the rate in 2004. Robust demand for gasoline blended components on the U.S. east and west coasts, hurricane related dislocations and a decline in the number of available vessels as a result of OPA 90 regulations contributed to the strength in rates. The U.S. coastwise trade in products in the fourth quarter of 2005 continued to be impacted by the hurricane related dislocations that significantly reduced refining capacity along the U.S. Gulf Coast. The Jones Act, which limits the carriage of shipments in coastwise trades to qualifying U.S. Flag vessels, was temporarily waived from September 1 through September 19 and again from September 27 to October 24. This permitted International Flag tankers to transport oil between U.S. ports to ensure sufficient supplies of petroleum products. The effect of the temporary waivers on the market was limited. The total Jones Act Product Carrier fleet consisted of 43 vessels (1.8 million dwt) as of December 31, 2005. Approximately 60% of this fleet is not double hull and will be phased out over the next ten years as a result of OPA 90 regulations. Additional scrapping of some of the remaining 17 vessels could also occur prior to 2015 based on the age profile of these vessels. Outlook The International Energy Agency forecasts global oil demand to rise by 2.1% to 85.1 million b/d in 2006 from 83.3 million b/d in 2005. This is a higher growth rate than the 1.3% increase in 2005 relative to 2004. While the demand growth for 2006 is primarily expected to occur in the U.S. and China, production growth is expected to come predominantly from non-OPEC sources such as West Africa and the FSU. The projected increases in demand and the location of incremental production in 2006 is expected to increase ton-mile demand in 2006. On the refined product side, increases in worldwide demand are forecast to exceed increases in refining capacity in 2006. This is expected to result in additional product movements. The world tanker fleet in 2006 is projected to increase by 4.5% compared with a 6.2% growth in 2005 and a 5.1% increase in 2004, as the sizable number of newbuilding deliveries is expected to be only partially offset by rising deletions, many of which are mandated under IMO phase out regulations.
EARNINGS CONFERENCE CALL INFORMATION
The Company plans to host a conference call at 11:00 AM ET on February 28, 2006 to discuss results for the quarter. All shareholders and other interested parties are invited to call into the conference call, which may be accessed by calling +1 800 231-5571 within the United States, or +1 973-582-2952 for international participants. A live webcast of the conference call will also be available on Overseas Shipholding Group's website at http://www.osg.com in the Investor Relations Events and Webcasts section or via http://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 1:00 PM ET on Tuesday, February 28, through midnight ET on Tuesday March 7, 2006 by calling +1 877-519-4471 within the United States and +1 973-341-3080 for international callers. The password for the replay is 7011329.
ABOUT OSG
Overseas Shipholding Group, Inc. (NYSE:OSG) is one of the largest publicly traded tanker companies in the world with an owned, operated and newbuild fleet of 107 vessels, aggregating 12.1 million deadweight tons. As a market leader in global energy transportation services for crude oil and petroleum products in the U.S. and International Flag markets, the Company 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 New York, Athens, London, Manila, Newcastle 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, estimated TCE rates achieved for the first quarter of 2006, anticipated levels of newbuilding and scrapping, projected drydock schedule, the ability to restore refining capacity and crude oil production in the Gulf of Mexico from damage caused by hurricanes, integration of Stelmar Shipping Ltd., 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 expectations reflected in these forward-looking statements are described in the Company's Annual Report on Form 10-K.
APPENDIX 1 - GAINS ON VESSEL SALES AND SECURITIES TRANSACTIONS
The following table presents per share amounts after tax for net income adjusted for the effects of vessel sales and securities transactions:
Three Months Ended Year Ended
December 31, December 31,
--------------- ----------------
2005 2004 2005 2004
------ ------ ------ ------
EPS (diluted) $ 2.88 $ 5.35 $11.77 $10.24
(Gain) on Vessel Sales (0.10) (0.23) (1.02) (.48)
(Gain)/Loss on Securities
Transactions 0.01 0.01 (0.38) (.14)
------ ------ ------ ------
$ 2.79 $ 5.13 $10.37 $ 9.62
---------------------------------------------------------------
Net income adjusted for the effect of vessel sales and securities
transactions is presented to provide additional information with
respect to the Company's ability to compare from period to period
vessel operating revenues and expenses and general and
administrative expenses without gains and losses from disposals
of assets and investments. While net income adjusted for the
effect of vessel sales and securities transactions is frequently
used by management as a measure of the vessels operating
performance in a particular period, it is not necessarily
comparable to other similarly titled captions of other companies
due to differences in methods of calculations. Net income
adjusted for the effect of vessel sales and securities
transactions should not be considered an alternative to net
income or other measurements prepared in accordance with
accounting principles generally accepted in the United States.
APPENDIX 2 - EQUITY IN INCOME OF JOINT VENTURE VESSELS
The following is a summary of the Company's interest in its joint ventures and equity method investments. Revenue days are adjusted for OSG's percentage ownership in order to state the days on a basis comparable to that of wholly-owned vessels:
($ in thousands)
Three Months Ended Year Ended
December 31, December 31,
-------------------- -------------------
2005 2004 2005 2004
---------------------- -------- -------- -------- --------
Equity in Income $ 11,619 $ 26,577 $ 43,807 $ 45,599
Number of Revenue Days 257 252 692 631
---------------------- -------- -------- -------- --------
As of December 31, 2005, the only operating vessels held in companies that are accounted for by the equity method are held through DHT, all of which are on time charters, with profit sharing arrangements. Projected revenue days adjusted for OSG's percentage ownership in DHT are: 280 for Q1-06; 283 for Q2-06 and 279 for each of Q3-6 and Q4-06.
APPENDIX 3 - EBITDA RECONCILIATION
The following table shows reconciliations of net income, as reflected in the consolidated statements of operations, to EBITDA:
($ in thousands)
Three Months Ended Year Ended
December 31, December 31,
--------------------- ----------------------
2005 2004 2005 2004
-------------------- --------- --------- --------- ---------
Net Income $ 113,684 $ 211,123 $ 464,829 $ 401,236
Provision/(credit)
for Federal Income
Taxes 2,459 (15,322) (1,110) 79,778
Interest Expense 18,450 18,963 89,489 74,146
Depreciation and
amortization 35,867 25,079 152,311 100,088
-------------------- --------- --------- --------- ---------
EBITDA $ 170,460 $ 239,843 $ 705,519 $ 655,248
=====================================================================
EBITDA represents operating earnings, which is before interest
expense and income taxes, plus other income and depreciation and
amortization expense. EBITDA should not be considered a
substitute for net income, cash flow from operating activities
and other operations or cash flow statement data prepared in
accordance with accounting principles generally accepted in the
United States or as a measure of profitability or liquidity.
EBITDA is presented to provide additional information with
respect to the Company's ability to satisfy debt service, capital
expenditures and working capital requirements. While EBITDA is
frequently used as a measure of operating results and the ability
to meet debt service requirements, it is not necessarily
comparable to other similarly titled captions of other companies
due to differences in methods of calculation.
APPENDIX 4 - CAPITAL EXPENDITURES
The following table presents information with respect to OSG's capital expenditures for the three months and year end December 31, 2005, excluding the acquisition of Stelmar, compared with the same periods of 2004:
($ in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------------ ------------------
2005 2004 2005 2004
---------------------------- ------- -------- -------- --------
Expenditures for vessels $ 3,261 $ 8,309 $ 5,166 $ 59,439
Acquisitions of interests
in joint ventures (98) -- 69,047 2,292
Investments in and advances
to joint ventures 1,056 91,190 9,495 214,403
Payments for drydockings 6,954 11,231 16,899 22,354
---------------------------- ------- -------- -------- --------
$11,173 $110,730 $100,607 $298,488
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