OREANDA-NEWS. Overseas Shipholding Group, Inc. (OSG) (NYSE:OSG), a provider of oceangoing energy transportation services, today reported results for the quarter ended June 30, 2016.

Highlights

  • Time charter equivalent (TCE) revenues(A) for the second quarter of 2016 were $215.7 million, down 8% compared with the same period in 2015.
  • Net income for the second quarter was $29.9 million, or $0.31 per diluted share, compared with $58.4 million, or $0.60 per diluted share, in the second quarter of 2015.
  • Adjusted EBITDA(B) was $110.1 million, down 15% from $130.2 million in the same period in 2015.
  • Total cash(C) was $461.4 million as of June 30, 2016, growing $44.8 million from the prior quarter.
  • Accelerated the payment of $40.0 million in principal amount of domestic subsidiary term loan, including $20.0 million in July 2016.
  • Repurchased and retired $19 million of Class A common stock and warrants at an average share equivalent price of $11.59, in the second quarter of 2016.
  • On June 28, 2016, rejoined the New York Stock Exchange “Big Board”.

A, B, CReconciliations of these non-GAAP financial measures are included in the financial tables attached to this press release starting on Page 8.

“I am pleased to report strong second quarter and first half results,” said Captain Ian T. Blackley, OSG’s president and CEO. “In our international business, spot rates have softened this summer, as global inventories have climbed, but we believe the fundamentals remain positive. In our domestic business, we face the challenges of a decline in U.S crude production, high inventory levels and the delivery of newbuild tonnage, but the sustained lower oil price environment is also driving record U.S. gasoline consumption.”

“We continue to make good progress towards separating our international and domestic businesses. By creating two independent public companies, with an increased ability to focus on their own business, we believe each will be better positioned to enhance shareholder value. At the same time, the cash generated by our 79 vessel fleet gives us flexibility to further strengthen our balance sheet and consider additional opportunities to create value for our shareholders” concluded Capt. Blackley.

Second Quarter 2016 Results

TCE revenues for the second quarter of 2016 were $215.7 million, a decrease of $19.5 million compared with the second quarter of 2015, primarily driven by lower daily rates earned by the International Flag fleet. TCE revenues for the first half of 2016 were $452.6 million, a decrease of $4.2 million compared with the first half of 2015.

Operating income for the second quarter of 2016 was $67.1 million, a decrease of $25.2 million compared with the second quarter of 2015, primarily driven by the decline in TCE revenues and an increase in depreciation and amortization expenses. Operating income for the first half of 2016 was $153.3 million, a decrease of $16.6 million compared with the first half of 2015.

Net income for the second quarter of 2016 was $29.9 million, or $0.31 per diluted share, compared with $58.4 million, or $0.60 per diluted share, in the second quarter of 2015. The decrease reflects the impact of lower TCE revenues, increases in depreciation and amortization expenses, and a higher non-cash deferred tax provision, partially offset by lower interest expense. Net income for the first half of 2016 was $80.6 million, or $0.84 per diluted share, compared with $101.3 million, or $1.05 per diluted share, in the first half of 2015.

Adjusted EBITDA was $110.1 million for the quarter, a decrease of $20.1 million compared with the second quarter of 2015, driven by lower daily rates earned by the International Flag fleet. Adjusted EBITDA was $239.6 million for the first half of 2016, a decrease of $4.3 million compared with the first half of 2015.

International Crude Tankers

TCE revenues for the International Crude Tankers segment were $66.5 million for the quarter, down 14% compared with the second quarter of 2015. This decrease resulted from a softening in daily spot rates across all vessel classes in the segment, with the VLCC spot rate declining to $47,000 per day in the second quarter, down 7% from the same period in 2015. The Aframax spot rate was $23,500 per day, down a third from the second quarter of 2015; and the Panamax blended rate was $20,500 per day, comparable to same period in 2015. TCE revenues for the International Crude Tankers segment were $153.9 million for the first half of 2016, an increase of $10.1 million compared with the first half of 2015.

International Product Carriers

TCE revenues for the International Product Carriers segment were $34.4 million for the quarter, down 19% compared with the second quarter of 2015. This decrease was primarily due to lower average daily blended rates earned by the MR fleet. Also contributing was a 109-day decrease in revenue days resulting primarily from the sale of an older vessel in July 2015. These decreases were partially offset by the LR1 blended rate increasing to approximately $21,300 in the second quarter, up 10% from the comparable 2015 period. TCE revenues for the International Product Carriers segment were $71.8 million for the first half of 2016, a decrease of $14.1 million compared with the first half of 2015.

U.S. Flag

TCE revenues for the U.S. Flag segment were $114.7 million for the quarter, down 1% compared with the second quarter of 2015, primarily due to a decline in Jones Act spot market revenue related to incremental coastwise voyage opportunities that were available to the ATBs principally employed in Delaware Bay lightering in the second quarter 2015, but not in the second quarter 2016. This decrease was largely offset by Delaware Bay lightering volumes more than doubling to 180,000 barrels per day during the quarter from the comparable 2015 period, as the pricing spread between Brent and West Texas Intermediate narrowed making it more attractive for U.S. Northeast refineries to import crude oil, as well as a 76-day increase in revenue days resulting from fewer drydock and repair days. TCE revenues for the U.S. Flag segment were $227.0 million for the first half of 2016, essentially the same as the first half of 2015.

 

Forward-Looking Statements

This release contains forward-looking statements. In addition, the Company may make or approve certain statements in future filings with the Securities and Exchange Commission (SEC), in press releases, or in oral or written presentations by representatives of the Company. All statements other than statements of historical facts should be considered forward-looking statements. These matters or statements may relate to the Company’s plans to issue dividends and make payments to securityholders, its prospects, including statements regarding trends in the tanker and articulated tug/barge markets, and possibilities of spin-offs or certain strategic alliances and investments. Forward-looking statements are based on the Company’s current plans, estimates and projections, and are subject to change based on a number of factors. Investors should carefully consider the risk factors outlined in more detail in the Company’s Annual Report for 2015 on Form 10-K under the caption “Risk Factors” and in similar sections of other filings made by the Company with the SEC from time to time. The Company assumes no obligation to update or revise any forward-looking statements. Forward-looking statements and written and oral forward looking statements attributable to the Company or its representatives after the date of this release are qualified in their entirety by the cautionary statements contained in this paragraph and in other reports previously or hereafter filed by the Company with the SEC.

                       

Consolidated Statements of Operations

                      
                       
($ in thousands, except per share amounts)   Three Months Ended June 30,     Six Months Ended June 30,
    2016     2015     2016     2015
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
Shipping Revenues:                      
Pool revenues   $66,705     $90,591     $157,234     $169,360
Time and bareboat charter revenues   126,073     109,754     246,446     217,696
Voyage charter revenues   28,668     45,142     61,522     91,973
Total Shipping Revenues   221,446     245,487     465,202     479,029
Operating Expenses:                      
Voyage expenses   5,751     10,284     12,585     22,184
Vessel expenses   69,010     68,279     140,052     137,518
Charter hire expenses   31,479     31,127     62,536     63,025
Depreciation and amortization   42,592     37,869     85,675     74,988
General and administrative   17,367     17,471     34,716     36,753
Technical management transition costs   -     -     -     40
Severance and relocation costs   -     -     -     5
(Gain)/loss on disposal of vessels and other property   112     -     (45)     (1,073)
Total Operating Expenses   166,311     165,030     335,519     333,440
Income from vessel operations   55,135     80,457     129,683     145,589
Equity in income of affiliated companies   11,985     11,830     23,590     24,242
Operating income   67,120     92,287     153,273     169,831
Other income/(expense)   (599)     48     1,975     121
Income before interest expense, reorganization items and income taxes   66,521     92,335     155,248     169,952
Interest expense   (20,552)     (28,931)     (43,211)     (57,500)
Income before reorganization items and income taxes   45,969     63,404     112,037     112,452
Reorganization items, net   (860)     (1,437)     17,050     (4,924)
Income before income taxes   45,109     61,967     129,087     107,528
Income tax provision   (15,248)     (3,529)     (48,487)     (6,189)
Net Income   $29,861     $58,438     $80,600     $101,339
                       
                       
Weighted Average Number of Common Shares Outstanding:                      
Basic - Class A   92,255,692     95,576,283     93,496,651     95,574,356
Diluted - Class A   92,321,359     95,621,824     93,531,462     95,598,518
Basic and Diluted - Class B   826,794     1,320,467     1,073,382     1,320,644
                       
Per Share Amounts:                      
Basic and Diluted net income - Class A   $0.31     $0.60     $0.84     $1.05
Basic and Diluted net income - Class B   $1.92     $0.60     $2.21     $1.05
Cash dividends declared - Class A   $ -     $ -     $0.48     $ -
Cash dividends declared - Class B   $1.08     $ -     $1.56     $ -
                       

On December 17, 2015, all shareholders of record of the Company’s Class A and B common stock as of December 3, 2015, received a dividend of one-tenth of one share of Class A common stock for each share of Class A common stock and Class B common stock held by them as of the record date.

On June 13, 2016, the Company effected a one (1) for six (6) reverse stock split and corresponding reduction of the number of authorized shares of common stock, par value $0.01 per share.

In accordance with the relevant accounting guidance, the Company is required to adjust the computations of basic and diluted earnings per share retroactively for all periods presented to reflect the above two changes in capital structure.

 

Consolidated Balance Sheets
($ in thousands)
         
   

         June 30,

  

   December 31,
    2016   2015
ASSETS  

(Unaudited)

    
Current Assets:        
Cash and cash equivalents   $455,826   $502,836
Restricted cash   5,589   10,583
Voyage receivables   60,902   81,612
Income tax recoverable   1,126   1,664
Other receivables   3,790   7,195
Inventories, prepaid expenses and other current assets   19,681   20,041
Total Current Assets   546,914   623,931
         
Restricted cash - non current   -   8,989
Vessels and other property, less accumulated depreciation   2,021,500   2,084,859
Deferred drydock expenditures, net   76,117   95,241
Total Vessels, Deferred Drydock and Other Property   2,097,617   2,180,100
Investments in and advances to affiliated companies   344,886   348,718
Intangible assets, less accumulated amortization   47,917   50,217
Other assets   19,865   18,455
Total Assets   $3,057,199   $3,230,410
         
LIABILITIES AND EQUITY        
Current Liabilities:        
Accounts payable, accrued expenses and other current liabilities   $74,725   $91,233
Income taxes payable   1,415   13
Current installments of long-term debt   46,183   63,039
Total Current Liabilities   122,323   154,285
Reserve for uncertain tax positions   2,542   2,520
Long-term debt   1,070,728   1,223,224
Deferred income taxes   253,843   208,195
Other liabilities   59,785   61,698
Total Liabilities   1,509,221   1,649,922
         
Equity:        
Total Equity   1,547,978   1,580,488
Total Liabilities and Equity   $3,057,199   $3,230,410
         
           

Consolidated Statements of Cash Flows

          
($ in thousands)      
      Six Months Ended June 30,
      2016   2015
      (Unaudited)   (Unaudited)
Cash Flows from Operating Activities:          
Net Income     $80,600   $101,339
Items included in net income not affecting cash flows:          
Depreciation and amortization     85,675   74,988
Amortization of debt discount and other deferred financing costs     6,311   5,119
Compensation relating to restricted stock/stock unit and stock option grants     2,244   981
Deferred income tax provision/(benefit)     45,666   2,269
Undistributed earnings of affiliated companies     (20,441)   (19,056)
Reorganization items, non-cash     327   812
Other – net     (842)   549
Items included in net income related to investing and financing activities:          
Gain on disposal of vessels and other property, net     (45)   (1,073)
Gain on repurchase of debt     (1,511)   -
Payments for drydocking     (7,103)   (25,394)
Bankruptcy claim payments     (7,136)   (3,436)
Deferred financing costs paid for loan modification     -   (6,187)
Changes in operating assets and liabilities     20,095   8,710
Net cash provided by operating activities     203,840   139,621
Cash Flows from Investing Activities:          
Change in restricted cash     13,982   100,933
Expenditures for vessels and vessel improvements     (81)   (440)
Proceeds from disposal of vessels and other property     -   7,757
Expenditures for other property     (279)   (69)
Investments in and advances to affiliated companies     (987)   (1,506)
Repayments of advances from affiliated companies     18,500   17,000
Net cash provided by investing activities     31,135   123,675
Cash Flows from Financing Activities:          
Cash dividend paid     (31,910)   -
Payments on debt     (64,641)   (6,257)
Extinguishment of debt     (109,046)   -
Repurchases of common stock and common stock warrants     (76,388)   -
Net cash used in financing activities     (281,985)   (6,257)
Net (decrease)/increase in cash and cash equivalents     (47,010)   257,039
Cash and cash equivalents at beginning of year     502,836   389,226
Cash and cash equivalents at end of period     $455,826   $646,265
           

Spot and Fixed TCE Rates Achieved and Revenue Days

The following tables provides a breakdown of TCE rates achieved for spot and fixed charters and the related revenue days for the three months ended June 30, 2016 and the comparable period of 2015. Revenue days in the quarter ended June 30, 2016 totaled 6,536 compared with 6,554 in the prior year quarter. A summary fleet list by vessel class can be found later in this press release.

         
    Three Months Ended June 30, 2016   Three Months Ended June 30, 2015
    Spot   Fixed   Total   Spot   Fixed   Total
International Crude Tankers                        
ULCC                        
Average TCE Rate   $ —   $44,850       $ —   $39,000    
Number of Revenue Days   —   91   91   —   91   91
VLCC                        
Average TCE Rate   $46,983   $40,127       $50,586   $ —    
Number of Revenue Days   443   271   714   676   —   676
Aframax                        
Average TCE Rate   $23,488   $ —       $34,792   $ —    
Number of Revenue Days   636   —   636   631   —   631
Panamax                        
Average TCE Rate   $20,123   $21,134       $28,211   $15,204    
Number of Revenue Days   406   263   669   354   354   708
Other Intl. Crude Tankers Revenue Days1   11   —   11   —   —   —
Total Intl. Crude Tankers Revenue Days   1,496   625   2,121   1,661   445   2,106
International Product Carriers                        
LR2                        
Average TCE Rate   $21,740   $ —       $25,756   $ —    
Number of Revenue Days   91   —   91   91   —   91
LR1                        
Average TCE Rate   $21,058   $21,320       $29,205   $15,922    
Number of Revenue Days   86   257   343   91   273   364
MR                        
Average TCE Rate   $14,692   $11,528       $18,469   $5,294    
Number of Revenue Days   1,630   182   1,812   1,809   91   1,900
Total Intl. Product Carriers Revenue Days   1,807   439   2,246   1,991   364   2,355
U.S. Flag                        
Jones Act Handysize Product Carriers                        
Average TCE Rate   $26,483   $64,830       $ —   $64,673    
Number of Revenue Days   24   1,057   1,081   —   1,054   1,054
Non-Jones Act Handysize Product Carriers                        
Average TCE Rate   $30,492   $17,556       $27,328   $15,472    
Number of Revenue Days   125   57   182   166   2   168
ATBs                        
Average TCE Rate   $ —   $37,054       $ —   $37,995    
Number of Revenue Days   —   724   724   —   697   697
Lightering                        
Average TCE Rate   $76,555   $ —       $95,272   $ —    
Number of Revenue Days   182   —   182   174   —   174
Total U.S. Flag Revenue Days   331   1,838   2,169   340   1,753   2,093
TOTAL REVENUE DAYS   3,634   2,902   6,536   3,992   2,562   6,554
                         

1 Other International Crude Tankers revenue days consists of the company’s International Flag Lightering full service revenue days for the quarters ended June 30, 2016 and June 30, 2015.

Fleet Information

As of June 30, 2016, OSG’s owned and operated fleet totaled 79 International Flag and U.S. Flag vessels (62 vessels owned and 17 chartered-in) compared with 79 at December 31, 2015. Those figures include vessels in which the Company has a partial ownership interest through its participation in joint ventures.

             
    Vessels Owned   Vessels Chartered-in   Total at June 30, 2016
Vessel Type   Number  

Weighted by
Ownership

   Number  

Weighted by
Ownership

  

Total
Vessels

  

Vessels
Weighted by
Ownership

  

Total Dwt2
Operating Fleet                            
FSO   2   1.0   —   —   2   1.0   873,916
VLCC and ULCC   9   9.0   —   —   9   9.0   2,875,775
Aframax   7   7.0   —   —   7   7.0   787,859
Panamax   8   8.0   —   —   8   8.0   555,504
International Flag Crude Tankers   26   25.0   —   —   26   25.0   5,093,054
                             
LR2   1   1.0   —   —   1   1.0   109,999
LR1   4   4.0   —   —   4   4.0   297,710
MR   13   13.0   7   7.0   20   20.0   955,968
International Flag Product Carriers   18   18.0   7   7.0   25   25.0   1,363,677
                             
Total Int’l Flag Operating Fleet   44   43.0   7   7.0   51   50.0   6,456,731
                             
Handysize Product Carriers 1   4   4.0   10   10.0   14   14.0   664,490
Clean ATBs   8   8.0   —   —   8   8.0   226,064
Lightering ATBs   2   2.0   —   —   2   2.0   91,112
Total U.S. Flag Operating Fleet   14   14.0   10   10.0   24   24.0   981,666
                             
LNG Fleet   4   2.0   —   —   4   2.0   864,800 cbm
Total Operating Fleet   62   59.0   17   17.0   79   76.0   7,438,397
and
864,800 cbm
                             

1Includes two owned shuttle tankers, one chartered in shuttle tanker and two owned U.S. Flag Product Carriers that trade internationally.

2Total Dwt is defined as the total deadweight of all 79 vessels.

Reconciliation to Non-GAAP Financial Information

The Company believes that, in addition to conventional measures prepared in accordance with GAAP, the following non-GAAP measures may provide certain investors with additional information that will better enable them to evaluate the Company’s performance. Accordingly, these non-GAAP measures are intended to provide supplemental information, and should not be considered in isolation or as a substitute for measures of performance prepared with GAAP.

(1) Time Charter Equivalent (TCE) Revenues

Consistent with general practice in the shipping industry, the Company uses TCE revenues, which represents shipping revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. Time charter equivalent revenues, a non-GAAP measure, provides additional meaningful information in conjunction with shipping revenues, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. Reconciliation of TCE revenues of the segments to shipping revenues as reported in the consolidated statements of operations follow:

    Three Months Ended June 30,   Six Months Ended June 30,
($ in thousands)   2016   2015   2016   2015
TCE revenues   $215,695   $235,203   $452,617   $456,845
Add: Voyage Expenses   5,751   10,284   12,585   22,184
Shipping revenues   $221,446   $245,487   $465,202   $479,029
                 

(2) EBITDA and Adjusted EBITDA

EBITDA represents net income before interest expense, income taxes and depreciation and amortization expense. Adjusted EBITDA consists of EBITDA adjusted for the impact of certain items that we do not consider indicative of our ongoing operating performance. EBITDA and Adjusted EBITDA do not represent, and should not be a substitute for, net income or cash flows from operations as determined in accordance with GAAP. Some of the limitations are: (i) EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; (ii) EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; and (iii) EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt. While EBITDA and Adjusted EBITDA are frequently used as a measure of operating results and performance, neither of them is necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. The following table reconciles net income as reflected in the consolidated statements of operations, to EBITDA and Adjusted EBITDA: