Overseas Shipholding Group reports second quarter 2008 results
Overseas Shipholding Group, Inc. , a market leader in providing energy transportation services, today reported results for the second quarter of fiscal 2008. For the quarter ended June 30, 2008, TCE revenues(1) were $386.1 million a $111.9 million, or 41% increase from $274.2 million for the same period of 2007. The growth in TCE revenues was driven by significant counter seasonal spot charter rate increases for the Company's VLCCs and Aframaxes, sectors which
accounted for more than $73.1 million of the quarter-over-quarter increase in TCE revenues. Spot charter rates for VLCCs increased by 82% to $98,747 per day, with rates for Aframaxes increasing by 75% to $55,543 per day. In addition, revenue days in the International Crude Oil and Product Carrier segments each increased quarter-over-quarter by approximately 450 days. EBITDA(1) for the quarter increased 1% to $150.7 million from $148.5 million in the comparable period of 2007. Net income for the period increased 10% to $86.9 million, and diluted EPS increased 23% to $2.81 per share compared with $79.0 million or $2.28 per share for the same period a year ago. Net income in the second quarter of 2008 benefited from a gain on vessel sales of $23.7 million or $0.76 per diluted share, which was offset by unrealized losses on freight derivative positions of $29.0 million or $0.92 per diluted share, and a charge of $9.4 million or $0.20 per share related to the premium paid and the write-off of deferred financing charges in connection with the May 15, 2008 redemption of the Company's 8.25% Senior Notes due March 2013. Net income in the second quarter of 2007 reflected a gain on vessel sales of $5.6 million or $0.16 per diluted share. The second quarter of 2007 also benefited from the sale of the remaining 8.7 million shares of DHT Maritime, Inc., formerly Double Hull Tankers, Inc. (NYSE: DHT), in which OSG held a minority interest, which resulted in a gain of approximately $26.3 million or $0.49 per diluted share. Period-over-period diluted EPS also benefited from the Company's repurchase of 7.7% of total shares outstanding since June 30, 2007.
Morten Arntzen, President and CEO of OSG commented, ""The crude oil tanker market saw unprecedented levels of strength in the first half of 2008, primarily due to OPEC production increases. This resulted in a significant pick-up in long haul movements at the same time as single hull discrimination increased, creating a strong freight rate environment. On the product tanker side, rates were lifted by a surge in diesel movements worldwide." Arntzen continued, "Market conditions continue to create a very strong outlook for our crude tankers and the prospects for our other two main businesses are equally compelling. Our investments in the U.S. Flag segment and its 14-vessel newbuild program will nearly double the unit's revenues in three years. In the next 12 months our International Flag Product Carrier business will transform as 13 bareboat chartered-in, non-double hull ships are replaced with modern double hull ships having much greater earnings capacity and the LR1 fleet expands. Our world-class technical and commercial platform, fleet portfolio and ample opportunities to further scale our business gives me and the OSG management team a lot to be excited about."
(1)See Appendix 1 for a reconciliation of TCE revenues to shipping revenues and Appendix 2 for a reconciliation of EBITDA to net income.
For the first six months ended June 30, 2008, the Company reported a 43% increase in TCE revenues to $761.9 million from $533.4 million in the comparable period of 2007. EBITDA for the first six months of 2008 increased 12% to $329.1 million from $294.6 million in the first six months of 2007. Net income increased 22% to $199.4 million for the first six months of 2008 compared with $163.6 million in the first half of 2007. Diluted earnings per share increased 45% to $6.42 from $4.44 in the first half of 2008 compared with the same period a year ago. The first six months of 2008 benefited from a gain on vessel sales of $23.7 million or $0.75 per diluted share, offset by unrealized losses on freight derivative positions of $29.5 million or $0.93 per diluted share, and the charge of $9.4 million related to the bond redemption previously referenced. The first six months of 2007 benefited from gains on sales of securities of $41.3 million or $0.73 per diluted share, and a gain on vessel sales of $5.6 million, or $0.15 per diluted share.
TCE revenues in the second quarter of 2008 for the International Crude Oil segment were $255.0 million, an increase of $94.7 million, or 59% from $160.3 million in the same period of 2007. The increase was principally due to the significant increases in average rates earned by VLCCs and Aframaxes. In addition, the Company's expansion into Suezmaxes late in 2007 added more than $11.1 million to the segment's TCE revenues in the second quarter. TCE revenues for the International Product Carrier segment were $71.6 million, up $12.4 million or 21% from $59.2 million in the year earlier period. The growth was principally attributable to an increase in revenue days, reflecting in part the addition of two LR1s in the third quarter of 2007. TCE revenues from the U.S. segment were $51.7 million, up $2.9 million or 6%, from $48.8 million in the same quarter a year earlier. This reflects the delivery of the three Handysize Product Carriers, offset by the sale of two dry bulk carriers and the reflagging of one car carrier under the Marshall Islands flag in 2007. The balance of TCE revenues were derived from the Company's two International Flag dry bulk carriers and, in 2008, the one reflagged car carrier.
OSG operates most of its crude oil tankers in commercial pooling arrangements (Pools). The Pools' cargo commitments make them attractive, but such commitments limit the Pools' ability to support any significant portfolio of time charters. Accordingly, OSG enters into forward freight agreements (FFA) and bunker swaps to create synthetic time charters. The results of derivative positions that qualify for hedge accounting treatment and are effective are reflected in TCE revenues in the periods to which such hedges relate. Including such positions, the Company achieved TCE rates for VLCCs of $73,832 per day for 609 days for the second quarter of 2008. The June 30, 2008 mark-to-market for derivative positions through 2010 that qualify for hedge accounting treatment are recorded in accumulated other comprehensive income (stockholders' equity). The actual results of these hedge positions will be reflected in the Company's earnings in the periods to which the positions relate, essentially creating fixed charter revenues.(2) The results of derivative positions that do not qualify for hedge accounting treatment are reflected in other income/(expense) and resulted in an expense of $42.4 million in the quarter ended June 30, 2008, including mark-to-market unrealized losses at June 30, 2008 of $30.4 million.
(2)See Appendix 4 and 5 for fixed rates of synthetic time charters.
Income from vessel operations was $146.8 million in the second quarter of 2008, a 118% increase from $67.3 million in the same period a year earlier. During the period, total operating expenses increased 21%, or $48.7 million, to $281.4 million from $232.7 million in the corresponding quarter in 2007. Voyage expenses increased by $16.3 million, principally as a result of higher fuel expenses. Vessel expenses increased $8.9 million quarter-over-quarter primarily due to higher crew costs associated with the Company's continuing efforts to attract and retain high quality crews. Charter-hire expense increased 52% to $103.4 million from $67.9 million in the second quarter of 2007 principally due to 11 additional ships chartered-in in the second quarter 2008 compared with the same period a year ago. In addition, profit share, a component of charter-hire expense, increased $9.8 million period-over-period due to significantly higher TCE rates than the comparable quarter in 2007. Depreciation and amortization expense of $47.3 million in the second quarter of 2008 reflects the impact of an increase in estimated salvage value of the Company's owned fleet effective January 1, 2008. This change in estimate reduces depreciation by approximately $2.7 million per quarter commencing in the first quarter of 2008. As previously indicated, the quarter-over-quarter increase in gains on vessel sales positively impacted the change in income from vessel operations.
FINANCIAL HIGHLIGHTS
$200 Million Share Repurchase Program Complete and New Program Announced. During the second quarter the Company completed its 2007 share repurchase program and repurchased 280,000 shares at an average price per share of $77.48. On June 9, 2008 the Board of Directors authorized a new share purchase program of $250 million and during the quarter repurchased 150,000 shares at an average price of $77.40. Since the initial announcement of its share repurchase program on June 9, 2006, the Company has repurchased 9.4 million shares at an average price of $66.42 per share, or 23.8% of total shares outstanding, at a total cost of $625 million.
Dividend Increased. On June 9, 2008, OSG increased its regular quarterly dividend by 40% to $0.4375 per share from $0.3125 per share on its outstanding common stock. The August dividend of $0.4375 per share will be payable on August 27, 2008 to stockholders of record on August 6, 2008. The increase results in an indicated annual rate of $1.75 per share.
Bond Redemption. On April 7, 2008, OSG announced the redemption of all $176,115,000 principal outstanding of its 8.25% Senior Notes due 2013. The redemption price was 104.125% of the principal amount of the Notes together with accrued and unpaid interest as of the redemption date, which was May 15, 2008. This redemption will reduce the Company's interest expense by approximately $7.0 million per annum through March 2013.
Cash Repatriated. During the quarter, OSG repatriated approximately $545 million in cash from its foreign subsidiaries, principally to repay a portion of its outstanding long-term revolving credit debt.
Future Locked-in Revenue. Future revenues associated with noncancelable term charters as of June 30, 2008 totaled $1.6 billion including time charters entered into by the Aframax International pool and fixed rate contracts of affreightment from the U.S. Flag lightering operation. Additionally, future revenues from term contracts of the Gas segment and the FSO project total approximately $1.8 billion and will be recognized in equity in income from affiliated companies.
RECENT ACTIVITIES AND QUARTERLY EVENTS
Crude Oil Tankers
Vessel Deliveries
On April 23, 2008, OSG time chartered in the Mare Salernum, a 111,000 dwt Aframax tanker for two years through 2010. OSG has a 40% interest in the vessel, which began trading in the Aframax International commercial pool upon delivery.
On May 7, 2008 and June 16, 2008, the Peak and the Wind, two 116,000 dwt Aframax tankers, delivered to OSG, respectively. OSG has a 50% interest in both vessels, which have been time chartered in through May and June 2011. The vessels joined the Aframax International commercial pool upon delivery, bringing the pool's aggregate vessel count to 46.
Vessel Sales and Purchases
On May 15, 2008, the Company sold the Pacific Ruby, a 1994-built Aframax tanker. The Company recognized a gain of approximately $13.0 million at the time of sale.
In May 2008, a joint venture arrangement that was constructing two VLCC newbuilds was terminated. In connection therewith, one of the two joint venture subsidiaries, which was constructing the (TBN) Overseas Everest, a 297,000 dwt tanker, was distributed to the Company. The vessel, scheduled to deliver in the first quarter of 2010, is now 100% owned by OSG.
On July 17, 2008, OSG entered into an agreement to purchase two 298,000 dwt VLCC tankers to be built at Dalian Shipbuilding Industry Co, Ltd. The vessels, scheduled for delivery in June and October of 2011, will join the Tankers International pool upon delivery.
Commercial Pools
On June 2, 2008, OSG announced the formation of Suezmax International, a commercial pool initially consisting of four Suezmax tankers, with Seaarland Shipping Management B.V., a privately held shipping company based in Amsterdam, the Netherlands. In addition, seven newbuild Suezmax tankers are expected to join the pool upon their expected delivery dates. Four 156,000 dwt sister ships under construction at Jiangsu Rongsheng Heavy Industries Group in Nantong, China are expected to deliver commencing in 2009, two chartered in by OSG and two by Seaarland. Seaarland has also ordered three 165,000 dwt sister ships at Hyundai Heavy Industries, South Korea, that are expected to deliver in the second, third and fourth quarters of 2011. The formation of Suezmax International follows OSG's successful strategy of building scale in key trading areas to provide superior, reliable service to its customers. Seaarland has been a long-term member in another commercial pool OSG participates in, Aframax International.
As a result of strong market conditions, in the last two months Aframax International has time chartered in seven modern Aframax tankers for one year each. The pool, which OSG commercially manages and has a 43% interest in, continues to focus on growing its fleet, expanding its cargo systems and strengthening its trading position in the Atlantic Basin. The Aframax International pool is expected to reach 50 vessels by the end of 2008.
Product Carriers
Vessel Deliveries
On June 17, 2008, OSG took delivery of the Overseas Sifnos, a 50,000 dwt Handysize product carrier, under a 10-year bareboat charter-in arrangement. OSG has a 100% interest in the vessel.
On May 2, 2008 and June 5, 2008, OSG took delivery of the Atlantic Aquarius and Atlantic Leo, respectively, two 47,000 dwt Handysize product carriers, each under a seven-year time charter-in arrangement. OSG has a 100% interest in both vessels and has renewal options exercisable at the end of each vessel's charter.
Vessel Sale and Redelivery
On April 17, 2008, the Company sold the Overseas Aquamar, a 1998-built Handysize product carrier. The Company recognized a gain of approximately $9.9 million at the time of sale.
On July 16, 2008, the Overseas Uranus, a 1988-built bareboat chartered-in Handysize Product Carrier was redelivered.
U.S. Fleet
Vessel Deliveries
On April 11, 2008, OSG America took delivery of the Overseas New York, a 46,817 dwt U.S. Flag Jones Act Product Carrier. The vessel is on a seven-year bareboat charter-in arrangement and the Company has extension options for the life of the vessel. The vessel has been chartered out to Shell for three years and began trading on April 21, 2008.
On April 24, 2008, OSG America took delivery of the OSG 243, an ATB that has been converted from single hull to double hull.
Fleet Activity
On June 25, 2008, OSG America L.P. a master limited partnership in which the Company owns a 75.5% interest, purchased the Overseas Philadelphia and New Orleans, which were previously bareboat-chartered in and classified as capital leases.
Vessel Sale
On May 21, 2008, the Company sold the M215, its last remaining single hull ATB. A gain of $745 thousand was recognized upon the sale of the vessel.
FLEET METRICS AND CORPORATE STATISTICS
As of June 30, 2008, OSG's owned or operated fleet totaled 121 International Flag and U.S. Flag vessels compared with 107 at June 30, 2007. Fifty percent, or 60 vessels, were owned as of June 30, 2008, with the remaining vessels bareboat or time chartered in. OSG's newbuild program of chartered-in and owned vessels totaled 35 vessels across its Crude Oil, Product and U.S. Flag lines of business. A detailed fleet list and updates on vessels under construction can be found in the Fleet section of www.osg.com.
Revenue days in the quarter ended June 30, 2008 totaled 9,648 compared with 8,704 in the same period a year earlier. The increase principally reflects the addition of 14 vessels since June 30, 2007. Revenue days by segment can be found in Spot and Fixed TCE Rates Achieved and Revenue Days, later in this press release.
FINANCIAL PROFILE
At June 30, 2008, stockholders' equity approximately $1.9 billion and liquidity, including undrawn bank facilities, exceeded $1.6 billion. Total long-term debt as of June 30, 2008 was $1.2 billion, down more than $300 million from December 31, 2007. Liquidity adjusted debt to capital was 32.4% as of June 30, 2008, substantially unchanged from 32.6% as of December 31, 2007. Liquidity adjusted debt is defined as long-term debt reduced by cash and the Capital Construction Fund.
SPOT AND FIXED TCE RATES ACHIEVED AND REVENUE DAYS
The following table provides a breakdown of TCE rates achieved for the three months ended June 30, 2008 and 2007 for the International Crude Oil and Product Carrier segments between spot and fixed charter rates and the related revenue days. The Company has entered into FFAs and related bunker swaps as hedges against the volatility of earnings from operating the Company's VLCCs and Aframaxes in the spot market. These derivative instruments create synthetic time charters because their impact is to effectively lock in a level of TCE earnings. From the perspective of a vessel owner such as the Company, the results of these synthetic time charters are substantially equivalent to results from time chartering vessels in the physical market. The impact of these derivatives, which qualify for hedge accounting treatment under FAS 133, are now reported together with time charters entered in the physical market under "Fixed Earnings." The information in these tables is based, in part, on information provided by the pools or commercial joint ventures in which the segment's vessels participate.
accounted for more than $73.1 million of the quarter-over-quarter increase in TCE revenues. Spot charter rates for VLCCs increased by 82% to $98,747 per day, with rates for Aframaxes increasing by 75% to $55,543 per day. In addition, revenue days in the International Crude Oil and Product Carrier segments each increased quarter-over-quarter by approximately 450 days. EBITDA(1) for the quarter increased 1% to $150.7 million from $148.5 million in the comparable period of 2007. Net income for the period increased 10% to $86.9 million, and diluted EPS increased 23% to $2.81 per share compared with $79.0 million or $2.28 per share for the same period a year ago. Net income in the second quarter of 2008 benefited from a gain on vessel sales of $23.7 million or $0.76 per diluted share, which was offset by unrealized losses on freight derivative positions of $29.0 million or $0.92 per diluted share, and a charge of $9.4 million or $0.20 per share related to the premium paid and the write-off of deferred financing charges in connection with the May 15, 2008 redemption of the Company's 8.25% Senior Notes due March 2013. Net income in the second quarter of 2007 reflected a gain on vessel sales of $5.6 million or $0.16 per diluted share. The second quarter of 2007 also benefited from the sale of the remaining 8.7 million shares of DHT Maritime, Inc., formerly Double Hull Tankers, Inc. (NYSE: DHT), in which OSG held a minority interest, which resulted in a gain of approximately $26.3 million or $0.49 per diluted share. Period-over-period diluted EPS also benefited from the Company's repurchase of 7.7% of total shares outstanding since June 30, 2007.
Morten Arntzen, President and CEO of OSG commented, ""The crude oil tanker market saw unprecedented levels of strength in the first half of 2008, primarily due to OPEC production increases. This resulted in a significant pick-up in long haul movements at the same time as single hull discrimination increased, creating a strong freight rate environment. On the product tanker side, rates were lifted by a surge in diesel movements worldwide." Arntzen continued, "Market conditions continue to create a very strong outlook for our crude tankers and the prospects for our other two main businesses are equally compelling. Our investments in the U.S. Flag segment and its 14-vessel newbuild program will nearly double the unit's revenues in three years. In the next 12 months our International Flag Product Carrier business will transform as 13 bareboat chartered-in, non-double hull ships are replaced with modern double hull ships having much greater earnings capacity and the LR1 fleet expands. Our world-class technical and commercial platform, fleet portfolio and ample opportunities to further scale our business gives me and the OSG management team a lot to be excited about."
(1)See Appendix 1 for a reconciliation of TCE revenues to shipping revenues and Appendix 2 for a reconciliation of EBITDA to net income.
For the first six months ended June 30, 2008, the Company reported a 43% increase in TCE revenues to $761.9 million from $533.4 million in the comparable period of 2007. EBITDA for the first six months of 2008 increased 12% to $329.1 million from $294.6 million in the first six months of 2007. Net income increased 22% to $199.4 million for the first six months of 2008 compared with $163.6 million in the first half of 2007. Diluted earnings per share increased 45% to $6.42 from $4.44 in the first half of 2008 compared with the same period a year ago. The first six months of 2008 benefited from a gain on vessel sales of $23.7 million or $0.75 per diluted share, offset by unrealized losses on freight derivative positions of $29.5 million or $0.93 per diluted share, and the charge of $9.4 million related to the bond redemption previously referenced. The first six months of 2007 benefited from gains on sales of securities of $41.3 million or $0.73 per diluted share, and a gain on vessel sales of $5.6 million, or $0.15 per diluted share.
TCE revenues in the second quarter of 2008 for the International Crude Oil segment were $255.0 million, an increase of $94.7 million, or 59% from $160.3 million in the same period of 2007. The increase was principally due to the significant increases in average rates earned by VLCCs and Aframaxes. In addition, the Company's expansion into Suezmaxes late in 2007 added more than $11.1 million to the segment's TCE revenues in the second quarter. TCE revenues for the International Product Carrier segment were $71.6 million, up $12.4 million or 21% from $59.2 million in the year earlier period. The growth was principally attributable to an increase in revenue days, reflecting in part the addition of two LR1s in the third quarter of 2007. TCE revenues from the U.S. segment were $51.7 million, up $2.9 million or 6%, from $48.8 million in the same quarter a year earlier. This reflects the delivery of the three Handysize Product Carriers, offset by the sale of two dry bulk carriers and the reflagging of one car carrier under the Marshall Islands flag in 2007. The balance of TCE revenues were derived from the Company's two International Flag dry bulk carriers and, in 2008, the one reflagged car carrier.
OSG operates most of its crude oil tankers in commercial pooling arrangements (Pools). The Pools' cargo commitments make them attractive, but such commitments limit the Pools' ability to support any significant portfolio of time charters. Accordingly, OSG enters into forward freight agreements (FFA) and bunker swaps to create synthetic time charters. The results of derivative positions that qualify for hedge accounting treatment and are effective are reflected in TCE revenues in the periods to which such hedges relate. Including such positions, the Company achieved TCE rates for VLCCs of $73,832 per day for 609 days for the second quarter of 2008. The June 30, 2008 mark-to-market for derivative positions through 2010 that qualify for hedge accounting treatment are recorded in accumulated other comprehensive income (stockholders' equity). The actual results of these hedge positions will be reflected in the Company's earnings in the periods to which the positions relate, essentially creating fixed charter revenues.(2) The results of derivative positions that do not qualify for hedge accounting treatment are reflected in other income/(expense) and resulted in an expense of $42.4 million in the quarter ended June 30, 2008, including mark-to-market unrealized losses at June 30, 2008 of $30.4 million.
(2)See Appendix 4 and 5 for fixed rates of synthetic time charters.
Income from vessel operations was $146.8 million in the second quarter of 2008, a 118% increase from $67.3 million in the same period a year earlier. During the period, total operating expenses increased 21%, or $48.7 million, to $281.4 million from $232.7 million in the corresponding quarter in 2007. Voyage expenses increased by $16.3 million, principally as a result of higher fuel expenses. Vessel expenses increased $8.9 million quarter-over-quarter primarily due to higher crew costs associated with the Company's continuing efforts to attract and retain high quality crews. Charter-hire expense increased 52% to $103.4 million from $67.9 million in the second quarter of 2007 principally due to 11 additional ships chartered-in in the second quarter 2008 compared with the same period a year ago. In addition, profit share, a component of charter-hire expense, increased $9.8 million period-over-period due to significantly higher TCE rates than the comparable quarter in 2007. Depreciation and amortization expense of $47.3 million in the second quarter of 2008 reflects the impact of an increase in estimated salvage value of the Company's owned fleet effective January 1, 2008. This change in estimate reduces depreciation by approximately $2.7 million per quarter commencing in the first quarter of 2008. As previously indicated, the quarter-over-quarter increase in gains on vessel sales positively impacted the change in income from vessel operations.
FINANCIAL HIGHLIGHTS
$200 Million Share Repurchase Program Complete and New Program Announced. During the second quarter the Company completed its 2007 share repurchase program and repurchased 280,000 shares at an average price per share of $77.48. On June 9, 2008 the Board of Directors authorized a new share purchase program of $250 million and during the quarter repurchased 150,000 shares at an average price of $77.40. Since the initial announcement of its share repurchase program on June 9, 2006, the Company has repurchased 9.4 million shares at an average price of $66.42 per share, or 23.8% of total shares outstanding, at a total cost of $625 million.
Dividend Increased. On June 9, 2008, OSG increased its regular quarterly dividend by 40% to $0.4375 per share from $0.3125 per share on its outstanding common stock. The August dividend of $0.4375 per share will be payable on August 27, 2008 to stockholders of record on August 6, 2008. The increase results in an indicated annual rate of $1.75 per share.
Bond Redemption. On April 7, 2008, OSG announced the redemption of all $176,115,000 principal outstanding of its 8.25% Senior Notes due 2013. The redemption price was 104.125% of the principal amount of the Notes together with accrued and unpaid interest as of the redemption date, which was May 15, 2008. This redemption will reduce the Company's interest expense by approximately $7.0 million per annum through March 2013.
Cash Repatriated. During the quarter, OSG repatriated approximately $545 million in cash from its foreign subsidiaries, principally to repay a portion of its outstanding long-term revolving credit debt.
Future Locked-in Revenue. Future revenues associated with noncancelable term charters as of June 30, 2008 totaled $1.6 billion including time charters entered into by the Aframax International pool and fixed rate contracts of affreightment from the U.S. Flag lightering operation. Additionally, future revenues from term contracts of the Gas segment and the FSO project total approximately $1.8 billion and will be recognized in equity in income from affiliated companies.
RECENT ACTIVITIES AND QUARTERLY EVENTS
Crude Oil Tankers
Vessel Deliveries
On April 23, 2008, OSG time chartered in the Mare Salernum, a 111,000 dwt Aframax tanker for two years through 2010. OSG has a 40% interest in the vessel, which began trading in the Aframax International commercial pool upon delivery.
On May 7, 2008 and June 16, 2008, the Peak and the Wind, two 116,000 dwt Aframax tankers, delivered to OSG, respectively. OSG has a 50% interest in both vessels, which have been time chartered in through May and June 2011. The vessels joined the Aframax International commercial pool upon delivery, bringing the pool's aggregate vessel count to 46.
Vessel Sales and Purchases
On May 15, 2008, the Company sold the Pacific Ruby, a 1994-built Aframax tanker. The Company recognized a gain of approximately $13.0 million at the time of sale.
In May 2008, a joint venture arrangement that was constructing two VLCC newbuilds was terminated. In connection therewith, one of the two joint venture subsidiaries, which was constructing the (TBN) Overseas Everest, a 297,000 dwt tanker, was distributed to the Company. The vessel, scheduled to deliver in the first quarter of 2010, is now 100% owned by OSG.
On July 17, 2008, OSG entered into an agreement to purchase two 298,000 dwt VLCC tankers to be built at Dalian Shipbuilding Industry Co, Ltd. The vessels, scheduled for delivery in June and October of 2011, will join the Tankers International pool upon delivery.
Commercial Pools
On June 2, 2008, OSG announced the formation of Suezmax International, a commercial pool initially consisting of four Suezmax tankers, with Seaarland Shipping Management B.V., a privately held shipping company based in Amsterdam, the Netherlands. In addition, seven newbuild Suezmax tankers are expected to join the pool upon their expected delivery dates. Four 156,000 dwt sister ships under construction at Jiangsu Rongsheng Heavy Industries Group in Nantong, China are expected to deliver commencing in 2009, two chartered in by OSG and two by Seaarland. Seaarland has also ordered three 165,000 dwt sister ships at Hyundai Heavy Industries, South Korea, that are expected to deliver in the second, third and fourth quarters of 2011. The formation of Suezmax International follows OSG's successful strategy of building scale in key trading areas to provide superior, reliable service to its customers. Seaarland has been a long-term member in another commercial pool OSG participates in, Aframax International.
As a result of strong market conditions, in the last two months Aframax International has time chartered in seven modern Aframax tankers for one year each. The pool, which OSG commercially manages and has a 43% interest in, continues to focus on growing its fleet, expanding its cargo systems and strengthening its trading position in the Atlantic Basin. The Aframax International pool is expected to reach 50 vessels by the end of 2008.
Product Carriers
Vessel Deliveries
On June 17, 2008, OSG took delivery of the Overseas Sifnos, a 50,000 dwt Handysize product carrier, under a 10-year bareboat charter-in arrangement. OSG has a 100% interest in the vessel.
On May 2, 2008 and June 5, 2008, OSG took delivery of the Atlantic Aquarius and Atlantic Leo, respectively, two 47,000 dwt Handysize product carriers, each under a seven-year time charter-in arrangement. OSG has a 100% interest in both vessels and has renewal options exercisable at the end of each vessel's charter.
Vessel Sale and Redelivery
On April 17, 2008, the Company sold the Overseas Aquamar, a 1998-built Handysize product carrier. The Company recognized a gain of approximately $9.9 million at the time of sale.
On July 16, 2008, the Overseas Uranus, a 1988-built bareboat chartered-in Handysize Product Carrier was redelivered.
U.S. Fleet
Vessel Deliveries
On April 11, 2008, OSG America took delivery of the Overseas New York, a 46,817 dwt U.S. Flag Jones Act Product Carrier. The vessel is on a seven-year bareboat charter-in arrangement and the Company has extension options for the life of the vessel. The vessel has been chartered out to Shell for three years and began trading on April 21, 2008.
On April 24, 2008, OSG America took delivery of the OSG 243, an ATB that has been converted from single hull to double hull.
Fleet Activity
On June 25, 2008, OSG America L.P. a master limited partnership in which the Company owns a 75.5% interest, purchased the Overseas Philadelphia and New Orleans, which were previously bareboat-chartered in and classified as capital leases.
Vessel Sale
On May 21, 2008, the Company sold the M215, its last remaining single hull ATB. A gain of $745 thousand was recognized upon the sale of the vessel.
FLEET METRICS AND CORPORATE STATISTICS
As of June 30, 2008, OSG's owned or operated fleet totaled 121 International Flag and U.S. Flag vessels compared with 107 at June 30, 2007. Fifty percent, or 60 vessels, were owned as of June 30, 2008, with the remaining vessels bareboat or time chartered in. OSG's newbuild program of chartered-in and owned vessels totaled 35 vessels across its Crude Oil, Product and U.S. Flag lines of business. A detailed fleet list and updates on vessels under construction can be found in the Fleet section of www.osg.com.
Revenue days in the quarter ended June 30, 2008 totaled 9,648 compared with 8,704 in the same period a year earlier. The increase principally reflects the addition of 14 vessels since June 30, 2007. Revenue days by segment can be found in Spot and Fixed TCE Rates Achieved and Revenue Days, later in this press release.
FINANCIAL PROFILE
At June 30, 2008, stockholders' equity approximately $1.9 billion and liquidity, including undrawn bank facilities, exceeded $1.6 billion. Total long-term debt as of June 30, 2008 was $1.2 billion, down more than $300 million from December 31, 2007. Liquidity adjusted debt to capital was 32.4% as of June 30, 2008, substantially unchanged from 32.6% as of December 31, 2007. Liquidity adjusted debt is defined as long-term debt reduced by cash and the Capital Construction Fund.
SPOT AND FIXED TCE RATES ACHIEVED AND REVENUE DAYS
The following table provides a breakdown of TCE rates achieved for the three months ended June 30, 2008 and 2007 for the International Crude Oil and Product Carrier segments between spot and fixed charter rates and the related revenue days. The Company has entered into FFAs and related bunker swaps as hedges against the volatility of earnings from operating the Company's VLCCs and Aframaxes in the spot market. These derivative instruments create synthetic time charters because their impact is to effectively lock in a level of TCE earnings. From the perspective of a vessel owner such as the Company, the results of these synthetic time charters are substantially equivalent to results from time chartering vessels in the physical market. The impact of these derivatives, which qualify for hedge accounting treatment under FAS 133, are now reported together with time charters entered in the physical market under "Fixed Earnings." The information in these tables is based, in part, on information provided by the pools or commercial joint ventures in which the segment's vessels participate.
Overseas Shipholding Group, Inc. , a Dow Jones Transportation Index company, is one of the largest publicly traded tanker companies in the world. As a market leader in global energy transportation services for crude oil and petroleum products in the U.S. and International Flag markets, OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world's most customer-focused marine transportation companies and is headquartered in New York City, NY.