OSG delivers lower earnings in the second quarter of 2017

OSG

Overseas Shipholding Group, Inc. (NYSE: OSG) (the “Company” or “OSG”) a provider of energy transportation services for crude oil and petroleum products in the U.S. Flag markets, today reported results for the second quarter 2017.

Highlights

-Income from continuing operations for the second quarter was $3.2 million, or $0.04 per diluted share, compared to a net loss from continuing operations of $4.2 million, or ($0.04) per diluted share, for the second quarter 2016.
-Shipping revenues were $96.2 million for the current quarter, a decrease of 18.7% from $118.4 million in the prior year quarter. Time charter equivalent (TCE) revenues(A) for the second quarter 2017 were $91.1 million, down 20.6% compared to the same period in 2016.
-Net income was $3.2 million for the quarter ended June 30, 2017, compared to $29.9 million for the quarter ended June 30, 2016. Net income for the prior year period included income from discontinued operations from International Seaways (INSW) of $34.0 million.
-Second quarter 2017 adjusted EBITDA(B) was $29.6 million, down 35.6% from $46.0 million in the same period in 2016.
-Cash and cash equivalents were $204.6 million at June 30, 2017. Total cash(C) was $210.5 million at the end of the current quarter.
-During the second quarter 2017, we repurchased and retired $4.6 million in principal of the 8.125% notes due in 2018.

“Increasing exposure to weakening spot markets during the just completed quarter weighed on top-line performance”, Sam Norton, OSG’s President and CEO stated. “However, cost discipline helped to mitigate the effects of these developments, and, together with earnings from our shuttle tanker and lightering operations, served to produce healthy cash flows. Progress continues strengthening our balance sheet and, with over $275 million of available liquidity, OSG remains favorably positioned to respond to opportunities in our markets. “

Second Quarter 2017 Results

Shipping revenues were $96.2 million for the quarter, down 18.7% compared with the second quarter of 2016. The decrease in shipping revenues was also driven by lower charter rates. TCE revenues for the second quarter of 2017 were $91.1 million, a decrease of $23.7 million, or 20.6%, compared with the second quarter of 2016, primarily due to lower average daily rates earned. Shipping revenue for the first half of 2017 were $204.3 million, a decrease of $29.1 million compared to the first half of 2016. TCE revenues for the first half of 2017 were $193.4 million, a decrease of $33.6 million compared to the first half of 2016.

Operating income for the second quarter of 2017 was $14.2 million, compared to operating income of $23.0 million in the second quarter of 2016. The decrease reflected reduced operating expense, including depreciation and amortization expense, and lower general and administrative expenses, which partially offset the decline in shipping revenues. Operating income for the first half of 2017 was $33.5 million, a decrease of $6.9 million compared to the first half of 2016.

Income from continuing operations for the current period second quarter was $3.2 million, or $0.04 per diluted share, compared with a loss from continuing operations of $4.2 million, or ($0.04) per diluted share, for the second quarter 2016. The increase reflects a lower tax provision in the second quarter of 2017 compared to 2016. In the prior year period, a deferred tax liability on the unremitted earnings of INSW was recorded, resulting in an income tax provision of $15.1 million, compared to tax expense of $1.6 million in the 2017 period. In addition, interest expense decreased by $1.4 million in the current period as the result of significant debt reductions in the current and prior year periods.

Income from continuing operations for the first half of 2017 was $8.6 million compared with a loss from continuing operations of $12.9 million for the first half of 2016. The increase reflects a lower tax provision in the first half of 2017 compared to 2016. In the prior period, a deferred tax liability on the unremitted earnings of INSW was recorded, resulting in an income tax provision of $48.3 million, compared to tax expense of $5.2 million in the 2017 period.

Adjusted EBITDA(B), a non-GAAP measure, was $29.6 million for the quarter, a decrease of $16.4 million or 35.6% compared with the second quarter of 2016, driven primarily by the decline in TCE revenues, partially offset by lower general and administrative expenses. Adjusted EBITDA for the first half of 2017 was $65.7 million, a decrease of $21.0 million or 24.2% compared with the first half of 2016.

Discontinued Operations

As previously disclosed, OSG completed the separation of its business into two independent publicly traded companies through the spin-off of its then wholly owned subsidiary INSW on November 30, 2016. The spin-off separated OSG and INSW into two distinct businesses with separate management. OSG retained the U.S. Flag business and INSW holds entities and other assets and liabilities that formed OSG’s former International Flag business. The spin-off transaction was in the form of a pro rata distribution of INSW’s common stock to our stockholders and warrant holders of record as of the close of business on November 18, 2016.

In accordance with Accounting Standards Update (“ASU”) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, the assets and liabilities and results of operations of INSW are reported as discontinued operations for the three and six months ended June 30, 2016.

Net income from discontinued operations for the three and six months ended June 30, 2016 was $34.0 million and $93.5 million, respectively.

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