Business Context and Reporting Period
Company: Ship Finance International Limited (SFL)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended December 31, 2008 (Preliminary Results)
Filing Date: February 26, 2009
SFL is a Bermuda-based shipping and oil services company operating a fleet of vessels and drilling rigs, primarily under long-term fixed-rate charters. The filing announces preliminary Q4 2008 results, a dividend declaration, and updates on fleet deliveries and capital commitments.
Key Financial Metrics
| Metric | Q4 2008 | Q4 2007 | Full Year 2008 |
|---|---|---|---|
| Total Operating Revenues | $101.3 million | $122.3 million | $458.3 million |
| Net Operating Income | $65.7 million | $91.5 million | $337.4 million |
| Net Income (GAAP) | $3.1 million ($0.04/share) | $52.4 million ($0.72/share) | $181.6 million ($2.50/share) |
| Adjusted Net Income (Excluding mark-to-market of swaps) |
$48.2 million ($0.66/share) | N/A | N/A |
| Profit Share Income | $15.7 million | $31.4 million | $111.0 million |
| Free Cash (As of Dec 31, 2008) |
$57.6 million | N/A | N/A |
| Restricted Cash (As of Dec 31, 2008) |
$60.1 million | $27.0 million | N/A |
| Total Debt (Short + Long Term) |
$2.595 billion | $2.270 billion | N/A |
Material Changes vs. Prior Period
- Net Income Decline: GAAP net income dropped significantly from $52.4 million in Q4 2007 to $3.1 million in Q4 2008. This was primarily driven by a $45.2 million negative mark-to-market adjustment on derivatives (bond and equity swaps) due to falling interest rates and market conditions.
- Operating Revenue: Total operating revenues decreased 17% year-over-year to $101.3 million, largely due to a reduction in profit share income from Frontline Ltd. as spot market rates softened.
- Dividend Reduction: The quarterly dividend was reduced by 50% from $0.60 per share to $0.30 per share to preserve cash and capitalize on market opportunities.
- Asset Deliveries: The company took delivery of two ultra-deepwater drilling rigs (West Hercules and West Taurus) and a second chemical tanker in late 2008, expanding its revenue-generating fleet.
Guidance, Outlook, and Management Commentary
- Market Outlook: Management expects a softer spot tanker market in 2009 compared to 2008, which will negatively impact profit share income. However, the majority of the fleet is on long-term fixed charters, providing stability.
- Capital Strategy: Following the delivery of the drilling rigs, remaining newbuilding capital commitments are limited. The company aims to deploy capital opportunistically in the current market environment.
- Charter Backlog: As of December 31, 2008, the gross fixed-rate charter backlog was approximately $8.0 billion with an average remaining term of 9.7 years.
- Contract Terminations: The company terminated agreements to acquire three seismic vessels from SCAN Geophysical and two Capesize dry bulk vessels from Golden Ocean Group due to delivery delays and non-compliance.
- Liquidity: The company increased restricted cash by $23.8 million to cover margin calls on swap agreements. No significant loan refinancings are due in the near term.
Investor Verification Checklist
- Derivative Exposure: Verify the current fair value of bond and equity swap agreements, as the $45.2 million Q4 loss was non-cash but impacted book equity significantly.
- Profit Share Volatility: Monitor Frontline Ltd.'s spot market performance, as 20% of earnings above base rates flow to SFL; this is the primary variable revenue component.
- Dividend Election: Confirm shareholder elections for the cash vs. stock dividend option, noting that major shareholders (41.4% ownership) elected to receive shares.
- Capital Commitments: Review the $374 million gross investment requirement for 2009, noting that $250 million for the West Taurus rig was covered by committed financing and paid in February 2009.
- Accounting Treatment: Understand that a significant portion of assets (drilling rigs and some vessels) are accounted for as "Investment in Associate," meaning only net income from these subsidiaries is consolidated, not gross revenue.