SFL

Business Context and Reporting Period

Company: Ship Finance International Limited (SFL Corp Ltd.)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Second Quarter ended June 30, 2008
Business Overview: The Company operates a fleet of vessels and rigs, primarily under long-term fixed-rate charters. A significant portion of assets are accounted for as finance leases. The Company focuses on shipping and offshore sectors, with a strategy to increase asset portfolios and maintain predictable dividend capacity.

Key Financial Metrics

Note: Total debt includes $163.8 million short-term and $2.10 billion long-term interest-bearing debt as of June 30, 2008.

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased 25% year-over-year to $120.9 million, driven by a higher profit share contribution ($33.1 million vs. $15.7 million) due to strong spot charter markets for crude oil tankers.
• Net Income: Net income nearly doubled to $71.3 million from $39.5 million in Q2 2007.
• Asset Sales: Recognized a $10.6 million gain on the sale of the single-hull VLCC Front Sabang in Q2 2008, compared to a $4.3 million gain in Q2 2007.
• Derivatives: Recorded a $3.2 million positive mark-to-market adjustment on swaps in Q2 2008, reversing a $2.2 million negative adjustment in Q1 2008.
• Dividend Increase: Quarterly cash dividend increased to $0.58 per share from the previous $0.56 per share.

Guidance, Outlook, and Management Commentary

Strategic Acquisitions and Sales

• West Polaris: Delivered in July 2008, an ultra-deepwater drillship acquired for approximately $850 million. It commenced a 15-year bareboat charter to Seadrill Limited. Expected to contribute ~$23 million annually in net cash for the first five years.
• Suezmax Sales: Announced the sale of two newbuilding Suezmax tankers for $111 million each. Expected to generate a book profit of $68 million upon delivery in 2009.
• Chemical Tankers: First of two 17,000 dwt chemical tankers delivered in April 2008; second expected in Q3 2008. Both on 10-year bareboat charters.

Liquidity and Capital Expenditure

As of June 30, 2008, available funds totaled $242.1 million ($86.4 million cash + $155.7 million credit lines). Capital commitments for newbuildings and acquisitions are estimated at $1.47 billion gross, with net investment expected to be $280 million over the next two years.

Risks and Contingencies

• Market Volatility: While the spot market was strong in Q2, management noted softening in August 2008.
• Forward-Looking Statements: Risks include fluctuations in charter rates, vessel values, interest rates, currency exchange, and geopolitical events affecting shipping routes.
• Financing Environment: Management highlighted the challenge of the financing environment but demonstrated ability to structure accretive transactions (e.g., West Polaris).

Key Facts for Investor Verification

• Dividend Sustainability: Verify the ability to maintain the increased $0.58 quarterly dividend given the $850 million capital outlay for the West Polaris and ongoing newbuilding commitments.
• Profit Share Volatility: Confirm the stability of the $33.1 million profit share, which is tied to spot market rates exceeding base charter rates for Frontline Ltd. subsidiaries.
• Debt Structure: Review the $449 million outstanding 8.5% Senior Notes due 2013 and the impact of Bond Swap Agreements on effective financing costs.
• Future Gains: Monitor the timing and realization of the $68 million expected book profit from the sale of the two Suezmax vessels in 2009.
• Charter Backlog: Validate the $6.5 billion gross fixed-rate charter backlog and the 10.2-year average remaining term.