SFL

Business Context and Reporting Period

This Form 6-K filing by Ship Finance International Limited (SFL) discloses preliminary financial results for the quarter ended March 31, 2010. SFL is a Bermuda-based shipping and offshore finance company that owns and operates a diversified fleet of vessels and drilling units, predominantly on long-term fixed-rate charters. The filing incorporates a press release dated May 20, 2010, and was signed on July 29, 2010.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income Growth: Net income increased to $57.0 million from $42.7 million in Q1 2009, driven by a $27.8 million gain on the sale of assets (specifically the newbuilding Suezmax tanker Everbright and the VLCC Front Vista).
• Derivative Impact: The quarter included a negative $12.8 million mark-to-market adjustment on interest rate swaps, compared to a negligible positive adjustment in Q1 2009.
• Profit Share: Profit share income from Frontline charters decreased to $11.3 million from $14.5 million in Q1 2009, though it doubled from the $5.7 million recorded in Q4 2009.
• Debt Reduction: Net interest-bearing debt was reduced from approximately $3.9 billion to $3.7 billion over the quarter through significant prepayments and asset sales.
• Revenue Composition: Reported operating revenues of $82.6 million exclude charter hire classified as repayment of investments in finance leases and revenues from assets accounted for as "investments in associates."

Guidance, Outlook, and Management Commentary

• Dividend Increase: The Board declared an increased quarterly dividend of $0.33 per share, a 10% increase, reflecting successful deliveries and profitable chartering terms.
• Charter Backlog: As of March 31, 2010, the fixed-rate charter backlog stood at approximately $6.8 billion with an average remaining term of 9.4 years (12.3 years revenue-weighted).
• Capital Expenditures: Gross estimated capital commitments are approximately $162 million, primarily for seven Handysize dry bulk carriers (delivery 2011-2012) and one container vessel (delivery Q4 2010). $60 million has already been paid from cash reserves.
• Asset Strategy: The company continues to reduce exposure to single-hull tankers. Following the sale of the Golden River, only five non-double hull crude oil tankers remain. The company is also converting OBOs to pure dry bulk carriers to improve efficiency.
• Refinancing: A syndicated bank loan for 26 vessels was upsized from $675 million to $725 million due to strong market demand, with interest rates remaining similar to the previous facility.

Investor Verification Checklist

• Asset Sale Gains: Verify the sustainability of earnings given the $27.8 million gain on asset sales included in Q1 2010 net income.
• Derivative Exposure: Assess the impact of the $12.8 million mark-to-market loss on derivatives and the effectiveness of the new hedging strategy covering 60% of the refinanced facility.
• Capital Commitments: Confirm the funding sources for the remaining $102 million in capital commitments ($162 million total less $60 million paid), as the company expects to secure financing but has not yet done so.
• Investment in Associates: Review the separate financial data for the three subsidiaries accounted for as "investments in associates" (West Polaris, West Hercules, West Taurus, and Golden Shadow), as their full revenues are not consolidated.
• Debt Covenants: Confirm ongoing compliance with bank covenants, particularly given the significant debt prepayments and refinancing activities.