The recently enacted "American Jobs Creation Act" gives significant tax breaks to a number of U.S. industries--including shipping.
MARINE LOG and BLANK ROME will present a senior level seminar CHANGES IN U.S. TAXATION OF SHIPPING INCOME in Stamford, Conn. on April 5 & 6, 2004
Make sure you know how the new tax rules work!
February 24, 2005
Tax changes boost OSG net
Buoyed by a major change in U.S. tax treatment, Overseas Shipholding Group, Inc. (NYSE:OSG) reported net income for 2004 of $401,236,000, or $10.26 per share, the highest net income in its history. This compared with net income of $121,309,000, or $3.49 per share, for the prior year.
But on a less happy note, the company noted that it is still negotiating with the U.S. Department of Justice in a case relating to alleged violations relating to handling of waste oil.
Net income for 2004 and the quarter ended December 31, 2004 reflects a $77,423,000 reduction in deferred tax liabilities. TCE revenue in 2004 was $789,581,000 and EBITDA was $655,248,000 compared with TCE revenue of $431,136,000 and EBITDA of $320,287,000 in 2003. See Appendix 6 for additional information.
Net income for the quarter ended December 31, 2004, was $211,123,000, or $5.36 per share, ten times higher than net income of $21,198,000, or $0.61 per share, for the quarter ended December 31, 2003. TCE revenue in the quarter ended December 31, 2004, was $275,650,000 and EBITDA was $239,843,000 compared with TCE revenue of $105,533,000 and EBITDA of $69,990,000 in the same period in 2003.
"OSG has achieved the highest annual and quarterly net income in the company's history," said Morten Arntzen, President and Chief Executive Officer.
"In the past 12 months," he continued, "four transforming events have strategically positioned OSG for future growth and enhanced returns."
The first event, he said, was the enactment of the 2004 Jobs Creation Act, which places the company on a level playing field with its offshore competitors by indefinitely deferring taxation on foreign shipping income. "Secondly," he continued, "OSG, in partnership with QGTC, committed approximately $1.0 billion to build four LNG vessels, which will carry LNG from Qatar to the U.K. under 25-year charters. Thirdly, the company acquired Stelmar Shipping Ltd., adding 40 vessels to our 60 vessel fleet, making OSG the second largest publicly owned tanker company in the world and giving us a leading position in the product and Panamax trades. The fourth defining event was our recommitment to the U.S. Flag business."
From January 1, 2005, the new tax law permits indefinite deferral of taxation on foreign shipping income until such income is repatriated to the U.S. Had the tax deferral on foreign shipping income been effective for 2004, the company's provision for federal income taxes of $79.8 million for the year would have been essentially eliminated. In addition, the company has reversed $77.4 million of net deferred tax liabilities, thereby taking this amount into income during the quarter ended December 31, 2004.
On November 8, 2004, OSG announced it had formed a joint venture to own and operate four 216,000 cbm LNG Carriers due to deliver in late 2007 and early 2008. The joint venture is owned 49.9 percent by a subsidiary of OSG and 50.1 percent by Qatar Gas Transport Company Limited (Nakilat) ("QGTC"). On delivery, the four vessels will commence 25-year charters to Qatar Liquefied Gas Company Limited (II) ("QGII"), a joint venture between Qatar Petroleum (70 percent) and a subsidiary of ExxonMobil (30 percent). These four vessels are the largest LNG Carriers ever built. They are of highly efficient design with reliquefication capability onboard and are powered by twin slow-speed diesel engines, eliminating the need to consume cargo as in older designs of LNG vessels.
OSG Acquires Stelmar.
On December 13, 2004, OSG announced the signing of a definitive merger agreement to acquire Stelmar Shipping Ltd. ("Stelmar"), a leading international provider of petroleum product and crude oil transportation services with one of the world's largest and most modern Handysize and Panamax tanker fleets. The transaction closed on January 20, 2005. Under the terms of the merger agreement, holders of Stelmar's common stock received $48.00 per share in cash for an aggregate consideration of approximately $844 million. Taking into account the assumption of Stelmar's outstanding debt, the total purchase price was approximately $1.35 billion. Stelmar's 40 vessel fleet consists of 24 Handysize, 13 Panamax and three Aframax tankers. Stelmar's fleet includes two chartered-in Aframax and nine chartered-in Handysize vessels. One hundred percent of the fully owned fleet is double hull. In addition, five of the chartered-in vessels are double hull and the balance are double sided. Stelmar, through its maintenance of a modern fleet and commitment to safety, has earned an excellent reputation for providing high-quality transportation services to major oil companies, oil traders and state-owned oil companies. Following the acquisition, OSG's fleet totaled 100 vessels.
OSG Expands Marad Participation.
In February 2005, the Company signed four agreements with the Maritime Administrator of the U.S. Department of Transportation pursuant to which, in October 2005, the company will enter three U.S. Flag Product Carriers and one U.S. flag Pure Car Carrier into the U.S. Maritime Security Program for ten-year terms. The Company intends to acquire three foreign flag product carriers that satisfy the requirements of the program and reflag them to U.S. flag. The Company's U.S. flag Pure Car Carrier will continue in the program through 2007, at which time the company intends to substitute a modern U.S. flag car carrier into the program. Under the program, OSG will receive approximately $2.6 million per year for each vessel through 2008, $2.9 million per year for each vessel from 2009 through 2011, and $3.1 million per year for each vessel from 2012 through 2016, subject in each case to annual Congressional appropriations.
Update on U.S. Department of Justice Investigation
On September 11, 2003, the Department of Transport of the Government of Canada commenced an action against the company's foreign flagged product carrier, the Uranus, charging the vessel with violations of regulations under the Canada Shipping Act with respect to alleged discrepancies in the vessel's oil record book during the period between December 2002 and March 2003. On January 22, 2004, the Department of Transport withdrew all pending charges related to the alleged discrepancies.
On October 1, 2003, the U.S. Department of Justice served a grand jury subpoena directed at the Uranus and the company's handling of waste oils. The U.S. Department of Justice has subsequently served related subpoenas requesting documents concerning the Uranus and other vessels in the company's fleet. Several witnesses have appeared before the grand jury. The company has been cooperating with the investigation and in the fall of 2004 commenced negotiations with the U.S. Department of Justice to resolve the investigation. Such a resolution may involve an acknowledgment by the company of its responsibility for alleged past record keeping violations of environmental regulations governing the handling of waste oils by some sea staff aboard the Uranus. In the fourth quarter of 2004, the company made a provision (in the amount of $6.0 million) for anticipated fines, environmental compliance costs, contributions to environmental protection programs and other costs associated with a possible settlement of the investigation. Negotiations with the U.S. Department of Justice are continuing and while management of the company believes that the total fines and the above-referenced costs associated with a settlement of the investigation may range from $6.0 million to $10.0 million, there can be no assurance that a satisfactory settlement can be achieved or that the provision or the estimated range will be sufficient to cover such fines and costs.
During recent years, the company has recognized heightened concerns in many jurisdictions over the improper disposal of waste oil from oceangoing vessels and has implemented a number of measures to assure that the company's vessels comply with all applicable laws in this regard.
Beginning in 2002, the company developed and installed aboard all its vessels an "environmental tag" system that prevents the decoupling of waste lines to bypass pollution control equipment and improperly discharge waste oil at sea.
The company has also developed and begun installing equipment that will automatically monitor and record all data for engine room bilge water and waste oil control and that will prevent tampering with meters that limit waste oil content of discharges.
OSG believes that it is the only major tanker corporation to install both an "environmental tag" system and monitors for its fleet.
The company has also substantially enhanced its training and procedures so as to ensure compliance with environmental regulations. OSG says it is its policy to comply with all environmental regulations and it believes the actions it has taken are among the best practices in the industry to ensure the proper operation of its vessels.
Follow this link for the full earnings report:http://www.osg.com/investor-press-earnings.html