d944729_6-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
6-K
REPORT
OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the
month of December 2008
Commission
File Number: 001-32199
Ship
Finance International Limited
|
(Translation
of registrant’s name into English)
|
|
Par-la-Ville
Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
|
(Address
of principal executive offices)
|
Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.
Form 20-F
[X] Form 40-F
[ ]
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1): ___
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)7: ___
INFORMATION
CONTAINED IN THIS FORM 6-K REPORT
Attached as Exhibit 1 are the unaudited consolidated interim financial
statements and related Management’s Discussion and Analysis of Financial
Condition and Results of Operations of Ship Finance International Limited (the
"Company") for the nine months ended September 30, 2008.
This Report on Form
6-K is hereby incorporated by reference into the Company’s Registration
Statement on Form F-3, (Registration No. 333-150125), filed with the Securities
and Exchange Commission on April 7, 2008.
Exhibit
1
SHIP
FINANCE INTERNATIONAL LIMITED
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
for
the nine months ended September 30, 2008
General
Ship
Finance International Limited is a Bermuda based ship-owning company
incorporated in 2003, with registered and principal executive offices located at
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda.
We
operate through subsidiaries located in Bermuda, Cyprus, Malta, Liberia, Norway,
Delaware, Singapore and the Marshall Islands.
We are an
international ship owning company and our assets currently consist of 33 oil
tankers, eight OBOs currently configured to carry drybulk cargo, one drybulk
carrier, eight container vessels, two jack-up drilling rigs, six offshore supply
vessels, two chemical tankers and three ultra-deepwater drilling
units.
Additionally
we have contracted to purchase the following vessels:
·
|
two
newbuilding Capesize drybulk carriers, scheduled for delivery in
2009;
|
·
|
two
newbuilding Suezmax oil tankers, scheduled for delivery in 2009;
and
|
·
|
five
newbuilding container vessels, scheduled for delivery in
2010;
|
We have
secured charter arrangements for the two newbuilding drybulk carriers and are
currently marketing the five newbuilding container vessels for medium to
long-term employment. In July 2008 the Company announced that it has entered
into an agreement to sell the two newbuilding Suezmax tankers, which we have
agreed to deliver to the buyer immediately upon delivery from the
shipyard.
Our
customers currently include subsidiaries of Frontline Ltd (“Frontline”), Horizon
Lines Inc. (“Horizon Lines”), Golden Ocean Group Limited (“Golden Ocean”),
Seadrill Limited (“Seadrill”), Taiwan Maritime Transportation Co. Ltd. (“TMT”),
Bryggen Shipping & Trading AS (“Bryggen”), Heung-A Shipping Co. Ltd
(“Hueng-A”), Deep Sea Supply Plc (“Deep Sea”) and Compania Sud Americana de
Vapores. Existing charters for most of our vessels range from five to 19 years,
providing us with significant, stable base cash flows and high asset
utilization. Some of our charters include purchase options
exercisable by the charterer, which if exercised would reduce our remaining
charter coverage and contracted cash flow.
We were
formed in 2003 as a wholly owned subsidiary of Frontline, which is one of the
largest owners and operators of large crude oil tankers in the world, and
effective January 2004 we purchased from Frontline a fleet of 47 vessels,
comprising 23 Very Large Crude Carriers (“VLCCs”), including an option to
acquire one VLCC, 16 Suezmax tankers and eight OBOs.
Since
2004 we have diversified our asset base from the initial two asset types - crude
oil tankers and OBOs - to seven asset types, so that our fleet now includes
container vessels, drybulk carriers, chemical tankers, drilling units and
offshore supply vessels.
Acquisitions
and Disposals
During
2008 we have so far agreed to acquire the following vessels:
·
|
In
March 2008 we entered into an agreement to acquire two newbuilding
chemical tankers from Bryggen for a total consideration of approximately
$60 million. One of the vessels was delivered in April 2008 and the other
in October 2008.
|
·
|
In
May 2008 the Company announced an agreement to acquire the newbuilding
ultra deepwater drillship West Polaris from a
subsidiary of Seadrill for a total acquisition cost of approximately $850
million. The vessel was delivered in July 2008 and was chartered back to
the subsidiary of Seadrill on a 15 year bareboat
charter.
|
·
|
In
September 2008 the Company announced an agreement to acquire two
newbuilding ultra deepwater semi-submersible drilling rigs from
subsidiaries of Seadrill for a total acquisition cost of approximately
$1.7 billion. Upon delivery, which occurred in November 2008, the rigs
were chartered back to subsidiaries of Seadrill on 15 year bareboat
charters.
|
During
2008 we have so far agreed to sell the following vessels:
·
|
In
March 2008 we agreed to charter the single-hull VLCC Front Sabang to an
unrelated third party. The new charter is in the form of a hire-purchase
agreement, where the vessel is chartered to the buyer for a 3.5 year
period with a purchase obligation at the end of the charter. The new
charter commenced in April 2008.
|
·
|
In
July 2008 the Company announced an agreement to sell the two newbuilding
Suezmax tankers, which were contracted in 2006 and scheduled for delivery
from the shipyard in 2009.
|
Operating
Results
Total
operating revenues
Total
operating revenues increased for the nine months ended September 30, 2008 to
$357.1 million, compared to $276.5 million for the same period in 2007.
Operating revenues include finance lease interest income, finance lease service
revenues, charter revenues and profit sharing revenues from our profit sharing
arrangements with Frontline Shipping Limited and Frontline Shipping II Limited
(the “Frontline Charterers”), subsidiaries of Frontline.
The
following table sets forth our total operating revenues in the nine months ended
September 30, 2008 and 2007:
(in thousands of
$)
|
9
months ended
September
30 2008
|
9
months ended
September
30 2007
|
|
|
|
Finance
lease interest income
|
135,567
|
139,978
|
Finance
lease service revenues
|
70,231
|
77,127
|
Profit
sharing revenues
|
95,311
|
21,173
|
Time
charter revenues
|
14,630
|
18,443
|
Bareboat
charter revenues
|
41,279
|
17,986
|
Other
operating income
|
48
|
1,815
|
Total
operating revenues
|
357,066
|
276,522
|
Finance
lease interest income arises on our tankers and OBOs, two jack-up drilling rigs
acquired in 2007 and two offshore supply vessels acquired in 2008. Finance lease
interest income reduces over the terms of our leases as a progressively lesser
proportion of the lease rental payment is allocated as income, and a higher
amount treated as repayment of the finance lease. Our total finance lease
interest income has also decreased due to the sale of eight oil tankers in 2007
and 2008 and the termination of their leases to the Frontline Charterers, partly
offset by the offshore supply vessels acquired in 2008.
The
reduction in finance lease service revenue reflects the reduction in the number
of tankers leased to the Frontline Charterers. Profit sharing revenue has
increased considerably owing to higher charter rates achieved by the Frontline
Charterers on our vessels during the nine month period ended September 30, 2008
compared with the previous year.
Time
charter revenues have declined as each of the charter arrangements and
cross-over voyages in place when the tankers were acquired in January 2004 were
completed, at which point we began accounting for income from the vessels as
finance lease income. The last of these pre-existing charter and cross-over
voyages was completed in April 2007 and this is the main reason for the
reduction in time charter revenues. However, time charter revenue is also earned
by three of our containerships which partly offsets the reduction in time
charter revenue arising from the completion of cross-over
voyages.
Bareboat
charter revenues are earned by the chemical tanker acquired in April 2008 and
those of our containerships and offshore supply vessels which are leased under
operating leases on bareboat charters. These revenues have increased with the
addition of four offshore supply vessels and four containerships to our fleet
during 2007 and the chemical tanker in April 2008.
At
September 30, 2008 the Company also owned one drybulk carrier and one ultra
deepwater drill ship which are accounted for under the equity method (see
below). The charter income on these two vessels is accounted for as finance
lease income in the accounts of the vessel-owning subsidiaries.
Cash
flows arising from finance leases
The
following table analyzes our cash flows from our charters to the Frontline
Charterers, Seadrill, Deep Sea and TMT, which were accounted for as finance
leases, during the nine months ended September 30, 2008 and 2007:
(in
thousands of $)
|
|
|
|
9
months ended
September
30, 2008
|
9
months ended
September
30, 2007
|
Charterhire
payments accounted for as:
|
|
|
Finance
lease interest income
|
135,567
|
139,978
|
Finance
lease service revenues
|
70,231
|
77,127
|
Finance
lease repayments
|
165,493
|
126,965
|
Non-cash
adjustment to leases
|
(572)
|
(1,979)
|
Total
charterhire paid
|
370,719
|
342,091
|
Voyage
expenses
Voyage
expenses are incurred by vessels which operate on time charters and have
declined to $0.4 million in the nine months ended September 30, 2008 from $0.7
million in 2007.
Ship
operating expenses
Ship
operating expenses decreased by 7% from $80.0 million for the nine months ended
September 30, 2007 to $74.5 million for the nine months ended September 30,
2008, primarily due to the disposal of tankers.
Ship
operating expenses consist mainly of payments to Frontline Management of $6,500
per day for each tanker and OBO chartered to the Frontline Charterers, in
accordance with the vessel management agreements. They also include ship
operating expenses for the three time-chartered containerships that are managed
by unrelated third parties.
Administrative
expenses
Administrative
expenses increased from $5.2 million in the nine months ended September 30, 2007
to $7.3 million in the nine months ended September 30, 2008, primarily due to
the staff costs of our management organization, which was established in 2006,
and legal and professional fees arising from commercial activity.
Depreciation
expense
Depreciation
expenses relate to the vessels on charters accounted for as operating leases.
For the nine months ended September 30, 2008 depreciation expenses were $20.5
million, compared to $12.3 million for the nine months ended September 30,
2007. The increase is due to the delivery since March 2007
of four containerships, five offshore supply vessels and one chemical tanker,
all of which are chartered under arrangements accounted for as operating
leases.
Interest
income
Interest
income has decreased to $2.4 million for the nine months ended September 30,
2008, from $5.3 million for the nine months to September 30,
2007.
Interest
expense
(in
thousands of $)
|
9
months ended
September
30, 2008
|
9
months ended
September
30, 2007
|
|
|
|
Interest
on floating rate loans
|
60,432
|
73,552
|
Interest
on 8.5% Senior Notes
|
28,629
|
28,570
|
Swap
interest (income)
|
|
1,529
|
(8,939)
|
Amortization
of deferred charges
|
2,717
|
2,538
|
|
|
93,307
|
95,721
|
At
September 30, 2008 we had total debt outstanding of $2,426 million comprised of
$449 million principal amount of 8.5% senior notes and $1,977 million under
floating rate secured credit facilities. At December 31, 2007 we had
total debt outstanding of $2,270 million, of which $449 million related to the
8.5% senior notes and $1,821 million was under floating rate secured credit
facilities.
Amortization
of deferred charges increased by 7% in 2008 to $2.7 million, as a result of new
financing facilities established during the nine months ended September 30,
2008.
Other
financial items
In the
nine months ended September 30, 2008, other financial items amounted to a net
cost of $9.9 million, compared to a net cost of $8.3 million for the nine months
ended September 30, 2007. These consist mainly of mark-to-market valuation
changes on financial instruments, including our interest rate swap contracts,
our bond swaps and equity swaps.
Equity
in earnings of associated companies
We have
two investments which are accounted for under the equity method, as discussed in
Note 3 of the Consolidated Financial Statements included herein. These
investments represent 100% interests in the vessel-owning subsidiaries which own
the drybulk carrier Front
Shadow, acquired in 2006, and the ultra deepwater drill ship West Polaris, acquired in
July 2008. Equity earnings in associated companies increased from $0.7 million
in the nine months ended September 30, 2007 to $7.6 million in the nine months
ended September 30, 2008, owing to the acquisition of West Polaris.
Seasonality
Most of
our vessels are chartered at fixed rates on a long-term basis and seasonal
factors do not have a significant direct affect on our business. Most of our
tankers and OBOs are subject to profit sharing agreements, and our two jack-up
drilling rigs will become subject to profit sharing agreements in 2009. To the
extent that seasonal factors affect the profits of the charterers of these
vessels we will also be affected.
Liquidity
and Capital Resources
As of
September 30, 2008, we had total cash and cash equivalents of $118.7 million and
restricted cash of $36.3 million.
Cash
flows provided by operating activities decreased for the nine months ended
September 30, 2008 to $134.5 million, compared to $168.6 million for the same
period in 2007, due primarily to lower tanker spot market rates during 2007 than
during 2006, and the subsequent lower profit share earned from Frontline, which
is paid after December 31, and thus recorded in the following year’s cash
flows.
Net cash
used in investing activities was $126.3 million for the nine months ended
September 30, 2008, compared to $415.3 million for the same period in 2007. In
the nine months ended September 30, 2008, $280.4 million was paid in respect of
the acquisition of vessels and $23.0 million was received in respect of the
sales of two vessels. During the comparative period in 2007, we acquired vessels
for a total cost of $617.3 million and sold vessels for total proceeds of $128.8
million.
Net cash
inflow from financing activities for the nine months ended September 30, 2008
was $32.3 million, compared with $227.5 million in the same period in 2007. The
decrease was mainly due to the reduction in net proceeds from long-term debt of
$156.1 million in 2008, compared with $351.9 million in the same period in
2007.
SHIP
FINANCE INTERNATIONAL LIMITED
Unaudited
Consolidated Statements of
Operations
for
the nine month periods ended September 30, 2008 and September 30,
2007
(in thousands of $, except
per share amounts)
|
9
months ended
September
30, 2008
|
9
months ended
September
30, 2007
|
|
|
|
Operating
revenues
|
|
|
|
|
|
|
Finance
lease interest income from related
parties
|
|
|
132,882 |
|
|
|
138,851 |
|
Finance
lease interest income from non-related parties
|
|
|
2,685 |
|
|
|
1,127 |
|
Finance
lease service revenues from related parties
|
|
|
70,231 |
|
|
|
77,127 |
|
Profit
sharing revenues from related parties
|
|
|
95,311 |
|
|
|
21,173 |
|
Time
charter revenues
|
|
|
14,630 |
|
|
|
18,443 |
|
Bareboat
charter revenues from related parties
|
|
|
15,951 |
|
|
|
1,457 |
|
Bareboat
charter revenues from non-related parties
|
|
|
25,328 |
|
|
|
16,529 |
|
Other
operating income
|
|
|
48 |
|
|
|
1,815 |
|
Total
operating revenues
|
|
|
357,066 |
|
|
|
276,522 |
|
Gain
on sale of assets
|
|
|
17,377 |
|
|
|
35,096 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Ship
operating expenses to related parties
|
|
|
70,231 |
|
|
|
78,454 |
|
Ship
operating expenses to non-related parties
|
|
|
4,274 |
|
|
|
1,583 |
|
Voyage
expenses and commission
|
|
|
437 |
|
|
|
717 |
|
Depreciation
|
|
|
20,516 |
|
|
|
12,274 |
|
Administrative
expenses to related parties
|
|
|
947 |
|
|
|
1,042 |
|
Administrative
expenses to non-related parties
|
|
|
6,305 |
|
|
|
4,163 |
|
Total
operating expenses
|
|
|
102,710 |
|
|
|
98,233 |
|
Net
operating income
|
|
|
271,733 |
|
|
|
213,385 |
|
Non-operating
income / (expense)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,407 |
|
|
|
5,312 |
|
Interest
expense
|
|
|
(93,307 |
) |
|
|
(95,721 |
) |
Other
financial items, net
|
|
|
(9,856 |
) |
|
|
(8,319 |
) |
Net
income before equity in earnings of associated companies
|
|
|
170,977 |
|
|
|
114,657 |
|
Equity
in earnings of associated companies
|
|
|
7,552 |
|
|
|
689 |
|
Net
income
|
|
|
178,529 |
|
|
|
115,346 |
|
Per
share information:
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
2.45 |
|
|
$ |
1.59 |
|
Diluted
earnings per share
|
|
$ |
2.45 |
|
|
$ |
1.59 |
|
Cash
dividends paid
|
|
$ |
1.69 |
|
|
$ |
1.64 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SHIP
FINANCE INTERNATIONAL LIMITED
Consolidated
Balance Sheets
as at
September 30, 2008 and December 31, 2007
(in
thousands of $)
|
|
September
30, 2008
(unaudited)
|
|
|
December
31, 2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
118,657 |
|
|
|
78,255 |
|
Restricted
cash
|
|
|
36,340 |
|
|
|
26,983 |
|
Trade
accounts receivable
|
|
|
42 |
|
|
|
28 |
|
Due
from related parties
|
|
|
91,138 |
|
|
|
42,014 |
|
Other
receivables
|
|
|
72 |
|
|
|
116 |
|
Inventories
|
|
|
267 |
|
|
|
267 |
|
Prepaid
expenses and accrued income
|
|
|
3,918 |
|
|
|
301 |
|
Investment
in finance leases, current portion
|
|
|
177,793 |
|
|
|
178,920 |
|
Financial
instruments: mark to market valuation of receivable
amounts
|
|
|
5,527 |
|
|
|
6,711 |
|
Other
current assets
|
|
|
- |
|
|
|
- |
|
Total
current assets
|
|
|
433,754 |
|
|
|
333,595 |
|
|
|
|
|
|
|
|
|
|
Vessels
and equipment
|
|
|
608,565 |
|
|
|
607,978 |
|
Accumulated
depreciation on vessels and equipment
|
|
|
(44,326 |
) |
|
|
(24,734 |
) |
Vessels
and equipment, net
|
|
|
564,239 |
|
|
|
583,244 |
|
Newbuilding
contracts
|
|
|
66,036 |
|
|
|
46,259 |
|
Investment
in finance leases, long-term portion
|
|
|
1,954,295 |
|
|
|
1,963,470 |
|
Investment
in associated companies
|
|
|
158,388 |
|
|
|
4,530 |
|
Other
long-term investments
|
|
|
8,473 |
|
|
|
2,008 |
|
Deferred
charges
|
|
|
16,293 |
|
|
|
16,922 |
|
Total
assets
|
|
|
3,201,478 |
|
|
|
2,950,028 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Short-term
debt and current portion of long-term debt
|
|
|
180,600 |
|
|
|
179,428 |
|
Trade
accounts payable
|
|
|
26 |
|
|
|
97 |
|
Due
to related parties
|
|
|
6,394 |
|
|
|
5,693 |
|
Accrued
expenses
|
|
|
22,480 |
|
|
|
16,972 |
|
Financial
instruments: mark to market valuation of payable amounts
|
|
|
31,436 |
|
|
|
21,224 |
|
Other
current liabilities
|
|
|
4,937 |
|
|
|
4,511 |
|
Total
current liabilities
|
|
|
245,873 |
|
|
|
227,925 |
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
2,245,528 |
|
|
|
2,090,566 |
|
Other
long-term liabilities
|
|
|
34,314 |
|
|
|
17,060 |
|
Total
liabilities
|
|
|
2,525,715 |
|
|
|
2,335,551 |
|
Commitments
and contingent liabilities
|
|
|
- |
|
|
|
- |
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
72,744 |
|
|
|
72,744 |
|
Contributed
surplus
|
|
|
495,476 |
|
|
|
485,856 |
|
Accumulated
other comprehensive loss
|
|
|
(17,819 |
) |
|
|
(13,894 |
) |
Retained
earnings
|
|
|
125,362 |
|
|
|
69,771 |
|
Total
stockholders’ equity
|
|
|
675,763 |
|
|
|
614,477 |
|
Total
liabilities and stockholders’ equity
|
|
|
3,201,478 |
|
|
|
2,950,028 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SHIP
FINANCE INTERNATIONAL LIMITED
Unaudited
Consolidated Statements of Cash Flows
for
the nine month periods ended September 30, 2008 and September 30,
2007
(in
thousands of $)
|
|
9
months ended
September 30,
2008
|
|
|
9
months ended
September 30,
2007
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
|
178,529 |
|
|
|
115,346 |
|
Adjustments
to reconcile net income to net cash provided by
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
20,516 |
|
|
|
12,274 |
|
Amortization
of deferred charges
|
|
|
2,717 |
|
|
|
2,538 |
|
Amortization
of deferred gains
|
|
|
(572 |
) |
|
|
- |
|
Amortization
of seller’s credit
|
|
|
(1,614 |
) |
|
|
(88 |
) |
Equity
in earnings of associated companies
|
|
|
(7,552 |
) |
|
|
(689 |
) |
(Gain)
on sale of assets
|
|
|
(17,377 |
) |
|
|
(35,096 |
) |
Stock
compensation
|
|
|
1,124 |
|
|
|
470 |
|
Adjustment
of derivatives to market value
|
|
|
9,372 |
|
|
|
241 |
|
Other
|
|
|
(1,521 |
) |
|
|
(441 |
) |
Changes
in operating assets and liabilities, net of effect of
acquisitions
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(14 |
) |
|
|
433 |
|
Due
from related parties
|
|
|
(48,423 |
) |
|
|
45,354 |
|
Other
receivables
|
|
|
45 |
|
|
|
636 |
|
Inventories
|
|
|
- |
|
|
|
82 |
|
Prepaid
expenses and accrued income
|
|
|
(3,618 |
) |
|
|
(97 |
) |
Other
current assets
|
|
|
- |
|
|
|
11,222 |
|
Trade
accounts payable
|
|
|
(71 |
) |
|
|
(507 |
) |
Accrued
expenses
|
|
|
5,508 |
|
|
|
14,511 |
|
Other
current liabilities
|
|
|
(2,558 |
) |
|
|
2,449 |
|
Net
cash provided by operating activities
|
|
|
134,491 |
|
|
|
168,638 |
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Investment
in finance lease assets
|
|
|
(104,000 |
) |
|
|
(210,000 |
) |
Repayments
from investments in finance leases
|
|
|
165,493 |
|
|
|
126,965 |
|
Additions
to newbuildings
|
|
|
(18,616 |
) |
|
|
(52,795 |
) |
Purchase
of vessels
|
|
|
(30,101 |
) |
|
|
(407,300 |
) |
Proceeds
from sales of vessels
|
|
|
23,005 |
|
|
|
128,827 |
|
Proceeds
from sale of newbuildings
|
|
|
- |
|
|
|
7,658 |
|
Investments
in associated companies
|
|
|
(146,306 |
) |
|
|
92 |
|
Other
investments
|
|
|
(6,465 |
) |
|
|
(2,008 |
) |
Net
proceeds from other investments
|
|
|
- |
|
|
|
3,000 |
|
Net
(placement) of restricted cash
|
|
|
(9,357 |
) |
|
|
(9,733 |
) |
Net
cash (used in) investing activities
|
|
|
(126,347 |
) |
|
|
(415,294 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
336,473 |
|
|
|
563,100 |
|
Repayments
of long-term debt
|
|
|
(180,339 |
) |
|
|
(211,166 |
) |
Debt
fees paid
|
|
|
(2,088 |
) |
|
|
(3,103 |
) |
Cash
dividends paid
|
|
|
(122,937 |
) |
|
|
(119,338 |
) |
Cash
settlement of derivative instruments
|
|
|
1,149 |
|
|
|
- |
|
Deemed
dividends received
|
|
|
- |
|
|
|
4,642 |
|
Deemed
dividends paid
|
|
|
- |
|
|
|
(6,621 |
) |
Net
cash provided by financing activities
|
|
|
32,258 |
|
|
|
227,514 |
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
40,402 |
|
|
|
(19,142 |
) |
Cash
and cash equivalents at start of the period
|
|
|
78,255 |
|
|
|
64,569 |
|
Cash
and cash equivalents at end of the period
|
|
|
118,657 |
|
|
|
45,427 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid, net of capitalized interest
|
|
|
85,789 |
|
|
|
76,088 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SHIP
FINANCE INTERNATIONAL LIMITED
Unaudited
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive
Income
for
the nine month periods ended September 30, 2008 and September 30,
2007
(in
thousands of $, except number of shares)
|
|
9 months
ended September 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares outstanding
|
|
|
|
|
|
|
At
beginning of period
|
|
|
72,743,737 |
|
|
|
72,743,737 |
|
Shares
repurchased and cancelled
|
|
|
- |
|
|
|
- |
|
At
end of period
|
|
|
72,743,737 |
|
|
|
72,743,737 |
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
72,744 |
|
|
|
72,744 |
|
Shares
repurchased and cancelled
|
|
|
- |
|
|
|
- |
|
At
end of period
|
|
|
72,744 |
|
|
|
72,744 |
|
|
|
|
|
|
|
|
|
|
Contributed
surplus
|
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
485,856 |
|
|
|
464,478 |
|
Employee
stock options issued
|
|
|
1,124 |
|
|
|
470 |
|
Amortization
of deferred equity contributions
|
|
|
8,496 |
|
|
|
16,410 |
|
At
end of period
|
|
|
495,476 |
|
|
|
481,358 |
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss
|
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
(13,894 |
) |
|
|
(71 |
) |
Other
comprehensive income/(loss)
|
|
|
(3,925 |
) |
|
|
(1,825 |
) |
At
end of period
|
|
|
(17,819 |
) |
|
|
(1,896 |
) |
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
At
beginning of period
|
|
|
69,771 |
|
|
|
63,379 |
|
Net
income
|
|
|
178,529 |
|
|
|
115,346 |
|
Cash
dividends paid
|
|
|
(122,938 |
) |
|
|
(119,338 |
) |
Deemed
dividends received
|
|
|
- |
|
|
|
4,642 |
|
Deemed
dividends paid
|
|
|
- |
|
|
|
(6,621 |
) |
At
end of period
|
|
|
125,362 |
|
|
|
57,408 |
|
Total
Stockholders’ Equity
|
|
|
675,763 |
|
|
|
609,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
178,529 |
|
|
|
115,346 |
|
|
|
|
|
|
|
|
|
|
Fair
value adjustment to hedging financial instruments
|
|
|
(3,861 |
) |
|
|
(1,952 |
) |
Other
comprehensive income / (loss)
|
|
|
(64 |
) |
|
|
127 |
|
Total
other comprehensive income / (loss)
|
|
|
(3,925 |
) |
|
|
(1,825 |
) |
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
174,604 |
|
|
|
113,521 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SHIP
FINANCE INTERNATIONAL LIMITED
Notes
to the Consolidated Financial Statements
1.
|
INTERIM
FINANCIAL DATA
|
The
unaudited interim financial statements of Ship Finance International Limited
(“Ship Finance” or the “Company”) have been prepared on the same basis as the
Company’s audited financial statements and, in the opinion of management,
include all material adjustments, consisting only of normal recurring
adjustments considered necessary in order to make the interim financial
statements not misleading, in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”). The accompanying interim
unaudited financial statements should be read in conjunction with the annual
financial statements and notes included in the Annual Report on Form 20-F for
the year ended December 31, 2007. The results of operations for the interim
period ended September 30, 2008, are not necessarily indicative of the results
for the entire year ending December 31, 2008.
Basis
of Accounting
The
consolidated financial statements are prepared in accordance with US GAAP. The
consolidated financial statements include the assets and liabilities and results
of operations of the Company and its subsidiaries. All intercompany balances and
transactions have been eliminated on consolidation.
Investments
in companies over which the Company exercises significant influence but does not
consolidate are accounted for using the equity method. The Company records its
investments in equity-method investees on the consolidated balance sheets as
“Investment in associated companies” and its share of the investees’ earnings or
losses in the consolidated statements of operations as “Equity in earnings of
associated companies”. The excess, if any, of purchase price over book value of
the Company’s investments in equity method investees is included in the
accompanying consolidated balance sheets in “Investment in associated
companies”.
A
variable interest entity is defined by Financial Accounting Standards Board
Interpretation (“FIN”) 46(R) as a legal entity where either (a) equity interest
holders as a group lack the characteristics of a controlling financial interest,
including decision making ability and an interest in the entity’s residual risks
and rewards, or (b) the equity holders have not provided sufficient equity
investment to permit the entity to finance its activities without additional
subordinated financial support, or (c) the voting rights of some investors are
not proportional to their obligations to absorb the expected losses of the
entity, their rights to receive the expected residual returns of the entity, or
both and substantially all of the entity's activities either involve or are
conducted on behalf of an investor that has disproportionately few voting
rights.
FIN 46(R)
requires a variable interest entity to be consolidated if any of its interest
holders are entitled to a majority of the entity's residual return or are
exposed to a majority of its expected losses. We evaluate our subsidiaries, and
any other entity in which we hold a variable interest, in order to determine
whether we are the primary beneficiary of the entity, and where it is determined
that we are the primary beneficiary we fully consolidate the entity. Investments
in which the Company has a majority shareholding but which it does not
consolidate, due to the participating rights of other interest holders, are
accounted for using the equity method.
The
preparation of financial statements in accordance with US GAAP requires that
management make estimates and assumptions affecting the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue
and Expense Recognition
Revenues
and expenses are recognized on the accrual basis. Revenues are generated from
time charter hire, bareboat charter hire, finance lease interest income, finance
lease service revenues and profit sharing revenues.
Each
charter agreement is evaluated and classified as an operating or a capital
lease. Rental receipts from operating leases are recognized to income over the
period to which the payment relates.
Rental
payments from capital leases are allocated between lease service revenues, if
applicable, finance lease interest income and repayment of net investment in
finance leases. The amount allocated to lease service revenue is based on the
estimated fair value at the time of entering the lease agreement of the services
provided, which consist of ship management and operating services.
Any
contingent elements of rental income, such as profit share or interest rate
adjustments, are recognized when the contingent conditions have materialized and
the rentals are due and collectible.
Deemed
Equity Contributions
The
Company has accounted for the acquisition of vessels from Frontline at
Frontline’s historical carrying value. The difference between the
historical carrying value and the net investment in the lease has been recorded
as a deferred deemed equity contribution. This deferred deemed equity
contribution is presented as a reduction in the net investment in finance leases
in the balance sheet. This results from the related party nature of both
the transfer of the vessel and the subsequent finance lease. The deferred
deemed equity contribution is amortized as a credit to contributed surplus over
the life of the new lease arrangement, as lease payments are applied to the
principal balance of the lease receivable.
Drydocking
Provisions
Normal
vessel repair and maintenance costs are charged to expense when incurred. The
Company recognizes the cost of a drydocking at the time the drydocking takes
place, applying the “expense as incurred” method.
New
Accounting Pronouncements
In
February 2008, the Financial Accounting Standards Board (“FASB”) issued
Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP
No. 157-2”) which defers the effective date of Statement of Financial Accounting
Standards (“SFAS”) 157 (“SFAS 157”) for one year relative to certain
nonfinancial assets and liabilities. As a result, the application of the
definition of fair value and related disclosures of SFAS 157 was effective for
the Company beginning January 1, 2008 on a prospective basis with respect
to fair value measurements of all financial assets and liabilities. This
adoption did not have a material impact on the Company’s consolidated results of
operations or financial condition. The remaining aspects of SFAS 157, for which
the effective date was deferred under FSP No. 157-2, are currently being
evaluated by the Company. Areas impacted by the deferral relate to nonfinancial
assets and liabilities that are measured at fair value, but are recognized or
disclosed at fair value on a nonrecurring basis. This deferral applies to items
such as long-lived asset groups measured at fair value for an impairment
assessment. The effects of the remaining aspects of SFAS 157 are to be applied
by the Company to fair value measurements prospectively beginning
January 1, 2009. The Company does not expect them to have a material impact
on its consolidated results of operations or financial condition.
In
October 2008, the FASB issued Staff Position No. 157-3, “Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active” (“FSP No. 157-3”). FSP 157-3 clarifies the application of
SFAS 157, which the Company adopted as of January 1, 2008, in cases where a
market is not active. The Company has considered the guidance provided by FSP
157-3 and has determined that the impact did not materially effect estimated
fair values as of September 30, 2008.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—An Amendment of FASB Statement No. 133”
(“SFAS 161”). SFAS 161 applies to all derivative instruments and related
hedged items accounted for under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS 133”), and requires entities
to provide greater transparency about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, results of operations, and cash flows. SFAS 161 is effective
for fiscal years and interim periods beginning after November 15, 2008.
Since SFAS 161 applies only to financial statement disclosures, it will not have
a material impact on the Company’s consolidated financial position, results of
operations, and cash flows.
2.
|
INVESTMENTS
IN FINANCE LEASES
|
Most of
the Company’s VLCCs, Suezmaxes and OBOs are chartered on long-term, fixed-rate
charters to the Frontline Charterers which extend for various periods depending
on the age of the vessels, ranging from approximately five to 19 years. The
terms of the charters do not provide the Frontline Charterers with an option to
terminate the charter before the end of its term, other than with respect to the
Company’s non-double hull vessels for which there are termination options
commencing in 2010.
The
Company’s two jack-up drilling rigs are chartered on long-term bareboat charters
to wholly-owned subsidiaries of Seadrill Limited (“Seadrill”). The
terms of the charters provide the charterers with various call options to
acquire the rigs at certain dates throughout the charters, which expire in 2021
and 2022.
Two of
the Company’s offshore supply vessels are chartered to subsidiaries of Deep Sea
Supply PLC (“Deep Sea”) on charters which include various call options to
acquire the vessels at certain dates throughout the charters, which expire in
2020.
As of
September 30, 2008, 45 of the Company’s assets were accounted for as finance
leases, including the above vessels chartered to the Frontline Charterers, Deep
Sea and subsidiaries of Seadrill. The following lists the components of the
investments in finance leases as of September 30 2008, all of which are leased
to related parties, with the exception of the Front Vanadis and Front Sabang, which together
accounted for $51.2 million of the total investment in finance leases as of
September 30, 2008:
(in
thousands of $)
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Total
minimum lease payments to be received
|
|
|
4,015,301 |
|
|
|
4,195,227 |
|
Less: amounts
representing estimated executory costs including profit thereon,
included
in total minimum lease payments
|
|
|
(950,309 |
) |
|
|
(1,034,255 |
) |
Net
minimum lease payments receivable
|
|
|
3,064,992 |
|
|
|
3,160,972 |
|
Estimated
residual values of leased property (un-guaranteed)
|
|
|
625,858 |
|
|
|
629,149 |
|
Less: unearned
income
|
|
|
(1,322,710 |
) |
|
|
(1,402,611 |
) |
|
|
|
2,368,140 |
|
|
|
2,387,510 |
|
Less: deferred deemed
equity contribution
|
|
|
(217,224 |
) |
|
|
(225,720 |
) |
Less: unamortized
gains
|
|
|
(18,828 |
) |
|
|
(19,400 |
) |
Total
investment in finance leases
|
|
|
2,132,088 |
|
|
|
2,142,390 |
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
177,793 |
|
|
|
178,920 |
|
Long-term
portion
|
|
|
1,954,295 |
|
|
|
1,963,470 |
|
|
|
|
2,132,088 |
|
|
|
2,142,390 |
|
3.
|
INVESTMENT
IN ASSOCIATED COMPANIES
|
At
September 30, 2008 and December 31, 2007 the Company had the following
participation in investments that are recorded using the equity
method:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Front
Shadow Inc.
|
|
|
100 |
% |
|
|
100 |
% |
SFL
West Polaris Ltd
|
|
|
100 |
% |
|
|
- |
|
Summarized
balance sheet information of the Company’s equity method investees is as
follows:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
(in
thousands of $)
|
|
Front
Shadow Inc
|
|
|
SFL
West Polaris Ltd
|
|
|
Total
|
|
|
Front
Shadow Inc
|
|
Current
assets
|
|
|
2,446 |
|
|
|
68,630 |
|
|
|
71,076 |
|
|
|
2,625 |
|
Non
current assets
|
|
|
23,976 |
|
|
|
785,827 |
|
|
|
809,803 |
|
|
|
25,193 |
|
Current
liabilities
|
|
|
8,029 |
|
|
|
318,879 |
|
|
|
326,908 |
|
|
|
8,049 |
|
Non
current liabilities
|
|
|
16,520 |
|
|
|
386,521 |
|
|
|
403,041 |
|
|
|
18,580 |
|
Summarized
statement of operations information of the Company’s equity method investees is
as follows:
|
|
9
months ended September 30, 2008
|
|
|
9
months ended September 30, 2007
|
|
(in
thousands of $)
|
|
Front
Shadow Inc
|
|
|
SFL
West Polaris Ltd
|
|
|
Total
|
|
|
Front
Shadow Inc
|
|
Operating
revenues
|
|
|
1,219 |
|
|
|
12,714 |
|
|
|
13,933 |
|
|
|
1,663 |
|
Net
operating income
|
|
|
1,216 |
|
|
|
12,582 |
|
|
|
13,801 |
|
|
|
1,661 |
|
Net
income
|
|
|
684 |
|
|
|
6,868 |
|
|
|
7,552 |
|
|
|
689 |
|
Front
Shadow Inc. (“Front Shadow”) and SFL West Polaris Ltd (“West Polaris”) are 100%
owned subsidiaries of Ship Finance. These entities are being
accounted for using the equity method as it has been determined that Ship
Finance is not their primary beneficiary under FIN 46 (R).
Front
Shadow was incorporated during 2006 for the purpose of holding a Panamax drybulk
carrier and leasing that vessel to Golden Ocean Group Limited (“Golden Ocean”),
a related party. In 2006 Front Shadow entered into a $22.7 million term loan
facility. The Company guarantees $2.1 million of this debt.
West
Polaris was incorporated in 2008 for the purpose of holding an ultra deepwater
drill ship, and leasing that vessel to Seadrill, a related party. In 2008, West
Polaris entered into a $700.0 million term loan facility, of which $450.0
million was drawn as at September 30, 2008. The Company guarantees $100.0
million of this debt.
(in
thousands of $)
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
8.5%
Senior Notes due 2013
|
|
|
449,080 |
|
|
|
449,080 |
|
U.S.
dollar denominated floating rate debt (LIBOR plus 0.65% - 1.40%) due
through 2019
|
|
|
1,977,048 |
|
|
|
1,820,914 |
|
|
|
|
2,426,128 |
|
|
|
2,269,994 |
|
Less: short-term
portion
|
|
|
(180,600 |
) |
|
|
(179,428 |
) |
|
|
|
2,245,528 |
|
|
|
2,090,566 |
|
8.5%
Senior Notes Due 2013
On
December 15, 2003 the Company issued $580 million of 8.5% senior
notes. Interest on the notes is payable in cash semi-annually in
arrears on June 15 and December 15. The notes are not redeemable prior
to December 15, 2008 except in certain circumstances. After that date
the Company may redeem notes at redemption prices which reduce from 104.25% in
2008 to 100% in 2011 and thereafter.
The
Company bought back and cancelled notes in 2006, 2005 and 2004 with principal
amounts of $8.0 million, $73.2 million and $49.7 million, respectively. No notes
were bought in 2007 or the first nine months of 2008 and thus there was $449.1
million outstanding at September 30, 2008 and December 31,
2007.
The
Company has entered into short-term total return bond swap lines with banks (see
Note 5: Financial
Instruments). As of September 30, 2008 the Company had entered into total
return bond swaps with a principal amount totalling $148.0 million under these
arrangements, compared to $122.1 million under these arrangements at December
31, 2007.
$1,131.4
million secured term loan facility
In
February 2005 the Company entered into a $1,131.4 million term loan facility
with a syndicate of banks. The proceeds from the facility were used
to repay the prior $1,058.0 million syndicated senior secured credit facility
and for general corporate purposes. The facility bears interest at LIBOR plus a
margin and is repayable over a term of six years.
In
September 2006 the Company signed an agreement whereby the existing debt
facility, which had been partially repaid, was increased by $219.7 million to
the original amount of $1,131.4 million. The increase is available on
a revolving basis.
$350.0
million combined senior and junior secured term loan facility
In June
2005 the Company entered into a combined $350.0 million senior and junior
secured term loan facility with a syndicate of banks, for the purpose of funding
the acquisition of five VLCCs. The facility bears interest at LIBOR plus a
margin for the senior loan and LIBOR plus a different margin for the junior
loan. The facility is repayable over a term of seven years.
$210.0
million secured term loan facility
In April
2006 the Company entered into a $210.0 million secured term loan facility with a
syndicate of banks to partly fund the acquisition of five new container
vessels. The facility bears interest at LIBOR plus a margin and is
repayable over a term of 12 years.
$165.0
million secured term loan facility
In June
2006 the Company entered into a $165.0 million secured term loan facility with a
syndicate of banks. The proceeds of the facility were used to partly
fund the acquisition of the jack-up drilling rig West Ceres. The facility
bears interest at LIBOR plus a margin and is repayable over a term of six
years.
$170.0
million secured term loan facility
In
February 2007 the Company entered into a $170.0 million secured term loan
facility with a syndicate of banks. The proceeds of the facility were
used to partly fund the acquisition of the jack-up drilling rig West Prospero. The facility
bears interest at LIBOR plus a margin and is repayable over a term of six years
from the date of delivery of the rig.
$148.9
million secured term loan facility
In August
2007 the Company entered into a $148.9 million secured term loan facility with a
syndicate of banks. The proceeds of the facility were used to partly
fund the acquisition of five new offshore supply vessels. The facility bears
interest at LIBOR plus a margin and is repayable over a term of seven
years.
$77.0
million secured term loan facility
In
January 2008 the Company entered into a $77.0 million secured term loan facility
with a syndicate of banks. The proceeds of the facility were used to partly fund
the acquisition of two offshore supply vessels. The facility bears interest at
LIBOR plus a margin and is repayable over a term of seven years.
$30.0
million secured term loan facility
In
February 2008 the Company entered into a $30.0 million secured term loan
facility to partly fund the acquisition of a container vessel. The facility
bears interest at LIBOR plus a margin and is repayable over a term of seven
years.
$49.0
million secured term loan facility
In March
2008 the Company entered into a $49.0 million secured term loan facility with a
syndicate of banks, to partly fund the acquisition of two chemical tankers. The
facility bears interest at LIBOR plus a margin and is repayable over a term of
ten years.
$70.0
million secured term loan facility
In June
2008 the Company entered into a $70.0 million secured term loan facility with a
syndicate of banks, secured against three vessels. The facility bears interest
at LIBOR plus a margin and is repayable in 2010.
$58.0
million secured term loan facility
In
September 2008 the Company entered into a $58.0 million secured term loan
facility with a syndicate of banks, secured against two containerships. The
facility bears interest at LIBOR plus a margin and is repayable over a term of
five years
At
September 30, 2008, in addition to the above loan facilities, the Company has
established two further facilities (i) to partly finance the acquisition of two
newbuilding Capesize drybulk carriers ($130.0 million facility) and (ii) to
partly finance the acquisition of three newbuilding seismic vessels ($120.0
million facility). No drawings had been made against these facilities at
September 30, 2008, and subsequent to that date the Company announced the
termination to the agreement to acquire the three newbuilding seismic vessels
(see Note 11).
Agreements
related to long-term debt provide limitations on the amount of total borrowings
and secured debt, and acceleration of payment under certain circumstances,
including failure to satisfy certain financial covenants. As of September 30,
2008 the Company is in compliance with all of the covenants under its long-term
debt facilities.
The debt
outstanding as of September 30, 2008 is repayable as follows:
(in
thousands of $)
Year
ending December 31
|
|
|
|
2008
(remaining three months)
|
|
|
43,840 |
|
2009
|
|
|
169,041 |
|
2010
|
|
|
185,514 |
|
2011
|
|
|
806,341 |
|
2012
|
|
|
316,881 |
|
Thereafter
|
|
|
904,511 |
|
Total
debt
|
|
|
2,426,128 |
|
Interest
rate risk management
In
certain situations, the Company may enter into financial instruments to reduce
the risk associated with fluctuations in interest rates. The Company
has a portfolio of swaps that exchange floating rate interest to fixed rate,
which from a financial perspective hedge interest rate exposure. The
counterparties to such contracts are Nordea, HSH Nordbank, Fortis Bank, HBOS,
Lloyds, NIBC, Citibank, Scotiabank, DnB NOR and Skandinaviska Enskilda Banken.
Credit risk exists to the extent that the counterparties may become unable to
perform under the contracts, although this is mitigated by the fact that the
counterparties are generally the same banks that provided the floating rate
loans which are being hedged.
The
Company manages its debt portfolio with interest rate swap agreements
denominated in U.S. dollars to achieve an overall desired position of fixed and
floating interest rates. At September 30, 2008 the Company, or subsidiaries of
the Company, had entered into interest rate swap transactions, involving the
payment of fixed rates in exchange for LIBOR.
As at
September 30, 2008 the total notional principal amounts subject to such swap
agreements was $1,182.0 million, compared to $884.2 million as at December 31,
2007.
Total
Return Bond Swap transactions
The
Company has entered into short-term total return bond swap transactions with
banks and as of September 30, 2008 was holding bond swaps with a principal
amount totalling $148.0 million under these arrangements, compared to $122.1
million as at December 31, 2007.
Total
Return Equity Swap transactions
The Board
of Directors of the Company has approved a share repurchase program of up to
seven million shares, which initially is to be financed through the use of total
return swap transactions indexed to the Company’s own shares. At September 30,
2008 the counterparty to the transactions has acquired approximately 692,000
shares in the Company at an average price of $25.66 including financing costs.
There is at present no obligation for the Company to purchase any shares from
the counterparty and this arrangement has been recorded as a derivative
transaction.
In
addition to the above transactions linked to the Company’s own securities, the
Company may from time to time enter into short term total return equity swap
arrangements relating to securities of other companies.
Foreign
currency risk
The
majority of the Company’s transactions, assets and liabilities are denominated
in U.S. dollars, the functional currency of the Company. There is a
risk that currency fluctuations will have a negative effect on the value of the
Company’s cash flows. The Company has not entered into forward
contracts for either transaction or translation risk, which may have an adverse
effect on the Company’s financial condition and results of
operations.
Fair Values
The
carrying value and estimated fair value of the Company’s financial instruments
at September 30, 2008 and December 31, 2007 are as follows:
|
|
September
30, 2008
|
|
|
|
(in
thousands of $)
|
|
Carrying
value
|
|
|
Fair
value
|
|
Carrying
value
|
|
|
Fair value
|
|
Non-derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
118,657 |
|
|
|
118,657 |
|
|
|
78,255 |
|
|
|
78,255 |
|
Restricted
cash
|
|
|
36,340 |
|
|
|
36,340 |
|
|
|
26,983 |
|
|
|
26,983 |
|
Floating
rate debt
|
|
|
1,977,048 |
|
|
|
1,977,048 |
|
|
|
1,820,914 |
|
|
|
1,820,914 |
|
8.5%
Senior Notes due 2013
|
|
|
449,080 |
|
|
|
444,589 |
|
|
|
449,080 |
|
|
|
456,714 |
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRS
equity swap contracts – amounts receivable
|
|
|
- |
|
|
|
- |
|
|
|
1,045 |
|
|
|
1,045 |
|
Interest
rate swap contracts – amounts receivable
|
|
|
2,470 |
|
|
|
2,470 |
|
|
|
2,953 |
|
|
|
2,953 |
|
TRS
bond swap contracts – amounts receivable
|
|
|
3,057 |
|
|
|
3,057 |
|
|
|
2,713 |
|
|
|
2,713 |
|
Total
amounts receivable
|
|
|
5,527 |
|
|
|
5,527 |
|
|
|
6,711 |
|
|
|
6,711 |
|
TRS
equity swap contracts – amounts payable
|
|
|
3,661 |
|
|
|
3,661 |
|
|
|
- |
|
|
|
- |
|
Interest
rate swap contracts – amounts payable
|
|
|
24,510 |
|
|
|
24,510 |
|
|
|
20,852 |
|
|
|
20,852 |
|
TRS
bond swap contracts – amounts payable
|
|
|
3,265 |
|
|
|
3,265 |
|
|
|
372 |
|
|
|
372 |
|
Total
amounts payable
|
|
|
31,436 |
|
|
|
31,436 |
|
|
|
21,224 |
|
|
|
21,224 |
|
The
carrying value of cash and cash equivalents, which are highly liquid, is a
reasonable estimate of fair value.
The fair
value for floating rate long-term debt is estimated to be equal to the carrying
value since it bears variable interest rates, which are reset on a quarterly
basis. The estimated fair value for fixed rate long-term senior notes is based
on the quoted market price.
The fair
values of total return equity and bond swaps are based on the closing prices of
the underlying listed shares and bonds, the dividends and bond interest paid
since inception and the implicit interest rate charged by the
counterparty.
The fair
value of interest rate swaps is estimated by taking into account the cost of
entering into interest rate swaps to offset the Company's outstanding
swaps.
Concentrations of
risk
There is
a concentration of credit risk with respect to cash and cash equivalents to the
extent that most of the amounts are carried with Skandinaviska Enskilda Banken,
DnB NOR, Fortis Bank and Nordea. However, the Company believes this risk is
remote as these banks are high credit quality financial institutions and are
generally the same institutions that provide the Company with floating rate
loans.
Since the
Company was spun-off from Frontline in 2004, Frontline has accounted for a major
proportion of our operating revenues. In the nine months ended September 30,
2008 Frontline accounted for 76% of our operating revenues, compared to 78% for
the year ended December 31, 2007. There is thus a concentration of revenue risk
with Frontline.
6.
|
SHARE
CAPITAL AND CONTRIBUTED SURPLUS
|
Authorized
share capital as at September 30, 2008 and December 31, 2007 is as
follows:
(in
thousands of U.S. $, except share data)
|
|
|
|
125,000,000
common shares, $1.00 par value each
|
|
$ |
125,000 |
|
Issued
and fully paid share capital as at September 30, 2008 and December 31, 2007 is
as follows:
(in
thousands of U.S. $, except share data)
|
|
|
|
72,743,737
common shares, $1.00 par value each
|
|
$ |
72,744 |
|
The
Company’s common shares are listed on the New York Stock Exchange.
The
Company has accounted for the acquisition of vessels from Frontline at
Frontline’s historical carrying value. The difference between the
historical carrying values and the net investment in the leases has been
recorded as a deferred deemed equity contribution. This deferred deemed equity
contribution is presented as a reduction in the net investment in finance leases
in the balance sheet. This results from the related party nature of both
the transfer of the vessels and the subsequent finance leases. The
deferred deemed equity contribution is amortized as a credit to contributed
surplus over the life of the lease arrangements, as lease payments are applied
to the principal balance of the lease receivable. In the nine months ended
September 30, 2008 the Company has credited contributed surplus with $8.5
million of such deemed equity contributions compared to $16.4 million for the
nine months ended September 30, 2007.
In
November 2006 the Board of Directors approved the Ship Finance International
Limited Share Option Scheme (the “Option Scheme”). The Option Scheme permits the
Board of Directors, at its discretion, to grant options to employees and
directors of the Company or its subsidiaries. The fair value cost of options
granted is recognized in the statement of operations, with a corresponding
amount credited to contributed surplus. The contributed surplus arising from
share options was $1.1 million in the nine months ended September 30, 2008,
compared to $0.5 million for the nine months ended September 30,
2007.
The Board
of Directors of the Company has approved a share repurchase program of up to
seven million shares, which initially is to be financed through the use of total
return swap transactions indexed to the Company’s own shares.
The
Option Scheme adopted in November 2006 will expire in November
2016. The subscription price for all options granted under the scheme
will be reduced by the amount of all dividends declared by the Company per share
in the period from the date of grant until the date the option is exercised,
provided the subscription price never shall be reduced below the par value of
the share. Options granted under the scheme will vest at a date
determined by the board at the date of the grant. The options granted
under the plan to date vest over a period of one to three
years. There is no maximum number of shares authorized for awards of
equity share options, and either authorized unissued shares of Ship Finance or
treasury shares held by the Company may be used to satisfy exercised
options.
The
following summarizes share option transactions related to the Option Scheme in
2007 and the first nine months of 2008:
|
|
Nine
months ended September 30, 2008
|
|
|
Year
ended December 31, 2007
|
|
|
|
Options
|
|
|
Weighted
average exercise price
$
|
|
|
Options
|
|
|
Weighted
average exercise price
$
|
|
Options
outstanding at beginning of period
|
|
|
360,000 |
|
|
|
24.44 |
|
|
|
150,000 |
|
|
|
22.32 |
|
Granted
|
|
|
195,000 |
|
|
|
27.54 |
|
|
|
210,000 |
|
|
|
28.15 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options
outstanding at end of period
|
|
|
555,000 |
|
|
|
24.78 |
|
|
|
360,000 |
|
|
|
24.44 |
|
Exercisable
at end of period
|
|
|
53,333 |
|
|
|
18.63 |
|
|
|
50,000 |
|
|
|
20.13 |
|
The
weighted average grant-date fair value of options granted in the first nine
months of 2008 is $6.42 per share, compared to $6.06 per share for the first
nine months of 2007, based on the Black Scholes option valuation model. The
exercise price of all options is reduced by the amount of any dividends
declared; the above figures for options granted show the average of the prices
at the time of granting the options, and for options outstanding at the
beginning and end of the period the average of the reduced option prices is
shown.
As of
September 30, 2008 there was $1.7 million in unrecognized compensation costs
related to non-vested options granted under the Options Scheme, compared to $1.4
million as at December 31, 2007. This cost will be recognized over the vesting
periods, which average 2.4 years.
Share-based
bonus
The
employment contract for one employee contains a share-based bonus
provision. Under the terms of the contract, the share based bonus is
calculated to be the annual increase in the share price of the Company, plus any
dividend per share paid, multiplied by a notional share holding of 200,000
shares. Any bonus related to the increase in share price is payable
at the end of each calendar year, while any bonus linked to dividend payments is
payable on the relevant dividend payment date. The share-based bonus
fair value of $nil at September 30, 2008 was recorded as a liability (December
31 2007: $1.0 million).
The
computation of basic EPS is based on the weighted average number of shares
outstanding during the period. Diluted EPS includes the effect of the assumed
conversion of potentially dilutive instruments.
The
components of the numerator for the calculation of basic and diluted EPS are as
follows:
|
|
9 months ended
September
30,
|
(in
thousands of $)
|
|
|
|
|
2007
|
Net
income available to stockholders
|
|
|
178,529 |
|
|
|
115,346
|
|
|
The
components of the denominator for the calculation of basic and diluted EPS
are as follows:
|
|
|
9
months ended
September
30,
|
(in
thousands)
|
|
2008
|
|
|
2007
|
Basic
earnings per share:
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
72,744 |
|
|
|
72,744 |
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
72,744 |
|
|
|
72,744 |
|
Effect
of dilutive share options
|
|
|
38 |
|
|
|
13 |
|
|
|
|
72,782 |
|
|
|
72,757 |
|
9.
|
RELATED
PARTY TRANSACTIONS
|
The
Company was partially spun-off from Frontline and its shares commenced trading
on the New York Stock Exchange in June 2004. A significant proportion of the
Company’s business continues to be transacted with Frontline and also Seadrill,
Golden Ocean and Deep Sea, these all being companies in which Hemen Holding
Limited, our largest shareholder, has a significant interest.
The
Consolidated Balance Sheets include the following amounts due from and to
related parties, excluding finance lease balances:
(in
thousands of $)
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Amounts
due from:
|
|
|
|
|
|
|
Frontline
Charterers
|
|
|
87,926 |
|
|
|
38,853 |
|
Frontline
Ltd
|
|
|
3,212 |
|
|
|
3,161 |
|
Total
amount due from related parties
|
|
|
91,138 |
|
|
|
42,014 |
|
Amounts
due to:
|
|
|
|
|
|
|
|
|
Frontline
Management
|
|
|
6,394 |
|
|
|
5,292 |
|
Other
related parties
|
|
|
- |
|
|
|
401 |
|
Total
amount due to related parties
|
|
|
6,394 |
|
|
|
5,693 |
|
Related
party leasing and service contracts
As at
September 30, 2008, 39 of the Company’s vessels were leased to the Frontline
Charterers, two jack-up drilling rigs were leased to subsidiaries of Seadrill
and two offshore supply vessels were leased to subsidiaries of Deep Sea; these
leases have been recorded as finance leases. In addition, four offshore supply
vessels were leased to subsidiaries of Deep Sea under operating
leases.
At
September 30, 2008, the combined balance of net investments in finance leases
with the Frontline Charterers, subsidiaries of Deep Sea and subsidiaries of
Seadrill was $2,316.9 million (December 31, 2007: $2,362.6 million) of which
$161.7 million (December 31 2007: $171.9 million) represents short-term
maturities.
At
September 30, 2008, the net book value of assets leased under operating leases
to subsidiaries of Deep Sea was $159.0 million compared to $193.8
million at December 31 2007.
A summary
of leasing revenues earned from Frontline Charterers, Seadrill and Deep Sea is
as follows:
Payments
(in millions of $)
|
|
9
months ended September 30, 2008
|
|
|
9
months ended September 30, 2007
|
|
Operating
lease income
|
|
|
16.0 |
|
|
|
1.4 |
|
Finance
lease interest income
|
|
|
132.9 |
|
|
|
140.0 |
|
Finance
lease service revenue
|
|
|
70.2 |
|
|
|
77.1 |
|
Finance
lease repayments
|
|
|
134.8 |
|
|
|
112.8 |
|
Deemed
dividends paid (net)
|
|
|
- |
|
|
|
(2.0 |
) |
The
Frontline Charterers pay the Company profit sharing of 20% of their time-charter
equivalent earnings from their use of the Company’s fleet above average
threshold charter rates each fiscal year. During the nine month
period ended September 30, 2008, the Company earned and recognized revenue of
$95.3 million under this arrangement, compared to $21.2 million in the nine
month period ended Septemer 30, 2007.
In the
event that vessels on charter to the Frontline Charterers are agreed to be sold,
the Company may pay compensation for the termination of the lease. During 2007
and the first nine months of 2008 leases to the Frontline Charterers were
cancelled on the following vessels, with termination fees agreed as
shown:
Vessel
|
Year
Sold
|
Termination
Fee
(in
millions of $)
|
Front
Transporter
|
2007
|
14.8
|
Front
Target
|
2007
|
14.6
|
Front
Traveller
|
2007
|
13.6
|
Front
Granite
|
2007
|
15.8
|
Front
Comor
|
2007
|
13.3
|
Front
Sunda
|
2007
|
7.2
|
Front
Birch
|
2007
|
16.2
|
Front
Vanadis
|
2007
|
13.2
|
Front
Maple
|
2008
|
16.7
|
Front
Sabang
|
2008
|
26.8
|
As at
September 30, 2008 the Company was owed a total of $87.9 million (December 31
2007: $38.9 million) by the Frontline Charterers in respect of leasing contracts
and profit share.
The
vessels leased to the Frontline Charterers are on time charter terms and for
each such vessel the Company pays a management fee of $6,500 per day to
Frontline Management (Bermuda) Ltd, (“Frontline Management”), a wholly owned
subsidiary of Frontline, resulting in expenses of $70.2 million for the nine
months ended September 30, 2008 compared to $77.1 million for the nine months
ended September 30, 2007. The management fees are classified as ship operating
expenses in the consolidated statements of operations.
The
Company also paid $0.9 million in the nine months ended September 30, 2008 to
Frontline Management for the provision of management and administrative services
compared to $1.0 million for the nine months ended September 30,
2007.
Related
party purchases and sales of vessels - 2008
In May
2008 the Company announced that it had entered into an agreement with Seadrill
to acquire the newbuilding ultra-deepwater drillship West Polaris for a total
acquisition cost of approximately $850 million. Upon delivery in July 2008, the
vessel was chartered back to Seadrill under a 15 year bareboat
charter.
In
September 2008 the Company announced that it had entered into an agreement to
acquire two newbuilding ultra deepwater semi-submersible drilling rigs from
subsidiaries of Seadrill Limited for a total acquisition cost of approximately
$1.7 billion. The rigs, West
Hercules and West
Taurus, were delivered in November 2008 and upon delivery were chartered
back to subsidiaries of Seadrill on 15 year bareboat charters.
Related
party purchases and sales of vessels - 2007
In
January 2007 the Company agreed to sell five single-hull Suezmax tankers to
Frontline. The gross sales price for the vessels was $183.7 million,
and the Company received approximately $119.2 million in cash after paying
compensation of approximately $64.5 million to Frontline for the termination of
the charters. The vessels were delivered to Frontline in March
2007.
In
February 2007 the Company agreed to acquire newbuilding contracts for two
Capesize drybulk carriers from Golden Ocean for a total delivered cost of
approximately $160.0 million, with delivery expected in the last quarter of 2008
and the first quarter of 2009. Upon delivery the vessels will commence 15 year
bareboat charters to Golden Ocean.
In June
2007 the Company purchased the jack-up rig West Prospero from a
subsidiary of Seadrill for a total consideration of $210.0 million. Upon
delivery the rig was immediately chartered back to the Seadrill subsidiary under
a 15 year bareboat charter agreement, fully guaranteed by Seadrill. The
subsidiary has options to buy back the rig after three, five, seven, 10, 12 and
15 years.
In August
2007 the Company agreed to purchase five offshore supply vessels from Deep Sea
for a total consideration of $198.5 million, plus a sellers credit of $17.5
million. Upon delivery in September and October 2007, the vessels were
immediately chartered back to Deep Sea under 12 year bareboat charter
agreements. Deep Sea has options to buy back the vessels after three, five,
seven, 10 and 12 years. In December 2007 it was agreed to sell one of these
vessels, the Sea Trout,
back to Deep Sea. In connection with this sale, the loan facility relating to
the vessel was repaid and the interest rate swap on that facility was terminated
at a cost of $1.7 million, for which we will be compensated by Deep
Sea.
In
November 2007 the Company agreed to purchase a further two offshore supply
vessels from Deep Sea for a total consideration of $126.0 million. These vessels
were delivered in January 2008 and were chartered back to Deep Sea on 12 year
bareboat charters, with options for them to buy back the vessels after three,
five, seven, 10 and 12 years.
10.
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COMMITMENTS
AND CONTINGENT LIABILITIES
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September
30, 2008
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Book
value of assets pledged under ship mortgages
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$
2,696
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Other
Contractual Commitments
The
Company has arranged insurance for the legal liability risks for its shipping
activities with Assuranceforeningen SKULD, Assuranceforeningen Gard Gjensidig
and Britannia Steam Ship Insurance Association Limited, all mutual protection
and indemnity associations. On the vessels insured, the Company is subject to
calls payable to the associations based on the Company's claims record in
addition to the claims records of all other members of the
associations. A contingent liability exists to the extent that the
claims records of the members of the associations in the aggregate show
significant deterioration, which result in additional calls on the members. The
three associations with which the Company has arranged insurance are financially
among the strongest associations in the world, with substantial free reserves
which are used as a buffer against additional calls.
At
September 30, 2008 the Company had contractual commitments under newbuilding
contracts and vessel acquisition agreements totalling approximately $2,399
million, compared to $701 million at December 31, 2007.
11. SUBSEQUENT
EVENTS
In
November 2008 the Company announced the termination of an agreement to acquire
three newbuilding seismic vessels from SCAN Geophysical ASA (“SCAN”) with the
attached 12-year charters. The agreement to acquire the vessels had been
announced in March 2007, with acquisition to take place immediately after
delivery from the shipyard. In the light of considerably delayed deliveries, the
Company and SCAN have agreed to terminate the acquisition agreement.
The
Company has received an unsecured loan in the amount of $115 million which it
has applied to the purchase of the West
Taurus.
On
November 28, 2008, the Board of Ship Finance declared a dividend of $0.60 per
share to be paid on or about January 7, 2009.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters
discussed herein may constitute forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage companies to provide
prospective information about their business. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements which are other
than statements of historical facts.
The
Company desires to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and is including this cautionary
statement in connection with this safe harbor legislation. The words “believe,”
“anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,”
“will,” “may,” “should,” “expect,” “pending” and similar expressions identify
forward-looking statements.
The
forward-looking statements herein are based upon various assumptions, many of
which are based, in turn, upon further assumptions, including without
limitation, our management’s examination of historical operating trends, data
contained in our records and other data available from third parties. Although
we believe that these assumptions were reasonable when made, because these
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond our
control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections. We undertake no obligation to update any
forward-looking statement, whether as a result of new information, future events
or otherwise.
Important
factors that, in our view, could cause actual results to differ materially from
those discussed in the forward-looking statements include the strength of world
economies and currencies, general market conditions, including fluctuations in
charter rates and vessel values, changes in demand in the tanker market as a
result of changes in OPEC's petroleum production levels and world wide oil
consumption and storage, changes in our operating expenses, including bunker
prices, drydocking and insurance costs, the market for our vessels, availability
of financing and refinancing, changes in governmental rules and regulations or
actions taken by regulatory authorities, potential liability from pending or
future litigation, general domestic and international political conditions,
potential disruption of shipping routes due to accidents or political events,
vessels breakdowns and instances of off-hires and other important factors
described from time to time in the reports filed by the Company with the
Securities and Exchange Commission and our Annual Report on Form
20-F.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
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SHIP FINANCE
INTERNATIONAL LIMITED
(registrant)
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Dated: December
5, 2008
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By:
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/s/ Ole
B. Hjertaker
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Name:
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Ole
B. Hjertaker
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Title:
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Chief
Financial Officer
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Ship
Finance Management AS
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SK 23153 0001 944729
v2