SFL – Fourth Quarter 2008 Results

Ship Finance International Limited (NYSE: SFL) – Earnings Release
Reports preliminary fourth quarter 2008 results and quarterly dividend of $0.30 per share
Hamilton, Bermuda, February 26, 2009. Ship Finance International Limited (“Ship Finance” or the “Company”) today announced its preliminary financial results for the quarter ended December 31, 2008.
  •   Declared a quarterly dividend of $0.30 per share.
  •   Reported net income for the quarter of $3.1 million, or $0.04 per share, including profit share of $15.7 million, or $0.22 per share. Adjusted for the mark-to-market of swaps, net income for the quarter was $48.2 million, or $0.66 per share.
  •   The second of two 17,000 dwt chemical tanker newbuildings was delivered in October 2008 and commenced its 10-year bareboat charter to Bryggen Shipping & Trading AS (“Bryggen”).
  •   The two ultra-deepwater drilling rigs West Hercules and West Taurus were delivered in November 2008 and commenced their 15-year bareboat charters to Seadrill Limited (“Seadrill”).
  •   As of mid-February 2009, all ultra-deepwater drilling units are earning their full day rate, generating bareboat charter revenues of approximately $98 million per quarter.
  •   Following the delivery of the ultra-deepwater drilling rigs, the Company has limited remaining newbuilding capital commitments, and a charter backlog of approximately $8 billion, of which $2.4 billion, or 30%, was added through transactions in 2008.
  •   In December 2008, the Company filed a prospectus supplement with the Securities and Exchange Commission (“SEC”) where the Company may sell up to seven million newly issued common shares from time-to-time in the open market. To date, no shares have been issued and sold.
    The Board of Directors has declared a quarterly dividend of $0.30 per share in cash or, at the election of the shareholder, payable in newly issued common shares.  This dividend represents a reduction from our dividend in the prior quarter of $0.60 per share. Given the market environment, the Board of Directors believes that the Company can create more long-term value for shareholders by retaining additional cash and deploying capital opportunistically to capitalize on market opportunities that may arise. 
    The dividend will be paid on or about April 17, 2009 to shareholders of record as of March 9, 2009. The ex-dividend date will be March 5, 2009.
    Shareholders may make an election to receive a stock dividend by completing an election card. This card will be mailed to all eligible shareholders on or about March 15, 2009, and the election may be made in accordance with the instructions included therein and after reviewing a prospectus supplement relating to the dividend payment which will be filed with the SEC. The number of common shares to be issued as dividend will be set based on the volume-weighted average price of the shares on the New York Stock Exchange during the three trading days prior to the ex-dividend date, less a 5% discount.
    The Company’s largest shareholders, Hemen Holding Ltd. and Farahead Investments Inc., who collectively own 41.4% of the shares and are indirectly controlled by Mr. John Fredriksen, have informed the Company that they would like to receive all of their dividends in the form of newly issued common shares in the Company.
    Results for the Quarter ended December 31, 2008
    The Company reported total operating revenues of $101.3 million, or $1.39 per share, in the fourth quarter. Net operating income for the quarter was $65.7 million, or $0.90 per share, and net income was $3.1 million, or $0.04 per share.
    The change in fair value of the Company’s derivatives resulted in a $45.1 million negative mark-to-market adjustment, of which $37.2 million was related to the Company’s bond swap agreements.
    Under US GAAP, the 100% owned ultra-deepwater drilling units West Polaris, West Hercules and West Taurus and the Panamax dry bulk vessel Golden Shadow are accounted for as ‘Investment in associate’. Consequently, only the ‘net income’ from these vessel owning subsidiaries are recognized in the consolidated income statement of Ship Finance as ‘results in associate’.
    As the majority of the Company’s assets are accounted for as finance leases, a significant portion of the charter hire received is classified as ‘Repayment of investment in finance leases’ and is deducted from the revenues in the Company’s Income Statement. For the fourth quarter, this amounted to $45.1 million or $0.62 per share for vessels that are fully consolidated. In addition, all assets which are accounted for as ‘Investment in associate’ have a similar accounting treatment, and the ‘Repayment of investment in finance leases’ in these subsidiaries were a total of $25.1 million or $0.35 per share 
    The profit share accrued in the fourth quarter was $15.7 million, or $0.22 per share. The total profit share for 2008 is $111.0 million of which $60.0 million was paid to Ship Finance in November 2008. The remaining $51.0 million is payable to Ship Finance in March 2009.
    The Company has a significant portfolio of interest rate swaps linked to its financing arrangements. These are designed to reduce the variability in the Company’s cash flow by eliminating most of the interest rate exposure. The majority of these swaps are classified as cash flow hedges under US GAAP, and consequently the movement in fair value will not be recognized on the Income Statement, but will have an impact on the book equity in Ship Finance. Due to a substantial reduction in interest rates during the fourth quarter, the aggregate negative net book equity impact for the Company was $143.7 million, of which $94.5 million relates to subsidiaries that are fully consolidated, and $49.2 million in subsidiaries accounted for as ‘Investment in associate’.
    February 26, 2009
    The Board of Directors
    Ship Finance International Limited
    Hamilton, Bermuda
    Questions should be directed to:
    Lars Solbakken: Chief Executive Officer, Ship Finance Management AS
    +47 23114006 / +47 91198844
    Ole B. Hjertaker: Chief Financial Officer, Ship Finance Management AS
    +47 23114011 / +47 90141243

    4th quarter 2008 results