Frontline (FRO) Q2 2012 Earnings Call August 29, 2012 9:00 am ET Executives Jens Martin Jensen - Chief Executive Officer of Frontline Management As Inger M. Klemp - Chief Financial Officer and Chief Financial Officer of Frontline Management AS Analysts Jonathan B. Chappell - Evercore Partners Inc., Research Division Fotis Giannakoulis - Morgan Stanley, Research Division Herman Hildan - RS Platou Markets AS, Research Division Joshua Katzeff - Deutsche Bank AG, Research Division Michael Webber - Wells Fargo Securities, LLC, Research Division Martin Korsvold - Pareto Securities AS, Research Division David E. Beard - Iberia Capital Partners, Research Division Randy Laufman - Imperial Capital, LLC, Research Division Presentation Operator
I would then ask you to move to Slide 4, highlights and transactions. The chartered-in VLCC Hampstead was redelivered on April 22, 2012. And on May 29, 2012, Frontline was allocated 3,546,000 shares in a private placement in Frontline 2012. That was a total placement of the 6 million [indiscernible] shares at subscription price of $3.75 per share. And following this private placement, the company has an ownership of 7.9% in Frontline 2012.In June 2012, Frontline terminated a long-term charter party for the OBO carrier Front Rider. The charter party terminated July 22, and the company paid a cash compensation to Ship Finance of $400,000 for the early termination of the charter. The transaction will reduce obligations under capital leases by $2.4 million, and we recorded an impairment loss of $4.9 million in the second quarter of 2012. In August 2012, Frontline terminated a long-term charter party for the OBO carrier Front Climber. The charter party is expected to terminate late September 2012. The company will make a cash compensation to Ship Finance of approximately $600,000 for the early termination of the charter. The transaction will reduce obligations under capital leases by $1.7 million, and we recorded an impairment loss of $4.2 million in the second quarter of 2012. Then I would like you to move to Slide 5, financial highlights. Frontline reports net loss, excluding vessel impairment losses of $11.2 million, equivalent to a loss per share of $0.14 in the second quarter 2012. Frontline has recorded a vessel impairment loss of $13.1 million in the 3- and 6-month period ended June 30. That is equivalent to a loss per share of $0.17. This loss relates to the 3 OBO vessels: the Front Rider, with $4.9 million; the Front Climber, with $4.2 million; and the Front Driver with $4 million. The losses relating to Front Driver -- sorry, Rider and Climber are the expected losses on the termination of the long-term charter parties in July and September, respectively.
Impairment losses are taken when events or changes in circumstances occur that cause the company to believe that future cash flows for an individual vessel will be less than the carrying value and not fully recordable. In such instances, an impairment charge is recognized if the estimate of the undiscounted cash flow is expected to result from the use of the vessel and its eventual disposition is less than the vessel's carrying amount.The net loss, including the vessel impairment loss, was $24.3 million, equivalent to loss per share of $0.31. Frontline announces a net loss, excluding vessel impairment loss, of $4 million for the 6 months ended June 30, equivalent to loss per share of $0.05. The net loss, including vessel impairment loss, was $17 million -- $17.3 million for the 6-month period ended June 30, equivalent to loss per share of $0.22. Frontline will not pay dividends for the second quarter. Then I would like you to move to Slide 6, income statement. Net loss excluding gains and losses in the second quarter of 2012 is about $5 million weaker than in the first quarter of 2012. This decrease can mainly be explained by some items. First, income on time charter basis was about $1 million better in the second quarter than it was in the first quarter due to an increase of time charter equivalent rates per day in the second quarter. That was partially offset by a reduction in on high days due to recent stays and lease terminations. Cash sweep expense increased about $3 million this quarter compared with the first quarter due to the increase in time charter equivalents per day in the second quarter. Then ship operating expenses increased by almost $6 million compared with the first quarter, primarily as a result of an increase in drydocking cost of $7.3 million, which was partially offset by a decrease in running cost. Read the rest of this transcript for free on seekingalpha.com