OSX Brasil S.A. – in Judicial Recovery (“OSX” or “Company”;BM&FBOVESPA: OSXB3) announces today its 2014 first quarter results. The financial and operating information contained below is presented on a consolidated basis in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board – IASB.

Message from the Management

On May 16, 2014, OSX filed its judicial recovery plan at the 3rd Corporate Court of the Judicial District of the State of Rio de Janeiro (3ª Vara Empresarial da Comarca da Capital do Estado do Rio de Janeiro). The judicial recovery plans for its subsidiaries OSX Construção Naval S.A. (“OSX CN”) and OSX Serviços Operacionais Ltda. (“OSX Serviços”) were also filed at that same day.

According to the judicial recovery plan, OSX proposes to fully pay back the debt of the companies that are part of the Judicial Recovery Plan in an equitable manner, with equal treatment for all creditors. If this proposed plan is approved, the creditors listed in the Judicial Recovery process will be paid over 25 years, including a grace period of three years. This maturity extension is in line with the Company’s business plan going forward.

Even with the extended maturity, OSX will succeed in paying back a significant part of the creditors of the three companies in Judicial Recovery within one year. The plan calls for all of OSX Brasil’s creditors receiving R$ 25,000 in the first year, which will ensure that about 50% of its creditors are repaid in full.

OSX CN’s creditors will be receiving R$ 80,000 in the first year, thereby also ensuring that about 50% of its creditors are repaid in full, while all of OSX Serviços’ debt will be settled in the first year.

OSX is reviewing the business plan related to the development of UCN Açu as part of the resizing of its operational activities and adequacy to its new reality, maintaining, however, its activities related to naval construction. In this context, OSX is seeking potential business combinations and business opportunities, for both the UCN Açu and the leasing and operations and maintenance units.

The restructuring proposal approved by the holders of the Senior Secured Bonds issued by the subsidiary OSX 3 Leasing B.V. ("OSX 3"), aiming to adjust the terms and conditions of such debt to the new reality of the OSX Group and OGX Group, is also part of the Judicial Recovery Plan.

As a means of implementing its new operational model, OSX shall divest certain assets (mainly FPSO OSX-1, FPSO OSX-2, FPSO OSX-3 and WHP-2 platforms and the drilling package units - DPUs), in order to comply with the provisions in its Judicial Recovery Plan and to honor its debts and obligations in relation to its creditors. OSX may also promote the disposal and encumbrance of goods that are part of its fixed assets.

In order to allow OSX to recompose its work capital necessary to proceed with its activities, as well as the development of its business plan, the Company may try to obtain new financing. Among the measures contemplated by OSX Group for new fundraising are the securitization and/or monetization of Restructured OGX Shares, as set forth in the Plan Support Agreement (PSA) celebrated between those companies on December 24, 2013. 

Earnings Release – 1Q14

As stated in its Judicial Recovery Plan, OSX may, also, perform a corporate restructuration, in a way to obtain the most adequate corporate structure for the development of its activities, as resized in the context of the Judicial Reorganization and its business plan resulting from the implementation of this Plan.

The complete Judicial Recovery Plan is available on OSX’s Investor Relations website (ri.osx.com.br).

Financial Performance

OSX’s net revenue in the 1Q14 was R$ 118.1 million. The leasing activities accounted for R$ 52.3 million while the operations and maintenance services for FPSO OSX-1 and FPSO OSX-3 units contributed with R$51.9 million to this quarter. Revenues generated from the PLSV unit construction in the UCN Açu, for client Sapura Navegação Marítima S.A., were R$ 13.8 million.

Costs of goods and/or services sold were R$ 68.2 million and general and administrative expenses totaled R$ 59.5 million. In the 1Q14, OSX recorded a provision for impairment of assets in the amount of R$2.510 billion: R$ 2.165 billion for the UCN Açu and R$ 345.8 million for the FPSO OSX-2 unit.

The financial result was negative by R$ 108.6 million, composed of R$ 1.3 million financial revenues, R$75.7 million financial expenses (mainly due to interest on funding on platforms FPSO OSX-1, FPSO OSX-2 and FPSO OSX-3, that, once completed and available for production, are recognized in the Company´s financial result), losses on derivative transactions of R$ 39.2 million (due to a settlement of a transaction), and gains of R$ 5.0 million with exchange rate variations.

1Q14 net income was a loss of R$ 2.639 billion.

EBITDA

The Company presents the results of the business units separately for decision-making purposes, as well as for allocation of funds and performance evaluation.

EBITDA was negative by R$ 2.454 billion, mainly because of the provision for impairment of assets in the UCN Açu.

Shipbuilding: This business unit focuses on construction, assembly and integration of Exploration and Production (E&P) units, such as fixed and floating production platforms and drilling rigs with an emphasis on operational efficiency and technology. In the 1Q14, EBITDA was negative by R$ 2.179 billion, impacted by impairments of R$ 2.165 billion.

Leasing: It concentrates the E&P units leased to OSX’s clients in the oil and gas industry. EBITDA was negative by R$ 302.4 million, due to impairments of R$ 345.8 million in the FPSO OSX-2 platform.

O&M (Operation and Maintenance) Services: This business unit is responsible for the crew, operation and maintenance of E&P units. EBITDA totaled R$ 38.7 million in the 1Q14. 

Corporate: Includes information related to OSX Brasil S.A., which is integrated with the Company’s other business units. EBITDA was negative by R$ 11.2 million this quarter.

Property, plant and equipment

FPSO OSX-3: This unit is recorded in the balance sheet at R$ 1.661 billion.

WHPs- 2: This platform is registered in the balance sheet at R$ 107.1 million.

Shipbuilding Unit (UCN Açu): This asset is recorded in the balance sheet at R$ 702.6 million, reflecting the impairment of R$ 2.165 billion registered in the 1Q14.

FPSO OSX-1 and FPSO OSX-2 platforms were reclassified in the last quarter of 2013 as "assets for sale". In the 1Q14, FPSO OSX-1 is registered at R$ 1.335 billion, while FPSO OSX-2 is registered at R$1.629 billion.

Cash, Cash Equivalents and Financial Investments

On March 31, 2014, the OSX´s consolidated cash position was R$ 6.1 million. The Company also had R$122.1 million allocated in "restricted cash", a requirement of some financing agreements entered into financial institutions which restricts the use of funds deposited in certain bank accounts solely and exclusively for payments concerning to the related projects.

Debt

The Company’s consolidated debt on March 31, 2014 was R$ 4.981 billion, being 85.4% short term and 14.6% long term. OSX has been negotiating the terms of its loans and financings, seeking to adjust them to the Company´s Judicial Recovery Plan.

FPSO OSX-1: In September 2010, the Company raised long-term financing for the FPSO OSX-1 unit in a total amount of US$ 420 million, maturing in August 2018, at a rate of LIBOR + 4.25% p.a, with a syndicate of banks led by DVB Group DVB Group. This debt has been partially repaid in the amount of USD 172.5 million and the balance at the end of the 1Q14 was R$ 623.0 million.

FPSO OSX-2: The FPSO OSX-2 platform debt is related to long-term financing in the total original value of US$ 850 million celebrated in October 2011 and maturing in October 2023, at an average rate of Libor + 4.41% p.a, with a syndicate of international banks led by Itaú BBA, ING and Santander. Of this total, US$ 632.2 million was allocated to the Company, and the debt has been partially repaid in the amount of US$ 200 million, reducing the principal debt to US$ 432.2 million, equivalent to R$ 1.002 billion in the end of March 2014.

Additionally, Itaú BBA Nassau Branch granted another loan in April 2012 in the amount of US$ 250 million and maturity in January 2015. The outstanding balance at March 31, 2014 was USD 113.5 million, equivalent to R$ 256.9 million.

FPSO OSX-3: In March 2012, the subsidiary OSX-3 raised US$ 500 million with the international issue of Senior Secured Bonds (“Bonds OSX3”) with maturity in March 2015. Pareto Securities acted as global coordinator, joint lead manager and bookrunner in this issuance, DNB Markets acted as joint lead manager and bookrunner and Norsk Tillitsmann is the trustee of these Bonds. The balance at the end of 1Q14 totaled R$ 1.204 billion.

In March 2014, OSX 3 and the holders of the Bonds OSX3 approved a debt restructuring proposal. The final documentation reflecting the restructuring terms is being concluded.

Shipbuilding Unit (UCN Açu): In December 2011, OSX obtained a R$ 427.8 million (equivalent to US$227.96 million) bridge loan from BNDES (Banco Nacional de Desenvolvimento Econômico e Social) to finance the UCN Açu, with an 18-month payment term, maturing in August 2013, with principal and interest payable upon final maturity. In July 2013, BNDES approved the extension of the maturity of such debt for 60 days from the original due date, then maturing on October 15, 2013. On that occasion, the parties entered into the extension of the loan maturity for another 30 days. On November 18, 2013, Banco Votorantim S.A., the guarantor bank of this loan, honored the letter of guarantee in the amount of R$ 588.5 million, and, therefore became the creditor in respect of such funding. On March 31, 2014, the outstanding balance was R$ 613.6 million, maturing in October 2014.

In April 2012, OSX received R$ 400 million in a bridge loan from Caixa Econômica Federal (Caixa) also intended for the implementation of the UCN Açu. The payment term was 18 months, maturing in October 2013. At that time, the parties entered into a renewal of this loan for another twelve months, in the amount of R$ 461.4 million, with maturity in October 2014.

In December 2012, Caixa lent R$ 627.4 million at an average rate of USD + 3.45% p.a., with a grace period of 36 months and 216 amortizations, maturing in June 2033 upon first disbursement of the long term loan from FMM – Fundo da Marinha Mercante, the Brazilian Merchant Marine Fund.

At the end of the 1Q14, the loans provided by Caixa were recorded on the balance sheet at R$ 1.208 billion.