UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-51442
GENCO SHIPPING & TRADING LIMITED
(Exact name of registrant as specified in its charter)
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Republic of the Marshall Islands |
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98-043-9758 |
299 Park Avenue, 20th Floor, New York, New York 10171
(Address of principal executive offices) (Zip Code)
(646) 443-8550
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of each of the issuer’s classes of common stock, as of August 9, 2010:
Common stock, $0.01 per share — 35,526,548 shares.
Genco Shipping & Trading Limited
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Page |
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PART I — FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (unaudited) |
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Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 |
3 |
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4 |
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Condensed Consolidated Statements of Equity for the Six Months ended June 30, 2010 and 2009 |
5 |
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6 |
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Condensed Consolidated Statements of Cash Flow for the Six Months ended June 30, 2010 and 2009 |
7 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
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51 |
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53 |
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53 |
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53 |
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54 |
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Genco Shipping & Trading Limited
Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
(U.S. Dollars in thousands, except for share and per share data)
(Unaudited)
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June 30, 2010 |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
196,139 |
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$ |
188,267 |
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Restricted cash |
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12,000 |
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17,500 |
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Due from charterers, net of a reserve of $292 and $171, respectively |
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3,076 |
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2,117 |
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Prepaid expenses and other current assets |
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12,103 |
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10,184 |
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Deposits on vessels to be sold |
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10,598 |
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— |
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Total current assets |
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233,916 |
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218,068 |
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Noncurrent assets: |
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Vessels, net of accumulated depreciation of $273,248 and $224,706, respectively |
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2,189,382 |
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2,023,506 |
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Deposits on vessels |
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85,171 |
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— |
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Deferred drydock, net of accumulated depreciation of $5,996 and $4,384, respectively |
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10,467 |
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10,153 |
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Other assets, net of accumulated amortization of $3,187 and $2,585, respectively |
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8,636 |
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8,328 |
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Fixed assets, net of accumulated depreciation and amortization of $1,783 and $1,554, respectively |
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2,448 |
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2,458 |
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Fair value of derivative instruments |
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— |
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2,108 |
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Investments |
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53,281 |
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72,181 |
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Total noncurrent assets |
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2,349,385 |
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2,118,734 |
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Total assets |
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$ |
2,583,301 |
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$ |
2,336,802 |
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Liabilities and Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
21,090 |
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$ |
18,609 |
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Current portion of long term debt |
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50,000 |
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50,000 |
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Fair value of derivative instruments |
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674 |
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— |
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Deferred revenue |
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8,312 |
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10,404 |
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Total current liabilities |
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80,076 |
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79,013 |
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Noncurrent liabilities: |
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Deferred revenue |
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1,616 |
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2,427 |
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Deferred rent credit |
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677 |
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687 |
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Fair market value of time charters acquired |
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2,176 |
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4,611 |
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Fair value of derivative instruments |
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50,111 |
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44,139 |
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Long-term debt |
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1,261,975 |
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1,277,000 |
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Total noncurrent liabilities |
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1,316,555 |
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1,328,864 |
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Total liabilities |
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1,396,631 |
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1,407,877 |
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Commitments and contingencies |
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— |
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— |
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Equity: |
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Genco Shipping & Trading Limited shareholders’ equity: |
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Common stock, par value $0.01; 100,000,000 shares authorized; issued and outstanding 31,932,798 and 31,842,798 shares at June 30, 2010 and December 31, 2009, respectively |
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319 |
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318 |
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Paid-in capital |
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723,333 |
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722,198 |
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Accumulated other comprehensive (deficit) income |
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(14,101 |
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13,589 |
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Retained earnings |
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263,027 |
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192,820 |
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Total Genco Shipping & Trading Limited shareholders’ equity |
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972,578 |
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928,925 |
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Noncontrolling interest |
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214,092 |
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— |
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Total equity |
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1,186,670 |
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928,925 |
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Total liabilities and equity |
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$ |
2,583,301 |
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$ |
2,336,802 |
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See accompanying notes to unaudited condensed consolidated financial statements.
Genco Shipping & Trading Limited
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009
(U.S. Dollars in Thousands, Except for Earnings per share and share data)
(Unaudited)
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For the Three Months |
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For the Six Months |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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$ |
105,337 |
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$ |
93,701 |
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$ |
200,018 |
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$ |
190,351 |
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Operating expenses: |
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Voyage expenses |
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1,018 |
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1,284 |
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1,755 |
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2,863 |
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Vessel operating expenses |
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16,160 |
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13,268 |
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31,047 |
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27,469 |
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General, administrative, and management fees |
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7,164 |
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4,964 |
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12,960 |
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9,736 |
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Depreciation and amortization |
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26,259 |
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20,933 |
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51,094 |
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41,882 |
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Other operating income |
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(206 |
) |
— |
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(206 |
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— |
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Total operating expenses |
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50,395 |
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40,449 |
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96,650 |
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81,950 |
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Operating income |
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54,942 |
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53,252 |
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103,368 |
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108,401 |
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Other (expense) income: |
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Other (expense) income |
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(3 |
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(301 |
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25 |
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(283 |
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Interest income |
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248 |
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42 |
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324 |
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65 |
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Interest expense |
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(15,810 |
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(15,376 |
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(31,241 |
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(29,324 |
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Other expense |
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(15,565 |
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(15,635 |
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(30,892 |
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(29,542 |
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Net income before income taxes |
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39,377 |
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37,617 |
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72,476 |
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78,859 |
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Income tax expense |
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(719 |
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— |
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(719 |
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— |
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Net income |
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38,658 |
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37,617 |
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71,757 |
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78,859 |
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Less: Net income attributable to noncontrolling interest |
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1,899 |
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— |
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1,550 |
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— |
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Net income attributable to Genco Shipping & Trading Limited |
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$ |
36,759 |
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$ |
37,617 |
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$ |
70,207 |
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$ |
78,859 |
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Earnings per share-basic |
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$ |
1.17 |
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$ |
1.20 |
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$ |
2.24 |
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$ |
2.52 |
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Earnings per share-diluted |
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$ |
1.16 |
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$ |
1.20 |
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$ |
2.23 |
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$ |
2.51 |
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Weighted average common shares outstanding-basic |
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31,413,874 |
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31,268,394 |
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31,409,858 |
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31,264,460 |
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Weighted average common shares outstanding-diluted |
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31,562,879 |
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31,434,814 |
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31,553,226 |
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31,393,333 |
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Dividends declared per share |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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See accompanying notes to unaudited condensed consolidated financial statements
Genco Shipping & Trading Limited
Condensed Consolidated Statements of Equity
For the Six Months Ended June 30, 2010 and 2009
(U.S. Dollars in Thousands)
(Unaudited)
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Common |
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Paid in |
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Retained |
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Accumulated |
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Genco |
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Noncontrolling |
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Total Equity |
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Balance – January 1, 2010 |
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$ |
318 |
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$ |
722,198 |
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$ |
192,820 |
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$ |
13,589 |
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$ |
928,925 |
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$ |
— |
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$ |
928,925 |
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Net income |
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70,207 |
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70,207 |
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1,550 |
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71,757 |
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Change in unrealized gain on investments |
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(10,336 |
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(10,336 |
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— |
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(10,336 |
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Change in currency translation gain on investments |
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(8,565 |
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(8,565 |
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— |
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(8,565 |
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Unrealized loss on cash flow hedges, net |
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(8,789 |
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(8,789 |
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— |
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(8,789 |
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Issuance of 90,000 shares of nonvested stock |
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1 |
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(1 |
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— |
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— |
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— |
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Nonvested stock amortization |
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2,190 |
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2,190 |
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1,093 |
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3,283 |
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Issuance of common stock of Baltic Trading Limited |
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(1,054 |
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(1,054 |
) |
211,449 |
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210,395 |
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Balance — June 30, 2010 |
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$ |
319 |
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$ |
723,333 |
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$ |
263,027 |
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$ |
(14,101 |
) |
$ |
972,578 |
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$ |
214,092 |
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$ |
1,186,670 |
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Common |
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Paid in |
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Retained |
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Accumulated |
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Genco |
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Noncontrolling |
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Total Equity |
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Balance – January 1, 2009 |
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$ |
317 |
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$ |
717,979 |
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$ |
44,196 |
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$ |
(66,014 |
) |
$ |
696,478 |
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$ |
— |
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$ |
696,478 |
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Net income |
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78,859 |
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78,859 |
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78,859 |
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Change in unrealized gain on investments |
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15,997 |
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15,997 |
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15,997 |
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Change in currency translation gain on investments |
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2,663 |
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2,663 |
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2,663 |
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Unrealized gain on cash flow hedges, net |
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21,904 |
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21,904 |
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21,904 |
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Nonvested stock amortization |
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2,323 |
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2,323 |
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2,323 |
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Balance – June 30, 2009 |
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$ |
317 |
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$ |
720,302 |
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$ |
123,055 |
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$ |
(25,450 |
) |
$ |
818,224 |
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$ |
— |
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$ |
818,224 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Genco Shipping & Trading Limited
Condensed Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended June 30, 2010 and 2009
(U.S. Dollars in Thousands)
(Unaudited)
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For the Three Months Ended |
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For the Six Months |
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2010 |
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2009 |
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2010 |
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2009 |
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||||
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||||
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Net income |
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$ |
38,658 |
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$ |
37,617 |
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$ |
71,757 |
|
$ |
78,859 |
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|
Change in unrealized gain on investments |
|
(15,504 |
) |
10,453 |
|
(10,336 |
) |
15,997 |
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||||
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Change in currency translation gain on investments |
|
(7,640 |
) |
1,944 |
|
(8,565 |
) |
2,663 |
|
||||
|
Unrealized (loss) gain on cash flow hedges, net |
|
(5,088 |
) |
17,623 |
|
(8,789 |
) |
21,904 |
|
||||
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Comprehensive income |
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10,426 |
|
67,637 |
|
44,067 |
|
119,423 |
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||||
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Less: Comprehensive income attributable to noncontrolling interests |
|
1,899 |
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— |
|
1,550 |
|
— |
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||||
|
Comprehensive income attributable to Genco Shipping & Trading Limited |
|
$ |
8,527 |
|
$ |
67,637 |
|
$ |
42,517 |
|
$ |
119,423 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Genco Shipping & Trading Limited
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
(U.S. Dollars in Thousands)
(Unaudited)
|
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For the Six Months |
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||||
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|
2010 |
|
2009 |
|
||
|
Cash flows from operating activities: |
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|
||
|
Net income |
|
$ |
71,757 |
|
$ |
78,859 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
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|
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|
||
|
Depreciation and amortization |
|
51,094 |
|
41,882 |
|
||
|
Amortization of deferred financing costs |
|
602 |
|
497 |
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||
|
Amortization of fair market value of time charterers acquired |
|
(2,435 |
) |
(9,469 |
) |
||
|
Unrealized (gain) loss on derivative instruments |
|
(35 |
) |
261 |
|
||
|
Amortization of nonvested stock compensation expense |
|
3,283 |
|
2,323 |
|
||
|
Change in assets and liabilities: |
|
|
|
|
|
||
|
(Increase) decrease in due from charterers |
|
(959 |
) |
167 |
|
||
|
Increase in prepaid expenses and other current assets |
|
(1,902 |
) |
(2,535 |
) |
||
|
Increase in accounts payable and accrued expenses |
|
2,113 |
|
1,703 |
|
||
|
Decrease in deferred revenue |
|
(2,903 |
) |
(1,459 |
) |
||
|
Decrease in deferred rent credit |
|
(10 |
) |
(10 |
) |
||
|
Deferred drydock costs incurred |
|
(2,590 |
) |
(2,459 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash provided by operating activities |
|
118,015 |
|
109,760 |
|
||
|
|
|
|
|
|
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Purchase of vessels |
|
(214,389 |
) |
(677 |
) |
||
|
Deposits on vessels |
|
(84,899 |
) |
(1,371 |
) |
||
|
Deposits on vessels to be sold |
|
(10,550 |
) |
— |
|
||
|
Changes in deposits of restricted cash |
|
5,500 |
|
— |
|
||
|
Purchase of other fixed assets |
|
(251 |
) |
(352 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash used in investing activities |
|
(304,589 |
) |
(2,400 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Repayments on the 2007 Credit Facility |
|
(25,000 |
) |
— |
|
||
|
Proceeds from the Baltic Trading 2010 Credit Facility |
|
9,975 |
|
— |
|
||
|
Proceeds from issuance of common stock by subsidiary |
|
214,508 |
|
— |
|
||
|
Payments of subsidiary common stock issuance costs |
|
(3,721 |
) |
— |
|
||
|
Payment of deferred financing costs |
|
(1,316 |
) |
(3,552 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash provided by (used in) financing activities |
|
194,446 |
|
(3,552 |
) |
||
|
|
|
|
|
|
|
||
|
Net increase in cash and cash equivalents |
|
7,872 |
|
103,808 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at beginning of period |
|
188,267 |
|
124,956 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at end of period |
|
$ |
196,139 |
|
$ |
228,764 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Genco Shipping & Trading Limited
(U.S. Dollars in Thousands Except Per Share and Share Data)
Notes to Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)
1 - GENERAL INFORMATION
The accompanying condensed consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”), its wholly owned subsidiaries, and its subsidiary, Baltic Trading Limited (collectively, the “Company”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T was incorporated on September 27, 2004 under the laws of the Marshall Islands and as of June 30, 2010 is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco Management (USA) Limited; and the ship-owning subsidiaries as set forth below.
Below is the list of GS&T’s wholly owned ship-owning subsidiaries as of June 30, 2010:
|
Wholly Owned Subsidiaries |
|
Vessels Acquired |
|
Dwt |
|
Date Delivered |
|
Year Built |
|
|
|
|
|
|
|
|
|
|
|
Genco Reliance Limited |
|
Genco Reliance |
|
29,952 |
|
12/6/04 |
|
1999 |
|
Genco Vigour Limited |
|
Genco Vigour |
|
73,941 |
|
12/15/04 |
|
1999 |
|
Genco Explorer Limited |
|
Genco Explorer |
|
29,952 |
|
12/17/04 |
|
1999 |
|
Genco Carrier Limited |
|
Genco Carrier |
|
47,180 |
|
12/28/04 |
|
1998 |
|
Genco Sugar Limited |
|
Genco Sugar |
|
29,952 |
|
12/30/04 |
|
1998 |
|
Genco Pioneer Limited |
|
Genco Pioneer |
|
29,952 |
|
1/4/05 |
|
1999 |
|
Genco Progress Limited |
|
Genco Progress |
|
29,952 |
|
1/12/05 |
|
1999 |
|
Genco Wisdom Limited |
|
Genco Wisdom |
|
47,180 |
|
1/13/05 |
|
1997 |
|
Genco Success Limited |
|
Genco Success |
|
47,186 |
|
1/31/05 |
|
1997 |
|
Genco Beauty Limited |
|
Genco Beauty |
|
73,941 |
|
2/7/05 |
|
1999 |
|
Genco Knight Limited |
|
Genco Knight |
|
73,941 |
|
2/16/05 |
|
1999 |
|
Genco Leader Limited |
|
Genco Leader |
|
73,941 |
|
2/16/05 |
|
1999 |
|
Genco Marine Limited |
|
Genco Marine |
|
45,222 |
|
3/29/05 |
|
1996 |
|
Genco Prosperity Limited |
|
Genco Prosperity |
|
47,180 |
|
4/4/05 |
|
1997 |
|
Genco Muse Limited |
|
Genco Muse |
|
48,913 |
|
10/14/05 |
|
2001 |
|
Genco Acheron Limited |
|
Genco Acheron |
|
72,495 |
|
11/7/06 |
|
1999 |
|
Genco Surprise Limited |
|
Genco Surprise |
|
72,495 |
|
11/17/06 |
|
1998 |
|
Genco Augustus Limited |
|
Genco Augustus |
|
180,151 |
|
8/17/07 |
|
2007 |
|
Genco Tiberius Limited |
|
Genco Tiberius |
|
175,874 |
|
8/28/07 |
|
2007 |
|
Genco London Limited |
|
Genco London |
|
177,833 |
|
9/28/07 |
|
2007 |
|
Genco Titus Limited |
|
Genco Titus |
|
177,729 |
|
11/15/07 |
|
2007 |
|
Genco Challenger Limited |
|
Genco Challenger |
|
28,428 |
|
12/14/07 |
|
2003 |
|
Genco Charger Limited |
|
Genco Charger |
|
28,398 |
|
12/14/07 |
|
2005 |
|
Genco Warrior Limited |
|
Genco Warrior |
|
55,435 |
|
12/17/07 |
|
2005 |
|
Genco Predator Limited |
|
Genco Predator |
|
55,407 |
|
12/20/07 |
|
2005 |
|
Genco Hunter Limited |
|
Genco Hunter |
|
58,729 |
|
12/20/07 |
|
2007 |
|
Genco Champion Limited |
|
Genco Champion |
|
28,445 |
|
1/2/08 |
|
2006 |
|
Genco Constantine Limited |
|
Genco Constantine |
|
180,183 |
|
2/21/08 |
|
2008 |
|
Genco Raptor LLC |
|
Genco Raptor |
|
76,499 |
|
6/23/08 |
|
2007 |
|
Genco Cavalier LLC |
|
Genco Cavalier |
|
53,617 |
|
7/17/08 |
|
2007 |
|
Genco Thunder LLC |
|
Genco Thunder |
|
76,588 |
|
9/25/08 |
|
2007 |
|
Genco Hadrian Limited |
|
Genco Hadrian |
|
169,694 |
|
12/29/08 |
|
2008 |
|
Genco Commodus Limited |
|
Genco Commodus |
|
169,025 |
|
7/22/09 |
|
2009 |
|
Genco Maximus Limited |
|
Genco Maximus |
|
169,025 |
|
9/18/09 |
|
2009 |
|
Genco Claudius Limited |
|
Genco Claudius |
|
169,025 |
|
12/30/09 |
|
2010 (1) |
|
Genco Bay Limited |
|
Genco Bay |
|
34,296 |
|
Q3 2010 (2) |
|
2010 |
|
Genco Ocean Limited |
|
Genco Ocean |
|
34,409 |
|
7/26/10 |
|
2010 |
|
Genco Avra Limited |
|
Genco Avra |
|
35,000 |
|
Q1 2011 (2) |
|
2010 (3) |
|
Genco Mare Limited |
|
Genco Mare |
|
35,000 |
|
Q2 2011 (2) |
|
2010 (3) |
|
Genco Spirit Limited |
|
Genco Spirit |
|
35,000 |
|
Q3 2011 (2) |
|
2010 (3) |
|
Genco Aquitaine Limited |
|
Genco Aquitaine |
|
57,981 |
|
Q3 2010 (2) |
|
2009 |
|
Genco Ardennes Limited |
|
Genco Ardennes |
|
57,981 |
|
Q3 2010 (2) |
|
2009 |
|
Genco Auvergne Limited |
|
Genco Auvergne |
|
57,981 |
|
Q3 2010 (2) |
|
2009 |
|
Genco Bourgogne Limited |
|
Genco Bourgogne |
|
57,981 |
|
Q3 2010 (2) |
|
2010 |
|
Genco Brittany Limited |
|
Genco Brittany |
|
57,981 |
|
Q3 2010 (2) |
|
2010 |
|
Genco Languedoc Limited |
|
Genco Languedoc |
|
57,981 |
|
Q3 2010 (2) |
|
2010 |
|
Genco Loire Limited |
|
Genco Loire |
|
53,416 |
|
8/4/2010 |
|
2009 |
|
Genco Lorraine Limited |
|
Genco Lorraine |
|
53,416 |
|
7/29/10 |
|
2009 |
|
Genco Normandy Limited |
|
Genco Normandy |
|
53,596 |
|
Q3 2010 (2) |
|
2007 |
|
Genco Picardy Limited |
|
Genco Picardy |
|
55,257 |
|
Q3 2010 (2) |
|
2005 |
|
Genco Provence Limited |
|
Genco Provence |
|
55,317 |
|
Q3 2010 (2) |
|
2004 |
|
Genco Pyrenees Limited |
|
Genco Pyrenees |
|
57,981 |
|
Q3 2010 (2) |
|
2010 |
|
Genco Rhone Limited |
|
Genco Rhone |
|
57,981 |
|
Q1 2011 (2) |
|
2011 (3) |
(1) On December 30, 2009, the Company took delivery of the Genco Claudius. However, the vessel has been designated by Lloyd’s Register of Shipping as having been built in 2010.
(2) Dates for vessels being delivered in the future are estimates based on guidance received from the sellers and the respective shipyards.
(3) Built dates for vessels delivering in the future are estimates based on guidance received from the sellers and respective shipyards.
Baltic Trading Limited (“Baltic Trading”), formerly a wholly-owned indirect subsidiary of GS&T at December 31, 2009, completed its initial public offering, or IPO, on March 15, 2010. As of June 30, 2010, GS&T indirectly owned 5,699,088 shares of Baltic Trading’s Class B Stock, which represented a 25.35% ownership interest in Baltic Trading and 83.59% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock. Additionally, pursuant to the subscription agreement between Genco Investments LLC and Baltic Trading, for so long as GS&T directly or indirectly holds at least 10% of the aggregate number of outstanding shares of Baltic Trading’s common stock and Class B stock, Genco Investments LLC will be entitled to receive an additional number of shares of Baltic Trading’s Class B stock equal to 2% of the number of common shares issued in the future, other than shares issued under Baltic Trading’s 2010 Equity Incentive Plan.
Below is the list of Baltic Trading’s wholly owned ship-owning subsidiaries as of June 30, 2010:
|
Baltic Trading’s Wholly Owned |
|
Vessel |
|
Dwt |
|
Date Delivered |
|
Year |
|
|
|
|
|
|
|
|
|
|
|
Baltic Leopard Limited |
|
Baltic Leopard |
|
53,447 |
|
4/8/2010 |
|
2009 |
|
Baltic Panther Limited |
|
Baltic Panther |
|
53,351 |
|
4/29/2010 |
|
2009 |
|
Baltic Cougar Limited |
|
Baltic Cougar |
|
53,432 |
|
5/28/2010 |
|
2009 |
|
Baltic Jaguar Limited |
|
Baltic Jaguar |
|
53,474 |
|
5/14/2010 |
|
2009 |
|
Baltic Bear Limited |
|
Baltic Bear |
|
177,717 |
|
5/14/2010 |
|
2010 |
|
Baltic Wolf Limited |
|
Baltic Wolf |
|
177,000 |
|
Q4 2010 (1) |
|
2010 (2) |
|
Baltic Wind Limited |
|
Baltic Wind |
|
34,409 |
|
8/4/2010 |
|
2009 |
|
Baltic Cove Limited |
|
Baltic Cove |
|
34,403 |
|
Q3 2010 (1) |
|
2010 |
|
Baltic Breeze Limited |
|
Baltic Breeze |
|
35,000 |
|
Q3 2010 (1) |
|
2010 (2) |
(1) Dates for vessels being delivered in the future are estimates based on guidance received from the sellers and the respective shipyards.
(2) Built dates for vessels delivering in the future are estimates based on guidance received from the sellers and respective shipyards.
The Company has agreed to provide technical services for drybulk vessels which a company, Maritime Equity Partners (“MEP”), managed by an affiliate of Peter C. Georgiopoulos, Chairman of the Board of Directors, had agreed to buy. These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation. They will not include chartering services. The services will be provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs and will be provided for an initial term of one year. MEP will have the right to cancel provision of services on 60 days’ notice with payment of a one-year termination fee upon a change in control of the Company. The Company may terminate provision of the services at any time on 60 days’ notice. Peter C. Georgiopoulos is a minority investor, and affiliates of Oaktree Capital Management, L.P., of which Stephen A. Kaplan is a principal, are majority investors in MEP. This arrangement was approved by an independent committee of the Company’s Board of Directors.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which include the accounts of Genco Shipping & Trading Limited, its wholly owned subsidiaries and Baltic Trading, a subsidiary in which the Company owns a majority of the voting interests and exercises control. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 10-K”).
Deferred revenue
Deferred revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as income when earned. Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues. As of June 30, 2010 and December 31, 2009, the Company had an accrual of $904 and $959, respectively, related to these estimated customer claims.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers, cash and cash equivalents, deposits on vessels and interest rate swap agreements. With respect to amounts due from charterers, the Company attempts to limit its credit risk by performing ongoing credit evaluations and, when deemed necessary, requires letters of credit, guarantees or collateral. During both the three months ended June 30, 2010 and 2009, the Company earned 100% of its revenues from twenty-one and sixteen customers, respectively. Additionally, the Company earned 100% of its revenues from twenty-three and twenty customers for the six months ended June 30, 2010 and 2009, respectively. Management does not believe significant risk exists in connection with the Company’s concentrations of credit at June 30, 2010 and December 31, 2009.
For the three months ended June 30, 2010, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 27.61% and 12.01% of revenues, respectively. For the three months ended June 30, 2009, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 31.33% and 15.18% of revenues, respectively.
For the six months ended June 30, 2010, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 28.19% and 11.54% of revenues, respectively. For the six months ended June 30, 2009, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 30.40% and 15.27% of revenue, respectively.
At June 30, 2010, the Company maintains all of its cash and cash equivalents with two financial institutions. None of the Company’s cash and cash equivalent balances are covered by insurance in the event of default by these financial institutions.
Deposits on vessels are held in escrow accounts maintained by DnB NOR Bank ASA. None of the deposits on vessel balances are covered by insurance in the event of default by this financial institution.
At June 30, 2010, the Company has ten interest rate swap agreements with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s credit facility with DnB NOR Bank ASA. None of the interest rate swap agreements are covered by insurance in the event of default by this financial institution.
Derivative financial instruments
Interest rate risk management
The Company is exposed to the impact of interest rate changes. The Company’s objective is to manage the impact of interest rate changes on its earnings and cash flow in relation to borrowings primarily for the purpose of acquiring drybulk vessels. These borrowings are subject to a variable borrowing rate. The Company uses pay-fixed receive-variable interest rate swaps to manage future interest costs and the risk associated with changing interest rate obligations. These swaps are designated as cash flow hedges of future variable rate interest payments and are tested for effectiveness on a quarterly basis. Refer to Note 10 — Interest Rate Swap Agreements for further information regarding the interest rate swaps held by the Company.
The differential to be paid or received for the effectively hedged portion of any swap agreement is recognized as an adjustment to interest expense as incurred. Additionally, the changes in value for the portion of the swaps that are effectively hedging future interest payments are reflected as a component of accumulated other comprehensive (deficit) income (“AOCI”).
For the interest rate swaps that are not designated as an effective hedge, the change in the value and the rate differential to be paid or received is recognized as other (expense) income and is listed as a component of other (expense) income.
Noncontrolling interests
Net income attributable to noncontrolling interests during the three and six months ended June 30, 2010 reflects noncontrolling interest’s share of the income of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market or on spot market-related time charters. The spot market represents immediate chartering of a vessel, usually for single voyages. At June 30, 2010, the noncontrolling interest held a 74.65% economic interest in Baltic Trading while only holding 16.41% of voting power.
Income taxes
Pursuant to certain agreements, the Company technically and commercially manages vessels for Baltic Trading, as well as provides technical management of vessels for MEP in exchange for specified fees for these services provided. These services are performed by Genco Management (USA) Limited (“Genco (USA)”), which has elected to be taxed as a corporation for United States federal income tax purposes. As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services. Genco (USA) has entered into a cost-sharing agreement with the Company and Genco Ship Management LLC, collectively Manco, pursuant to which Genco (USA) agrees to reimburse Manco for the costs incurred by Genco (USA) for the use of Manco’s personnel and services in connection with the provision of
the services for both Baltic Trading and MEP’s vessels. The Company has reflected the tax liability in accounts payable and accrued expenses.
3 - SEGMENT INFORMATION
The Company determines its operating segments based on the information utilized by the chief operating decision maker to assess performance. Based on this information, the Company has two operating segments, GS&T and Baltic Trading. Both GS&T and Baltic Trading are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T seeks to deploy its vessels on time charters or in vessel pools trading in the spot market and Baltic Trading seeks to deploy its vessel charters in the spot market, which represents immediate chartering of a vessel, usually for single voyages, or employing vessels on spot market-related time charters. Segment results are evaluated based on net income. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements. Information about the Company’s reportable segments as of and for the three and six months ended June 30, 2010 and June 30, 2009 are as follows:
The following table presents a reconciliation of total revenue from external customers for the Company’s two operating segments to total consolidated revenue from external customers for the Company for the three and six months ended June 30, 2010 and 2009.
|
|
|
For the three months ended |
|
For the six months ended |
|
||||||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
Revenue from External Customers |
|
|
|
|
|
|
|
|
|
||||
|
GS&T |
|
$ |
98,346 |
|
$ |
93,701 |
|
$ |
193,027 |
|
$ |
190,351 |
|
|
Baltic Trading |
|
6,991 |
|
— |
|
6,991 |
|
— |
|
||||
|
Total operating segments |
|
105,337 |
|
93,701 |
|
200,018 |
|
190,351 |
|
||||
|
Eliminating revenue |
|
— |
|
— |
|
— |
|
— |
|
||||
|
Total consolidated revenue from external customers |
|
$ |
105,337 |
|
$ |
93,701 |
|
$ |
200,018 |
|
$ |
190,351 |
|
The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the three and six months ended June 30, 2010 and 2009. The intersegment revenue noted in the following table represents revenue earned by GS&T pursuant to the management agreement entered into with Baltic Trading, which includes commercial service fees, technical service fees and sale and purchase fees.
|
|
|
For the three months ended |
|
For the six months ended |
|
||||||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
Intersegment revenue |
|
|
|
|
|
|
|
|
|
||||
|
GS&T |
|
$ |
2,429 |
|
$ |
— |
|
$ |
2,429 |
|
$ |
— |
|
|
Baltic Trading |
|
— |
|
— |
|
— |
|
— |
|
||||
|
Total operating segments |
|
2,429 |
|
— |
|
2,429 |
|
— |
|
||||
|
Eliminating revenue |
|
(2,429 |
) |
— |
|
(2,429 |
) |
— |
|
||||
|
Total consolidated intersegment revenue |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
The following table presents a reconciliation of total net income for the Company’s two operating segments to total consolidated net income for the three and six months ended June 30, 2010 and 2009. The eliminating net income noted in the following table consists of the elimination of intercompany transactions resulting from revenue earned by GS&T and expenses incurred by Baltic Trading pursuant to the management agreement between the two companies.
|
|
|
For the three months ended |
|
For the six months ended |
|
||||||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
Net income |
|
|
|
|
|
|
|
|
|
||||
|
GS&T |
|
$ |
38,172 |
|
$ |
37,617 |
|
$ |
71,781 |
|
$ |
78,859 |
|
|
Baltic Trading |
|
2,602 |
|
— |
|
2,092 |
|
— |
|
||||
|
Total operating segments |
|
40,774 |
|
37,617 |
|
73,873 |
|
78,859 |
|
||||
|
Eliminating net income |
|
(2,116 |
) |
— |
|
(2,116 |
) |
— |
|
||||
|
Total consolidated net income |
|
$ |
38,658 |
|
$ |
37,617 |
|
$ |
71,757 |
|
$ |
78,859 |
|
The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated net assets as of June 30, 2010 and December 31, 2009. The eliminating assets noted in the following table consists of the elimination of intercompany transactions resulting from the capitalization of sale and purchase fees paid to GS&T by Baltic Trading as vessel assets as well as the outstanding receivable balance due to GS&T from Baltic Trading as of June 30, 2010.
|
|
|
June 30, |
|
December 31, |
|
||
|
Total assets |
|
|
|
|
|
||
|
GS&T |
|
$ |
2,284,770 |
|
$ |
2,336,802 |
|
|
Baltic Trading |
|
302,384 |
|
— |
|
||
|
Total operating segments |
|
2,587,154 |
|
2,336,802 |
|
||
|
Eliminating assets |
|
(3,853 |
) |
— |
|
||
|
Total consolidated assets |
|
$ |
2,583,301 |
|
$ |
2,336,802 |
|
4 - CASH FLOW INFORMATION
As of June 30, 2010, the Company had ten interest rate swaps, which are described and discussed in Note 10 — Interest Rate Swap Agreements. The fair value of all ten of the swaps is in a liability position of $50,785, $674 of which is a current liability, as of June 30, 2010. At December 31, 2009, eight swaps were in a liability position of $44,139 and two swaps were in an asset position of $2,108.
For the six months ended June 30, 2010, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $692 for the purchase of vessels, $289 associated with deposits on vessels, $48 associated with deposits on vessels to be sold and $69 for the purchase of other fixed assets. Additionally, for the six months ended June 30, 2010, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $434 associated with deferred financing fees and $35 associated with common stock issuance costs related to the initial public offering of Baltic Trading. Also, for the six months ended June 30, 2010, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of June 30, 2010 consisting of $17 associated with deposits on vessels. For the six months ended June 30, 2009, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $78 for the purchase of vessels, $275 associated with deposits on vessels and $28 for the purchase of other fixed assets. Additionally, for the six months ended June 30, 2009, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets consisting of $308 associated with deposits on vessels.
During the six months ended June 30, 2010 and 2009, cash paid for interest, net of amounts capitalized, was $30,897 and $26,674, respectively.
On March 5, 2010, the Board of Directors approved a grant of 75,000 shares of nonvested common stock to Peter Georgiopoulos, Chairman of the Board. The fair value of such nonvested stock was $1,718. Additionally, on May 13, 2010, the Company made grants of nonvested common stock under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan in the amount of 15,000 shares to directors of the Company. The fair value of such nonvested stock was $331.
5 - VESSEL ACQUISITIONS AND DISPOSITIONS
On June 24, 2010, GS&T executed a Master Agreement with Bourbon SA (“Bourbon”) under which GS&T is to purchase sixteen drybulk vessels, including two newbuildings, for an aggregate price of $545,000. Total vessel deposits of $54,500 were made during the second quarter of 2010. The purchases are subject to the completion of customary additional documentation and closing conditions, and the transfer to GS&T of time charters attached to certain of the vessels is subject to the charterers’ consent. Additionally, upon the delivery of each vessel, GS&T will record a payable due to its financial advisor equivalent to 1% of the purchase price of the vessel and such will be included as a component of the vessel asset. GS&T intends to retain thirteen of the sixteen vessels, twelve of which are expected to be delivered to GS&T in the third quarter of 2010, with the remaining vessel scheduled to be delivered in the first quarter of 2011. Two of these Supramax vessels were delivered during July and August 2010. The Genco Lorraine, a 2009 build, was delivered on July 29, 2010 and the Genco Loire, a 2009 build, was delivered on August 4, 2010. GS&T has determined not to retain three of the sixteen vessels, including one newbuilding. Therefore, upon delivery of these vessels, which is expected in the third and fourth quarters of 2010, GS&T plans to immediately resell them at GS&T’s aggregate purchase price of approximately $105,000 to MEP. GS&T has entered into definitive agreements with MEP for this purpose. An independent committee of the Company’s Board of Directors reviewed and approved this transaction. GS&T plans to finance the acquisition of these vessels using bank debt for approximately 60% of the purchase price, cash on hand, and proceeds from its concurrent offerings of common stock and 5.00% Convertible Senior Notes due August 15, 2015 (the “Notes”), which were completed on July 27, 2010. (Refer to Note 23 — Subsequent Events for further details.)
On June 3, 2010, GS&T entered into an agreement to purchase five Handysize drybulk vessels, including four newbuildings, from companies within the Metrostar group of companies for an aggregate purchase price of $166,250. Total vessel deposits of $16,625 were made during the second quarter of 2010. The purchases are subject to the completion of customary documentation and closing conditions. One of the vessels was delivered during July 2010. The Genco Ocean, a newbuilding Handysize vessel, was delivered on July 26, 2010. The remaining four vessels are expected to be delivered to the Company between August 2010 and September 2011. Four of the five vessels are secured on long term time charters, each of which includes a minimum and maximum base rate as well as profit-sharing components, with Cargill International S.A. The remaining vessel is secured on a spot market-related time charter with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the Baltic Handysize Index (“BHSI”), an index published by The Baltic Exchange. GS&T plans to finance the acquisition of these vessels using operating cash as well as the $100,000 secured term loan facility for which a commitment letter was entered into on July 14, 2010 and proceeds from its recent concurrent offerings of common stock and convertible notes. Refer to Note 23 — Subsequent Events.
On June 3, 2010, Baltic Trading entered into an agreement to purchase three Handysize drybulk vessels, including one newbuilding, from companies within the Metrostar group of companies for an aggregate purchase price of $99,750. Total vessel deposits of $9,975 were made during the second quarter of 2010. The purchases are subject to the completion of customary documentation and closing conditions. One of the vessels was delivered during August 2010. The Baltic Wind, a 2009 built Handysize vessel, was delivered on August 4, 2010. The remaining vessels, the Baltic Cove, a 2010 build, and the Baltic Breeze, a newbuilding, are expected to be delivered during the third quarter of 2010. All three vessels are secured on spot market-related time charters with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the BHSI.
On February 19, 2010, Baltic Trading entered into agreements with subsidiaries of an unaffiliated third-party seller to purchase four 2009 built Supramax drybulk vessels for an aggregate price of $140,000. Total vessel deposits of $14,000 were made during the first quarter of 2010 and the remaining payment of $126,000 was made
upon delivery of the vessels during the second quarter of 2010. These four vessels, the Baltic Leopard, Baltic Panther, Baltic Cougar, and Baltic Jaguar, were delivered during the second quarter of 2010.
On February 22, 2010, Baltic Trading also entered into agreements with subsidiaries of another unaffiliated third-party seller to purchase two Capesize drybulk vessels for an aggregate price of $144,200. One of these Capesize vessels, the Baltic Wolf, is in the process of being built and is expected to be delivered during the fourth quarter of 2010 and one, the Baltic Bear, has been delivered. Total vessel deposits of $21,540 were made during the first quarter of 2010 and the remaining payment for the Baltic Bear of $65,700 was made upon delivery of the vessel during the second quarter of 2010. The purchase of the Baltic Wolf is subject to customary documentation and closing conditions.
Baltic Trading intends to finance the remaining purchase price of the aforementioned acquisitions utilizing its $100,000 senior secured revolving credit facility for bridge financing.
Refer to Note 1 — General Information for a listing of the vessels for which GS&T and Baltic Trading have entered into agreements to purchase as noted herein.
Below market time charters acquired during previous periods were amortized as an increase to revenue in the amount of $1,103 and $4,761 for the three months ended June 30, 2010 and 2009, respectively. Below market time charters acquired were amortized as an increase to revenue in the amounts of $2,435 and $9,469, respectively, for the six months ended June 30, 2010 and 2009.
Capitalized interest expense associated with newbuilding contracts for the three months ended June 30, 2010 and 2009 was $145 and $528, respectively. Capitalized interest expense associated with newbuilding contracts for the six months ended June 30, 2010 and 2009 was $145 and $986, respectively.
6 - INVESTMENTS
The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”). Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping. This investment is designated as Available For Sale (“AFS”) and is reported at fair value, with unrealized gains and losses recorded in shareholders’ equity as a component of AOCI. At June 30, 2010 and December 31, 2009, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $53,281 and $72,181, respectively, based on the closing price on June 30, 2010 and December 30, 2009 (the last trading date on the Oslo exchange in 2009) of 21.20 NOK and 25.60 NOK, respectively.
The Company reviews the investment in Jinhui for other than temporary impairment on a quarterly basis. There were no impairment charges recognized for the three and six months ended June 30, 2010 and 2009.
The unrealized currency translation gain on the Jinhui capital stock remains a component of AOCI since this investment is designated as an AFS security.
Refer to Note 11 — Accumulated Other Comprehensive (Deficit) Income for a breakdown of the components of AOCI.
7 - EARNINGS PER COMMON SHARE
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the vesting of nonvested stock awards (see Note 20 — Nonvested Stock Awards), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive. Of the 512,000 nonvested shares outstanding at June 30, 2010 (see Note 20 — Nonvested Stock Awards), 170,000 shares are anti-dilutive.
The components of the denominator for the calculation of basic earnings per share and diluted earnings per share are as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, basic: |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic |
|
31,413,874 |
|
31,268,394 |
|
31,409,858 |
|
31,264,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, diluted: |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic |
|
31,413,874 |
|
31,268,394 |
|
31,409,858 |
|
31,264,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of restricted stock awards |
|
149,005 |
|
166,420 |
|
143,368 |
|
128,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted |
|
31,562,879 |
|
31,434,814 |
|
31,553,226 |
|
31,393,333 |
|
8 - RELATED PARTY TRANSACTIONS
The following are related party transactions not disclosed elsewhere in these condensed consolidated financial statements:
The Company makes available an employee performing internal audit services to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board. For the six months ended June 30, 2010 and 2009, the Company invoiced $66 and $62, respectively, to GMC, which includes time associated with such internal audit services. Additionally, during the six months ended June 30, 2010 and 2009, the Company incurred travel and other related expenditures totaling $148 and $113, respectively, reimbursable to GMC or its service provider. At June 30, 2010 and December 31, 2009, the amount due to the Company from GMC was $19 and $41, respectively.
During the six months ended June 30, 2010 and 2009, the Company incurred legal services aggregating $206 and $13, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board. At June 30, 2010 and December 31, 2009, $206 and $3, respectively, were outstanding to Constantine Georgiopoulos.
During the six months ended June 30, 2010, the Company utilized the services of North Star Maritime, Inc. (“NSM”) which is owned and operated by one of GS&T’s directors, Rear Admiral Robert C. North, USCG (ret.). NSM, a marine industry consulting firm, specializes in international and domestic maritime safety, security and environmental protection issues. NSM billed $8 for services rendered during the six months ended June 30, 2010. There are no amounts due to NSM at June 30, 2010 and December 31, 2009.
During 2009 and 2010, GS&T and Baltic Trading entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in their fleets. Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean. During the six months ended June 30, 2010 and 2009, Aegean supplied lubricating oils to the Company’s vessels aggregating $621 and $0, respectively. At June 30, 2010 and December 31, 2009, $388 and $226 remained outstanding, respectively.
During the six months ended June 30, 2010, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $26. MEP is managed by an affiliate of Peter C. Georgiopoulos, Chairman of the Board. At June 30, 2010 and December 31, 2009, $26 and $0, respectively was due to the Company from MEP.
9 - LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
June 30, 2010 |
|
December 31, 2009 |
|
||
|
|
|
|
|
|
|
||
|
2007 Credit Facility |
|
$ |
1,302,000 |
|
$ |
1,327,000 |
|
|
Baltic Trading 2010 Credit Facility |
|
9,975 |
|
— |
|
||
|
Less: Current portion |
|
(50,000 |
) |
(50,000 |
) |
||
|
|
|
|
|
|
|
||
|
Long-term debt |
|
$ |
1,261,975 |
|
$ |
1,277,000 |
|
2007 Credit Facility
On July 20, 2007, the Company entered into a credit facility with DnB Nor Bank ASA (the “2007 Credit Facility”) for the purpose of acquiring nine new Capesize vessels and refinancing the Company’s prior credit facility which it had entered into as of July 29, 2005 (the “2005 Credit Facility”) and short-term line of credit facility entered into as of May 3, 2007 (the “Short-Term Line”). DnB Nor Bank ASA is also Mandated Lead Arranger, Bookrunner, and Administrative Agent. The Company has used borrowings under the 2007 Credit Facility to repay amounts outstanding under the Company’s previous credit facilities, which have been terminated. The maximum amount that may be borrowed under the 2007 Credit Facility at June 30, 2010 is $1,302,000. As of June 30, 2010, the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility.
The collateral maintenance financial covenant is currently waived and the Company’s cash dividends and share repurchases have been suspended until this covenant can be satisfied. The Company’s borrowings bear interest at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 2.00% per annum. A commitment fee of 0.70% per annum is payable on the unused daily portion of the 2007 Credit Facility.
The significant covenants in the 2007 Credit Facility have been disclosed in the 2009 10-K. As of June 30, 2010, the Company believes it is in compliance with all of the financial covenants under its 2007 Credit Facility, as amended, with the exception of the collateral maintenance financial covenant, which has been waived as discussed above.
At June 30, 2010, there were no letters of credit issued under the 2007 Credit Facility.
The following table sets forth the repayment of the outstanding debt of $1,302,000 at June 30, 2010 under the 2007 Credit Facility, as amended:
|
Period Ending December 31, |
|
Total |
|
|
|
|
|
|
|
|
|
2010 (July 1, 2010 – December 31, 2010) |
|
$ |
25,000 |
|
|
2011 |
|
50,000 |
|
|
|
2012 |
|
108,890 |
|
|
|
2013 |
|
192,780 |
|
|
|
2014 |
|
192,780 |
|
|
|
Thereafter |
|
732,550 |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
1,302,000 |
|
2010 Baltic Trading Credit Facility
On April 16, 2010, Baltic Trading entered into a $100,000 senior secured revolving credit facility with Nordea Bank Finland plc, acting through its New York branch (the “2010 Baltic Trading Credit Facility”). The 2010 Baltic Trading Credit Facility matures on April 16, 2014, and borrowings under the facility bear interest at LIBOR plus an applicable margin of 3.25% per annum. A commitment fee of 1.25% per annum is payable on the unused daily portion of the 2010 Baltic Trading Credit Facility which began accruing on March 18, 2010 under the terms of the commitment letter entered into on February 25, 2010. In connection with the commitment letter, Baltic
Trading paid an upfront fee of $313. Additionally, upon executing the 2010 Baltic Trading Credit Facility, Baltic Trading paid the remaining upfront fee of $938, for total fees of $1,250. Of the total facility amount of $100,000, $25,000 is available for working capital purposes. As of June 30, 2010, total available working capital borrowings were $15,025 as $9,975 was drawn down during the three months ended June 30, 2010. As of June 30, 2010, $90,025 remained available under the 2010 Credit Facility. Refer to Note 5 — Vessel Acquisitions and Dispositions for further information regarding these vessel deposits.
Baltic Trading intends to use the 2010 Baltic Trading Credit Facility primarily for bridge financing for future vessel acquisitions. Borrowings, except those for working capital purposes, are to be repaid with proceeds from Baltic Trading’s follow-on equity offerings or otherwise within twelve months from drawdown. Borrowings not repaid within such twelve months will be converted into term loans and repaid in equal monthly installments over the subsequent twelve-month period. All amounts outstanding, including borrowings for working capital, must be repaid in full on the 2010 Baltic Trading Credit Facility’s maturity date.
Borrowings under the 2010 Baltic Trading Credit Facility are secured by liens on Baltic Trading’s initial vessels and other related assets. Borrowings under the facility are subject to the delivery of security documents with respect to Baltic Trading’s initial vessels. Alternatively, Baltic Trading could provide cash collateral equal to $225,000 minus the aggregate purchase price of Baltic Trading’s first five vessels delivered if Baltic Trading wishes to draw down on the 2010 Baltic Trading Credit Facility while awaiting delivery of the Capesize vessel expected to be delivered during the fourth quarter of 2010. As of June 30, 2010, the Company had provided for cash collateral in the amount of $12,000 in order to invoke this option. This amount has been reflected as restricted cash at June 30, 2010. This cash collateral would be released or forwarded to the seller of the vessel once such vessel is delivered and concurrently made subject to a lien under the 2010 Baltic Trading Credit Facility. Baltic Trading’s subsidiaries owning the initial vessels act as guarantors under the 2010 Baltic Trading Credit Facility.
All amounts owing under the 2010 Baltic Trading Credit Facility are also secured by the following:
· cross-collateralized first priority mortgages of each of Baltic Trading’s initial vessels;
· an assignment of any and all earnings of Baltic Trading’s initial vessels; and
· an assignment of all insurance on the mortgaged vessels.
The 2010 Baltic Trading Credit Facility requires Baltic Trading to comply with a number of covenants, including financial covenants related to liquidity, consolidated net worth, and collateral maintenance; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of Baltic Trading’s initial vessels; restrictions on consolidations, mergers or sales of assets; restrictions on changes in the Manager of Baltic Trading’s initial vessels (or acceptable replacement vessels); limitations on changes to the Management Agreement between Baltic Trading and GS&T; limitations on liens; limitations on additional indebtedness; restrictions on paying dividends; restrictions on transactions with affiliates; and other customary covenants.
The 2010 Baltic Trading Credit Facility includes the following financial covenants which apply to Baltic Trading and its subsidiaries on a consolidated basis and are measured at the end of each fiscal quarter beginning with March 31, 2010, except for the minimum cash covenant, which began being measured at June 30, 2010:
· Cash and cash equivalents plus the undrawn amount available for working capital under the facility must not be less than $750 per vessel for all vessels in Baltic Trading’s fleet.
· Consolidated net worth must be greater than (i) 75% of the net proceeds of the IPO of Baltic Trading’s stock, plus (ii) the $75,000 equity contribution from GS&T plus (iii) 50% of the value of any subsequent primary equity offerings of Baltic Trading.
· The aggregate fair market value of the mortgaged vessels must at all times be at least 160% of the aggregate outstanding principal amount under the 2010 Baltic Trading Credit Facility. However, if any borrowings, other than working capital borrowings, are not repaid with 12 months of the drawdown thereof, then the aggregate fair market value of the mortgaged vessels
must at all times be at least 200% of the aggregate outstanding principal amount under the 2010 Baltic Trading Credit Facility.
Under the 2010 Baltic Trading Credit Facility, Baltic Trading is not permitted to make loans to GS&T or Genco Investments LLC if an event of default existed at the time of the loan or could be reasonably expected to result therefrom. In addition, Baltic Trading would not be permitted under the facility to declare or pay dividends to its shareholders (including Genco Investments LLC) if an event of default existed at the time of payment or would be caused thereby. As of June 30, 2010, to remain in compliance with a net worth covenant in the facility, Baltic Trading would need to maintain a net worth of $232,796 after the payment of any dividends.
The Company believes it is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility as of June 30, 2010.
The following table sets forth the repayment of the outstanding debt of $9,975 at June 30, 2010 under the 2010 Baltic Trading Credit Facility:
|
Period Ending December 31, |
|
Total |
|
|
|
|
|
|
|
|
|
2010 (July 1, 2010 – December 31, 2010) |
|
$ |
— |
|
|
2011 |
|
— |
|
|
|
2012 |
|
— |
|
|
|
2013 |
|
— |
|
|
|
2014 |
|
9,975 |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
9,975 |
|
Interest rates
The following tables sets forth the effective interest rate associated with the interest expense for the Company’s debt facilities, including the rate differential between the pay fixed receive variable rate on the interest rate swap agreements that were in effect (refer to Note 10 — Interest Rate Swap Agreements), combined, and the cost associated with unused commitment fees. Additionally, it includes the range of interest rates on the debt, excluding the impact of swaps and unused commitment fees:
|
|
|
Three months ended June 30, |
|
Six Months Ended June 30, |
|
||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
Effective Interest Rate |
|
4.76% |
|
5.51% |
|
4.70% |
|
5.28% |
|
|
Range of Interest Rates (excluding impact of swaps and unused commitment fees) |
|
2.25% to 3.60% |
|
2.31% to 3.44% |
|
2.25% to 3.60% |
|
1.23% to 5.56% |
|
10 - INTEREST RATE SWAP AGREEMENTS
The Company has ten interest rate swap agreements with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s 2007 Credit Facility, which were outstanding at June 30, 2010 and December 31, 2009. The total notional principal amount of the swaps at June 30, 2010 was $756,233 and the swaps have specified rates and durations.
The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of June 30, 2010 and December 31, 2009:
|
Interest Rate Swap Detail |
|
June 30, |
|
December 31, |
|
||||||||||||
|
Trade |
|
Fixed |
|
Start Date |
|
End date |
|
Notional |
|
Notional |
|
||||||
|
9/6/05 |
|
4.485 |
% |
9/14/05 |
|
7/29/15 |
|
$ |
106,233 |
|
$ |
106,233 |
|
||||
|
3/29/06 |
|
5.25 |
% |
1/2/07 |
|
1/1/14 |
|
50,000 |
|
50,000 |
|
||||||
|
3/24/06 |
|
5.075 |
% |
1/2/08 |
|
1/2/13 |
|
50,000 |
|
50,000 |
|
||||||
|
7/31/07 |
|
5.115 |
% |
11/30/07 |
|
11/30/11 |
|
100,000 |
|
100,000 |
|
||||||
|
8/9/07 |
|
5.07 |
% |
1/2/08 |
|
1/3/12 |
|
100,000 |
|
100,000 |
|
||||||
|
8/16/07 |
|
4.985 |
% |
3/31/08 |
|
3/31/12 |
|
50,000 |
|
50,000 |
|
||||||
|
8/16/07 |
|
5.04 |
% |
3/31/08 |
|
3/31/12 |
|
100,000 |
|
100,000 |
|
||||||
|
1/22/08 |
|
2.89 |
% |
2/1/08 |
|
2/1/11 |
|
50,000 |
|
50,000 |
|
||||||
|
1/9/09 |
|
2.05 |
% |
1/22/09 |
|
1/22/14 |
|
100,000 |
|
100,000 |
|
||||||
|
2/11/09 |
|
2.45 |
% |
2/23/09 |
|
2/23/14 |
|
50,000 |
|
50,000 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
$ |
756,233 |
|
$ |
756,233 |
|
||||
The following table summarizes the derivative asset and liability balances at June 30, 2010 and December 31, 2009:
|
|
|
Asset Derivatives |
|
Liability Derivatives |
|
||||||||||||
|
|
|
Balance |
|
Fair Value |
|
Balance |
|
Fair Value |
|
||||||||
|
|
|
Sheet |
|
June 30, |
|
December |
|
Sheet |
|
June 30, |
|
December |
|
||||
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest rate contracts |
|
Fair value of derivative instruments (Current Assets) |
|
$ |
— |
|
$ |
— |
|
Fair value of derivative instruments (Current Liabilities) |
|
$ |
674 |
|
$ |
— |
|
|
Interest rate contracts |
|
Fair value of derivative instruments (Noncurrent Assets) |
|
— |
|
2,108 |
|
Fair value of derivative instruments (Noncurrent Liabilities) |
|
50,111 |
|
44,139 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total derivatives designated as hedging instruments |
|
|
|
$ |
— |
|
$ |
2,108 |
|
|
|
$ |
50,785 |
|
$ |
44,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total Derivatives |
|
|
|
$ |
— |
|
$ |
2,108 |
|
|
|
$ |
50,785 |
|
$ |
44,139 |
|
The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Operations:
The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
For the Three Month Period Ended June 30, 2010
|
Derivatives
in Cash |
|
Amount of |
|
Location of |
|
Amount of |
|
Location of |
|
Amount of |
|
|||
|
Relationships |
|
2010 |
|
Portion) |
|
2010 |
|
Portion) |
|
2010 |
|
|||
|
Interest rate contracts |
|
$ |
(12,682 |
) |
Interest Expense |
|
$ |
(7,594 |
) |
Other Income (Expense) |
|
$ |
12 |
|
The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
For the Three Month Period Ended June 30, 2009
|
Derivatives
in Cash |
|
Amount of |
|
Location of |
|
Amount of |
|
Location of |
|
Amount of |
|
|||
|
Relationships |
|
2009 |
|
Portion) |
|
2009 |
|
Portion) |
|
2009 |
|
|||
|
Interest rate contracts |
|
$ |
10,972 |
|
Interest Expense |
|
$ |
(6,650 |
) |
Other Income (Expense) |
|
$ |
(258 |
) |
The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
For the Six Month Period Ended June 30, 2010
|
Derivatives
in Cash |
|
Amount of |
|
Location of |
|
Amount of |
|
Location of |
|
Amount of |
|
|||
|
Relationships |
|
2010 |
|
Portion) |
|
2010 |
|
Portion) |
|
2010 |
|
|||
|
Interest rate contracts |
|
$ |
(23,993 |
) |
Interest Expense |
|
$ |
(15,204 |
) |
Other Income (Expense) |
|
$ |
35 |
|
The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
For the Six Month Period Ended June 30, 2009
|
Derivatives
in Cash |
|
Amount of |
|
Location of |
|
Amount of |
|
Location of |
|
Amount of |
|
|||
|
Relationships |
|
2009 |
|
Portion) |
|
2009 |
|
Portion) |
|
2009 |
|
|||
|
Interest rate contracts |
|
$ |
9,642 |
|
Interest Expense |
|
$ |
(12,262 |
) |
Other Income (Expense) |
|
$ |
(261 |
) |
At June 30, 2010, ($26,449) of AOCI is expected to be reclassified into interest expense over the next 12 months associated with interest rate derivatives.
The Company is required to provide collateral in the form of vessel assets to support the interest rate swap agreements, excluding vessel assets of Baltic Trading. At June 30, 3010 each of the Company’s thirty-five vessels, excluding Baltic Trading’s vessels, served as collateral in the aggregate amount of $100,000.
11 - ACCUMULATED OTHER COMPREHENSIVE (DEFICIT) INCOME
The components of AOCI included in the accompanying condensed consolidated balance sheets consist of net unrealized gain (loss) on cash flow hedges, net unrealized gain (loss) from investments, and cumulative currency translation adjustments on the investment in Jinhui stock as of June 30, 2010 and December 31, 2009.
|
|
|
AOCI |
|
Net Unrealized |
|
Unrealized |
|
Currency |
|
||||
|
AOCI — January 1, 2010 |
|
$ |
13,589 |
|
$ |
(41,819 |
) |
$ |
43,364 |
|
$ |
12,044 |
|
|
Unrealized loss on investments |
|
(10,336 |
) |
|
|
(10,336 |
) |
|
|
||||
|
Translation loss on investments |
|
(8,565 |
) |
|
|
|
|
(8,565 |
) |
||||
|
Unrealized loss on cash flow hedges |
|
(8,789 |
) |
(8,789 |
) |
|
|
|
|
||||
|
AOCI — June 30, 2010 |
|
$ |
(14,101 |
) |
$ |
(50,608 |
) |
$ |
33,028 |
|
$ |
3,479 |
|
12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company’s financial instruments, which are equal to such instrument’s carrying values at June 30, 2010 and December 31, 2009, are as follows:
|
|
|
June 30, |
|
December 31, |
|
||
|
Cash and cash equivalents |
|
$ |
196,139 |
|
$ |
188,267 |
|
|
Restricted cash |
|
12,000 |
|
17,500 |
|
||
|
Investments |
|
53,281 |
|
72,181 |
|
||
|
Floating rate debt |
|
1,311,975 |
|
1,327,000 |
|
||
|
Derivative instruments — asset position |
|
— |
|
2,108 |
|
||
|
Derivative instruments — liability position |
|
50,785 |
|
44,139 |
|
||
The fair value of the investments is based on quoted market rates. The fair value of the 2007 Credit Facility and 2010 Baltic Trading Credit Facility is estimated based on current rates offered to the Company for similar debt of the same remaining maturities. Additionally, the Company considers its creditworthiness in determining the fair value of the revolving credit facilities. The carrying value approximates the fair market value for these floating rate loans. The fair value of the interest rate swaps is the estimated amount the Company would receive to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of both the swap counterparty and the Company.
The Accounting Standards Codification subtopic 820-10, “Fair Value Measurements & Disclosures” (“ASC 820-10”) (formerly SFAS No. 157, “Fair Value Measurements”) applies to all assets and liabilities that are
being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table summarizes the valuation of our investments and financial instruments by the above pricing levels as of the valuation dates listed:
|
|
|
June 30, 2010 |
|
|||||||
|
|
|
Total |
|
Quoted |
|
Significant |
|
|||
|
Cash equivalents |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Investments |
|
53,281 |
|
53,281 |
|
— |
|
|||
|
Derivative instruments — asset position |
|
— |
|
— |
|
— |
|
|||
|
Derivative instruments — liability position |
|
50,785 |
|
— |
|
50,785 |
|
|||
|
|
|
December 31, 2009 |
|
|||||||
|
|
|
Total |
|
Quoted |
|
Significant |
|
|||
|
Cash equivalents |
|
$ |
75,057 |
|
$ |
75,057 |
|
$ |
— |
|
|
Investments |
|
72,181 |
|
72,181 |
|
— |
|
|||
|
Derivative instruments — asset position |
|
2,108 |
|
— |
|
2,108 |
|
|||
|
Derivative instruments — liability position |
|
44,139 |
|
— |
|
44,139 |
|
|||
The Company held an investment of $0 and $75,057 in the JPMorgan US Dollar Liquidity Fund Institutional at June 30, 2010 and December 31, 2009, respectively. The JPMorgan US Dollar Liquidity Fund Institutional is a money market fund which invests its assets in high quality transferable short term US Dollar denominated fixed and floating rate debt securities and has a portfolio with a weighted average investment maturity not to exceed sixty days. The value of this fund is publicly available and is considered a Level 1 item. The Company holds an investment in the capital stock of Jinhui, which is classified as a long-term investment. The stock of Jinhui is publicly traded on the Oslo Stock Exchange and is considered a Level 1 item. The Company’s interest rate derivative instruments are pay-fixed, receive-variable interest rate swaps based on LIBOR. The Company has elected to use the income approach to value the derivatives, using observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and
swap rates and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Refer to Note 10 — Interest Rate Swap Agreements for further information regarding the Company’s interest rate swap agreements. ASC 820-10 states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments in an asset or liability position and did not have a material impact on the fair value of these derivative instruments. As of June 30, 2010, both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.
13 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
|
|
|
June |
|
December |
|
||
|
Lubricant inventory and other stores |
|
$ |
4,994 |
|
$ |
3,971 |
|
|
Prepaid items |
|
4,671 |
|
3,086 |
|
||
|
Insurance receivable |
|||||||