kl05014.htm
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 March 31, 2008
OR
[ ]
|
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)
Republic of the
Marshall Islands
(State
or other jurisdiction
incorporation
or organization)
|
|
98-043-9758
(I.R.S.
Employer
Identification
No.)
|
|
|
|
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 and 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
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ý Accelerated
filer r Non-accelerated
filer r
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes
No X
APPLICABLE
ONLY TO CORPORATE ISSUERS:
The
number of shares outstanding of each of the issuer’s classes of common stock, as
of May 12, 2008:
Common stock, $0.01 per share
29,078,309 shares.
Genco
Shipping & Trading Limited
Form 10-Q
for the three months ended March 31, 2008 and 2007
Page
PART
I FINANCIAL
INFORMATION
|
Item
1.
|
Financial
Statements
|
|
a)
|
Consolidated
Balance Sheets -
March
31, 2008 and December 31, 2007
3
|
|
b)
|
Consolidated
Statements of Operations -
For the three months ended March 31, 2008 and
2007
4
|
|
c)
|
Consolidated
Statements of Shareholders’ Equity and Comprehensive Income -
For
the three months ended March 31, 2008 and 2007
5
|
|
d)
|
Consolidated
Statements of Cash Flows -
For
the three months ended March 31, 2008 and 2007
6
|
|
e)
|
Notes
to Consolidated Financial Statements -
For the three months ended March
31, 2008 and 2007
7
|
|
Item
2.
|
Management’s
Discussion and Analysis of
Financial
Position and Results of Operations 31
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
49
|
|
Item
4.
|
Controls
and Procedures
|
51
|
PART
II OTHER
INFORMATION
|
Item
1.
|
Legal
Proceedings
|
52
|
|
Item
2.
|
Purchases
of Equity Securities by the Issuer
|
52
|
|
Item
5.
|
Other
Information
|
52
|
Genco
Shipping & Trading Limited
Consolidated
Balance Sheets as of March 31, 2008
and
December 31, 2007
(U.S.
Dollars in thousands, except for share data)
|
|
|
|
|
|
|
Assets
|
|
(unaudited)
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
48,295 |
|
|
$ |
71,496 |
|
Short-term
investments
|
|
|
159,023 |
|
|
|
167,524 |
|
Vessel
held for sale
|
|
|
- |
|
|
|
16,857 |
|
Due
from charterers, net
|
|
|
2,696 |
|
|
|
2,343 |
|
Prepaid
expenses and other current assets
|
|
|
11,560 |
|
|
|
9,374 |
|
Fair
value of derivative instrument
|
|
|
229 |
|
|
|
- |
|
Total
current assets
|
|
|
221,803 |
|
|
|
267,594 |
|
|
|
|
|
|
|
|
|
|
Noncurrent
assets:
|
|
|
|
|
|
|
|
|
Vessels,
net of accumulated depreciation of $86,816 and $71,341,
respectively
|
|
|
1,392,583 |
|
|
|
1,224,040 |
|
Deposits
on vessels
|
|
|
119,358 |
|
|
|
149,017 |
|
Deferred
drydock, net of accumulated depreciation of $1,226 and $941,
respectively
|
|
|
4,773 |
|
|
|
4,552 |
|
Other
assets, net of accumulated amortization of $478 and $288,
respectively
|
|
|
6,382 |
|
|
|
6,130 |
|
Fixed
assets, net of accumulated depreciation and amortization of $824 and $722,
respectively
|
|
|
1,874 |
|
|
|
1,939 |
|
Total
noncurrent assets
|
|
|
1,524,970 |
|
|
|
1,385,678 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,746,773 |
|
|
$ |
1,653,272 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
16,376 |
|
|
$ |
17,514 |
|
Current
portion of long term debt
|
|
|
- |
|
|
|
43,000 |
|
Deferred
revenue
|
|
|
8,412 |
|
|
|
8,402 |
|
Fair
value of derivative instruments
|
|
|
- |
|
|
|
1,448 |
|
Total
current liabilities
|
|
|
24,788 |
|
|
|
70,364 |
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
1,510 |
|
|
|
968 |
|
Deferred
rent credit
|
|
|
720 |
|
|
|
725 |
|
Fair
market value of time charters acquired
|
|
|
37,973 |
|
|
|
44,991 |
|
Fair
value of derivative instruments
|
|
|
44,936 |
|
|
|
21,039 |
|
Long
term debt
|
|
|
1,014,500 |
|
|
|
893,000 |
|
Total
noncurrent liabilities
|
|
|
1,099,639 |
|
|
|
960,723 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,124,427 |
|
|
|
1,031,087 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01; 100,000,000 shares authorized; issued
and
|
|
|
|
|
|
|
|
|
outstanding
29,078,309 and 28,965,809 shares at March 31, 2008 and December 31, 2007,
respectively
|
|
|
291 |
|
|
|
290 |
|
Paid
in capital
|
|
|
524,589 |
|
|
|
523,002 |
|
Accumulated
other comprehensive (deficit) income
|
|
|
(31,680 |
) |
|
|
19,017 |
|
Retained
earnings
|
|
|
129,146 |
|
|
|
79,876 |
|
Total
shareholders’ equity
|
|
|
622,346 |
|
|
|
622,185 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
1,746,773 |
|
|
$ |
1,653,272 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
Genco
Shipping & Trading Limited
Consolidated
Statements of Operations and Comprehensive Income for the Three Ended March 31,
2008 and 2007
(U.S.
Dollars in Thousands, Except for Earnings per Share and Share Data)
(Unaudited)
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
91,669 |
|
|
$ |
37,220 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
744 |
|
|
|
1,413 |
|
Vessel
operating expenses
|
|
|
10,919 |
|
|
|
6,389 |
|
General
and administrative expenses
|
|
|
4,411 |
|
|
|
3,195 |
|
Management
fees
|
|
|
672 |
|
|
|
351 |
|
Depreciation
and amortization
|
|
|
15,864 |
|
|
|
7,186 |
|
Gain
on sale of vessel
|
|
|
(26,227 |
) |
|
|
(3,575 |
) |
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
6,383 |
|
|
|
14,959 |
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
85,286 |
|
|
|
22,261 |
|
|
|
|
|
|
|
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
(Loss)
income from derivative instruments
|
|
|
(64 |
) |
|
|
- |
|
Interest
income
|
|
|
552 |
|
|
|
1,066 |
|
Interest
expense
|
|
|
(11,787 |
) |
|
|
(3,490 |
) |
|
|
|
|
|
|
|
|
|
Other
(expense) income
|
|
|
(11,299 |
) |
|
|
(2,424 |
) |
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
73,987 |
|
|
$ |
19,837 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share-basic
|
|
$ |
2.57 |
|
|
$ |
0.78 |
|
Earnings
per share-diluted
|
|
$ |
2.56 |
|
|
$ |
0.78 |
|
Weighted
average common shares outstanding-basic
|
|
|
28,733,928 |
|
|
|
25,308,953 |
|
Weighted
average common shares outstanding-diluted
|
|
|
28,914,350 |
|
|
|
25,421,480 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
Genco
Shipping & Trading Limited
Consolidated
Statement of Shareholders’ Equity (Unaudited)
For the
Three Months Ended March 31, 2008
(U.S.
Dollars in Thousands Except for Per Share and Share Data)
|
|
Common
Stock
|
|
|
Paid
in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
Comprehensive
Income
|
|
|
Total
|
|
Balance
– January 1, 2008
|
|
$ |
290 |
|
|
$ |
523,002 |
|
|
$ |
79,876 |
|
|
$ |
19,017 |
|
|
|
|
|
$ |
622,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
73,987 |
|
|
|
|
|
|
$ |
73,987 |
|
|
|
73,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,102 |
) |
|
|
(26,102 |
) |
|
|
(26,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on currency translation on short-term investments,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(654 |
) |
|
|
(654 |
) |
|
|
(654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
derivative loss on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,941 |
) |
|
|
(23,941 |
) |
|
|
(23,941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid ($0.85 per share)
|
|
|
|
|
|
|
|
|
|
|
(24,717 |
) |
|
|
|
|
|
|
|
|
|
|
(24,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 112,500 shares of nonvested stock
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
stock amortization
|
|
|
|
|
|
|
1,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– March 31, 2008
|
|
$ |
291 |
|
|
$ |
524,589 |
|
|
$ |
129,146 |
|
|
$ |
(31,680 |
) |
|
|
|
|
|
$ |
622,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
Genco
Shipping & Trading Limited
Consolidated
Statement of Cash Flows for the Three Months Ended March 31, 2008 and
2007
(U.S.
Dollars in Thousands)
(Unaudited)
|
|
For
the Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
73,987 |
|
|
$ |
19,837 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
15,864 |
|
|
|
7,186 |
|
Amortization
of deferred financing costs
|
|
|
191 |
|
|
|
96 |
|
Amortization
of fair market value of time charter acquired
|
|
|
(6,849 |
) |
|
|
456 |
|
Realized
losses on forward currency contracts
|
|
|
11,473 |
|
|
|
- |
|
Unrealized
gain on derivative instruments
|
|
|
(45 |
) |
|
|
- |
|
Unrealized
gain on hedged short-term investment
|
|
|
(9,668 |
) |
|
|
- |
|
Unrealized
gain on forward currency contract
|
|
|
(1,678 |
) |
|
|
- |
|
Amortization
of nonvested stock compensation expense
|
|
|
1,588 |
|
|
|
586 |
|
Gain
on sale of vessels
|
|
|
(26,227 |
) |
|
|
(3,575 |
) |
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase
in due from charterers
|
|
|
(353 |
) |
|
|
(513 |
) |
Increase
in prepaid expenses and other current assets
|
|
|
(1,808 |
) |
|
|
(1,512 |
) |
(Decrease)
increase in accounts payable and accrued expenses
|
|
|
(804 |
) |
|
|
715 |
|
Increase
in deferred revenue
|
|
|
551 |
|
|
|
919 |
|
Decrease
in deferred rent credit
|
|
|
(5 |
) |
|
|
(5 |
) |
Deferred
drydock costs incurred
|
|
|
(506 |
) |
|
|
(861 |
) |
Net
cash provided by operating activities
|
|
|
55,711 |
|
|
|
23,329 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of vessels
|
|
|
(153,276 |
) |
|
|
(43 |
) |
Deposits
on vessels
|
|
|
(463 |
) |
|
|
- |
|
Purchase
of short-term investments
|
|
|
(10,250 |
) |
|
|
- |
|
Payments
on forward currency contracts, net
|
|
|
(11,428 |
) |
|
|
- |
|
Proceeds
from sale of vessels
|
|
|
43,080 |
|
|
|
13,004 |
|
Purchase
of other fixed assets
|
|
|
(14 |
) |
|
|
(144 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(132,351 |
) |
|
|
12,817 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from the 2007 Credit Facility
|
|
|
151,500 |
|
|
|
- |
|
Repayments
on the 2007 Credit Facility
|
|
|
(73,000 |
) |
|
|
- |
|
Repayments
on the 2005 Credit Facility, Short-term Line and Original Credit
Facility
|
|
|
- |
|
|
|
(5,700 |
) |
Cash
dividends paid
|
|
|
(24,717 |
) |
|
|
(16,842 |
) |
Payment
of deferred financing costs
|
|
|
(344 |
) |
|
|
- |
|
Net
cash provided by (used in) financing activities
|
|
|
53,439 |
|
|
|
(22,542 |
) |
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
(23,201 |
) |
|
|
13,604 |
|
Cash
and cash equivalents at beginning of
period
|
|
|
71,496 |
|
|
|
73,554 |
|
Cash
and cash equivalents at end of
period
|
|
$ |
48,295 |
|
|
$ |
87,158 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
Genco
Shipping & Trading Limited
(U.S.
Dollars in Thousands Except Per Share and Share Data)
Notes to Consolidated
Financial Statements for the Three Months Ended March 31, 2008 and 2007
(unaudited)
The
accompanying consolidated financial statements include the accounts of Genco
Shipping & Trading Limited (“GS&T”) and its wholly owned
subsidiaries (collectively, the “Company,” “we” or “us”). 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 is the sole
owner of all of the outstanding shares of the following subsidiaries: Genco Ship
Management LLC; Genco Investments LLC; and the ship-owning subsidiaries as set
forth below.
The
Company began operations on December 6, 2004 with the delivery of its first
vessel. The Company agreed to acquire a fleet of 16 drybulk carriers
from an unaffiliated third party on November 19, 2004 for approximately
$421,900; these vessels were delivered during 2004 and 2005.
On
October 14, 2005, the Company acquired the Genco Muse, a 2001 Handymax vessel,
and time charter contract for a total of $34,450, which was funded entirely by
the Company’s credit facility entered into on July 29, 2005 (the “2005 Credit
Facility”). On July 10, 2006, the Company acquired the Genco Acheron,
the Genco Commander, and the Genco Surprise for a total purchase price of
$81,250, all of which were delivered in the fourth quarter of
2006. During February 2007, the Company completed the sale of the
Genco Glory to Cloud Maritime S.A. for $13,004, net of commission. On
July 18, 2007, the Company entered into an agreement to acquire nine Capesize
vessels from companies within the Metrostar Management Corporation group for a
net purchase price of $1,111,000, consisting of the value of the vessels and the
liability for the below market time charter contracts acquired. On
August 10 and August 13, 2007, the Company also agreed to acquire six drybulk
vessels (three Supramax and three Handysize) from affiliates of Evalend Shipping
Co. S.A. for a net purchase price of $336,000, consisting of the value of the
vessels and the liability for the below market time charter contract
acquired.
On August
15, 2007, the Company decided to sell the two oldest vessels in its fleet, the
Genco Commander and the Genco Trader. On September 3, 2007, the
Company reached an agreement to sell the Genco Commander, a 1994-built Handymax
vessel, to Dan Sung Shipping Co. Ltd. for $44,450 less a 2% brokerage commission
payable to a third party. On December 3, 2007, the Company realized a
net gain of $23,472 and received net proceeds of $43,532. Lastly, on
October 2, 2007, the Company reached an agreement to sell the Genco Trader, a
1990-built Panamax vessel, to SW Shipping Co., Ltd for $44,000 less a 2%
brokerage commission payable to a third party. On February 26, 2008, the Company
realized a net gain of $26,227 from the sale of the vessel and received net
proceeds of $43,080. The Genco Trader was classified as held for sale
at December 31, 2007.
On May 9,
2008, as discussed in Note 20 – Subsequent Events, the Company agreed to acquire
three 2007 built vessels, consisting of two Panamax vessels and one Supramax
vessel, from Bocimar International N.V. and Delphis N.V. for an aggregate
purchase price of approximately $257,000. The
Company expects to fund, on or about May 13, 2008, the required deposit of
fifteen percent of the purchase price by utilizing its 2007 Credit Facility.
The acquisition is subject to completion of customary additional
documentation, including a novation of the existing charter for the Supramax
vessel, and closing conditions. Upon completion of this acquisition
and the acquisition of the remaining four Capesize vessels from companies
within the Metrostar Management Corporation group, Genco's fleet will consist of
35 vessels, comprised of nine Capesize, eight Panamax, four Supramax, six
Handymax, and eight Handysize drybulk carriers, with a total carrying capacity
of approximately 2,910,000 dwt and an average age of 6.6 years.
Below is
the list of the Company’s wholly owned ship-owning subsidiaries as of March 31,
2008:
Wholly
Owned
Subsidiaries
|
Vessels
Acquired
|
dwt
|
Date
Delivered
|
Year
Built
|
Date
Sold
|
|
|
|
|
|
|
Genco
Reliance Limited............................
|
Genco
Reliance
|
29,952
|
12/6/04
|
1999
|
—
|
Genco
Glory Limited.................................
|
Genco
Glory
|
41,061
|
12/8/04
|
1984
|
2/21/07
|
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
Trader Limited...........................
|
Genco
Trader
|
69,338
|
6/7/05
|
1990
|
2/26/08
|
Genco
Muse Limited …………………
|
Genco
Muse
|
48,913
|
10/14/05
|
2001
|
—
|
Genco
Commander Limited …………
|
Genco
Commander
|
45,518
|
11/2/06
|
1994
|
12/3/07
|
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
Hadrian Limited ……………..
|
Genco
Hadrian
|
170,500
|
Q4
2008 (1)
|
2008
(2)
|
—
|
Genco
Commodus Limited …………
|
Genco
Commodus
|
170,500
|
Q2
2009 (1)
|
2009
(2)
|
—
|
Genco
Maximus Limited ……………
|
Genco
Maximus
|
170,500
|
Q2
2009 (1)
|
2009
(2)
|
—
|
Genco
Claudius Limited …………….
|
Genco
Claudius
|
170,500
|
Q3
2009 (1)
|
2009
(2)
|
—
|
|
|
|
|
|
|
(1)
Dates for vessels being delivered in the future are estimates based on
guidance received from the sellers and/or the respective
shipyards.
|
(2)
Built dates for vessels delivering in the future are estimates based on
guidance received from the sellers and respective
shipyards.
|
On July
18, 2005, prior to the closing of the public offering of GS&T’s common
stock, GS&T’s board of directors and stockholder approved a split (in the
form of a stock dividend, giving effect to a 27,000:1 common stock split) of the
Company’s common stock. All share and per share amounts relating to common
stock, included in the accompanying consolidated financial statements and
footnotes, have been restated to reflect the stock split for all periods
presented.
Prior to
its initial public offering, GS&T was 100% owned by Fleet Acquisition LLC, a
limited liability company organized on November 3, 2004 under the laws of
the Marshall Islands. Fleet Acquisition LLC was owned approximately
65.65% by OCM Principal Opportunities III Fund, L.P. and OCM Principal
Opportunities Fund IIIA, L.P., collectively, (“Oaktree”) of which Oaktree
Management LLC is the General Partner, approximately 26.57% by Peter
Georgiopoulos, and 7.78% by others. On April 14, 2006, Fleet
Acquisition LLC distributed 1,050,210 shares to certain of its members, and on
December 15, 2006, Fleet Acquisition LLC distributed 3,587,361 shares to Peter
Georgiopoulos, our Chairman. As a result, at December 31, 2006,
Oaktree beneficially owned approximately 34.75% of the Company through Fleet
Acquisition, LLC and Peter Georgiopoulos beneficially owned approximately
14.08%.
In
January 2007, we filed a registration statement on Form S-3 with the Securities
and Exchange Commission (the "SEC") to register possible future offerings,
including possible resales by Fleet Acquisition LLC. That registration
statement, as amended, was declared effective by the SEC on February 7,
2007. Fleet Acquisition
LLC
utilized that registration statement to conduct an underwritten offering of
4,830,000 shares it owned, including an over-allotment option granted to
underwriters for 630,000 shares which the underwriters exercised in
full. Following completion of that offering, Fleet Acquisition LLC
owned 15.80% of our common stock. During October 2007, the
Company closed on an equity offering of 3,358,209 shares of Genco common stock
(with the exercise of the underwriters' over-allotment option) at an offering
price of $67 per share. The Company received net proceeds of $213,871
after deducting underwriters' fees and expenses. On October 5, 2007,
the Company utilized $214,000 including these proceeds to repay outstanding
borrowings under the 2007 Credit Facility. Additionally, in the same
offering, Fleet Acquisition LLC sold 1,076,291 shares (with the exercise of the
underwriters' over-allotment option) at the same offering price of $67 per
share. The Company did not receive any proceeds from the common stock
sold by Fleet Acquisition LLC.
On
January 10, 2008, the Board of Directors approved a grant of 100,000 nonvested
common stock to Peter Georgiopoulos, Chairman of the Board. This grant vests
ratably on each of the ten anniversaries of the determined vesting date
beginning with November 15, 2008. On March 10, 2008, Fleet
Acquisition LLC distributed 2,512,532 shares of the Company's common stock to
OCM Fleet Acquisition LLC, as a member thereof, pursuant to an agreement among
Fleet Acquisition LLC's members. In connection with this distribution, Mr.
Georgiopoulos became the sole member of the Management Committee of Fleet
Acquisition LLC, which currently retains 443,606 shares of the Company's common
stock of which Mr. Georgiopoulos may be deemed to be the beneficial
owner. As a result of the foregoing transactions, Mr. Georgiopoulos
may be deemed to beneficially own 14.22% of our common stock (including shares
held through Fleet Acquisition LLC), and OCM Fleet Acquisition LLC may be deemed
to beneficially own 8.64% of our common stock.
2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of
consolidation
The
accompanying 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 and
its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Basis of
Presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States of America. However, in the
opinion of the management of the Company, all 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. Reference is made to the December 31, 2007 consolidated financial
statements of Genco Shipping & Trading Ltd. contained in its Annual Report
on Form 10-K for the year ended December 31, 2007.
The
Company’s vessels regularly move between countries in international waters, over
hundreds of trade routes and, as a result, the disclosure of geographic
information is impracticable.
Vessel
acquisitions
When the
Company enters into an acquisition transaction, it determines whether the
acquisition transaction was the purchase of an asset or a business based on the
facts and circumstances of the transaction. As is customary in the
shipping industry, the purchase of a vessel is normally treated as a purchase of
an asset as the historical operating data for the vessel is not reviewed nor is
material to our decision to make such acquisition.
When a
vessel is acquired with an existing time charter, the Company allocates the
purchase price of the vessel and the time charter based on, among other things,
vessel market valuations and the present value (using an
interest
rate which reflects the risks associated with the acquired charters) of the
difference between (i) the contractual amounts to be paid pursuant to the
charter terms and (ii) management's estimate of the fair market charter rate,
measured over a period equal to the remaining term of the
charter. The capitalized above-market (assets) and below-market
(liabilities) charters are amortized as a reduction or increase, respectively,
to voyage revenues over the remaining term of the charter.
Segment
reporting
The
Company reports financial information and evaluates its operations by charter
revenues and not by the length of ship employment for its customers, i.e., spot
or time charters. The Company does not use discrete financial information to
evaluate the operating results for different types of charters. Although revenue
can be identified for these types of charters, management cannot and does not
separately identify expenses, profitability or other financial information for
these charters. As a result, management, including the chief operating decision
maker, reviews operating results solely by revenue per day and operating results
of the fleet and thus, the Company has determined that it operates under one
reportable segment. Furthermore, when the Company charters a vessel to a
charterer, the charterer is free to trade the vessel worldwide and, as a result,
the disclosure of geographic information is impracticable.
Revenue and voyage expense
recognition
Since the
Company’s inception, revenues have been generated from time charter agreements.
A time charter involves placing a vessel at the charterer’s disposal for a set
period of time during which the charterer may use the vessel in return for the
payment by the charterer of a specified daily hire rate. In time charters,
operating costs including crews, maintenance and insurance are typically paid by
the owner of the vessel and specified voyage costs such as fuel and port charges
are paid by the charterer. There are certain other non-specified voyage expenses
such as commissions which are borne by the Company.
The
Company records time charter revenues over the term of the charter as service is
provided. Revenues are recognized on a straight-line basis as the average
revenue over the term of the respective time charter agreement. The
Company recognizes vessel operating expenses when incurred.
Due from
charterers, net includes accounts receivable from charters net of the provision
for doubtful accounts. At each balance sheet date, the Company provides for the
provision based on a review of all outstanding charter receivables. Included in
the standard time charter contracts with our customers are certain performance
parameters, which if not met can result in customer claims. As of
March 31, 2008 and December 31, 2007, we had no reserve against due from
charterers balance and a reserve of $580 and $734, respectively in deferred
revenue, each of which is associated with estimated customer claims against the
Company including time charter performance issues.
Revenue
is based on contracted charterparties and, although the Company's business is
with customers whom the Company believes to be of the highest standard, there is
always the possibility of dispute over terms and payment of hires and freights.
In particular, disagreements may arise as to the responsibility for lost time
and revenue due to the Company as a result. Accordingly, the Company
periodically assesses the recoverability of amounts outstanding and estimates a
provision if there is a possibility of non-recoverability. Although the Company
believes its provisions to be reasonable at the time they are made, it is
possible that an amount under dispute is not ultimately recovered and the
estimated provision for doubtful accounts is inadequate.
Vessel operating
expenses
Vessel
operating expenses include crew wages and related costs, the cost of insurance,
expenses relating to repairs and maintenance, the cost of spares and consumable
stores, and other miscellaneous expenses. Vessel operating expenses are
recognized when incurred.
Vessels,
net are stated at cost less accumulated depreciation. Included in vessel costs
are acquisition costs directly attributable to the acquisition of a vessel and
expenditures made to prepare the vessel for its initial voyage. The
Company also considers interest costs for a vessel under construction as a cost
which is directly attributable to the acquisition of a
vessel. Vessels are depreciated on a straight-line basis over their
estimated useful lives, determined to be 25 years from the date of initial
delivery from the shipyard. Depreciation expense for vessels for the
three months ended March 31, 2008 and 2007 was $15,476, and $6,912,
respectively.
Depreciation
expense is calculated based on cost less the estimated residual scrap value. The
costs of significant replacements, renewals and betterments are capitalized and
depreciated over the shorter of the vessel’s remaining estimated useful life or
the estimated life of the renewal or betterment. Undepreciated cost of any asset
component being replaced that was acquired after the initial vessel purchase is
written off as a component of vessel operating expense. Expenditures for routine
maintenance and repairs are expensed as incurred. Scrap value is estimated by
the Company by taking the cost of steel times the weight of the ship noted in
lightweight ton (lwt). At March 31, 2008 and 2007, the Company estimated the
residual value of vessels to be $175/lwt
Fixed assets,
net
Fixed
assets, net are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are based on a
straight-line basis over the estimated useful life of the specific asset placed
in service. The following table is used in determining the estimated
useful lives:
Description Useful
lives
Leasehold
improvements
15 years
Furniture,
fixtures & other
equipment 5
years
Vessel
equipment
2-5
years
Computer
equipment 3
years
Depreciation
expense for fixed assets for the three months ended March 31, 2008 and 2007 was
$57, and $55, respectively.
Deferred drydocking
costs
The
Company’s vessels are required to be drydocked approximately every 30 to 60
months for major repairs and maintenance that cannot be performed while the
vessels are operating. The Company capitalizes the costs associated with the
drydockings as they occur and depreciates these costs on a straight-line basis
over the period between drydockings. Costs capitalized as part of a vessel’s
drydocking include actual costs incurred at the drydocking yard; cost of parts
that are reasonably made in anticipation of reducing the duration or cost of the
drydocking; cost of travel, lodging and subsistence of personnel sent to the
drydocking site to supervise; and the cost of hiring a third party to oversee
the drydocking. Depreciation expense for drydocking for the three
months ended March 31, 2008 and 2007 was $285, and $183,
respectively.
Inventory
consists of lubricants and bunkers (fuel) which are stated at the lower of cost
or market. Cost is determined by the first-in, first-out method
Impairment of long-lived
assets
The
Company follows the Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“SFAS”) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than their carrying amounts. In the evaluation of the
fair value and future benefits of long-lived assets, the Company performs an
analysis of the anticipated undiscounted future net cash flows of the related
long-lived assets. If the carrying value of
the
related asset exceeds the undiscounted cash flows, the carrying value is reduced
to its fair value. Various factors including anticipated future charter rates,
estimated scrap values, future drydocking costs and estimated vessel operating
costs, are included in this analysis.
For three
months ended March 31, 2008 and 2007, no impairment charges were recorded, based
on the analysis described above.
Deferred financing
costs
Deferred
financing costs, included in other assets, consist of fees, commissions and
legal expenses associated with obtaining loan facilities. These costs are
amortized over the life of the related debt, and are included in interest
expense.
Cash and cash
equivalents
The
Company considers highly liquid investments such as time deposits and
certificates of deposit with an original maturity of three months or less to be
cash equivalents.
Short-term
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 other comprehensive income
(“OCI”). Effective August 16, 2007, the Company has elected hedge
accounting for forward currency contracts in place associated with the cost
basis of the Jinhui shares. However, the hedge is limited to the
lower of the cost basis or the market value at time of
designation. Therefore, the unrealized currency gain or loss
associated with the hedged portion or the cost basis in the Jinhui shares is now
reflected in the income statement as income or (loss) from derivative
instruments to offset the gain or loss associated with these forward currency
contracts. The cost of securities when sold is based on the specific
identification method. Realized gains and losses on the sale of these
securities will be reflected in the consolidated statement of operations in
other (expense) income. Additionally, the realized gain or loss on
the forward currency contracts is reflected in the Consolidated Statement of
Cash Flows as an investing activity and is reflected in the caption Payments on
forward currency contracts, net.
Short-term
investments are reviewed periodically to identify possible other-than-temporary
impairment. When evaluating the investments, the Company reviews
factors such as the length of time and extent to which fair value has been below
the cost basis, the financial condition of the issuer, the underlying net asset
value of the issuers assets and liabilities, and the Company’s ability and
intent to hold the investment for a period of time which may be sufficient for
anticipated recovery in market value. Should the decline in the value
of any investment be deemed to be other-than-temporary, the investment basis
would be written down to fair market value, and the write-down would be recorded
to earnings as a loss.
Pursuant
to Section 883 of the U.S. Internal Revenue Code of 1986 as amended (the
“Code”), qualified income derived from the international operations of ships is
excluded from gross income and exempt from U.S. federal income tax if a company
engaged in the international operation of ships meets certain requirements.
Among other things, in order to qualify, the company must be incorporated in a
country which grants an equivalent exemption to U.S. corporations and must
satisfy certain qualified ownership requirements.
The
Company is incorporated in the Marshall Islands. Pursuant to the income tax laws
of the Marshall Islands, the Company is not subject to Marshall Islands income
tax. The Marshall Islands has been officially recognized by the Internal Revenue
Service as a qualified foreign country that currently grants the requisite
equivalent exemption from tax.
Based on
the publicly traded requirement of the Section 883 regulations as described in
the next paragraph, we believe that the Company qualified for exemption from
income tax for 2007.
In order
to meet the publicly traded requirement, our stock must be treated as being
primarily and regularly traded for more than half the days of any such year.
Under the Section 883 regulations, our qualification for the publicly traded
requirement may be jeopardized if shareholders of our common stock that own five
percent or more of our stock (“5% shareholders”) own, in the aggregate, 50% or
more of our common stock for more than half the days of the
year. We believe that during 2007, the combined ownership of
our 5% shareholders did not equal 50% or more of our common stock for more than
half the days of 2007. However if our 5% shareholders were to increase their
ownership to 50% or more of our common stock for more than half the days of 2008
or any future taxable year, we would not be eligible to claim exemption from tax
under Section 883 for that taxable year. We can therefore give no assurance that
changes and shifts in the ownership of our stock by 5% shareholders will not
preclude us from qualifying for exemption from tax in 2008 or in future
years.
If the
Company does not qualify for the exemption from tax under Section 883, it would
be subject to a 4% tax on the gross “shipping income” (without the allowance for
any deductions) that is treated as derived from sources within the United States
or “United States source shipping income.” For these purposes, “shipping income”
means any income that is derived from the use of vessels, from the hiring or
leasing of vessels for use, or from the performance of services directly related
to those uses; and “United States source shipping income” includes 50% of
shipping income that is attributable to transportation that begins or ends, but
that does not both begin and end, in the United States.
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.
Comprehensive
income
The
Company follows SFAS No. 130 “Reporting Comprehensive Income,” which establishes
standards for reporting and displaying comprehensive income and its components
in financial statements. Comprehensive income is comprised of net
income and amounts related to the adoption of SFAS No. 133 “Accounting for
Derivative Instruments and Hedging Activities” as well as unrealized gains or
losses associated with the Company’s short-term investments.
The
Company adopted SFAS No. 123R, Share-Based Payment, for nonvested stock
issued under its equity incentive plan. Adoption of this new
accounting policy did not change the method of accounting for nonvested stock
awards. However, deferred compensation costs from nonvested stock
have been classified as a component of paid-in capital as required by SFAS
No. 123R.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include vessel and drydock
valuations and the valuation of amounts due from charterers. Actual results
could differ from those estimates.
Concentration of credit
risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk are amounts due from charterers. With respect to amounts due from
charterers, the Company attempts to limit its credit risk by
performing
ongoing credit evaluations and, when deemed necessary, requiring letters of
credit, guarantees or collateral. Although the Company earned 100% of
revenues from fourteen customers, for both the three months ended March 31, 2008
and 2007, management does not believe significant risk exists in connection with
the Company’s concentrations of credit at March 31, 2008 and December 31,
2007.
For the
three months ended March 31, 2008, there were two customers that individually
accounted for more than 10% of revenue, which represented 27.57% and 17.04% of
revenue, respectively. For the three months ended March 31, 2007,
there were two customers that individually accounted for more than 10% of
revenue, which represented 15.78% and 13.85% of revenue,
respectively.
Fair value of financial
instruments
The
estimated fair values of the Company’s financial instruments such as amounts due
to / due from charterers, and accounts payable approximate their individual
carrying amounts as of March 31, 2008 and December 31, 2007 due to their
short-term maturity or the variable-rate nature of the respective borrowings
under the credit facility.
The fair
value of the interest rate swaps and forward currency contracts (used for
purposes other than trading) is the estimated amount the Company would receive
to terminate these agreements at the reporting date, taking into account current
interest rates and the creditworthiness of the counterparty for assets and
creditworthiness of the Company for liabilities. See Note 10 - Fair
Value of Financial Instruments for additional disclosure on the fair values of
long term debt, derivative instruments, and available-for-sale
securities.
The
Company adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157”) in the
first quarter of 2007, which did not have a material impact on the financial
statements of the Company.
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.
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 OCI.
For the
portion of the forward interest rate swaps that are not effectively hedged, the
change in the value and the rate differential to be paid or received is
recognized as income or (expense) from derivative instruments and is listed as a
component of other (expense) income until such time the Company has obligations
against which the swap is designated and is an effective hedge.
Currency risk
management
The
Company currently holds an investment in Jinhui shares that are traded on the
Oslo Stock Exchange located in Norway, and as such, the Company is exposed to
the impact of exchange rate changes on this available-for-sale security
denominated in Norwegian Kroner. The Company’s objective is to manage
the impact of exchange rate changes on its earnings and cash flows in relation
to its cost basis associated with its short-term investments. The Company uses
foreign currency forward contracts to protect its original investment from
changing exchange rates.
The
change in the value of the forward currency contracts is recognized as income or
(expense) from derivative instruments and is listed as a component of other
(expense) income. Effective August 16, 2007, the Company elected to
utilize fair value hedge accounting for these instruments whereby the change in
the value in the forward contracts continues to be recognized as income or
(expense) from derivative instruments and is listed as a component of other
(expense) income. Fair value hedge accounting then accelerates the
recognition of the effective portion of the currency translation gain or (loss)
on the Available for Sale Security from August 16, 2007 from OCI into income or
(expense) from derivative instruments and is listed as a component of other
(expense) income. Time value of the forward contracts are excluded
from effectiveness testing and recognized currently in income.
New accounting
pronouncements
In September 2006, FASB issued SFAS
No.157, “Fair Value Measurements” which enhances existing guidance for measuring
assets and liabilities using fair value. Previously, guidance for applying fair
value was incorporated in several accounting pronouncements. The new
statement provides a single definition of fair value, together with a framework
for measuring it, and requires additional disclosure about the use of fair value
to measure assets and liabilities. While the statement does not add
any new fair value measurements, it does change current practice. One such
change is a requirement to adjust the value of nonvested stock for the effect of
the restriction even if the restriction lapses within one year.
Additionally,
in February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, which
delays the effective date of SFAS Statement No. 157 to fiscal years
beginning after November 15, 2008 and interim periods with those fiscal years
for all nonfinancial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) until January 1, 2009 for calendar year end entities. The
Company has already adopted this Statement except as it applies to nonfinancial
assets and liabilities as noted in FSP 157-2. The partial adoption of SFAS
No. 157 did not have a significant impact on its consolidated results of
operations or financial position. The Company is currently evaluating the effect
that the adoption of SFAS No. 157, as it relates to nonfinancial assets and
liabilities, will have on its consolidated results of operations or financial
position.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”). Under this statement, the Company may elect to
report financial instruments and certain other items at fair value on a
contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS No. 159 is
effective for the Company commencing in 2008. Early adoption within
120 days of the beginning of the year was permissible, provided the Company had
adopted SFAS No. 157. The Company adopted SFAS 159 on January 1, 2008
and elected not to report financial instruments and certain other items at fair
value on a contract-by-contract basis with changes in value reported in
earnings.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (SFAS No. 141R). SFAS No. 141R will
significantly change the accounting for business combinations. Under
SFAS No. 141R, an acquiring entity will be required to recognize all
the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value, with limited exceptions. SFAS No. 141R
also includes a substantial number of new disclosure requirements and applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. As the provisions of SFAS No. 141R are applied
prospectively, the impact to the Company cannot be determined until any such
transactions occur.
In March 2008, The Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 161, “Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB statement 133” (SFAS 161). The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, results of
operations and cash flows. The new standard also improves transparency about how
and why a company uses derivative instruments and how derivative instruments and
related hedged items are accounted for under Statement of Financial Accounting
Standards No. 133. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. The Company’s management is currently assessing
the new disclosure requirements required by SFAS 161.
3 - CASH FLOW
INFORMATION
The
Company currently has nine interest rate swaps, and these swaps are described
and discussed in Note 8. The fair value of the swaps is in a liability position
of $44,936 and $21,039 as of March 31, 2008 and December 31, 2007,
respectively.
The
Company had non-cash investing activities not included in the Consolidated
Statement of Cash Flows for items included in accounts payable and accrued
expenses consisting of $1,258 for the purchase of vessels, $596 associated with
deposits on vessels, $51 for the purchase of short-term investments, $98
associated with deferred financing costs, and $23 for the purchase of fixed
assets for the three months ended March 31, 2008. Lastly, at March
31, 2008, the Company had items in prepaid expenses and other current assets
consisting of $789 which had reduced the deposits on vessels. The Company had
non-cash investing activities not included in the Consolidated Statement of Cash
Flows for items included in accounts payable and accrued expenses for the
purchase of fixed assets of approximately $57 for the three months ended March
31, 2007.
For the
three months ended March 31, 2008, the Company made a non-cash reclassed of
$30,335 from deposits on vessels to vessels net of accumulated depreciation due
to the completion of the purchase of the Genco Champion and Genco
Constantine.
During
the three months ended March 31, 2008 and 2007, the cash paid for interest,
net of amounts capitalized, was $14,000 and $2,675, respectively.
On
January 10, 2008 the Board of Directors approved a grant of 100,000 nonvested
common stock to Peter Georgiopoulos, Chairman of the Board. The fair value
of such nonvested stock was $4,191 on the grant date and was recorded in
equity. Additionally, on February 13, 2008, the Company made grants
of nonvested common stock under the Plan in the amount of 12,500 shares to
directors of the Company. The fair value of such nonvested stock was $689
on the grant date and was recorded in equity.
On
February 8, 2007 the Company granted nonvested stock to certain directors and
employees. The fair value of such nonvested stock was $494 on the grant date and
was recorded in equity. Additionally, during January 2007, nonvested
stock forfeited amounted to $54 for shares granted in 2005 and is recorded in
equity.
4 - VESSEL
ACQUISITIONS
AND
DISPOSITIONS
On May 9,
2008, as discussed in Note 20 – Subsequent Events, the Company agreed to acquire
three additional 2007 built vessels, consisting of two Panamax vessels and one
Supramax vessel, from Bocimar International N.V. and Delphis N.V. for an
aggregate purchase price of approximately $257,000. The
Company expects to fund, on or about May 13, 2008, the required deposit of
fifteen percent of the purchase price by utilizing its 2007 Credit Facility.
The
acquisition is subject to the completion of customary additional documentation,
including a novation of the existing charter for the Supramax vessel, and
closing conditions. Upon completion of this acquisition and the
acquisition of the remaining four Capesize vessels from the companies within the
Metrostar Management Corporation group, Genco's fleet will consist of 35 vessels
comprised of nine Capesize, eight Panamax, four Supramax, six Handymax, and
eight Handysize drybulk carriers, with a total carrying capacity of
approximately 2,910,000 dwt and an average age of 6.6 years.
On
February 26, 2008, the Company completed the sale of the Genco
Trader. The Company realized a net gain of approximately
$26,227 and had net proceeds of $43,080 from the sale of the vessel in the
first quarter of 2008. On August 15, 2007, the Company decided to sell the
Genco Trader, and on October 2, 2007, the Company reached an agreement to sell
the Genco Trader, a 1990-built Panamax vessel, to SW Shipping Co., Ltd for
$44,000 less a 2% brokerage commission payable to a third party. The
Genco Trader was classified as held for sale at December 31, 2007 in the amount
of $16,857.
On
February 21, 2008, the Company completed the acquisition of the Genco
Constantine, a 2008 built Capesize vessel from companies within the
Metrostar Management Corporation group. The remaining four Capesize
vessels are expected to be built, and subsequently delivered to Genco, between
the fourth quarter of 2008 and the third quarter of 2009. In July 2007,
the Company entered into an agreement to acquire nine Capesize
vessels
from companies within the Metrostar Management Corporation group for a net
purchase price of $1,111,000, consisting of the value of the vessels and the
liability for the below market time charter contracts acquired. As of
December 31, 2007, four of the nine Capesize vessels, the Genco Augustus, Genco
Tiberius, Genco London, and Genco Titus, all 2007 built vessels, had been
delivered to Genco. Capitalized interest associated with the new
building contracts acquired from the Metrostar Management Corporation group for
the three months ended March 31, 2008 and 2007 were $758 and $0,
respectively.
On
January 2, 2008, the Company completed the acquisition of the Genco Champion,
the last vessel acquired from affiliates of Evalend Shipping Co.
S.A.. On August 10 and August 13, 2007, the Company had agreed to
acquire six drybulk vessels (three Supramax and three Handysize) from affiliates
of Evalend Shipping Co. S.A. for a net purchase price of $336,000, consisting of
the value of the vessels and the liability for the below market time charter
contract acquired. As of December 31, 2007, the Company had completed
the acquisition of five of the vessels, the Genco Predator, Genco Warrior, Genco
Hunter, Genco Charger, and Genco Challenger.
On
February 21, 2007, the Genco Glory was sold to Cloud Maritime S.A. for
$13,004 net of a brokerage commission paid to WeberCompass (Hellas)
S.A. Based on the selling price and the net book value of the vessel,
the Company recorded a gain of $3,575 during the quarter ended March 31,
2007.
On
October 14, 2005, the Company took delivery of the Genco Muse, a 48,913 dwt
Handymax drybulk carrier and the results of its operations is included in the
consolidated results of the Company after that date. The vessel is a 2001
Japanese-built vessel. The total purchase price of the vessel was $34,450. The
purchase price included the assumption of an existing time charter with Qatar
Navigation QSC at a rate of $26.5 per day. Due to the above market rate of the
existing time charter at the time of the acquisition, the Company capitalized
$3,492 of the purchase price as an asset which was amortized as a reduction of
voyage revenues through September 2007 (the remaining term of the charter). For
the three months ended March 31, 2008 and 2007, $0 and $456, respectively was
amortized.
See Note
1 for discussion on the initial acquisition of our initial 16 drybulk
carriers.
The
purchase and sale of the aforementioned vessels is consistent with the Company's
strategy of selectively expanding the number and maintaining the high-quality
vessels in the fleet.
5 – SHORT-TERM
INVESTMENTS
At March
31, 2008 and December 31, 2007, the Company holds an investment of 16,335,100
and 15,439,800 shares of Jinhui capital stock, respectively, which is recorded
at the fair value of $159,023 and $167,524, respectively based on the closing
price on March 31, 2008 and December 28, 2007 (the last trading date on the Oslo
exchange in 2007) of 49.60 NOK and 59.00 NOK, respectively. The
unrealized gain due to the appreciation of stock and currency translation gain
at March 31, 2008 is $12,438 and $20,719; respectively. The
unrealized gain due to the appreciation of stock and currency translation gain
December 31, 2007 was $38,540 and $11,705, respectively. The
unrealized currency translation gain for any unhedged portion at March 31,
2008 and December 31, 2007 is $892 and $1,545, respectively and is recorded as a
component of OCI since this investment is designated as an AFS
security. Effective on August 16, 2007, the Company elected to
utilize hedge accounting for forward contracts hedging the currency risk
associated with the Norwegian Kroner cost basis in the Jinhui
stock. The hedge is limited to the lower of the cost basis or the
market value at time of the designation. For the three months ended
March 31, 2008 and 2007, fair value hedge accounting resulted in recognizing
both an unrealized currency translation gain of $19,827 and $0,
respectively, on the stock basis and an offsetting loss on the forward
contracts. The unrealized appreciation in the stock and the currency
translation gain above the cost basis are recorded as a component of
OCI. Realized gains and losses on the sale of these securities will
be reflected in the consolidated statement of operations in other (expense) or
income once sold. Time value of the forward contracts are excluded
from effectiveness testing and recognized currently in income. At
March 31, 2008 and December 31, 2007, an immaterial amount was recognized in
income or (expense) from derivative instruments associated with excluded time
value and ineffectiveness.
At March
31, 2008, the Company had one short-term forward currency contract to hedge the
Company’s exposure to the Norwegian Kroner related to the cost basis of Jinhui
stock as described above. The forward
currency
contract for a notional amount of 739.2 million NOK (Norwegian Kroner) or
$145,517, matured on April 18, 2008. At December 31, 2007, the Company
had one short-term forward currency contract to hedge the Company’s exposure to
the Norwegian Kroner related to the cost basis of Jinhui stock as described
above. The forward currency contract for a notional amount of 685.1
million NOK (Norwegian Kroner) or $124,557, matured on January 17, 2008. As
forward contracts expire, the Company continues to enter into new forward
currency contracts for the cost basis of the Short-term investment, excluding
commissions. However, the hedge is limited to the lower of the cost basis
or the market value at time of designation. As April 18, 2008, the
Company has a forward currency contract for the notional amount of 739.2 million
NOK for $148,738. For the three months ended March 31, 2008 and
March 31, 2007, the net losses (realized and unrealized) of $64 and $0,
respectively, related to the forward currency contracts and to the
hedged translations gain on the cost basis of the Jinhui stock are reflected as
(loss) income from derivative instruments and are included as a component of
other expense. The current asset associated with the forward currency
contract at March 31, 2008 is $229, and the short-term liability associated with
the forward currency contract at December 31, 2007 is $1,448, and is presented
as the fair value of derivatives on the balance sheet. The gain
(loss) associated with this respective asset and liability is included as a
component of (loss) income from derivative instruments.
6 - EARNINGS PER COMMON
SHARE
The
computation of basic earnings (loss) per share is based on the weighted average
number of common shares outstanding during the year. The computation of diluted
earnings (loss) per share assumes the vesting of nonvested stock awards (see
Note 18), for which the assumed proceeds upon grant are deemed to be the amount
of compensation cost attributable to future services and not yet recognized
using the treasury stock method, to the extent dilutive. For the three months
ended March 31, 2008 and 2007, the restricted stock grants are
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 March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Common
shares outstanding, basic:
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic
|
|
|
28,733,928 |
|
|
|
25,308,953 |
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding, diluted:
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic
|
|
|
28,733,928 |
|
|
|
25,308,953 |
|
|
|
|
|
|
|
|
|
|
Weighted
average restricted stock awards
|
|
|
180,422 |
|
|
|
112,527 |
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, diluted
|
|
|
28,914,350 |
|
|
|
25,421,480 |
|
On
February 13, 2008, our board of directors approved a share repurchase program
for up to a total of $50,000 of the Company's common stock. The board
will review the program after 12 months. Share repurchases will be
made from time to time for cash in open market transactions at prevailing market
prices or in privately negotiated transactions. The timing and amount of
purchases under the program will be determined by management based upon market
conditions and other factors. Purchases may be made pursuant to a
program adopted under Rule 10b5-1 under the Securities Exchange Act. The program
does not require the Company to purchase any specific number or amount of shares
and may be suspended or reinstated at any time in the Company's discretion and
without notice. Repurchases will be subject to restrictions under the 2007
Credit Facility. The 2007 Credit Facility was amended as of February
13, 2008 to permit the share repurchase program and provide that the dollar
amount of shares repurchased is counted toward the maximum dollar amount of
dividends that may be paid in any fiscal quarter. No such purchases
have been made through March 31, 2008.
7 - RELATED PARTY
TRANSACTIONS
The
following are related party transactions not disclosed elsewhere in these
financial statements:
In June
2006, the Company made an employee performing internal audit services available
to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C.
Georgiopoulos, also serves as Chairman of the Board, Chief Executive Officer and
President. For the three months ended March 31, 2008 and 2007,
the Company invoiced $37 and $35, respectively, to GMC for the time associated
with such internal audit services. Additionally, during the three
months ended March 31, 2008 and 2007, the Company incurred travel related
expenditures totaling $94 and $0, respectively, reimbursable to GMC or its
service provider. At March 31, 2008, and December 31, 2007, the
amount due GMC from the Company is $73 and $5, respectively.
During
the three months ended March 31, 2008 and 2007, the Company incurred legal
services aggregating $19 and $29 from Constantine Georgiopoulos, father of Peter
C. Georgiopoulos, Chairman of the Board. At March 31, 2008 and December 31,
2007, $0 and $86, respectively, was outstanding to Constantine
Georgiopoulos.
In
December 2006, the Company engaged the services of WeberCompass (Hellas) S.A.
(“WC”), a shipbroker, to facilitate the sale of the Genco Glory. One
of our directors, Basil G. Mavroleon, is a Managing Director of WC and a
Managing Director and shareholder of Charles R. Weber Company, Inc., which is
50% shareholder of WC. WC was paid a commission of $132, or 1% of the
gross selling price of the Genco Glory. No amounts were due to WC at March 31,
2008 or at December 31, 2007.
During
March 2007, the Company utilized the services of North Star Maritime, Inc.
(“NSM”) which is owned and operated by one of our 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 was paid $7 for services
rendered in March 2007. No amounts were due to NSM at March 31, 2008
or at December 31, 2007.
Long-term
debt consists of the following:
|
|
March
31,
2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Revolver,
2007 Credit Facility
|
|
$ |
1,014,500 |
|
|
$ |
936,000 |
|
Less:
Current portion of revolver
|
|
|
- |
|
|
|
43,000 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
1,014,500 |
|
|
$ |
893,000 |
|
The above
table reflects $43,000 as current debt as of December 31, 2007, which was repaid
in February 2008 using proceeds from the sale of the Genco Trader
described in Note 4. Upon the sale of a mortgaged vessel, the 2007
Credit Facility requires the Company to repay a pro-rata portion of the
long-term debt upon the sale of a mortgaged vessel. The repayment
amount is calculated by dividing the value of the mortgaged vessels being sold
by the value of the entire mortgaged fleet at time of sale and multiplying such
percentage by the total expected debt outstanding at time of
sale. However, the Company elected to utilize the majority of the
proceeds from the sale of the Genco Trader to repay debt, and as such,
classified the entire balance repaid as current at December 31,
2007.
2007 Credit
Facility
On July
20, 2007, the Company entered into a new credit facility with DnB Nor Bank ASA
(the “2007 Credit Facility”) for the purpose of acquiring the nine new Capesize
vessels and refinancing the Company’s existing 2005 Credit Facility and
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 2005 Credit Facility
and the Short-Term Line, and these two facilities have accordingly been
terminated. The maximum amount that may be borrowed under the 2007
Credit Facility is $1,377,000. Subsequent to the equity offering
completed in October 2007, the Company is no longer required pay up to $6,250 or
such lesser amount as is available from Net Cash Flow (as defined in the credit
agreement for the 2007 Credit Facility) each fiscal quarter to reduce borrowings
under the 2007 Credit Facility. As of March 31, 2008, $362,500
remains available to fund future vessel acquisitions. The Company may
borrow up to $50,000 of the $362,500 for working capital purposes.
Under the
2007 Credit Facility, subject to the conditions set forth in the credit
agreement, the Company may borrow an amount up to $1,377,000. Amounts
borrowed and repaid under the 2007 Credit Facility may be
reborrowed. The 2007 Credit Facility has a maturity date of July 20,
2017, or ten years from the signing date of the 2007 Credit
Facility.
Loans
made under the 2007 Credit Facility may be used for the following:
·
|
up
to 100% of the en bloc purchase price of $1,111,000 for nine modern
drybulk Capesize vessels, which the Company has agreed to purchase from
companies within the Metrostar Management Corporation
group;
|
·
|
repayment
of amounts previously outstanding under the Company’s 2005 Credit
Facility, or $206,233;
|
·
|
the
repayment of amounts previously outstanding under the Company’s Short-Term
Line, or $77,000;
|
·
|
possible
acquisitions of additional dry bulk carriers between 25,000 and 180,000
dwt that are up to ten years of age at the time of delivery and not more
than 18 years of age at the time of maturity of the 2007 Credit
Facility;
|
·
|
up
to $50,000 of working capital; and
|
·
|
the
issuance of up to $50,000 of standby letters of credit. At
March 31, 2008, there were no letters of credit issued under the 2007
Credit Facility.
|
|
All
amounts owing under the 2007 Credit Facility are secured by the
following:
|
·
|
cross-collateralized
first priority mortgages of each of the Company’s existing vessels and any
new vessels financed with the 2007 Credit
Facility;
|
·
|
an
assignment of any and all earnings of the mortgaged
vessels;
|
·
|
an
assignment of all insurances of the mortgaged
vessels;
|
·
|
a
first priority perfected security interest in all of the shares of Jinhui
owned by the Company;
|
·
|
an
assignment of the shipbuilding contracts and an assignment of the
shipbuilder’s refund guarantees meeting the Administrative Agent’s
criteria for any additional newbuildings financed under the 2007 Credit
Facility; and
|
·
|
a
first priority pledge of the Company’s ownership interests in each
subsidiary guarantor.
|
The
Company has completed a pledge of its ownership interests in the subsidiary
guarantors that own the nine Capesize vessels acquired or to be
acquired. The other collateral described above was pledged, as
required, within thirty days of the effective date of the 2007 Credit
Facility.
The
Company’s borrowings under the 2007 Credit Facility bear interest at the London
Interbank Offered Rate (“LIBOR”) for an interest period elected by the Company
of one, three, or six months, or longer if available, plus the Applicable Margin
(which is 0.90% per annum for the first five years of the 2007 Credit Facility
and 0.95% thereafter). If the Company’s ratio of Total Debt to Total
Capitalization (each as defined in the credit agreement for the 2007 Credit
Facility) is less than 70%, the Applicable Margin decreases to 0.85% and 0.90%,
respectively. In addition to other fees payable by the Company in
connection with the 2007 Credit Facility, the Company paid a commitment fee at a
rate of 0.20% per annum of the daily average unutilized commitment of each
lender under the facility until September 30, 2007, and 0.25%
thereafter.
The 2007
Credit Facility will be subject to ten consecutive semi-annual reductions of
7.0% of the total amount of credit granted under the new facility, with the
first reduction occurring on the fifth anniversary of the signing date and a
balloon payment reduction of 30% on the maturity date. The Company
may prepay the 2007 Credit Facility, without penalty, with two days notice for
LIBOR rate advances, in minimum amounts of $10,000 together with accrued
interest on the amount prepaid.
The 2007
Credit Facility includes the following financial covenants which will apply to
the Company and its subsidiaries on a consolidated basis and will be measured at
the end of each fiscal quarter beginning with June 30, 2007:
·
|
The
leverage covenant requires the maximum average net debt to EBITDA to be
ratio of at least 5.5:1.0.
|
|
·
|
Cash
and cash equivalents must not be less than $500 per mortgaged
vessel.
|
·
|
The
ratio of EBITDA to interest expense, on a rolling last four-quarter basis,
must be no less than 2.0:1.0.
|
·
|
After
July 20, 2007, consolidated net worth must be no less than $263,300 plus
80% of the value of the any new equity issuances of the Company from June
30, 2007. Based on the equity offering completed in October
2007, requires the consolidated net worth to be no less than
$434,397.
|
·
|
The
aggregate fair market value of the mortgaged vessels must at all times be
at least 130% of the aggregate outstanding principal amount under the 2007
Credit Facility plus all letters of credit outstanding; the Company has a
30 day remedy period to post additional collateral or reduce the amount of
the revolving loans and/or letters of credit
outstanding.
|
Other
covenants in the 2007 Credit Facility are substantially similar to the covenants
in the Company’s previous credit facilities. As of March 31, 2008,
the Company has been in compliance with these covenants since the inception of
the facility.
The
Company can continue to pay cash dividends in accordance with its dividend
policy and certain terms of the credit agreement so long as no event of default
has occurred and is continuing and that no event of default will occur as a
result of the payment of such dividend. The 2007 Credit Facility also
establishes a basket to accrue for dividends permitted but not actually
distributed under the permitted dividend calculation since July 29,
2005. In addition to Genco’s regular quarterly dividend, Genco can
pay up to $150,000 in dividends from this basket. In addition, the
2007 Credit Facility was amended as of February 13, 2008 to permit the Company
to implement its share repurchase program, which was recently approved by its
board of directors. Under this amendment, the dollar amount of shares
repurchased is counted toward the maximum dollar amount of dividends that may be
paid in any fiscal quarter. For further details of our share
repurchase program, see Note 6 to our financial statements.
Due to
refinancing of the Company’s previous facilities, the Company incurred a
non-cash write-off of the unamortized deferred financing cost in the amount of
$3,568 associated with the Company’s previous facilities and this charge was
reflected in interest expense in the third quarter of 2007.
The
following table sets forth the repayment of the outstanding debt of $1,014,500
at March 31, 2008 under the 2007 Credit Facility:
|
|
|
|
Period
Ending March 31,
|
|
|
|
|
|
|
|
2008
(April 1, 2008 – December 31, 2008)
|
|
$ |
- |
|
2009
|
|
|
- |
|
2010
|
|
|
- |
|
2011
|
|
|
- |
|
2012
|
|
|
- |
|
Thereafter
|
|
|
1,014,500 |
|
|
|
|
|
|
Total
long-term debt
|
|
$ |
1,014,500 |
|
|
|
|
|
|
Interest
rates
For the
three months ended March 31, 2008, the effective interest rate associated with
the interest expense for the 2007 Credit Facility, including the rate
differential between the pay fixed receive variable rate on the swaps that were
in effect, combined, and the cost associated with unused commitment fees with
this facility was 5.24%. For the three months ended March 31, 2007,
the effective interest rate associated with the interest expense for the 2005
Credit Facility, including the rate differential between the pay fixed receive
variable rate on the swaps that were in effect, combined, and the cost
associated with unused commitment fees with this facility was
6.57%.
The
interest rate on the debt, excluding the unused commitment fees, ranged from
3.41% to 6.10% and from 6.26% to 6.39%, for the three months ended March 31,
2008 and 2007, respectively.
Short-Term Line - Refinanced
by the 2007 Credit facility
On May 3,
2007, the Company entered into a short-term line of credit facility under which
DnB NOR Bank ASA, Grand Cayman Branch and Nordea Bank Norge ASA, Grand Cayman
Branch are serving as lenders (the “Short-Term Line”). The
Short-Term Line was used to fund a portion of acquisitions we made of in the
shares of capital stock of Jinhui. Under the terms of the Short-Term
Line, we were allowed to borrow up to $155,000 for such acquisitions, and we had
borrowed a total of $77,000 under the Short-Term Line prior to its
refinancing. The term of the Short-Term Line was for 364 days, and
the interest on amounts drawn was payable at the rate of LIBOR plus a margin of
0.85% per annum for the first six month period and LIBOR plus a margin of 1.00%
for the remaining term. We were obligated to pay certain commitment
and administrative fees in connection with the Short-Term Line. The
Company, as required, pledged all of the Jinhui shares it has purchased as
collateral against the Short-Term Line. The Short-Term Line
incorporated by reference certain covenants from our 2005 Credit
Facility.
The
Short-Term Line was refinanced in July 2007 with the 2007 Credit
Facility.
2005 Credit
Facility - Refinanced by the 2007
Credit facility
The
Company entered into the 2005 Credit Facility as of July 29,
2005. The 2005 Credit Facility was with a syndicate of commercial
lenders including Nordea Bank Finland plc, New York Branch, DnB NOR Bank ASA,
New York Branch and Citibank, N.A. The 2005 Credit Facility has been
used to refinance our indebtedness under our original credit facility entered
into on December 3, 2004 (the “Original Credit Facility”). Under the terms of
our 2005 Credit Facility, borrowings in the amount of $106,233 were used to
repay indebtedness under our Original Credit Facility and additional net
borrowings of $24,450 were obtained to fund the acquisition of the Genco
Muse. In July 2006, the Company increased the line of credit by
$100,000 and during the second and third quarters of 2006 borrowed $81,250 for
the acquisition of three vessels.
The 2005
Credit Facility had a term of ten years and would have matured on July 29, 2015.
The facility permitted borrowings up to 65% of the value of the vessels that
secure our obligations under the 2005 Credit Facility up to the facility limit,
provided that conditions to drawdown are satisfied. Certain of these conditions
required the Company, among other things, to provide to the lenders acceptable
valuations of the vessels in our fleet confirming
that the
aggregate amount outstanding under the facility (determined on a pro forma basis
giving effect to the amount proposed to be drawn down) will not exceed 65% of
the value of the vessels pledged as collateral. The facility limit is
reduced by an amount equal to 8.125% of the total $550,000, commitment,
semi-annually over a period of four years and is reduced to $0 on the tenth
anniversary.
On
February 7, 2007, the Company reached an agreement with its syndicate of
commercial lenders to allow the Company to increase the amount of the 2005
Credit Facility by $100,000, for a total maximum availability of $650,000.
The Company had the option to increase the facility amount by $25,000 increments
up to the additional $100,000, so long as at least one bank within the syndicate
agrees to fund such increase. Any increase associated with this agreement
was generally governed by the existing terms of the 2005 Credit Facility,
although we and any banks providing the increase could have agreed to vary the
upfront fees, unutilized commitment fees, or other fees payable by us in
connection with the increase.
The
obligations under the 2005 Credit Facility were secured by a first-priority
mortgage on each of the vessels in our fleet as well as any future vessel
acquisitions pledged as collateral and funded by the 2005 Credit Facility. The
2005 Credit Facility was also secured by a first-priority security interest in
our earnings and insurance proceeds related to the collateral
vessels.
All of
our vessel-owning subsidiaries were full and unconditional joint and
several guarantors of our 2005 Credit Facility. Each of these subsidiaries is
wholly owned by Genco Shipping & Trading Limited. Genco Shipping
& Trading Limited has no independent assets or operations.
Interest
on the amounts drawn was payable at the rate of 0.95% per annum over LIBOR until
the fifth anniversary of the closing of the 2005 Credit Facility and 1.00% per
annum over LIBOR thereafter. We were also obligated to pay a commitment fee
equal to 0.375% per annum on any undrawn amounts available under the facility.
On July 29, 2005, the Company paid an arrangement fee to the lenders of $2.7
million on the original commitment of $450,000 and an additional $600 for the
$100,000 commitment increase which equates to 0.6% of the total commitment of
$550,000 as of July 12, 2006. These arrangement fees along with other costs were
capitalized as deferred financing costs.
Under the
terms of our 2005 Credit Facility, we were permitted to pay or declare dividends
in accordance with our dividend policy so long as no default or event of default
has occurred and is continuing or would result from such declaration or
payment.
The 2005
Credit Facility had certain financial covenants that require the Company, among
other things, to: ensure that the fair market value of the collateral
vessels maintains a certain multiple as compared to the outstanding
indebtedness; maintain a specified ratio of total indebtedness to total
capitalization; maintain a specified ratio of earnings before interest, taxes,
depreciation and amortization to interest expense; maintain a net worth of
approximately $263,000; and maintain working capital liquidity in an amount of
not less than $500 per vessel securing the borrowings. Additionally,
there were certain non-financial covenants that required the Company, among
other things, to provide the lenders with certain legal documentation, such as
the mortgage on a newly acquired vessel using funds from the 2005 Credit
Facility, and other periodic communications with the lenders that include
certain compliance certificates at the time of borrowing and on a quarterly
basis. For the period since facility inception through retirement of
the facility, the Company was in compliance with these covenants, except for an
age covenant in conjunction with the acquisition of the Genco Commander, a 1994
vessel, for which the Company obtained a waiver for the term of the
agreement.
The 2005
Credit Facility permitted the issuance of letters of credit up to a maximum
amount of $50,000. The conditions under which letters of credit can be issued
were substantially the same as the conditions for borrowing funds under the
facility. Each letter of credit must terminate within twelve months, but can be
extended for successive periods also not exceeding twelve months. The Company
would pay a fee of 1/8 of 1% per annum on the amount of letters of credit
outstanding.
The 2005 Credit Facility has been
refinanced with the 2007 Credit Facility.
Letter of
credit
In
conjunction with the Company entering into a new long-term office space lease
(See Note 16 - Lease Payments), the Company was required to provide a letter of
credit to the landlord in lieu of a security deposit. As of September 21, 2005,
the Company obtained an annually renewable unsecured letter of credit with DnB
NOR Bank. The letter of credit amount as of March 31, 2008 and
December 31, 2007 was in the amount of $520, at a fee of 1% per annum. The
letter of credit is reduced to $416 on August 1, 2008 and is cancelable on each
renewal date provided the landlord is given 150 days minimum
notice.
Interest rate swap
agreements
The
Company has entered into nine interest rate swap agreements with DnB NOR Bank to
manage interest costs and the risk associated with changing interest rates. The
total notional principal amount of the swaps is $681,233 and the swaps have
specified rates and durations. The following table summarizes the
interest rate swaps in place as of March 31, 2008 and December 31,
2007:
Interest
Rate Swap Detail
|
|
|
|
|
|
|
Trade
Date
|
|
Fixed
Rate
|
|
Start
Date
of Swap
|
End
date
of Swap
|
|
Notional
Amount Outstanding
|
|
|
Notional
Amount Outstanding
|
|
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 |
|
9/7/07
|
|
|
4.56 |
% |
10/1/07
|
12/31/09
|
|
|
75,000 |
|
|
|
75,000 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
681,233 |
|
|
$ |
631,233 |
|
The
differential to be paid or received for these swap agreements are recognized as
an adjustment to interest expense as incurred. The Company is
currently utilizing cash flow hedge accounting for the swaps whereby the
effective portion of the change in value of the swaps is reflected as a
component of Other Comprehensive Income (“OCI”). The ineffective
portion is recognized as income or (loss) from derivative instruments, which is
a component of other (expense) income. For any period of time that
the Company did not designate the swaps for hedge accounting, the change in the
value of the swap agreements prior to designation was recognized as income or
(loss) from derivative instruments and was listed as a component of other
(expense) income.
The
interest (expense) income pertaining to the interest rate swaps for the three
months ended March 31, 2008 and 2007 was ($489) and $248,
respectively.
The swap
agreements, with effective dates on or prior to March 31, 2008, synthetically
convert variable rate debt the fixed interest rate of swap plus the Applicable
Margin (which is 0.85% per annum for the first five years of the 2007 Credit
Facility and 0.90% thereafter). If the Company’s ratio of Total Debt
to Total Capitalization (each as defined in the credit agreement for the 2007
Credit Facility) is greater than or equal to 70%, the Applicable Margin
increases to 0.90% for the first five years and 0.95% thereafter.
The
liability associated with the swaps at March 31, 2008 and December 31, 2007 are
$44,936 and $21,039, respectively, and are presented as the fair value of
derivatives on the balance sheet. As of March 31, 2008 and December
31, 2007, the Company has accumulated OCI of ($45,010) and ($21,068),
respectively, related to the
effectively
hedged portion of the swaps. Hedge ineffectiveness associated with
the interest rate swaps resulted in income or (loss) from derivative instruments
of $63 and $0, respectively for the three months ended March 31, 2008 and
2007. At March 31, 2008, ($7,132) of OCI is expected to be
reclassified into income over the next 12 months associated with interest rate
derivatives.
9 – ACCUMULATED OTHER
COMPREHENSIVE INCOME
The
components of accumulated other comprehensive income included in the
accompanying consolidated balance sheets consist of net unrealized gain (loss)
from short-term investments, net gain (loss) on derivative instruments
designated and qualifying as cash-flow hedging instruments, and cumulative
translation adjustments on the short-term investment in Jinhui stock as of March
31, 2008 and December 31, 2007.
|
|
|
|
|
Unrealized
Gain (loss) on Cash Flow Hedges
|
|
|
Unrealized
Gain on Short-term Investments
|
|
|
Currency
Translation Gain (loss) on Short-term Investments
|
|
OCI
– January 1, 2007
|
|
$ |
19,017 |
|
|
$ |
(21,068 |
) |
|
$ |
38,540 |
|
|
$ |
1,545 |
|
Unrealized
loss on short-term investments
|
|
|
(26,102 |
) |
|
|
|
|
|
|
(26,102 |
) |
|
|
|
|
Translation
gain on short-term investments
|
|
|
9,014 |
|
|
|
|
|
|
|
|
|
|
|
9,014 |
|
Translation
gain reclassed to (loss) income from derivative
instruments
|
|
|
(9,667 |
) |
|
|
|
|
|
|
|
|
|
|
(9,667 |
) |
Unrealized
loss on cash flow hedges
|
|
|
(23,453 |
) |
|
|
(23,453 |
) |
|
|
|
|
|
|
|
|
Interest
income reclassed to (loss) income from derivative
instruments
|
|
|
(489 |
) |
|
|
(489 |
) |
|
|
|
|
|
|
|
|
OCI
– March 31, 2008
|
|
$ |
(31,680 |
) |
|
$ |
(45,010 |
) |
|
$ |
12,438 |
|
|
$ |
892 |
|
10 - FAIR VALUE OF FINANCIAL
INSTRUMENTS
The
estimated fair values of the Company’s financial instruments are as
follows:
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
48,295 |
|
|
$ |
48,295 |
|
|
$ |
71,496 |
|
|
$ |
71,496 |
|
Short-term
investments
|
|
|
159,023 |
|
|
|
159,023 |
|
|
|
167,524 |
|
|
|
167,524 |
|
Floating
rate debt
|
|
|
1,014,500 |
|
|
|
1,014,500 |
|
|
|
936,000 |
|
|
|
936,000 |
|
Derivative
instruments – asset position
|
|
|
229 |
|
|
|
229 |
|
|
|
- |
|
|
|
- |
|
Derivative
instruments – liability position
|
|
|
44,936 |
|
|
|
44,936 |
|
|
|
22,487 |
|
|
|
22,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair
value of the short-term investments is based on quoted market
rates. The fair value of the revolving credit facility is estimated
based on current rates offered to the Company for similar debt of the same
remaining maturities and additionally, the Company considers its
creditworthiness in determining the fair value of the revolving credit
facility. The carrying value approximates the fair market value for
the floating rate loans. The fair value of the interest rate and
currency swaps (used for purposes other than trading) 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
Company elected to early adopt SFAS No. 157 beginning in its 2007 fiscal year,
and there was no material impact to its first quarter financial
statements. SFAS No. 157 applies to all assets and liabilities that
are being measured and reported on a fair value basis. SFAS No. 157 requires new
disclosure that establishes a
framework
for measuring fair value in GAAP, and expands disclosure about fair value
measurements. This statement 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 statement requires that assets
and liabilities carried at fair value will 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 short-term investments and
financial instruments by the above SFAS No. 157 pricing levels as of the
valuation dates listed:
|
|
March
31, 2008
|
|
|
|
|
|
|
Quoted
market prices in active markets (Level 1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
Short-term
investments
|
|
$ |
159,023 |
|
|
$ |
159,023 |
|
|
|
|
Derivative
instruments – asset position
|
|
|
229 |
|
|
|
|
|
|
|
229 |
|
Derivative
instruments – liability position
|
|
|
44,936 |
|
|
|
|
|
|
|
44,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company holds an investment in the capital stock of Jinhui, which is classified
as a short-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. In addition, the Company’s
derivative instruments include a forward currency contract based on the
Norwegian Kroner. The Company has elected to use the income
approach to value the derivatives, using observable Level 2 market expectations
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, NOK spot rates and credit risk at
commonly quoted intervals). Mid-market pricing is used as a practical
expedient for fair value measurements. SFAS No. 157 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 and Company’s creditworthiness 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 of these derivative
instruments.
|
11 - PREPAID EXPENSES
AND OTHER CURRENT ASSETS
|
|
Prepaid
expenses and other current assets consist of the
following:
|
|
|
March 31, 2008
|
|
|
December 31, 2007
|
|
Lubricant
inventory and other stores
|
|
$ |
3,042 |
|
|
$ |
2,720 |
|
Prepaid
items
|
|
|
3,167 |
|
|
|
1,769 |
|
Insurance
Receivable
|
|
|
722 |
|
|
|
1,331 |
|
Interest
receivable on deposits for vessels to be acquired
|
|
|
2,867 |
|
|
|
2,489 |
|
Other
|
|
|
1,762 |
|
|
|
1,065 |
|
Total
|
|
$ |
11,560 |
|
|
$ |
9,374 |
|
12 – OTHER ASSETS,
NET
Other
assets consist of the following:
(i)
Deferred financing costs which include fees, commissions and legal expenses
associated with securing loan facilities. These costs are amortized over the
life of the related debt, which is included in interest expense. The Company has
unamortized deferred financing costs of $6,382 and $6,130, respectively, at
March 31, 2008 and December 31, 2007 associated with the 2007 Credit Facility.
Accumulated amortization of deferred financing costs as of March 31, 2008 and
December 31, 2007 was $478 and $288, respectively. During July 2007,
the Company refinanced its previous facilities (the Short-Term Line and the 2005
Credit Facility) resulting in the non-cash write-off of the unamortized deferred
financing cost of $3,568 to interest expense. The Company has
incurred deferred financing costs of $6,860 in total for the 2007 Credit
Facility. Amortization expense for deferred financing costs,
including the write-off any unamortized costs upon refinancing credit facilities
for the three months ended March 31, 2008 and 2007 was $191 and $96,
respectively.
(ii)
Value of time charter acquired, which represents the value assigned to the time
charter acquired with the Genco Muse in October 2005. The value
assigned to the time charter was $3,492. At March 31, 2008 and
December 31, 2007, this intangible asset has been completely amortized as a
component of revenue over the minimum life of the time charter. The
amount amortized for this intangible asset was $0 and $456 for the three months
ended March 31, 2008 and 2007, respectively.
|
Fixed
assets consist of the following:
|
|
|
March
31,
2008
|
|
|
December
31, 2007
|
|
Fixed
assets:
|
|
|
|
|
|
|
Vessel
equipment
|
|
$ |
849 |
|
|
$ |
826 |
|
Leasehold
improvements
|
|
|
1,146 |
|
|
|
1,146 |
|
Furniture
and fixtures
|
|
|
347 |
|
|
|
347 |
|
Computer
equipment
|
|
|
356 |
|
|
|
342 |
|
Total
cost
|
|
|
2,698 |
|
|
|
2,661 |
|
Less:
accumulated depreciation and amortization
|
|
|
824 |
|
|
|
722 |
|
Total
|
|
$ |
1,874 |
|
|
$ |
1,939 |
|
|
|
|
|
|
|
|
|
|
14 - ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
|
Accounts
payable and accrued expenses consist of the
following:
|
|
|
March 31,
2008
|
|
|
December
31, 2007
|
|
Accounts
payable
|
|
$ |
2,857 |
|
|
$ |
4,164 |
|
Accrued
general and administrative expenses
|
|
|
6,847 |
|
|
|
9,108 |
|
Accrued
vessel operating expenses
|
|
|
6,672 |
|
|
|
4,242 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
16,376 |
|
|
$ |
17,514 |
|
15 -
REVENUE FROM TIME
CHARTERS
Total
revenue earned on time charters for the three months ended March 31, 2008 and
2007 was $91,669 and $37,220, respectively. Future minimum time
charter revenue, based on vessels committed to noncancelable time charter
contracts as of April 30, 2008 is expected to be $233,346 for the remaining
three quarters of 2008 $229,427 during 2009, $137,758 during 2010, $35,038
during 2011 and $11,830 during 2012, assuming 20 days of off-hire due to any
scheduled drydocking and no additional off-hire time is
incurred. Future minimum revenue excludes the future acquisitions of
the remaining four Capesize vessels and the other three vessels to be acquired
as described in Note 20 – Subsequent Events, which are to be delivered to Genco
in the future, since estimated delivery dates are not firm.
16 - LEASE
PAYMENTS
In
September 2005, the Company entered into a 15-year lease for office space in New
York, New York. The monthly rental is as follows: Free
rent from September 1, 2005 to July 31, 2006, $40 per month from August 1, 2006
to August 31, 2010, $43 per month from September 1, 2010 to August 31, 2015, and
$46 per month from September 1, 2015 to August 31, 2020. The Company
obtained a tenant work credit of $324. The monthly straight-line
rental expense from September 1, 2005 to August 31, 2020 is $39. As a
result of the straight-line rent calculation generated by the free rent period
and the tenant work credit, the Company has a deferred rent credit at March 31,
2008 and December 31, 2007 of $720 and $725, respectively. The
Company has the option to extend the lease for a period of five years from
September 1, 2020 to August 31, 2025. The rent for the renewal period
will be based on prevailing market rate for the six months prior to the
commencement date of the extension term. Rent expense for the three
months ended March 31, 2008 and 2007, was $117 for each of the respective
periods.
Future
minimum rental payments on the above lease for the next five years and
thereafter are as follows: $364 for the remainder of 2008, $486 for 2009, $496
for 2010, $518, for 2011 through 2012 and a total of $4,132 for the remaining
term of the lease.
17 - SAVINGS
PLAN
In August
2005, the Company established a 401(k) plan which is available to full-time
employees who meet the plan’s eligibility requirements. This 401(k)
plan is a defined contribution plan, which permits employees to make
contributions up to maximum percentage and dollar limits allowable by IRS Code
Sections 401(k), 402(g), 404 and 415 with the Company matching up to the first
six percent of each employee’s salary on a dollar-for-dollar
basis. The matching contribution vests immediately. For
three months ended March 31, 2008 and 2007, the Company’s matching contribution
to the Plan was $61 and $41, respectively.
18- NONVESTED STOCK
AWARDS
On July
12, 2005, the Company’s board of directors approved the Genco Shipping and
Trading Limited 2005 Equity Incentive Plan (the “Plan”). Under this
plan, the Company’s board of directors, the compensation committee, or another
designated committee of the board of directors may grant a variety of
stock-based incentive awards to employees, directors and consultants whom the
compensation committee (or other committee or the board of directors) believes
are key to the Company’s success. Awards may consist of incentive
stock options, nonqualified stock options, stock appreciation rights, dividend
equivalent rights, nonvested stock, unrestricted stock and performance
shares. The aggregate number of shares of common stock available for
award under the Plan is 2,000,000 shares.
On
October 31, 2005, the Company made grants of nonvested common stock under the
Plan in the amount of 111,412 shares to the executive officers and employees and
7,200 shares to directors of the Company. The executive and employee
grants vest ratably on each of the four anniversaries of the date of the
Company’s initial public offering (July 22, 2005). On July 22, 2007
and 2006, 26,478 and 27,853 shares, respectively, of the employees’ nonvested
stock vested, and during the year ended December 31, 2007 and the year ended
December 31, 2006, 3,375 and 750 shares, respectively, were
forfeited. Grants to the directors vested in full on May 18, 2006,
the date of the Company’s annual shareholders’ meeting. Upon grant of
the nonvested stock, an amount of unearned compensation equivalent to the market
value at the date of the grant, or $1,949, was recorded as a component of
shareholders’ equity. After forfeitures, the unamortized portion of
this award at March 31, 2008 and December 31, 2007 was $187 and $250,
respectively. Amortization of this charge, which is included in
general and administrative
expenses,
was $63 and $99, for the three months ended March 31, 2008 and 2007,
respectively. The remaining expense for the years ended 2008, and
2009 will be $127 and $60, respectively
On
December 21, 2005, the Company made grants of nonvested common stock under the
Plan in the amount of 55,600 shares to the executive officers and employees of
the Company. Theses grants vest ratably on each of the four
anniversaries of the determined vesting date beginning with November 15,
2006. During the year ended December 31, 2007and 2006, 13,338 and
13,900 shares, respectively, of the employees’ nonvested stock vested and during
the year ended December 31, 2007 1,687 shares were forfeited. Upon
grant of the nonvested stock, an amount of unearned compensation equivalent to
the market value at the date of the grant, or $991, was recorded as a component
of shareholders’ equity. After forfeitures, the unamortized portion
of this award at March 31, 2008 and December 31, 2007 was $146 and $181,
respectively. Amortization of this charge, which is included in
general and administrative expenses, was $35 and $58, for the three months ended
March 31, 2008 and 2007, respectively. The remaining expense for the
years ended 2008 and 2009 will be $94 and $52, respectively.
On
December 20, 2006 and December 22, 2006, the Company made grants of nonvested
common stock under the Plan in the amount of 37,000 shares to employees other
than executive officers and 35,000 shares to the executive officers,
respectively. These grants vest ratably on each of the four
anniversaries of the determined vesting date beginning with November 15,
2007. During the year ended December 31, 2007, 17,500 shares of the
executives’ and other employees’ nonvested stock vested and during the year
ended December 31, 2007, 2,000 shares were forfeited. Upon grant of
the nonvested stock, an amount of unearned compensation equivalent to the market
value at the respective date of the grants, or $2,018, was recorded as a
component of shareholders’ equity. After forfeitures, the unamortized
portion of this award at March 31, 2008 and December 31, 2007 was $742 and $873,
respectively. Amortization of this charge, which is included in
general and administrative expenses for the three months ended March 31, 2008
and 2007, was $131 and $290, respectively. The remaining expense for the years
ended 2008, 2009 and 2010 will be $370, $265 and $107,
respectively.
On
February 8, 2007, the Company made grants of nonvested common stock under the
Plan in the amount of 9,000 shares to employees and 7,200 shares to directors of
the Company. The employee grants vest ratably on each of the four
anniversaries of the determined vesting date beginning with November 15,
2007. During the year ended December 31, 2007, 2,250 shares of the
employees’ nonvested stock vested Grants to the directors
vested in full on May 16, 2007, the date of the Company’s annual shareholders’
meeting. Upon grant of the nonvested stock, an amount of unearned
compensation equivalent to the market value at the date of the grants, or $494,
was recorded as a component of shareholders’ equity. The unamortized
portion of this award at March 31, 2008 and December 31, 2007 was $113 and $133,
respectively. Amortization of this charge, which is included in
general and administrative expenses, was $20 and $139, for the three months
ended March 31, 2008 and 2007, respectively. The remaining expense
for the years ending 2008, 2009, and 2010 will be $57, $40 and $16,
respectively.
On
December 21, 2007, the Company made grants of nonvested common stock under the
Plan in the amount of 93,000 shares to the executive officers and the employees
of the Company. These grants vest ratably on each of the four
anniversaries of the determined vesting date beginning with November 15,
2008. Upon grant of the nonvested stock, an amount of unearned
compensation equivalent to the market value at the date of the grants, or
$4,935, was recorded as a component of shareholders’ equity. The
unamortized portion of this award at March 31, 2008 and December 31, 2007 was
$4,165 and $4,852, respectively. Amortization of this charge, which
is included in general and administrative expenses, was $687 and $0, for the
three months ended March 31, 2008 and 2007, respectively. The
remaining expense for the years ending 2008, 2009, 2010 and 2011 will be $1,898,
$1,305, $686 and $276, respectively.
On
January 10, 2008, the Board of Directors approved a grant of 100,000 nonvested
common stock to Peter Georgiopoulos, Chairman of the Board, this grant vests
ratably on each of the ten anniversaries of the determined vesting date
beginning with November 15, 2008. Upon grant of the nonvested stock,
an amount of unearned compensation equivalent to the market value at the date of
the grant, or $4,191 was recorded as a component of shareholders' equity. The
unamortized portion of this award at March 31, 2008 and December 31, 2007 was
$3,890 and $0, respectively. Amortization of this charge, which is
included in general and administrative expenses, was $301 and $0, for the three
months ended March 31, 2008 and 2007, respectively. The remaining
expense for the years ending 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015,
2016 and 2017 will be $945, $816, $599, $457, $352, $267, $197, $136, $84 and
$37, respectively.
On February 13, 2008, the Company made
grants of nonvested common stock under the Plan in the amount of 12,500 shares
to directors of the Company. The grants to directors vest in full on
the earlier of the first anniversary of the grant date or the date of the next
annual shareholders meeting of the Company which is scheduled for May 14, 2008.
Upon grant of the nonvested stock, an amount of unearned compensation equivalent
to the market value at the date of the grant, or $689 was recorded as a
component of shareholders' equity. The unamortized portion of this
award at March 31, 2008 and December 31, 2007 was $337 and $0,
respectively. Amortization of this charge, which is included in
general and administrative expenses, was $352 and $0, for the three months ended
March 31, 2008 and 2007, respectively. The remaining expense for the
year ending 2008 will be $337.
The table
below summarizes the Company’s nonvested stock awards as March 31,
2008:
|
|
Number
of Shares
|
|
|
Weighted
Average Grant Date Price
|
|
Outstanding
at January 1, 2008
|
|
|
231,881 |
|
|
$ |
34.32 |
|
Granted
|
|
|
112,500 |
|
|
|
43.37 |
|
Vested
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
344,381 |
|
|
$ |
37.28 |
|
The fair
value of nonvested stock at the grant date is equal to the closing stock price
on that date. The Company is amortizing these grants over the
applicable vesting periods. As of March 31, 2008, unrecognized
compensation cost related to nonvested stock will be recognized over a weighted
average period of 4.56 years.
From time
to time, the Company may be subject to legal proceedings and claims in the
ordinary course of its business, principally personal injury and property
casualty claims. Such claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources. The Company is
not aware of any legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the Company, its
financial condition, results of operations or cash flows.
On May 9,
2008, the Company entered into agreements with Bocimar International N.V. and
Delphis N.V., under which the Company is to purchase three drybulk vessels for
an aggregate price of approximately $257,000. The
Company expects to fund, on or about May 13, 2008, the required deposit of
fifteen percent of the purchase price by utilizing its 2007 Credit Facility.
The
vessels, consisting of two Panamax vessels, to be renamed the Genco Raptor and
Genco Thunder, and one Supramax vessel, to be renamed the Genco Cavalier, are
expected to be delivered in the third quarter through the fourth quarter of
2008. The
aggregate purchase price of $257,000 is allocated as follows: $92,000
for the Genco Raptor, $91,000 for the Genco Thunder, and $74,000 for the Genco
Cavalier. The Genco
Cavalier includes a 24 to 26.5 month at-market time charter at a gross daily
rate of $50.5 per day and is expected to commence upon delivery of this vessel
to us which is estimated to occur in the third quarter of 2008. The
acquisition is subject to the completion of customary additional documentation,
including a novation of the existing charter for the Supramax vessel, and
closing conditions. Upon completion of this acquisition and the
acquisition of the remaining four Capesize vessels from companies within the
Metrostar Management Corporation group, our fleet will consist of 35 vessels,
comprised of nine Capesize, eight Panamax, four Supramax, six Handymax, and
eight Handysize drybulk carriers, with a total carrying capacity of
approximately 2,910,000 dwt and an average age of 6.6 years.
On April
30, 2008, the Board of Directors declared a dividend of $1.00 per share to be
paid on or about May 30, 2008 to shareholders of record as of May 16,
2008. The aggregate amount of the dividend is expected to be $29,708,
which the Company anticipates will be funded from cash on hand at the time
payment is to be made.
On April
22, 2008, Jinhui declared a dividend payable on May 20, 2008 to holders of
record on April 25, 2008. The Company expects to receive a dividend
of approximately 13.3 million Norwegian Kroner or $2,600.
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This
report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements use words such as
“anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,”
and other words and terms of similar meaning in connection with a discussion of
potential future events, circumstances or future operating or financial
performance. These forward-looking statements are based on
management’s current expectations and observations. Included among the
factors that, in our view, could cause actual results to differ materially from
the forward looking statements contained in this report are the following (i)
changes in demand or rates in the drybulk shipping industry; (ii) changes in the
supply of or demand for drybulk products, generally or in particular regions;
(iii) changes in the supply of drybulk carriers including newbuilding of vessels
or lower than anticipated scrapping of older vessels; (iv) changes in rules and
regulations applicable to the cargo industry, including, without limitation,
legislation adopted by international organizations or by individual countries
and actions taken by regulatory authorities; (v) increases in costs and expenses
including but not limited to: crew wages, insurance, provisions, repairs,
maintenance and general and administrative expenses; (vi) the adequacy of our
insurance arrangements; (vii) changes in general domestic and international
political conditions; (viii) changes in the condition of the Company’s vessels
or applicable maintenance or regulatory standards (which may affect, among other
things, our anticipated drydocking or maintenance and repair costs) and
unanticipated drydock expenditures; (ix) the amount of offhire time needed
to complete repairs on vessels and the timing and amount of any reimbursement by
our insurance carriers for insurance claims including offhire days; (x) our
acquisition or disposition of vessels; (xi) the fulfillment of the closing
conditions under the Company's agreement to acquire the remaining
four Metrostar drybulk vessels; (xii) the execution of customary additional
documentation for the Company's agreements to acquire the three Bocimar
International N.V. and Delphis N.V. drybulk vessels, including a novation of the
existing charter for the customary Supramax vessel; (xiii) the fulfillment of
the closing conditions under the Company’s agreement to acquire the three
Bocimar International N.V. and Delphis N.V. drybulk vessels; and (xiv) other
factors listed from time to time in our filings with the Securities and Exchange
Commission, including, without limitation, our Annual Report on Form 10-K for
the year ended December 31, 2007 and subsequent reports on Form
8-K. Our ability to pay dividends in any period will depend upon
factors including the limitations under our loan agreements, applicable
provisions of Marshall Islands law and the final determination by the Board of
Directors each quarter after its review of our financial
performance. The timing and amount of dividends, if any, could also
be affected by factors affecting cash flows, results of operations, required
capital expenditures, or reserves. As a result, the amount of
dividends actually paid may vary.
The
following management’s discussion and analysis should be read in conjunction
with our historical consolidated financial statements and the related notes
included in this 10-Q.
We are a
Marshall Islands company incorporated in September 2004 to transport iron
ore, coal, grain, steel products and other drybulk cargoes along worldwide
shipping routes through the ownership and operation of drybulk carrier vessels.
As of February 26, 2008, our fleet consisted of five Capesize, six Panamax,
three Supramax, six Handymax and eight Handysize drybulk carriers, with an
aggregate carrying capacity of approximately 2,020,000 dwt, and the average age
of our fleet was approximately 6.5 years, as compared to the average age for the
world fleet of approximately 16 years for the drybulk shipping segments in which
we compete. All of the vessels in our fleet are on time charters to reputable
charterers, including Lauritzen Bulkers AS, Cargill International S.A., Hyundai
Merchant Marine Co., Ltd., SK Shipping Ltd., STX Panocean (UK) Co., Ltd.,
Pacific Basin Chartering Ltd., A/S Klaveness, and NYK Bulkship Europe S.A. All
of the vessels in our fleet are presently engaged under time charter contracts
that expire (assuming the option periods in the time charters are not exercised)
between May 2008 and August 2012.
See page
36 for a table of all vessels currently in our fleet or expected to be delivered
to us.
We intend to grow our
fleet through timely and selective acquisitions of vessels in a manner that is
accretive to our cash flow. In connection with this growth strategy, we
negotiated the 2007 Credit Facility, for the purpose of acquiring the nine new
Capesize vessels, refinancing the outstanding indebtedness under our
previous
credit
facilities, and acquiring additional vessels, including the six drybulk vessels
acquired in August 2007 from affiliates of Evalend Shipping Co.
S.A.
Our
management team and our other employees are responsible for the commercial and
strategic management of our fleet. Commercial management includes the
negotiation of charters for vessels, managing the mix of various types of
charters, such as time charters and voyage charters, and monitoring the
performance of our vessels under their charters. Strategic management includes
locating, purchasing, financing and selling vessels. We currently contract with
three independent technical managers, to provide technical management of our
fleet at a lower cost than we believe would be possible in-house. Technical
management involves the day-to-day management of vessels, including performing
routine maintenance, attending to vessel operations and arranging for crews and
supplies. Members of our New York City-based management team oversee the
activities of our independent technical managers.
|
Factors
Affecting Our Results of Operations
|
We
believe that the following table reflects important measures for analyzing
trends in our results of operations. The table reflects our ownership
days, available days, operating days, fleet utilization, TCE rates and daily
vessel operating expenses for the three months ended March 31, 2008 and
2007.
|
For the three months ended March
31,
|
Increase
|
|
|
2008
|
2007
|
(Decrease)
|
%
Change
|
Fleet
Data:
|
|
|
|
|
Ownership
days (1)
|
|
|
|
|
Capesize
|
404.0
|
-
|
404.0
|
N/A
|
Panamax
|
602.6
|
630.0
|
(27.4)
|
(4.3%)
|
Supramax
|
273.0
|
-
|
273.0
|
N/A
|
Handymax
|
546.0
|
681.6
|
(135.6)
|
(19.9%)
|
Handysize
|
726.4
|
450.0
|
276.4
|
61.4%
|
|
|
|
|
|
Total
|
2552.0
|
1,761.6
|
790.4
|
44.9%
|
|
|
|
|
|
Available
days (2)
|
|
|
|
|
Capesize
|
403.9
|
-
|
403.9
|
N/A
|
Panamax
|
599.4
|
630.0
|
(30.6)
|
(4.9%)
|
Supramax
|
273.0
|
-
|
273.0
|
N/A
|
Handymax
|
546.0
|
660.9
|
(114.9)
|
(17.4%)
|
Handysize
|
711.1
|
440.4
|
270.7
|
61.5%
|
|
|
|
|
|
Total
|
2533.4
|
1,731.3
|
802.1
|
46.3%
|
|
|
|
|
|
Operating
days (3)
|
|
|
|
|
Capesize
|
403.9
|
-
|
403.9
|
N/A
|
Panamax
|
595.5
|
615.0
|
(19.5)
|
(3.2%)
|
Supramax
|
272.9
|
-
|
272.9
|
N/A
|
Handymax
|
546.0
|
648.7
|
(102.7)
|
(15.8%)
|
Handysize
|
709.4
|
438.8
|
270.6
|
61.7%
|
|
|
|
|
|
Total
|
2527.7
|
1,702.6
|
825.1
|
48.5%
|
|
|
|
|
|
Fleet
utilization (4)
|
|
|
|
|
Capesize
|
100.0%
|
-
|
100.0%
|
N/A
|
Panamax
|
99.3%
|
97.6%
|
1.7%
|
1.7%
|
Supramax
|
99.9%
|
-
|
99.9%
|
N/A
|
Handymax
|
100.0%
|
98.2%
|
1.8%
|
1.8%
|
Handysize
|
99.8%
|
99.6%
|
0.2%
|
0.2%
|
Fleet average
|
99.8%
|
98.3%
|
1.5%
|
1.5%
|
|
|
For the three months ended March
31,
|
|
|
Increase
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
%
Change
|
|
|
|
(U.S.
dollars)
|
|
|
|
|
|
|
|
Average
Daily Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
Charter Equivalent (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Capesize
|
|
$ |
69,806 |
|
|
$ |
- |
|
|
$ |
69,806 |
|
|
|
N/A |
|
Panamax
|
|
|
30,921 |
|
|
|
25,871 |
|
|
|
5,050 |
|
|
|
19.5 |
% |
Supramax
|
|
|
51,863 |
|
|
|
- |
|
|
|
51,863 |
|
|
|
N/A |
|
Handymax
|
|
|
29,027 |
|
|
|
20,656 |
|
|
|
8,371 |
|
|
|
40.5 |
% |
Handysize
|
|
|
19,956 |
|
|
|
13,301 |
|
|
|
6,655 |
|
|
|
50.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
average
|
|
|
35,891 |
|
|
|
20,683 |
|
|
|
15,208 |
|
|
|
73.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily
vessel operating expenses (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capesize
|
|
$ |
4,914 |
|
|
$ |
- |
|
|
$ |
4,914 |
|
|
|
N/A |
|
Panamax
|
|
|
4,562 |
|
|
|
4,362 |
|
|
|
200 |
|
|
|
4.6 |
% |
Supramax
|
|
|
4,176 |
|
|
|
- |
|
|
|
4,176 |
|
|
|
N/A |
|
Handymax
|
|
|
4,147 |
|
|
|
3,328 |
|
|
|
819 |
|
|
|
24.6 |
% |
Handysize
|
|
|
3,827 |
|
|
|
3,050 |
|
|
|
777 |
|
|
|
25.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet average
|
|
|
4,278 |
|
|
|
3,627 |
|
|
|
651 |
|
|
|
17.9 |
% |
In order
to understand our discussion of our results of operations, it is important to
understand the meaning of the following terms used in our analysis and the
factors that influence our results of operations.
(1) Ownership
days. We define ownership days as the aggregate number of days
in a period during which each vessel in our fleet has been owned by us.
Ownership days are an indicator of the size of our fleet over a period and
affect both the amount of revenues and the amount of expenses that we record
during a period.
(2) Available
days. We define available days as the number of our ownership
days less the aggregate number of days that our vessels are off-hire due to
scheduled repairs or repairs under guarantee, vessel upgrades or special surveys
and the aggregate amount of time that we spend positioning our vessels.
Companies in the shipping industry generally use available days to measure the
number of days in a period during which vessels should be capable of generating
revenues.
(3) Operating
days. We define operating days as the number of our available
days in a period less the aggregate number of days that our vessels are off-hire
due to unforeseen circumstances. The shipping industry uses operating days to
measure the aggregate number of days in a period during which vessels actually
generate revenues.
(4) Fleet
utilization. We calculate fleet utilization by dividing the
number of our operating days during a period by the number of our available days
during the period. The shipping industry uses fleet utilization to measure a
company’s efficiency in finding suitable employment for its vessels and
minimizing the number of days that its vessels are off-hire for reasons other
than scheduled repairs or repairs under guarantee, vessel upgrades, special
surveys or vessel positioning.
(5) TCE
rates. We define TCE rates as net voyage revenue (voyage
revenues less voyage expenses) divided by the number of our available days
during the period, which is consistent with industry standards. TCE rate is a
common shipping industry performance measure used primarily to compare daily
earnings generated by vessels on time charters with daily earnings generated by
vessels on voyage charters, because charterhire rates for vessels on voyage
charters are generally not expressed in per-day amounts while charterhire rates
for vessels on time charters generally are expressed in such
amounts.
|
|
For the three months ended March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(U.S.
dollars in thousands)
|
|
Voyage
revenues
|
|
$ |
91,669 |
|
|
$ |
37,220 |
|
Voyage
expenses
|
|
|
744 |
|
|
|
1,413 |
|
Net
voyage revenue
|
|
$ |
90,925 |
|
|
$ |
35,807 |
|
|
|
|
|
|
|
|
|
|
(6) Daily vessel operating
expenses. We define daily vessel operating expenses to include
crew wages and related costs, the cost of insurance, expenses relating to
repairs and maintenance (excluding drydocking), the costs of spares and
consumable stores, tonnage taxes and other miscellaneous expenses. Daily vessel
operating expenses are calculated by dividing vessel operating expenses by
ownership days for the relevant period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March
31,
|
|
|
Increase
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
%
Change
|
|
|
|
(U.S.
dollars in thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
91,669 |
|
|
$ |
37,220 |
|
|
$ |
54,449 |
|
|
|
146.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
744 |
|
|
|
1,413 |
|
|
|
(669 |
) |
|
|
(47.3 |
%) |
Vessel
operating expenses
|
|
|
10,919 |
|
|
|
6,389 |
|
|
|
4,530 |
|
|
|
70.9 |
% |
General
and administrative expenses
|
|
|
4,411 |
|
|
|
3,195 |
|
|
|
1,216 |
|
|
|
38.1 |
% |
Management
fees
|
|
|
672 |
|
|
|
351 |
|
|
|
321 |
|
|
|
91.5 |
% |
Depreciation
and amortization
|
|
|
15,864 |
|
|
|
7,186 |
|
|
|
8,678 |
|
|
|
120.8 |
% |
Gain
on sale of vessel
|
|
|
(26,227 |
) |
|
|
(3,575 |
) |
|
|
22,652 |
|
|
|
633.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
|
|
6,383 |
|
|
|
14,959 |
|
|
|
(8,576 |
) |
|
|
(57.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
85,286 |
|
|
|
22,261 |
|
|
|
63,025 |
|
|
|
283.1 |
% |
Other
(expense) income
|
|
|
(11,299 |
) |
|
|
(2,424 |
) |
|
|
(8,875 |
) |
|
|
(366.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
73,987 |
|
|
$ |
19,837 |
|
|
|
54,150 |
|
|
|
273.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - Basic
|
|
$ |
2.57 |
|
|
$ |
0.78 |
|
|
$ |
1.79 |
|
|
|
229.5 |
% |
Earnings
per share - Diluted
|
|
$ |
2.56 |
|
|
$ |
0.78 |
|
|
$ |
1.78 |
|
|
|
228.2 |
% |
Dividends
declared and paid per share
|
|
$ |
0.85 |
|
|
$ |
0.66 |
|
|
$ |
0.19 |
|
|
|
28.8 |
% |
Weighted
average common shares outstanding - Basic
|
|
|
28,733,928 |
|
|
|
25,308,953 |
|
|
|
3,424,975 |
|
|
|
13.5 |
% |
Weighted
average common shares outstanding - Diluted
|
|
|
28,914,350 |
|
|
|
25,421,480 |
|
|
|
3,492,870 |
|
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(1)
|
|
$ |
95,825 |
|
|
$ |
30,489 |
|
|
$ |
65,336 |
|
|
|
214.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
EBITDA
represents net income plus net interest expense, income tax expense,
depreciation and amortization, plus amortization of nonvested stock
compensation, and amortization of the value of time charters acquired
which is included as a component of other long-term assets or fair market
value of time charters acquired. EBITDA is included because it
is used by management and certain investors as a measure of operating
performance. EBITDA is used by analysts in the shipping
industry as a common performance measure to compare results across peers.
Our management uses EBITDA as a performance measure in consolidating
internal financial statements and it is presented for review at our board
meetings. EBITDA is also used by our lenders in certain loan covenants.
For
|
these reasons, we believe that EBITDA is a useful measure to
present to our investors. EBITDA is not an item recognized by U.S. GAAP and
should not be considered as an alternative to net income, operating income or
any other indicator of a company’s operating performance required by U.S.
GAAP. EBITDA is not a source of liquidity or cash flows as shown in
our consolidated statement of cash flows. The definition of EBITDA used here may
not be comparable to that used by other companies. The following
table demonstrates our calculation of EBITDA and provides a reconciliation of
EBITDA to net income for each of the periods presented above:
|
|
For the three months ended March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(U.S.
dollars in thousands except
for
share and per share data)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
73,987 |
|
|
$ |
19,837 |
|
Net
interest expense
|
|
|
11,235 |
|
|
|
2,424 |
|
Amortization
of value of time charter acquired (1)
|
|
|
(6,849 |
) |
|
|
456 |
|
Amortization
of nonvested stock compensation
|
|
|
1,588 |
|
|
|
586 |
|
Depreciation
and amortization
|
|
|
15,864 |
|
|
|
7,186 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
95,825 |
|
|
$ |
30,489 |
|
|
|
|
|
|
|
|
|
|
|
(1)
Amortization of liability or asset of time charter acquired is an (increase)
reduction of revenue.
Results
of Operations
Revenues
increased 146.3% to $91.7 million for the three months ended March 31, 2008
versus $37.2 million for the three months ended March 31,
2007. Revenues in both periods consisted of charter hire revenue
earned by our vessels. The increase in revenues was due to the
operation of a larger fleet as well as the renewal of time charters at higher
charter rates than those previously contracted.
The
average TCE rate of our fleet increased 73.5% to $35,891 a day for the three
months ended March 31, 2008 from $20,683 a day for the three months ended March
31, 2007. The increase in TCE rates was due to higher charter rates
achieved in the first quarter of 2008 versus the first quarter of 2007 for five
of the Panamax vessels, five of the Handymax vessels, and five of the Handysize
vessels in our current fleet. Furthermore, higher TCE rates were achieved in the
first quarter of 2008 versus the same period last year due to the operation of
five Capesize vessels acquired as part of the Metrostar
acquisition.
For the
three months ended March 31, 2008 and 2007, we had ownership days of 2,552.0
days and 1,761.6 days, respectively. Fleet utilization for the three
month period ended March 31, 2008 and 2007 was 99.8% and 98.3%,
respectively.
The
following table sets forth information about the vessels in our fleet and their
charters as of April 30, 2008 plus vessels to be acquired, consisting of four
Capesize vessels from companies within the Metrostar Management Corporation
group, and three additional vessels to be acquired from Bocimar International
N.V. and Delphis N.V., as described in Note 20 – Subsequent Events to our
financial statements:
Vessel
|
Year
Built
|
Charterer
|
Charter
Expiration (1)
|
Cash
Daily
Rate
(2)
|
Revenue
Daily Rate (3)
|
Expected
Delivery (4)
|
|
|
|
|
|
|
|
Capesize Vessels
|
|
|
|
|
|
|
Genco
Augustus
|
2007
|
Cargill
International S.A.
|
December
2009
|
45,263
|
62,750
|
-
|
Genco
Tiberius
|
2007
|
Cargill
International S.A.
|
January
2010
|
45,263
|
62,750
|
-
|
Genco
London
|
2007
|
SK
Shipping Co., Ltd
|
August
2010
|
57,500
|
64,250
|
|
Genco
Titus
|
2007
|
Cargill
International S.A.
|
September
2011
|
45,000(5)
|
46,250
|
-
|
Genco
Constantine
|
2008
|
Cargill
International S.A.
|
August
2012
|
52,750(5)
|
|
-
|
Genco
Hadrian
|
2008(6)
|
To
be determined (“TBD”)
|
TBD
|
TBD |
|
Q4
2008
|
Genco
Commodus
|
2009(6)
|
TBD
|
TBD
|
TBD
|
|
Q2
2009
|
Genco
Maximus
|
2009(6)
|
TBD
|
TBD
|
TBD
|
|
Q2
2009
|
Genco
Claudius
|
2009(6)
|
TBD
|
TBD
|
TBD
|
|
Q3
2009
|
|
|
|
|
|
|
|
Panamax Vessels
|
|
|
|
|
|
|
Genco
Beauty
|
1999
|
Cargill
International S.A.
|
May
2009
|
31,500
|
|
-
|
Genco
Knight
|
1999
|
SK
Shipping Ltd.
|
May
2009
|
37,700
|
|
-
|
Genco
Leader
|
1999
|
A/S
Klaveness
|
December
2008
|
25,650(7)
|
|
-
|
Genco
Vigour
|
1999
|
STX
Panocean (UK) Co. Ltd.
|
March
2009
|
29,000(8)
|
|
-
|
Genco
Acheron
|
1999
|
Armada
Shipping S.A.
|
June
2008
|
74,500(9)
|
|
-
|
Genco
Surprise
|
1998
|
Hanjin
Shipping Co., Ltd.
|
December
2010
|
42,100
|
|
-
|
Genco
Raptor
|
2007(6)
|
TBD
|
TBD
|
TBD
|
|
Q3
2008
|
Genco
Thunder
|
2007(6)
|
TBD
|
TBD
|
TBD
|
|
Q4
2008
|
|
|
|
|
|
|
|
Supramax Vessels
|
|
|
|
|
|
|
Genco
Predator
|
2005
|
Oldendorff
GmbH & Co. KG.
|
May
2008
|
55,000
|
|
-
|
Genco
Warrior
|
2005
|
Hyundai
Merchant Marine Co. Ltd.
|
November
2010
|
38,750
|
|
-
|
Genco
Hunter
|
2007
|
Pacific
Basin Chartering Ltd.
|
June
2008
|
60,000(10)
|
|
-
|
Genco
Cavalier
|
2007(6)
|
Samsun
Logix Corporation
|
24
to 26.5 months
From
date of delivery
|
50,500(11)
|
|
Q3
2008
|
|
|
|
|
|
|
|
Handymax Vessels
|
|
|
|
|
|
|
Genco
Success
|
1997
|
Korea
Line Corporation
|
February
2011
|
33,000(12)
|
|
-
|
Genco
Carrier
|
1998
|
Pacific
Basin Chartering Ltd.
|
May
2008
|
24,000
|
|
-
|
|
|
Louis
Dreyfus Corporation
|
March
2011
|
37,000(13)
|
|
|
Genco
Prosperity
|
1997
|
Pacific
Basin Chartering Ltd.
|
May
2008
|
26,000
|
|
-
|
Genco
Wisdom
|
1997
|
Hyundai
Merchant Marine Co. Ltd.
|
February
2011
|
34,500(14)
|
|
-
|
Genco
Marine
|
1996
|
NYK
Bulkship Europe S.A.
|
March
2009
|
47,000
|
|
-
|
Genco
Muse
|
2001
|
Norden
A/S
|
July
2008
|
47,650
|
|
-
|
|
|
|
|
|
|
|
Handysize Vessels
|
|
|
|
|
|
|
Genco
Explorer
|
1999
|
Lauritzen
Bulkers A/S
|
August
2009
|
19,500
|
|
-
|
Genco
Pioneer
|
1999
|
Lauritzen
Bulkers A/S
|
August
2009
|
19,500
|
|
-
|
Genco
Progress
|
1999
|
Lauritzen
Bulkers A/S
|
August
2009
|
19,500
|
|
-
|
Genco
Reliance
|
1999
|
Lauritzen
Bulkers A/S
|
August
2009
|
19,500
|
|
-
|
Genco
Sugar
|
1998
|
Lauritzen
Bulkers A/S
|
August
2009
|
19,500
|
|
-
|
Genco
Charger
|
2005
|
Pacific
Basin Chartering Ltd.
|
November
2010
|
24,000
|
|
-
|
Genco
Challenger
|
2003
|
Pacific
Basin Chartering Ltd.
|
November
2010
|
24,000
|
|
-
|
Genco
Champion
|
2006
|
Pacific
Basin Chartering Ltd.
|
December
2010
|
24,000
|
|
-
|
(1) The
charter expiration dates presented represent the earliest dates that our
charters may be terminated in the ordinary course. Except for the
Genco Titus, under the terms of each contract, the charterer is entitled to
extend time charters from two to four months in order to complete the vessel's
final voyage plus any time the vessel has been off-hire. The charterer of the
Genco Titus has the option to extend the charter for a period of one
year.
(2) Time
charter rates presented are the gross daily charterhire rates before third party
commissions ranging from 1.25% to 6.25%, except as indicated for the Genco
Leader in note 7 below. In a time charter, the charterer is responsible for
voyage expenses such as bunkers, port expenses, agents’ fees and canal
dues.
(3) For
the vessels acquired with a below-market time charter rate, the approximate
amount of revenue on a daily basis to be recognized as revenues is displayed in
the column named “Revenue Daily Rate” and is net of any third-party
commissions. Since these vessels were acquired with existing time charters
with below-market rates, we allocated the purchase price between the respective
vessel and an intangible liability for the value assigned to the below-market
charterhire. This intangible liability is amortized as an increase to
voyage revenues over the minimum remaining term of the charter. For
cash flow purposes, we will continue to receive the rate presented in the “Cash
Daily Rate” column until the charter expires.
(4) Dates
for vessels being delivered in the future are estimates based on guidance
received from the sellers and/or the respective shipyards.
(5) These
charters include a 50 percent index-based profit sharing component above the
respective base rates listed in the table.
(6) Year
built for vessels being delivered in the future are estimates based on guidance
received from the sellers and/or the respective shipyards.
(7) For
the Genco Leader, the time charter rate presented is the net daily charterhire
rate. There are no payments of commissions associated with these time
charters.
(8) We
have entered into a time charter for 23 to 25 months at a rate of $33,000 per
day for the first 11 months, $25,000 per day for the following 11 months and
$29,000 per day thereafter, less a 5% third-party commission. For purposes of
revenue recognition, the time charter contract is reflected on a straight-line
basis at approximately $29,000 per day for 23 to 25 months in accordance with
generally accepted accounting principles in the United States, or U.S. GAAP. The
time charter, commenced following the expiration of the vessel's previous time
charter on May 5, 2007.
(9) We
have entered into a short-term time charter for one trip at a rate of $74,500
per day less a 5% third-party commission. The new charter has commenced
following the expiration of the previous charter on April 18, 2008 and is
expected to be completed in the middle of June 2008. Upon the completion of its
time charter with Armada Shipping S.A., the vessel is expected to complete its
drydocking before commencing subsequent time charters.
(10) We
have reached an agreement to extend the time charter for an additional 3 to 5.5
months at a rate of $60,000 per day less a 5% third party
commission. The new charter commenced following the expiration of the
previous charter on March 6, 2008.
(11) The
Company acquired this vessel with an at market time charter for 24 to 26.5
months at a rate of $50,500 per day less a 5% third party
commission. The time charter is expected to commence upon delivery to
the Company. The acquisition from Bocimar International N.V. and Delphis N.V. is
subject to the completion of customary additional documentation, including a
novation of the existing charter for this vessel, and closing
conditions.
(12) We
recently extended the time charter for an additional 35 to 37.5 months at a rate
of $40,000 per day for the first 12 months, $33,000 per day for the following 12
months and $26,000 per day for the next 12 months and $33,000 thereafter less a
5% third-party commission. In all cases the rate for the duration of the time
charter will average $33,000. For purposes of revenue recognition,
the time charter contract is reflected on a straight-line basis at approximately
$33,000 per day for 35 to 37.5 months in accordance with generally accepted
accounting principles in the United States, or U.S. GAAP. The new
charter commenced following the expiration of the previous charter on March 1,
2008.
(13) We
have reached an agreement to commence a time charter for 34 to 37.5 months at a
rate of $37,000 per day less a 5% third party commission. The new
charter is expected to commence following the expiration of the previous charter
on or about May 14, 2008.
(14) We
recently extended the time charter for an additional 35 to 37.5 months at a rate
of $34,500 per day less a 5% third party commission. The new charter
commenced following the expiration of the previous charter on March 1,
2008.
For the
three months ended March 31, 2008 and 2007, we did not incur port and canal
charges or any significant expenses related to the consumption of bunkers (fuel)
as part of our vessels’ overall expenses because all of our vessels were
employed under time charters that require the charterer to bear all of those
expenses.
For the
three months ended March 31, 2008 and 2007, voyage expenses were $0.7 million
and $1.4 million, respectively, and consisted primarily of brokerage
commissions paid to third parties.
VESSEL
OPERATING EXPENSES-
Vessel
operating expenses increased to $10.9 million from $6.4 million for the three
months ended March 31, 2008 and 2007, respectively. This was due
mostly to the expansion of our fleet, as well as higher crewing and lube
expenses for the three months ended March 31, 2008 as compared to the three
months ended March 31, 2007.
Daily
vessel operating expenses grew to $4,278 per vessel per day for the three months
ended March 31, 2008 from $3,627 for the same quarter last year. This
was a result of higher crewing and lube expenses as well as the operation of
five Capesize vessels. We believe daily vessel operating expenses are
best measured for comparative purposes over a 12-month period in order to take
into account all of the expenses that each vessel in our fleet will incur over a
full year of operation. For the quarter ended March 31, 2008, daily
vessel operating expenses per vessel were $422 below the $4,700 weighted average
daily budget for 2008.
Based on
management’s estimates and budgets provided by our technical manager, we expect
our vessels to have daily vessel operating expenses during 2008 of:
Vessel
Type
|
Average
Daily
Budgeted Amount
|
|
Capesize
|
$ |
5,200 |
|
Panamax
|
|
5,150 |
|
Supramax
|
|
4,250 |
|
Handymax
|
|
4,700 |
|
Handysize
|
|
4,200 |
|
Fleet Weighted
Average
|
|
4,700 |
|
Our
vessel operating expenses, which generally represent fixed costs, will increase
as a result of the expansion of our fleet. Other factors beyond our control,
some of which may affect the shipping industry in general, including, for
instance, developments relating to market prices for crewing, lubes, and
insurance, may also cause these expenses to increase.
GENERAL
AND ADMINISTRATIVE EXPENSES-
For the
three months ended March 31, 2008 and 2007, general and administrative expenses
were $4.4 million and $3.2 million, respectively. The increase
in general and administrative expenses was due to higher legal expenses, costs
associated with higher employee non-cash compensation and other employee related
costs.
MANAGEMENT
FEES-
We incur
management fees to third-party technical management companies for the day-to-day
management of our vessels, including performing routine maintenance, attending
to vessel operations and arranging for crews and supplies. For the
three months ended March 31, 2008 and 2007, management fees were
$0.7 million and $0.4 million, respectively.
DEPRECIATION
AND AMORTIZATION-
For the
three months ended March 31, 2008 depreciation and amortization charges
increased to $15.9 million from $7.2 million for the three months ended
March 31, 2007. The increase primarily was due to the growth in our
fleet.
GAIN ON
SALE OF VESSELS-
For the
three months ended March 31, 2008 and 2007, the gain on the sale of vessels was
$26.2 and $3.6 million, attributable to the sale of the Genco Trader in 2008 and
the Genco Glory in 2007.
OTHER
(EXPENSE) INCOME-
(LOSS)
INCOME FROM DERIVATIVE INSTRUMENTS-
Effective
August 16, 2007, the Company has elected hedge accounting for forward currency
contracts in place associated with the cost basis of shares of Jinhui stock it
has purchased. However, the hedge is limited to the lower of
the cost basis or the market value of the Jinhui stock. For further
details of the application of hedge accounting, please refer to the discussion
under the subheading “Interest Rate Swap Agreements, Forward Freight Agreements
and Currency Swap Agreements” on page 43. For the three months ended
March 31, 2008 and 2007, (loss) income from derivative instruments was ($0.1)
and $0 million, respectively.
NET
INTEREST EXPENSE-
For the
three months ended March 31, 2008 and 2007, net interest expense was $11.2
million and $2.4 million, respectively. Net interest expense
consisted mostly of interest payments made under our 2007 Credit facility in
2008 and the 2005 Credit Facility in 2007. Additionally, interest
income as well as amortization of deferred financing costs related to each
respective credit facility are included in both periods. The increase
in net interest expense for 2008 versus 2007 was mostly a result of higher
outstanding debt due to the acquisition of additional vessels in the fourth
quarter of 2007 and first quarter of 2008.
LIQUIDITY
AND CAPITAL RESOURCES
To date,
we have financed our capital requirements with cash flow from operations, equity
offerings and bank debt. We have used our funds primarily to fund vessel
acquisitions, regulatory compliance expenditures, the repayment of bank debt and
the associated interest expense and the payment of dividends. We will require
capital to fund ongoing operations, acquisitions and debt service. We
expect to rely on operating cash flows as well as long-term borrowings to
implement our growth plan and continue our dividend policy. We also may
consider debt and additional equity financing alternatives from time to
time.
In
connection with the agreement to acquire nine Capesize vessels announced on July
18, 2007 and the additional acquisition of three Supramax and three Handysize
vessels announced in August 2007, the Company, entered into the 2007 Credit
Facility on July 20, 2007 to fund acquisitions and the repayment of all other
existing debt under the 2005 Credit Facility and Short-Term
Line. Additionally, as described in Note 20 – Subsequent Events, the
Company agreed to acquire three vessels, two Panamax vessels and one Supramax
vessels, from Bocimar International N.V. and Delphis N.V. The
Company expects to fund, on or about May 13, 2008, the required deposit of
fifteen percent of the purchase price by utilizing its 2007 Credit Facility.
We anticipate that internally generated cash flow and borrowings under
our 2007 Credit Facility will be sufficient to fund the operations of our fleet,
including our working capital requirements for the foreseeable
future. The Company anticipates primarily utilizing its 2007 Credit
Facility as well as internally generated cash flow to fund the acquisition
of the remaining four Capesize vessels, the two Panamax vessels and the one
Supramax vessel, but may also consider debt (including convertible securities)
and equity financing alternatives.
Dividend
Policy
Our
dividend policy is to declare quarterly distributions to shareholders by each
February, May, August and November, which commenced in November 2005,
substantially equal to our available cash from operations during the previous
quarter, less cash expenses for that quarter (principally vessel operating
expenses and debt service) and any reserves our board of directors determines we
should maintain. These reserves may cover, among other things, drydocking,
repairs, claims, liabilities and other obligations, interest expense and debt
amortization, acquisitions of additional assets and working capital. In the future, we may
incur other expenses or liabilities that would reduce or eliminate the cash
available for distribution as dividends.
On April
30, 2008, our board of directors declared a dividend of $1.00 per share, to be
paid on or about May 30, 2008 to shareholders of record as of May 16,
2008.
The
declaration and payment of any dividend is subject to the discretion of our
board of directors. The timing and amount of dividend payments will depend on
our earnings, financial condition, cash requirements and
availability,
fleet renewal and expansion, restrictions in our loan agreements, the provisions
of Marshall Islands law affecting the payment of distributions to shareholders
and other factors. Our board of directors may review and amend our dividend
policy from time to time in light of our plans for future growth and other
factors.
We
believe that, under current law, our dividend payments from earnings and profits
will constitute “qualified dividend income” and, as such, will generally be
subject to a 15% U.S. federal income tax rate with respect to non-corporate U.S.
shareholders that meet certain holding period and other requirements (through
2010). Distributions in excess of our earnings and profits will be treated first
as a non-taxable return of capital to the extent of a U.S. shareholder's tax
basis in its common stock on a dollar-for-dollar basis and, thereafter, as
capital gain.
Share
Repurchase Program
On
February 13, 2008, our board of directors approved a share repurchase program
for up to a total of $50,000 of the Company's common stock. The board
will review the program after 12 months. Share repurchases will be
made from time to time for cash in open market transactions at prevailing market
prices or in privately negotiated transactions. The timing and amount of
purchases under the program will be determined by management based upon market
conditions and other factors. Purchases may be made pursuant to a
program adopted under Rule 10b5-1 under the Securities Exchange Act. The program
does not require the Company to purchase any specific number or amount of shares
and may be suspended or reinstated at any time in the Company's discretion and
without notice. Repurchases will be subject to restrictions under the 2007
Credit Facility. The 2007 Credit Facility was amended as of February
13, 2008 to permit the share repurchase program and provide that the dollar
amount of shares repurchased is counted toward the maximum dollar amount of
dividends that may be paid in any fiscal quarter. No such purchases
have been made through March 31, 2008. The Company anticipates that
any shares repurchased would be primarily funded through cash generated from
operations.
Cash
Flow
Net cash
provided by operating activities for the three months ended March 31, 2008 and
2007, was $55.7 million and $23.3 million, respectively. The
increase was primarily due to the operation of a larger fleet, which contributed
to increases in net income, depreciation, and deferred revenues. Adjustments to
operating cash flows include Jinhui investment activities of $11.5 million of
realized losses on forward currency contracts offset by $9.7 million of
unrealized gains on hedged short-term investments and $1.7 million of unrealized
gains on forward currency contracts. The increases were offset by a $26.2
million gain related to the sale of the Genco Trader, and $6.8 million of
amortization of value of the time charters acquired as part of the Metrostar and
Evalend acquisitions. Net cash from operating activities for three months
ended March 31, 2008 was mostly a result of recorded net income of $74.0
million, less the gain of $26.2 million due the sale of the Genco Trader and
$6.8 amortization of time charters acquired, plus depreciation and amortization
charges of $15.9 million. Net cash from operating activities for
three months ended March 31, 2007 was mostly a result of recorded net income of
$19.8 million, less the gain of $3.6 million due the sale of the Genco Glory,
plus depreciation and amortization charges of $7.2 million.
Net cash
(used in) provided by investing activities increased to ($132.4) million for the
three months ended March 31, 2008 from $12.8 for the three months ended March
31, 2007. For the three months ended March 31 2008, the cash used in
investing activities related primarily to the purchase price of vessels of
$153.3 million the purchase of $10.3 million of Jinhui stock, and payments on
forward currency contracts of $11.4 million which were off-set by proceeds of
$43.1 million from the sale of the Genco Trader. For the three months
ended March 31, 2007, the cash provided by investing activities related
primarily to the proceeds of $13.0 million from the sale of the Genco
Glory.
Net cash
provided by (used in) financing activities for the three months ended March 31,
2008 and 2007 was $53.4 million and ($22.5) million,
respectively. For the three months ended March 31 2008, net cash
provided by financing activities consisted primarily of the drawdown of $151.5
million on our 2007 Credit Facility related to the completion of the acquisition
of two additional vessels, off-set by the payment of cash dividends of $24.7
million and repayment of $73.0 million of debt on our 2007 Credit
Facility. For the three months ended March 31 2007, net cash used in
financing activities consisted primarily of payment of cash dividends of $16.8
million and repayment of $5.7 million of debt on our 2005 Credit
Facility.
2007
Credit Facility
On July
20, 2007, the Company entered into the 2007 Credit Facility for the purpose of
acquiring the nine new Capesize vessels and refinancing the Company’s existing
2005 Credit Facility and Short-Term Line. DnB Nor Bank ASA is
Mandated Lead Arranger, Bookrunner, and Administrative Agent. The Company has
used borrowings under the 2007 Credit Facility to repay amounts outstanding
under the 2005 Credit Facility and the Short-Term Line, which have been
terminated. The maximum amount that may be borrowed under the 2007
Credit Facility is $1,377 million. Lastly, the Company, as required,
pledged all of the Jinhui shares it has purchased as collateral against the 2007
Credit Facility. As of March 31, 2008, $362.5 million remains
available to fund future vessel acquisitions. The Company may borrow
up to $50 million of the $362.5 million for working capital
purposes.
Under the
2007 Credit Facility, subject to the conditions set forth in the credit
agreement, the Company may borrow an amount up to $1,377
million. Amounts borrowed and repaid under the 2007 Credit Facility
may be reborrowed. The 2007 Credit Facility has a maturity date of
July 20, 2017, or ten years from the signing date of the 2007 Credit
Facility.
Loans
made under the 2007 Credit Facility may be used for the following:
·
|
up
to 100% of the en bloc purchase price of $1,111 million for nine modern
drybulk Capesize vessels, which the Company has agreed to purchase from
companies within the Metrostar Management Corporation
group;
|
·
|
repayment
of amounts previously outstanding under the Company’s 2005 Credit
Facility, or $206.2 million;
|
·
|
the
repayment of amounts previously outstanding under the Company’s Short-Term
Line, or $77 million;
|
·
|
possible
acquisitions of additional dry bulk carriers between 25,000 and 180,000
dwt that are up to ten years of age at the time of delivery and not more
than 18 years of age at the time of maturity of this credit
facility;
|
·
|
up
to $50 million of working capital;
and
|
·
|
the
issuance of up to $50 million of standby letters of credit. At
March 31, 2008, there were no letters of credit issued under the 2007
Credit Facility.
|
|
All
amounts owing under the 2007 Credit Facility are secured by the
following:
|
·
|
cross-collateralized
first priority mortgages of each of the Company’s existing vessels and any
new vessels financed with the 2007 Credit
Facility;
|
·
|
an
assignment of any and all earnings of the mortgaged
vessels;
|
·
|
an
assignment of all insurances of the mortgaged
vessels;
|
·
|
a
first priority perfected security interest in all of the shares of Jinhui
owned by the Company;
|
·
|
an
assignment of the shipbuilding contracts and an assignment of the
shipbuilder’s refund guarantees meeting the Administrative Agent’s
criteria for any additional newbuildings financed under the 2007 Credit
Facility; and
|
·
|
a
first priority pledge of the Company’s ownership interests in each
subsidiary guarantor.
|
The
Company has completed a pledge of its ownership interests in the subsidiary
guarantors that own the nine Capesize vessels to be acquired. The
other collateral described above was pledged, as required, within thirty days of
the effective date of the 2007 Credit Facility.
The
Company’s borrowings under the 2007 Credit Facility bear interest at the London
Interbank Offered Rate (“LIBOR”) for an interest period elected by the Company
of one, three, or six months, or longer if available, plus the Applicable Margin
(which is 0.90% per annum for the first five years of the 2007 Credit Facility
and 0.95% thereafter). If the Company’s ratio of Total Debt to Total
Capitalization (each as defined in the credit agreement for the 2007 Credit
Facility) is less than 70%, the Applicable Margin decreases to 0.85% and 0.90%,
respectively. In addition to other fees payable by the Company in
connection with the 2007 Credit Facility, the Company paid a commitment fee at a
rate of 0.20% per annum of the daily average unutilized commitment of each
lender under the facility until September 30, 2007, and 0.25%
thereafter.
The 2007
Credit Facility will be subject to ten consecutive semi-annual reductions of
7.0% of the total amount of credit granted under the new facility, with the
first reduction occurring on the fifth anniversary of the signing date and a
balloon payment reduction of 30% on the maturity date. The Company
may prepay the 2007 Credit Facility, without penalty, with two days notice for
LIBOR rate advances, in minimum amounts of $10 million together with accrued
interest on the amount prepaid.
The 2007
Credit Facility includes the following financial covenants which will apply to
the Company and its subsidiaries on a consolidated basis and will be measured at
the end of each fiscal quarter beginning with June 30, 2007:
·
|
The
leverage covenant requires the maximum average net debt to EBITDA to be a
ratio of at least 5.5:1.0.
|
|
·
|
Cash
and cash equivalents must not be less than $0.5 million per mortgaged
vessel.
|
·
|
The
ratio of EBITDA to interest expense, on a rolling last four-quarter basis,
must be no less than 2.0:1.0.
|
·
|
After
July 20, 2007, consolidated net worth must be no less than $263,300 plus
80% of the value of the any new equity issuances of the Company from June
30, 2007. Based on the equity offering completed in October
2007, this would require the consolidated net worth to be no less than
approximately $434.4 million.
|
·
|
The
aggregate fair market value of the mortgaged vessels must at all times be
at least 130% of the aggregate outstanding principal amount under the 2007
Credit Facility plus all letters of credit outstanding; the Company has a
30 day remedy period to post additional collateral or reduce the amount of
the revolving loans and/or letters of credit
outstanding.
|
Other
covenants in the 2007 Credit Facility are substantially similar to the covenants
in the Company’s previous credit facilities. As of March 31, 2008,
the Company has been in compliance with these covenants since the inception of
the facility.
The
Company can continue to pay cash dividends in accordance with its dividend
policy and certain terms of the credit agreement so long as no event of default
has occurred and is continuing and no event of default will occur as a result of
the payment of such dividend. In addition, the 2007 Credit Facility
was amended as of February 13, 2008 to permit the Company to implement its share
repurchase program, which was recently approved by its board of
directors. Under this amendment, the dollar amount of shares
repurchased is counted toward the maximum dollar amount of dividends that may be
paid in any fiscal quarter. For further details of our share
repurchase program, see Note 6 to our financial statements.
Due to
refinancing of the Company’s previous facilities, the Company incurred a
non-cash write-off of the unamortized deferred financing cost in the amount of
$3.6 associated with the Company’s previous facilities.
Interest
Rate Swap Agreements, Forward Freight Agreements and Currency Swap
Agreements
The
Company has entered into nine interest rate swap agreements with DnB NOR Bank to
manage interest costs and the risk associated with changing interest rates. The
total notional principal amount of the swaps is $681.2 million and the swaps
have specified rates and durations. The following table summarizes
the interest rate swaps in place as of March 31, 2008 and December 31,
2007:
Interest
Rate Swap Detail
|
|
|
|
|
|
|
Trade
Date
|
|
Fixed
Rate
|
|
Start
Date
of Swap
|
End
date
of Swap
|
|
Notional
Amount Outstanding
|
|
|
Notional
Amount Outstanding
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
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 |
|
9/7/07
|
|
|
4.56 |
% |
10/1/07
|
12/31/09
|
|
|
75,000 |
|
|
|
75,000 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
681,233 |
|
|
$ |
631,233 |
|
The
differential to be paid or received for these swap agreements are recognized as
an adjustment to interest expense as incurred. The Company is
currently utilizing cash flow hedge accounting for the swaps whereby the
effective portion of the change in value of the swaps is reflected as a
component of Other Comprehensive Income (“OCI”). The ineffective
portion is recognized as income or (loss) from derivative instruments, which is
a component of other (expense) income. For any period of time that
the Company did not designate the swaps for hedge accounting, the change in the
value of the swap agreements prior to designation was recognized as income or
(loss) from derivative instruments and was listed as a component of other
(expense) income.
The
interest (expense) income pertaining to the interest rate swaps for the three
months ended March 31, 2008 and 2007 was ($0.5) million and $0.2 million,
respectively.
The swap
agreements, with effective dates on or prior to March 31, 2008 synthetically
convert variable rate debt the fixed interest rate of swap plus the Applicable
Margin (which is 0.85% per annum for the first five years of the 2007 Credit
Facility and 0.90% thereafter). If the Company’s ratio of Total Debt
to Total Capitalization (each as defined in the credit agreement for the 2007
Credit Facility) is greater than or equal to 70%, the Applicable Margin
increases to 0.90% for the first five years and 0.95% thereafter.
The
liability associated with the swaps at March 31, 2008 and December 31, 2007 is
$44.9 million and $21.0 million, respectively, and are presented as the fair
value of derivatives on the balance sheet. The Company considered the
creditworthiness of both the Company and the counterparty in determining the
fair value of the interest rate derivatives, and such consideration resulted in
an immaterial adjustment to the fair value of derivatives on the balance
sheet. Valuations prior to any adjustments for credit risk are
validated by comparison with counterparty valuations. Amounts are not
and should not be identical due to the different modeling assumptions, however
amounts are expected to be (and are) close. Any material differences
are investigated. As of March 31, 2008 and December 31, 2007, the
Company has accumulated OCI of ($45.0) million and ($21.1) million,
respectively, related to the effectively hedged portion of the
swaps. Hedge ineffectiveness associated with the interest rate swaps
resulted in income or (loss) from derivative instruments of $0.1 and $0,
respectively for the three months ended March 31, 2008 and 2007. At
March 31, 2008, ($7.1) million of OCI is expected to be reclassified into income
over the next 12 months associated with interest rate derivatives.
The
Company has entered into a number of short-term forward currency contracts to
protect the Company from the risk associated with the fluctuation in the
exchange rate associated with the cost basis of the Jinhui shares as described
above under the heading “Short-term investments” in Note 2 of our financial
statements. At March 31, 2008, the Company had one short-term forward
currency contract to hedge the Company’s exposure to the Norwegian Kroner
related to the cost basis of Jinhui stock as described above. The
forward currency contract for a notional amount of 739.2 million NOK (Norwegian
Kroner) or $145.5 million, matured on April 18, 2008. At December 31,
2007, the Company had one short-term forward currency contract to hedge the
Company’s exposure to the Norwegian Kroner related to the cost basis of Jinhui
stock as described above. The forward currency contract for a
notional amount of 685.1 million NOK (Norwegian Kroner) or $124.6 million,
matured on January 17, 2008. As forward contracts expire, the Company continues
to enter into new forward currency contracts for the cost basis of the
Short-term investment, excluding commissions. However, the hedge is
limited to the lower of the cost basis or the market value at time of
designation. As of April 18, 2008, the Company has a forward currency
contract for the notional amount of 739.2 million NOK for $148.7
million. For the three months ended March 31, 2008 and March 31,
2007, the net losses (realized and unrealized) of $0.1 million and $0,
respectively, related to the forward currency contracts and to the hedged
translations gain on the cost basis of the Jinhui stock are reflected as (loss)
income from derivative instruments and are included as a component of other
expense. The current asset associated with the forward currency
contract at March 31, 2008 is $0.2 million and is presented as the fair value of
derivatives on the balance sheet. The short-term liability associated
with the forward currency contract at December 31, 2007 is $1.4 million and is
presented as the fair value of derivatives on the balance sheet. The
Company considered the creditworthiness of both the Company and the counterparty
in determining the fair value of the forward currency contracts and such
consideration resulted in an immaterial adjustment to the fair value of
derivatives on the balance sheet. The gain or loss associated with
either the asset or liability associated with the forward currency contracts is
included in the net (loss) income from derivative instruments.
As part
of our business strategy, we may enter into arrangements commonly known as
forward freight agreements, or FFAs, to hedge and manage market risks relating
to the deployment of our existing fleet of vessels. These
arrangements may include future contracts, or commitments to perform in the
future a shipping service between ship owners, charters and
traders. Generally, these arrangements would bind us and each
counterparty in the arrangement to buy or sell a specified tonnage freighting
commitment “forward” at an agreed time and price and for a particular
route. Although FFAs can be entered into for a variety of purposes,
including for hedging, as an option, for trading or for arbitrage, if we decided
to enter into FFAs, our objective would be to hedge and manage market risks as
part of our commercial management. It is not currently our intention to enter
into FFAs to generate a stream of income independent of the revenues we derive
from the operation of our fleet of vessels. If we determine to enter
into FFAs, we may reduce our exposure to any declines in our results from
operations due to weak market conditions or downturns, but may also limit our
ability to benefit economically during periods of strong demand in the
market. We have not entered into any FFAs as of March 31,
2008.
Interest
Rates
For the
three months ended March 31, 2008, the effective interest rate associated with
the interest expense for the 2007 Credit Facility, including the rate
differential between the pay fixed receive variable rate on the swaps that were
in effect, combined, and the cost associated with unused commitment fees with
this facility was 5.24%. For the three months ended March 31, 2007,
the effective interest rate associated with the interest expense for the 2005
Credit Facility, including the rate differential between the pay fixed receive
variable rate on the swaps that were in effect, combined, and the cost
associated with unused commitment fees with this facility was
6.57%.
The
interest rate on the debt, excluding the unused commitment fees, ranged from
3.41% to 6.1% and from 6.26% to 6.39%, for the three months ended March 31, 2008
and 2007, respectively.
The
following table sets forth our contractual obligations and their maturity dates
as of March 31, 2008. The table incorporates the
agreement to acquire the remaining four Capesize vessels for $385.6 million, the
agreement to acquire two Panamax vessels and one Supramax vessel for
approximately $257.0 million, inclusive of commissions for these acquisitions,
and the employment agreement entered into in September 2007 with the Chief
Financial Officer, John Wobensmith. The Company plans to fund the
remaining acquisitions with the remaining
availability
under the credit facility and cash generated from operations. The
interest and fees are also reflective of the 2007 Credit Facility and the
interest rate swap agreements as discussed above under “Interest Rate Swap
Agreements and Forward Freight Agreements and Currency Swap Agreements.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(U.S.
dollars in thousands)
|
|
2007
Credit Facility
|
|
$ |
1,014,500 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,014,500 |
|
Remainder
of purchase price of acquisitions (2)
|
|
$ |
642,600 |
|
|
$ |
353,800 |
|
|
$ |
288,800 |
|
|
$ |
- |
|
|
$ |
- |
|
Interest
and borrowing fees
|
|
$ |
382,759 |
|
|
$ |
39,621 |
|
|
$ |
103,937 |
|
|
$ |
96,053 |
|
|
$ |
143,148 |
|
Executive
employment agreement
|
|
$ |
544 |
|
|
$ |
278 |
|
|
$ |
266 |
|
|
$ |
- |
|
|
$ |
- |
|
Office
lease
|
|
$ |
6,514 |
|
|
$ |
364 |
|
|
$ |
982 |
|
|
$ |
1,036 |
|
|
$ |
4,132 |
|
(1)
|
Represents
the nine month period ending December 31,
2008.
|
(2)
|
The
timing of these obligations are based on estimated delivery dates for the
remaining four Capesize vessels which are currently being constructed, as
well as the two Panamax vessels and the one Supramax vessel, and the
obligation is inclusive of the commission due to brokers upon purchase of
the vessels.
|
Interest
expense has been estimated using the fixed hedge rate for the effective period
and notional amount of the debt which is effectively hedged and 2.9375% for the
portion of the debt that has no designated swap against it, plus the applicable
bank margin of 0.85% in the first five years of the 2007 Credit Facility and
0.90% in the last five years, as long as the ratio of Total Debt to Total
Capitalization as defined in the 2007 Credit Facility remains below 70%. If the
ratio of Total Debt to Total Capitalization is equal to or greater than 70% then
the applicable margin is increased to 0.90% in the first five years of the 2007
Credit Facility and 0.95% in the last five years. The Company
is obligated to pay certain commitment fees in connection with the 2007 Credit
Facility.
Capital
Expenditures
We make
capital expenditures from time to time in connection with our vessel
acquisitions. Our fleet currently consists of five Capesize drybulk carriers,
six Panamax drybulk carriers, three Supramax drybulk carriers, six Handymax
drybulk carriers and eight Handysize drybulk carriers.
In
addition to acquisitions that we may undertake in future periods, we will incur
additional capital expenditures due to special surveys and drydockings. We
estimate our drydocking costs and scheduled off-hire days for our fleet through
2009 to be:
|
|
|
|
|
|
|
Year
|
|
Estimated Drydocking Cost
(U.S.
dollars in millions)
|
|
|
Estimated Off-hire Days
|
|
|
|
|
|
|
|
|
2008
(April 1- December 31, 2008)
|
|
$ |
4.2 |
|
|
|
120 |
|
2009
|
|
|
3.7 |
|
|
|
100 |
|
The costs
reflected are estimates based on drydocking our vessels in China. We
estimate that each drydock will result in 20 days of off-hire. Actual
costs will vary based on various factors, including where the drydockings are
actually performed. We expect to fund these costs with cash from
operations.
During
the first quarter of 2008, the Genco Challenger completed drydocking at a cost
of $0.5 million.
We
estimate that six of our vessels will be drydocked in the remainder of 2008, of
which one will be drydocked during the second quarter of 2008 and five vessels
in the second half of 2008. An additional five of our vessels will be
drydocked in 2009.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Inflation
has only a moderate effect on our expenses given current economic conditions. In
the event that significant global inflationary pressures appear, these pressures
would increase our operating, voyage, general and administrative, and financing
costs. However, the Company expects its costs to increase based on
the anticipated increased cost for crewing and lubes.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions and
conditions.
Critical
accounting policies are those that reflect significant judgments of
uncertainties and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies, because they generally involve a
comparatively higher degree of judgment in their application. For an additional
description of our significant accounting policies, see Note 2 to our
consolidated financial statements included in this 10-Q.
REVENUE
AND VOYAGE EXPENSE RECOGNITION-
Revenues
are generated from time charters. A time charter involves placing a vessel at
the charterer’s disposal for a set period of time during which the charterer may
use the vessel in return for the payment by the charterer of a specified daily
or monthly hire rate. In time charters, operating costs such as for
crews, maintenance and insurance are typically paid by the owner of the vessel
and specified voyage costs such as fuel, and port charges are paid by the
charterer. There are certain other non-specified voyage expenses such as
commissions which are borne by us.
We record
time charter revenues over the term of each charter as service is provided.
Revenues are recognized on a straight-line basis as the average revenue over the
term of each time charter. We recognize vessel operating expenses when
incurred.
DUE FROM
CHARTERERS, NET
Due from
charterers, net includes accounts receivable from charters net of the provision
for doubtful accounts. At each balance sheet date, the Company provides for the
provision based on a review of all outstanding charter receivables. Included in
the standard time charter contracts with our customers are certain performance
parameters, which if not met can result in customer claims. As of
March 31, 2008 and December 31, 2007, we had no reserve against due from
charterers balance and a reserve of $0.6 million and $0.7 million, respectively
in deferred revenue, each of which is associated with estimated customer claims
against the Company, including time charter performance issues.
Revenue
is based on contracted charterparties and, although the Company's business is
with customers whom the Company believes to be of the highest standard, there is
always the possibility of dispute over terms and payment of hires and freights.
In particular, disagreements may arise as to the responsibility of lost time and
revenue due to the Company as a result. As such, the Company periodically
assesses the recoverability of amounts
outstanding
and estimates a provision if there is a possibility of non-recoverability.
Although the Company believes its provisions to be reasonable at the time they
are made, it is possible that an amount under dispute is not ultimately
recovered and the estimated provision for doubtful accounts is
inadequate.
SHORT-TERM
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 OCI. Effective August 16,
2007, the Company has elected hedge accounting for forward currency contracts in
place associated with the cost basis of the Jinhui shares, however the hedge is
limited to the lower of the cost basis or the market value at time of
designation. Therefore the unrealized currency gain or loss
associated with the hedged portion or the cost basis in the Jinhui shares will
now be reflected in the income statement as income or (loss) from derivative
instruments to offset the gain or loss associated with these forward currency
contracts. The cost of securities when sold is based on the specific
identification method. Realized gains and losses on the sale of these
securities will be reflected in the consolidated statement of operations in
other (expense) income. Additionally, the realized gain or loss on
the forward currency contracts is reflected in the Consolidated Statement of
Cash Flows as an investing activity and is reflected in the caption Payments on
forward currency contracts, net.
Short-term
investments are reviewed periodically to identify possible other-than-temporary
impairment. When evaluating the investments, the Company reviews
factors such as the length of time and extent to which fair value has been below
the cost basis, the financial condition of the issuer, the underlying net asset
value of the issuers assets and liabilities, and the Company’s ability and
intent to hold the investment for a period of time which may be sufficient for
anticipated recovery in market value. Should the decline in the value
of any investment be deemed to be other-than-temporary, the investment basis
would be written down to fair market value, and the write-down would be recorded
to earnings as a loss.
VESSEL
ACQUISITIONS -
When we
enter into an acquisition transaction, we determine whether the acquisition
transaction was the purchase of an asset or a business based on the facts and
circumstances of the transaction. In the shipping industry, the
purchase of a vessel is normally treated as a purchase of an asset as the
historical operating data for the vessel is not reviewed nor is material to our
decision to make such acquisition.
When a
vessel is acquired with an existing time charter, we allocate the purchase price
of the vessel and the time charter based on, among other things, vessel market
valuations and the present value (using an interest rate which reflects the
risks associated with the acquired charters) of the difference between (i) the
contractual amounts to be paid pursuant to the charter terms and (ii)
management's estimate of the fair market charter rate, measured over a period
equal to the remaining term of the charter. The capitalized above-market
(assets) and below-market (liabilities) charters are amortized as a reduction or
increase, respectively, to voyage revenues over the remaining term of the
charter.
We record
the value of our vessels at their cost (which includes acquisition costs
directly attributable to the vessel and expenditures made to prepare the vessel
for its initial voyage) less accumulated depreciation. We depreciate our drybulk
vessels on a straight-line basis over their estimated useful lives, estimated to
be 25 years from the date of initial delivery from the shipyard.
Depreciation is based on cost less the estimated residual scrap value. We
estimate the residual values of our vessels to be based upon $175 per
lightweight ton. An increase in the useful life of a drybulk vessel or in its
residual value would have the effect of decreasing the annual depreciation
charge and extending it into later periods. A decrease in the useful life of a
drybulk vessel or in its residual value would have the effect of increasing the
annual depreciation charge. However, when regulations place limitations over the
ability of a vessel to trade on a worldwide basis, we will adjust the vessel’s
useful life to end at the date such regulations preclude such vessel’s further
commercial use.
IMPAIRMENT
OF LONG-LIVED ASSETS-
We follow
Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the asset’s carrying amount. In the evaluation of
the fair value and future benefits of long-lived assets, we perform an analysis
of the anticipated undiscounted future net cash flows of the related long-lived
assets. If the carrying value of the related asset exceeds the undiscounted cash
flows, the carrying value is reduced to its fair value. Various factors
including future charter rates, scrap values, future drydock costs and vessel
operating costs are included in this analysis.
DEFERRED
DRYDOCKING COSTS-
Our
vessels are required to be drydocked approximately every 30 to 60 months
for major repairs and maintenance that cannot be performed while the vessels are
operating. We capitalize the costs associated with drydockings as they occur and
depreciate these costs on a straight-line basis over the period between
drydockings. Capitalized drydocking costs include actual costs incurred at the
drydock yard; cost of parts that are believed to be reasonably likely to reduce
the duration or cost of the drydocking; cost of travel, lodging and subsistence
of our personnel sent to the drydocking site to supervise; and the cost of
hiring a third party to oversee the drydocking. We believe that these criteria
are consistent with U.S. GAAP guidelines and industry practice and that our
policy of capitalization reflects the economics and market values of the
vessels.
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 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.
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 OCI.
For the
portion of the forward interest rate swaps that are not effectively hedged, the
change in the value and the rate differential to be paid or received is
recognized as income or (expense) from derivative instruments and is listed as a
component of other expense until such time the Company has obligations against
which the swap is designated and is an effective hedge.
Currency risk
management
The
Company currently holds an investment in Jinhui shares that are traded on the
Oslo Stock Exchange located in Norway, and as such, the Company is exposed to
the impact of exchange rate changes on this available-for-sale security
denominated in Norwegian Kroner. The Company’s objective is to manage
the impact of exchange rate changes on its earnings and cash flow in relation to
its cost basis associated with its short-term investments. The Company uses
foreign currency forward contracts to protect its original investment from
changing exchange rates.
The
change in the value in the forward currency contracts is recognized as income or
(expense) from derivative instruments and is listed as a component of other
expense. Effective August 16, 2007, the Company elected to
utilize fair value hedge accounting for these instruments whereby the change in
the value in the forward contracts continues to be recognized as income or
(expense) from derivative instruments and is listed as a component of other
expense. Fair value hedge accounting then accelerates the recognition
of the effective portion of the currency translation gain or (loss) on the
Available for Sale Security from August 16, 2007 into income or
(expense)
from derivative instruments and is listed as a component of other
expense. Time value of the forward contracts are excluded from
effectiveness testing and recognized currently in income.
INCOME
TAXES
Pursuant
to Section 883 of the U.S. Internal Revenue Code of 1986 as amended (the
“Code”), qualified income derived from the international operations of ships is
excluded from gross income and exempt from U.S. federal income tax if a company
engaged in the international operation of ships meets certain requirements.
Among other things, in order to qualify, the company must be incorporated in a
country which grants an equivalent exemption to U.S. corporations and must
satisfy certain qualified ownership requirements.
The
Company is incorporated in the Marshall Islands. Pursuant to the income tax laws
of the Marshall Islands, the Company is not subject to Marshall Islands income
tax. The Marshall Islands has been officially recognized by the Internal Revenue
Service as a qualified foreign country that currently grants the requisite
equivalent exemption from tax.
Based on
the ownership of our common stock prior to our initial public offering on
July 22, 2005 as discussed in Note 1 of our financial statements, we qualified
for exemption from income tax for 2005 under Section 883, since we were a
Controlled Foreign Corporation (“CFC”) and satisfied certain other criteria in
the Section 883 regulations. We were a CFC, as defined in the Code, since until
the initial public offering on July 22, 2005, over 50% of our stock was owned by
United States holders each of whom owned ten percent or more of our voting
stock, or US 10% Owners. During that time, approximately 93% of our common stock
was held by US 10% Owners.
Based on
the publicly traded requirement of the Section 883 regulations, we believe that
the Company qualified for exemption from income tax for 2007. In
order to meet the publicly traded requirement, our stock must be treated as
being primarily and regularly traded for more than half the days of any such
year. Under the Section 883 regulations, our qualification for the publicly
traded requirement may be jeopardized if shareholders of our common stock that
own five percent or more of our stock (“5% shareholders”) own, in the aggregate,
50% or more of our common stock for more than half the days of the
year. We believe that during 2007, the combined ownership of
our 5% shareholders did not equal 50% or more of our common stock for more than
half the days of 2007. However if our 5% shareholders were to increase their
ownership to 50% or more of our common stock for more than half the days of 2008
or any future taxable year, we may not be eligible to claim exemption from tax
under Section 883 for that taxable year. We can therefore give no assurance that
changes and shifts in the ownership of our stock by 5% shareholders will not
preclude us from qualifying for exemption from tax in 2008 or in future
years.
If the
Company does not qualify for the exemption from tax under Section 883, it would
be subject to a 4% tax on the gross “shipping income” (without the allowance for
any deductions) that is treated as derived from sources within the United States
or “United States source shipping income.” For these purposes, “shipping income”
means any income that is derived from the use of vessels, from the hiring or
leasing of vessels for use, or from the performance of services directly related
to those uses; and “United States source shipping income” includes 50% of
shipping income that is attributable to transportation that begins or ends, but
that does not both begin and end, in the United States.
ITEM
3. QUALITATIVE
AND QUANTITATIVE MARKET RISK
We are
exposed to the impact of interest rate changes. Our objective is to
manage the impact of interest rate changes on our earnings and cash flow in
relation to our borrowings. At March 31, 2008, we held nine interest
rate risk management instruments and at December 31, 2007 we held eight such
instruments, in order to manage future interest costs and the risk associated
with changing interest rates.
The
Company has entered into nine interest rate swap agreements with DnB NOR Bank to
manage interest costs and the risk associated with changing interest rates. The
total notional principal amount of the swaps is $681.2
million
and the swaps have specified rates and durations. The following table
summarizes the interest rate swaps in place as of March 31, 2008 and December
31, 2007:
Interest
Rate Swap Detail
|
|
|
|
|
|
|
Trade
Date
|
|
Fixed
Rate
|
|
Start
Date of Swap
|
End
date
of Swap
|
|
Notional
Amount Outstanding
|
|
|
Notional
Amount Outstanding
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
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 |
|
9/7/07
|
|
|
4.56 |
% |
10/1/07
|
12/31/09
|
|
|
75,000 |
|
|
|
75,000 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
681,233 |
|
|
$ |
631,233 |
|
The swap
agreements, with effective dates on or prior to March 31, 2008 synthetically
convert variable rate debt the fixed interest rate of swap plus the Applicable
Margin (which is 0.85% per annum for the first five years of the 2007 Credit
Facility and 0.90% thereafter). If the Company’s ratio of Total Debt
to Total Capitalization (each as defined in the credit agreement for the 2007
Credit Facility) is greater than or equal to 70%, the Applicable Margin
increases to 0.90% for the first five years and 0.95% thereafter.
The
liability associated with the swaps at March 31, 2008 and December 31, 2007 is
$44.9 million and $21.0 million, respectively, and are presented as the fair
value of derivatives on the balance sheet. As of March 31, 2008 and
December 31, 2007, the Company has accumulated OCI of ($45.0) million and
($21.1) million, respectively, related to the effectively hedged portion of the
swaps. Hedge ineffectiveness associated with the interest rate swaps
resulted in income or (loss) from derivative instruments of $0.1 million and $0,
respectively for the three months ended March 31, 2008 and 2007. At
March 31, 2008, ($7.1) million of OCI is expected to be reclassified into income
over the next 12 months associated with interest rate derivatives.
Derivative financial
instruments
The
Company entered into nine interest rate swap agreements with DnB NOR Bank to
manage interest costs and the risk associated with changing interest rates. The
total notional principal amount of the swaps is $681.2 million, and
the swaps have specified rates and durations. See “Interest Rate
Risk” above under this Item 3for a table summarizing the interest rate swaps in
place as of March 31, 2008 and December 31, 2007.
The
differential to be paid or received for these swap agreements are recognized as
an adjustment to interest expense as incurred. The Company is
currently utilizing cash flow hedge accounting for the swaps whereby the
effective portion of the change in value of the swaps is reflected as a
component of Other Comprehensive Income (“OCI”). The ineffective
portion is recognized as income or (loss) from derivative instruments, which is
a component of other (expense) income. For any period of time that
the Company did not designate the swaps for hedge accounting, the change in the
value of the swap agreements prior to designation was recognized as income or
(loss) from derivative instruments and was listed as a component of other
(expense) income.
Amounts
receivable or payable arising at the settlement of hedged interest rate swaps
are deferred and amortized as an adjustment to interest expense over the period
of interest rate exposure provided the designated liability continues to
exist. Amounts receivable or payable arising at the settlement of
unhedged interest rate swaps are reflected as income or expense from derivative
instruments and is listed as a component of other (expense) income.
The
interest (expense) income pertaining to the interest rate swaps for the three
months ended March 31, 2008 and 2007was ($0.5) million and $0.2 million,
respectively.
The swap
agreements, with effective dates on or prior to March 31, 2008 synthetically
convert variable rate debt the fixed interest rate of swap plus the Applicable
Margin (which is 0.85% per annum for the first five years of the 2007 Credit
Facility and 0.90% thereafter). If the Company’s ratio of Total Debt
to Total Capitalization (each as defined in the credit agreement for the 2007
Credit Facility) is greater than or equal to 70%, the Applicable Margin
increases to 0.90% for the first five years and 0.95% thereafter.
The
liability associated with the swaps at March 31, 2008 and December 31, 2007 is
$44.9 million and $21.0 million, respectively, and are presented as the fair
value of derivatives on the balance sheet. As of March 31, 2008 and
December 31, 2007, the Company has accumulated OCI of ($45.0) million and
($21.1) million, respectively, related to the effectively hedged portion of the
swaps. Hedge ineffectiveness associated with the interest rate swaps
resulted in income or (loss) from derivative instruments of $0.1 and $0,
respectively for the three months ended March 31, 2008 and 2007. At
March 31, 2008, ($7.1) million of OCI is expected to be reclassified into income
over the next 12 months associated with interest rate derivatives.
We are
subject to market risks relating to changes in interest rates because we have
significant amounts of floating rate debt outstanding. For the three
months ended March 31, 2008, we paid LIBOR plus 0.85% on the 2007 Credit
Facility for the debt in excess of any designated swap’s notional amount for the
respective swap’s effective period. For the three months ended March
31, 2007, LIBOR plus 0.95% on the 2005 Credit Facility for the debt in excess of
any designated swap’s notional amount for the respective swap’s effective
period. For each effective swap, the interest rate is fixed at the
fixed interest rate of swap plus the applicable margin on the respective debt in
place. A 1% increase in LIBOR would result in an increase of $0.9
million in interest expense for the three months ended March 31, 2008,
considering the increase would be only on the unhedged portion of the debt for
which the rate differential on the respective swap is not in
effect.
Currency and exchange rates
risk
The
international shipping industry’s functional currency is the U.S. Dollar.
Virtually all of our revenues and most of our operating costs are in
U.S. Dollars. We incur certain operating expenses in currencies other than
the U.S. dollar, and the foreign exchange risk associated with these operating
expenses is immaterial.
The
Company has entered into a number of short-term forward currency contracts to
protect the Company from the risk associated with the fluctuation in the
exchange rate associated with the cost basis of the Jinhui shares as described
above under the heading “Short-term investments” in Note 2 of our financial
statements. For further information on these forward currency
contracts, please see page 43 under the heading “Interest Rate Swap Agreements
and Forward Freight Agreements and Currency Swap Agreements.”
Upon
maturation of the forward currency contract in place for 739.2 million NOK at
March 31, 2008, a 1% change in the value of the Norwegian Kroner could result in
a currency gain or loss of approximately $1.45 million. However,
since the Company is utilizing hedge accounting on the cost basis of the Jinhui
stock, the effective portion of the currency translation gain or (loss) on the
Available for Sale Security is netted against the fluctuation in the currency
gain or loss on the forward currency contract itself to the extent of the hedged
notional amount.
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
Under the
supervision and with the participation of our management, including our
President and Chief Financial Officer, we have evaluated the effectiveness of
the design and operation of our disclosure controls and procedures as defined in
Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) as of the end of the period covered by this Report. Based
upon that evaluation, our President and Chief Financial Officer have concluded
that our disclosure controls and procedures are effective.
There
have been no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART
II:
|
OTHER
INFORMATION
|
From time
to time the Company may be subject to legal proceedings and claims in the
ordinary course of its business, principally personal injury and property
casualty claims. Such claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources. The Company is
not aware of any legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the Company, its
financial condition, results of operations or cash flows.
ITEM
2. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
During
the three months ended March 31, 2008, we did not repurchase any shares of our
common stock pursuant to our share repurchase program.
On May 9,
2008, the Company agreed to acquire three 2007 built vessels, consisting of two
Panamax vessels and one Supramax vessel from, Bocimar International N.V. and
Delphis N.V. for an aggregate purchase price of approximately $257
million. For further details, please refer to Note 20 – Subsequent
Events to our financial statements filed with this report and Item 2,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the headings “Results of Operations—Revenues” and “Liquidity
and Capital Resources” on pages 30, 35, and 39.
In
compliance with Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, we have
provided certifications of our Principal Executive Officer and Principal
Financial Officer to the Securities and Exchange Commission. The
certifications provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 accompanying this report have not been filed pursuant to the Securities
Exchange Act of 1934.
Item
6. Exhibits
Exhibit
|
Document
|
|
|
10.1
|
Restricted
Stock Grant Agreement dated January 10, 2008 between Genco Shipping &
Trading Limited and Peter C. Georgiopoulos (1)
|
|
|
10.2
|
Form
of Director Restricted Stock Grant Agreement dated as of February 13, 2008
(1)
|
|
|
10.3
|
Amendment
and Supplement No. 2 to Senior Secured Credit Agreement, dated as of
February 13, 2008, among Genco Shipping & Trading Limited, the lenders
party thereto, and DNB NOR Bank ASA, New York Branch, as Administrative
Agent (1)
|
|
|
31.1
|
Certification
of President pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
|
32.1
|
Certification
of President pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
|
(*) Filed
with this Report.
(1) Incorporated
by reference to Genco Shipping & Trading Limited's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on February 29,
2008.
(Remainder
of page left intentionally blank)
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
GENCO SHIPPING &
TRADING LIMITED
|
|
|
DATE:
May 12, 2008
|
|
By: /s/ Robert
Gerald Buchanan
Robert
Gerald Buchanan
President
(Principal
Executive Officer)
|
DATE:
May 12, 2008
|
|
By:
/s/ John
C.
Wobensmith
John
C. Wobensmith
Chief
Financial Officer, Secretary and Treasurer
(Principal
Financial and Accounting Officer)
|
Exhibit
Index
Exhibit
|
Document
|
|
|
10.1
|
Restricted
Stock Grant Agreement dated January 10, 2008 between Genco Shipping &
Trading Limited and Peter C. Georgiopoulos (1)
|
|
|
10.2
|
Form
of Director Restricted Stock Grant Agreement dated as of February 13, 2008
(1)
|
|
|
10.3
|
Amendment
and Supplement No. 2 to Senior Secured Credit Agreement, dated as of
February 13, 2008, among Genco Shipping & Trading Limited, the lenders
party thereto, and DNB NOR Bank ASA, New York Branch, as Administrative
Agent (1)
|
|
|
31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
|
|
31.2
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
(*) Filed
with this Report.
(1) Incorporated
by reference to Genco Shipping & Trading Limited's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on February 29,
2008.
(Remainder
of page left intentionally blank)
55