form10k.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________________
FORM
10-K
_____________________________
Annual
Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For
the fiscal year ended
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Commission
file number:
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December
31, 2006
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1-10231
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MC
SHIPPING INC.
(Exact
name of the Registrant as specified in its charter)
_____________________________
LIBERIA
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98-0101881
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State
or other jurisdiction of incorporation or organization
|
(IRS
Employer Identification N°)
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_____________________________
Richmond
House, 12 Par-la-ville Road, Hamilton HM CX, Bermuda
(Address
of principal executive offices)
_____________________________
441-295-7933
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
COMMON
STOCK $.01 PAR VALUE
|
AMERICAN
STOCK EXCHANGE
|
(Title
of class)
|
(Name
of exchange on which registered)
|
_____________________________
Securities
registered pursuant to Section 12(g) of the Act: NONE
_____________________________
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act
yes ý
no
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or section 15(d) of the Act
yes ý
no
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or 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.
ý
yes
no
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. ý
Indicate
by a check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large
accelerated
filer Accelerated
filer Non-accelerated
filer ý
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act)
yes ý
no
_______________________________
The
aggregate market value of the voting and non voting common equity held by
non-affiliates of the Registrant computed by reference to the closing American
Stock Exchange price on June 30, 2006 was: $43,943,840. Excluded from this
amount are the shares of Common Stock beneficially owned by Navalmar and
Weco-Rederi and by each officer and director of the Registrant in that such
companies and persons may be deemed to be affiliates of the Registrant. The
determination of affiliate status for this purpose is not necessarily a
conclusive determination for other purposes.
_____________________________
The
number of shares outstanding of each of the Registrant's classes of common
stock
as of March 15, 2007 was:
Common
Stock, $.01 par value: 9,510,017
________________________
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Page
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PART
I
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Item
1:
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3
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Item
1A:
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7
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Item
1B:
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10
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Item
2:
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10
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Item
3:
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11
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Item
4:
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11
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PART
II
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Item
5:
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11
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Item
6:
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12
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Item
7:
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14
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Item
7A:
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28
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Item
8:
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30
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Item
9:
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56
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Item
9A:
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56
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Item
9B:
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57
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PART
III
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Item
10:
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57
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Item
11:
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59
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Item
12:
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64
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Item
13:
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65
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Item
14:
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66
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PART
IV
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Item
15:
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67
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EXHIBITS
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Exhibit
21: List
of subsidiaries
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69
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Exhibits
31 and 32: Certifications
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70
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Certain
statements within this annual
report on Form 10-K may constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These
statements are being made pursuant to the PLSRA, with the intention of obtaining
the benefits of the “safe harbor” provisions of the PLSRA, and other than
required by law, we assume no obligation to update or supplement such
statements. Forward-looking statements are those that do not relate solely
to
historical fact. They include, but are not limited to, any statement that may
predict, forecast, indicate or imply future results, performance, achievements
or events. You can identify those statements by the use of words such as “may”,
“will”, “could”, “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“predict”, or “project” and variations of these words or comparable words or
phrases of similar meaning. These forward-looking statements reflect our current
beliefs and expectations with respect to future events and are based on
assumptions and are subject to risks and uncertainties and other factors outside
our control that may cause results to differ materially from those projected
including the identification of suitable vessels for purchase, the availability
of additional financing for the Company, if needed, the cyclical nature of
the
shipping industry, competition, general economic conditions and other risk
factors detailed elsewhere herein and in the Company’s other filings with the
SEC.
PART
I
MC
Shipping Inc. (the “Company”) was
incorporated on March 17, 1989, in the Republic of Liberia.
Since
its formation, the Company has
been engaged in the business of investing in, owning and operating vessels.
As
of December 31, 2006, the Company's fleet consisted of nineteen ships. Fourteen
of these vessels were wholly owned liquefied petroleum gas (“LPG”) carriers.
Each of the Company’s wholly owned vessels is, in turn, owned by a separate
wholly owned subsidiary of the Company. In addition, as of December 31, 2006,
the Company had a 50% interest in one LPG carrier and a 25.8% percent interest
in four containerships.
An
LPG
carrier is designed to carry petroleum gases used primarily as low pollution
fuels and as feedstock in the petrochemical and fertilizer industries. A
containership is a vessel designed exclusively to carry containers.
The
Company generally employs its vessels on time charter, bareboat charter or
voyage charter. With time charters, the Company receives a fixed charterhire
per
on-hire day and is responsible for meeting all the operating expenses of the
vessels, such as crew costs, voyage expenses, insurance, repairs and
maintenance. In the case of bareboat charters, the Company receives a fixed
charterhire per day for the vessel and the charterer is responsible for all the
costs associated with the vessel's operation during the bareboat charter period.
In the case of voyage charters, the vessel is contracted only for a voyage
between two or several ports and the Company is paid for the tonnage transported
and pays for all voyage costs.
The
level
of the Company's revenues and expenses will vary from year to year depending
on,
among other things, the number of vessels controlled by the Company during
each
year, the type of employment and the charter rate of those vessels.
SHIPPING
INDUSTRY BACKGROUND
The
shipping industry is subject to cyclical fluctuations in charter rates and
vessel values based on changes in supply and demand. The industry has been
experiencing volatility in profitability, vessel values and charter rates
resulting from changes in the supply of, and demand for, shipping capacity.
The
demand for ships is influenced by, among other factors, global and regional
economic conditions, developments in international trade, and changes in
seaborne and other transportation patterns, weather patterns, crop yields,
armed
conflicts, port congestion, canal closures, political developments, conflicts,
embargoes and strikes. The demand for ships is also influenced by, among other
things, the demand for consumer goods and perishable foodstuffs, dry bulk
commodities, crude oil and oil products. Demand for such products is affected
by
many factors, including general economic conditions, commodity prices,
environmental concerns, weather and competition from alternative fuels. The
supply of shipping capacity is a function of the delivery of new vessels and
the
number of older vessels scrapped, converted to other uses, reactivated or lost.
Such supply may be affected by regulation of maritime transportation practices
by governmental and international authorities. All of these factors which affect
the supply of and demand for vessel capacity are beyond the control of the
Company. In addition, the nature, timing and degree of changes in the shipping
markets, in which the Company operates, as well as future charter rates and
values of its vessels, are not readily predictable.
OPERATIONS
Ship
owning activities entail three
separate functions: (i) the overall strategic management function, which is
that
of an investment manager and includes the selection, purchase, financing and
sale of vessels and overall supervision of both chartering and vessel technical
management; (ii) the technical management function, which encompasses the day
to
day operation, physical maintenance and crewing of the vessels; and (iii) the
commercial management function, which involves obtaining employment for the
vessels and managing relations with the charterer.
Management
exercises direct control
over the Company's overall strategic management and commercial management
functions but may, on a case-by-case basis, engage the services of independent
brokers in order to obtain employment for the Company’s vessels and to manage
its relations with its charterers.
The
technical management function is
sub-contracted to unrelated ship managers. Anglo Eastern Ship Management Ltd
(“Anglo Eastern”), Hanseatic Shipping Company Ltd (“Hanseatic”) and Wallem
Shipmanagement Ltd (“Wallem”) currently manage the LPG vessels. V.Ships manages
the 25.8% owned container carriers. Management may, in the future, use other
ship managers if the price and service are more favorable. The technical
management agreements are “cost-plus” contracts under which the Company
reimburses all costs incurred by the technical managers for the operation of
the
Company's vessels and the technical managers are paid a fixed management fee.
Management exercises regular controls over the technical managers to ensure
that
the vessels are properly maintained.
The
Company had forty-two charters
covering the year 2006, nine of which commenced prior to 2006 and three
charterers provided revenues exceeding 10% of the Company’s total
revenues
Although
separate vessel financial
information is available, Management internally evaluates the
performance of the enterprise as a whole and not on the basis of separate
business units or different types of charter. As a result, the Company has
determined it operates as one reportable segment.
Non-U.S.
operations accounted for 100% of the Company’s revenues and net income in 2006.
Since the Company’s vessels regularly move between countries in international
waters over hundreds of trade routes, it is impractical to assign revenues
or
earnings from the transportation of international LPG products by geographic
area.
COMPENSATION
TO AFFILIATES
From
the Company’s inception through
August 1, 2006, the ship management company V.Ships had been an affiliate of
the
Company until it sold its remaining interest in the Company to Weco-Rederi
A/S
(see Item 12 - Security ownership of certain beneficial owners and management
and Item 13 - Certain relationships and related transactions and director
independence). Therefore, any related company disclosure contained herein with
respect to V.Ships relates only to the period from January 1 through August,
1
2006. Comparables for previous periods refer to the full year.
During
the third quarter of 2006, the
technical management of the vessels previously managed by V.Ships was
transferred to non-related technical managers. The four container vessels
owned
by Munia Mobiliengesellschaft
mbH & Co. KG (“MUNIA”), in which the Company owns a 25.8% interest, are
still managed by V.Ships.
The
Company, via its wholly owned
subsidiaries, was party to management agreements with V.Ships for the technical
operation of some of its vessels. The management agreements were “cost-plus”
contracts under which the Company reimbursed all costs incurred by V.Ships
for
the operation of the Company's vessels and V.Ships was paid a fixed management
fee. In 2006, the
management fees were fixed at the rate of $8,500 per vessel/per month. In 2005,
the fees were $9,250 per vessel/per month for large LPG carriers and $9,167
per
vessel/per month for smaller LPG carriers compared to $8,855 and $8,753,
respectively, in 2004. From January 1 to August 1, 2006, the Company paid
management fees of $535,500 to V.Ships compared to $1,006,756 in 2005 and
$1,150,926 in 2004.
Prior
to August 1, 2006, from time to
time, the Company employed the services of an affiliate of V.Ships for legal
work related to the acquisition and disposal of vessels. Legal fees were
determined in light of current industry practice. From January 1 to August
1,
2006, the Company paid legal fees of $37,598 to an affiliate of V.Ships compared
to $37,876 in 2005 and $33,443 in 2004.
Prior
to May 31, 2006, the Company
leased office space from and reimbursed telecommunication expenses to various
affiliates of V.Ships. From January 1 to August 1, 2006, the rental cost and
telecommunication expenses paid to affiliates of V.Ships totaled approximately
$49,663, compared to $104,455 in 2005 and $133,416 in 2004.
Prior
to July 1, 2006, the Company
outsourced certain bookkeeping functions to an affiliate of V.Ships. From
January 1 to August 1, 2006, the Company paid approximately $21,250 for
accounting services to an affiliate of V.Ships compared to $28,833 in 2005
and
$31,000 in 2004.
From
August 2004 to October 31, 2005,
the Company paid a fee of £10,000 per month to V.Investments in consideration of
V.Ships permitting the Company’s Chief Executive Officer, then a full time
employee of V.Ships, to provide his services to the Company on a part time
basis. The Company also reimbursed V.Ships for all business expenses incurred
by
the CEO in the provision of his services. In 2005 and 2004, fees paid to
V.Investments amounted to $181,958 and $95,379, respectively.
In
addition, as technical manager of
the Company’s fleet, until the third quarter of 2006, V.Ships occasionally
utilized the services of its affiliates to arrange for crew and staff traveling,
port agency services, manning, safety and training services, and miscellaneous
other services as described below.
Prior
to August 1, 2006, the Company
used the services of a company affiliated with V.Ships for crew and staff
travel. From January 1 to August 1, 2006, V.Ships did not disclose the amount
of
such travel expenses which were included in vessel operating or general and
administrative expenses. In 2005, these expenses totaled $378,340 compared
to
$267,670 in 2004.
Prior
to August 1, 2006, the Company
occasionally used the port agency services of various companies affiliated
with
V.Ships. From January 1 to August 1, 2006, V.Ships did not disclose the amount
paid to these companies for port and other costs, which were included in vessel
operating expenses. In 2005, these costs totaled $278,719 compared to $313,754
in 2004.
Prior
to August 1, 2006, the Company
used various companies affiliated with V.Ships for manning, safety and training.
From January 1 to August 1, 2006, V.Ships did not disclose the amount of such
expenses which were included in vessel operating expenses. In 2005, these costs
totaled $ 253,375 compared to $346,129 in 2004.
At
December 31, 2006, the Company had
intercompany balances for trade accounts payable to affiliates of $369,423
compared to $202,208 for receivable from affiliates at December 31, 2005. The
balance at December 31, 2006 included $296,475 payable to MUNIA for amounts
due
under the guarantee agreement and for the dry-dock of a vessel. The balance
at
December 31, 2005 included a $180,789 receivable from MUNIA for the payment
of
lube oil remaining on board at the time of sale of the container
vessels.
INSURANCE
AND CLASSIFICATION
The
business of the Company is affected
by the risks of mechanical failure of the Company's vessels, collisions,
property losses to the vessels, cargo loss or damage, and business interruption
due to political action in foreign countries and labor strikes. In addition,
the
operation of any ocean-going vessel entails an inherent risk of catastrophic
marine disaster. The Company maintains Hull and Machinery Insurance, War Risk
Insurance, Protection and Indemnity Insurance, Freight Demurrage and Defense
Insurance and Loss of Earnings Insurance on its vessels consistent with industry
practices. The Company maintains total or constructive total loss coverage
for
each of its vessels. The insurance underwriters may require that additional
premiums be paid for Hull and Machinery and War Risk Insurance prior to any
vessel entering certain geographical areas subject to unstable political or
military conditions. Although the Company has had no
difficulty in obtaining such insurance for its vessels, there can be no
assurance that the Company will be able to continue to procure sufficient
amounts of insurance to cover the repair and replacement cost of any vessel
which is damaged or destroyed, loss of earnings on a vessel or the Company's
liability in the event of a catastrophic marine or ecological
disaster.
The
Company’s insurers require the Company’s vessels to meet certain requirements
set by maritime classification societies as a condition to obtaining insurance.
The classification societies determine that the vessels are safe and seaworthy
in accordance with the International Maritime Organization and the Safety of
Life at Sea Convention. All LPG carriers, containerships and multipurpose
carriers are inspected by a surveyor of the classification society every year
(“Annual Survey”), every two and one half years (“Intermediate Survey”), and
every five years (“Special Survey”). The Company has purchased and intends to
purchase only vessels that are able to comply with such classification society
requirements. It is expected that, under classification society rules, the
Company’s vessels will be required to undergo dry-docking at least once every
three years. Normal dry-docking takes one to two weeks. The Company estimates
that current dry-docking costs in the geographic areas where the Company
anticipates having such work performed will be approximately $300,000 to
$2,000,000 per vessel, depending upon the size and complexity of the vessel.
This estimate is based on a dry-docking cycle of two and one-half to three
years
between each visit to a dry-dock facility and assumes regular but no
extraordinary expenses for maintenance and repairs. In addition to dry-docking,
the Company is required to purchase spare parts and perform repairs on its
vessels from time to time. In the case of bareboat charter arrangements, the
bareboat charterer undertakes, at its expense, to ensure that the vessel is
regularly dry-docked and is properly maintained.
REGULATION
The
Company's business is materially
affected by government regulation in the form of international conventions,
national, state or local laws and regulations, and laws and regulations of
the
flag nations of its vessels, including laws relating to the discharge of
materials into the environment. Because such conventions, laws and regulations
are often revised, the Company is unable to predict the ultimate costs of
complying with such conventions, laws and regulations. Under certain
regulations, a vessel owner may be liable for property and environmental damages
and all of its assets could be subject to claim for such damages. Moreover,
in
certain jurisdictions, under the “sister ship” doctrine, all of the affiliates
in a fleet of ships may be liable for damages caused by, or debts incurred
with
respect to, a ship owned by one affiliate, and the ships and other assets of
all
the affiliates may be subject to attachments.
In
addition, the Company is required by
various governmental and quasi-governmental agencies to obtain certain permits,
licenses and certificates with respect to its operations. The Company believes
that it will readily be able to obtain all such permits, licenses and
certificates as may be required.
Some
countries have laws or practices
which restrict the carriage of cargoes depending upon the nationality of a
vessel or its crew or the origin or destination of the vessel, as well as other
considerations relating to particular national interests. The Company cannot
predict the effect that such laws or practices may have on its ability to obtain
cargoes. It is expected that the Company's vessels, all of which are non-United
States flag vessels, will be permitted to enter the territorial waters of the
United States, but will not be permitted, under the Merchant Marine Act, 1920
(the Jones Act), to transport cargoes between United
States ports. Such restriction is not expected to have a material adverse impact
on the Company's operations.
COMPETITION
Competition
in the operation of LPG
carriers is intense. Typically, each of the numerous owners of such vessels
owns
a relatively small number of vessels. However, a few large and experienced
operators, with greater financial resources than those of the Company, dominate
the LPG sector, particularly in the larger ship segments, and there is no
assurance that the Company will be able to compete successfully with other
shipping firms.
As
shipping rates are not materially
different among competitors, competition is based primarily upon the reputation
of the vessel and its operators as well as the operator’s relationship with
charterers.
Management
believes that the most
effective technique in dealing with competitive pressures is to maintain the
Company’s vessels to a very high standard and to develop strong long-term
relationships with charterers of high standing. Management believes that its
reputation and extensive experience contributes to the Company’s ability to
compete effectively.
EMPLOYEES
At
the end of March 2007, the Company
employed nine persons on a full-time basis, three of whom are officers of the
Company.
The
Company, through its vessel-owning subsidiaries, hires officers and crews for
each of the Company’s vessels. Seamen from India, Latvia, Russia, Ukraine and
the Philippines currently man the Company’s vessels with approximately three
hundred and thirty seafarers currently serving on the Company’s vessels. The
Company is continuing to strengthen its own identity with this vital part of
its
business and believes it has good relationships with those who serve on board
its vessels, as demonstrated by the high proportion of people who remained
with
the Company during the change of technical management in 2006.
______________________________
RISK
FACTORS RELATING TO OUR BUSINESS AND OPERATIONS
Our
business is subject to the general volatility of the shipping
market. The shipping industry is subject to cyclical
fluctuations in charter rates and vessel values based on changes in supply
and
demand. The industry has been experiencing volatility in profitability, vessel
values and charter rates resulting from changes in the supply of, and demand
for, shipping capacity. The factors which affect the supply of and demand for
vessel capacity are beyond the control of the Company. In addition, the nature,
timing and degree of changes in the shipping markets, in which the Company
operates, as well as future charter rates and values of its vessels, are not
readily predictable.
Our
business is subject to significant environmental and other regulations. The
operation of vessels is affected by extensive and changing environmental
protection and other laws and regulations, compliance with which may entail
significant expense, including expenses for ship modifications and changes
in
operating procedures. Such expense could have a material adverse effect on
the
Company at any time.
Our
business is subject togovernment regulation which may increase our
costs and potential liabilities, including for the failure to obtain required
permits, licenses and certificates and the failure to keep up with hanging
regulations. The shipping business is materially affected by
government regulation in the form of international conventions, national, state
or local laws and regulations, and laws and regulations of the flag nations
of
its vessels, including laws relating to the discharge of materials into the
environment. Because such conventions, laws and regulations are often revised,
the Company is unable to predict the ultimate costs of complying with such
conventions, laws and regulations. Under certain regulations, a vessel owner
may
be liable for
property and environmental damages and all of its assets could be subject to
claim for such damages. Moreover, in certain jurisdictions, under the "sister
ship" doctrine, all of the affiliates in a fleet of ships may be liable for
damages caused by, or debts incurred with respect to, a ship owned by one
affiliate, and the ships and other assets of all the affiliates may be subject
to attachments.
Shipping
is an inherently risky
business and our insurance may not be adequate. The business of
the Company is affected by the risks of mechanical failure of the Company’s
vessels, collisions, property losses to the vessels, cargo loss or damage,
and
business interruption due to political action in foreign countries and labor
strikes. In addition, the operation of any ocean-going vessel entails an
inherent risk of catastrophic marine disaster. Any of these events may result
in
loss of revenues, increased costs and decreased cash flows. The Company
maintains Insurance consistent with industry practice. Nonetheless, risks may
arise against which we are not adequately insured. For example, a
catastrophic event could exceed our insurance coverage and have a material
adverse effect on our financial condition. Although the Company has had no
difficulty in obtaining such insurance for its vessels in the past, there can
be
no assurance that the Company will be able to continue to procure sufficient
amounts of insurance at commercially reasonable rates in the future and we
cannot guarantee that any particular claim will be paid.
There
may be risks associated with the purchase and operation of second hand vessels.
The economic useful lives of most liquefied gas carriers are generally
estimated to be approximately 30 years, depending on market conditions, the
type
of cargo being carried and the level of maintenance. Although we inspect
second-hand vessels prior to purchase, this does not normally provide us with
the same knowledge about their condition that we would have had if such vessels
had been built for and operated exclusively by us. Second-hand vessels
carry no warranties from sellers or manufacturers. In general, expenditures
necessary to maintain a vessel in good operating condition increase with the
age
of the vessel. Second-hand vessels may develop unexpected mechanical and
operational problems despite adherence to regular survey schedules and proper
maintenance. Changes in governmental regulations and safety standards may
require expenditures for alterations. The Company’s vessels range from 12 to 27
years old. There can be no assurance that market conditions will justify the
level of expenditures necessary to maintain such vessels, to comply with
applicable regulations, to enable the Company to operate such vessels profitably
during the remainder of such vessels’ useful lives or to sell such vessels at
prices approaching or in excess of the book value. Therefore, our future
operating results could be negatively affected if some of the vessels do not
perform as we expect.
We
may face unexpected repair costs for our
vessels. Repairs and maintenance costs are
difficult to predict with certainty and may be substantial. Many of these
expenses are not covered by our insurance. Large repair expenses could
decrease our cash flow and profitability and reduce our
liquidity.
Our
revenues may be adversely
affected if we do not successfully employ our
vessels. The Company’s vessels are currently
chartered for periods ranging from three to fifty one months. Upon
the termination of such charters, the Company may seek to sell one or more
of
its vessels, enter into medium- to long-term charters or trade such vessels
in
the spot market. If the Company decides to re-charter the vessels, there can
be
no assurance that it will be able to enter into charters for periods and at
rates of hire that will be sufficient to enable the Company’s vessels to be
operated profitably.
We
are dependant on a few charterers and if we lose any of our
charterers, our revenues could decrease and
our operating results could be materially
adversely affected. The
Company has derived and is expected to continue to derive, a significant portion
of its revenues from a limited number of charterers. If the Company loses a
significant customer, or if a significant customer decreases the amount of
business it transacts with us, our revenues, cash flows and profitability could
be materially and adversely affected.
We
depend on our key personnel and may have difficulty attracting and retaining
skilled employees. The loss of the services of any of our key
personnel or our inability to successfully attract and retain qualified
personnel, including ships’ officers, in the future could have a material
adverse effect on our business, financial
condition
and results of
operations.
The
risks associated withoperations outside the United States could
adversely impact our operating results. The Company’s operations are
conducted worldwide, and may be affected by changing economic, political and
social conditions in the countries where the Company is engaged in business
or
where the Company’s vessels are registered or flagged. In particular, the
Company’s operations may be affected by war, expropriation of vessels, the
imposition of taxes, increased regulation or other circumstances, and as a
consequence the Company may incur higher costs, its assets may be impaired
or
its operations may be curtailed.
Our
operating performance may be
materially affected by competition. Competition in the operation
of LPG carriers is intense. A few large and experienced operators, with greater
financial resources than those of the Company, dominate the LPG sector,
particularly in the larger ship segments, and there is no assurance that the
Company will be able to compete successfully with other shipping
firms.
Related
party transactions may
materially affect our business. Certain of the directors of the
Company are involved in outside business activities similar to those conducted
by the Company. As a result of such affiliations, such persons may
experience conflicts of interest in connection with the selection, purchase,
operation and sale of the Company’s vessels and those of other entities
affiliated with such persons.
We
may incur unanticipated contingent liabilities as a result of the operating
expense guarantee given to MUNIA and LTF. See Notes 3 and 4 to the
Consolidated Financial Statements in Item 8. As part of the MUNIA
transaction, the Company agreed to guarantee certain levels of operating
expenses and employment for the vessels until February 1, 2008, September 1,
2008, May 15, 2009 and February 1, 2009, for each vessel respectively (or
earlier in case of sale or total loss of a vessel). As a result, the off hire
and the excess or surplus of operating expenses, up to a certain extent, will
be
absorbed by the Company. We may incur unforeseen liabilities in connection
with
this guarantee and liabilities may materialize that could have a material
adverse effect on our financial condition. As part of the LTF transaction,
the
Company has agreed to guarantee the difference between the full management
budget and the actual ship operating expenses for an amount not to exceed $135
per day per vessel for four years after the delivery of each of the six
vessels.
If
we
default under any of our loan agreements, we could forfeit our rights
in our vessels and their charters. We have pledged
substantially all of our vessels and related collateral as security to the
lenders under our loan agreements. Default under any of these loan
agreements, if not waived or modified, would permit the lenders to foreclose
on
the mortgages over the vessels and the related collateral, and we could lose
our
rights in the vessels and their charters.
Our
business exposes us to unpredictable contingent
liabilities. Various claims, suits, and complaints, including
those involving government regulations and product liability, arise in the
ordinary course of the shipping business. In addition, losses may arise from
claims or disputes with charterers, agents, insurance providers or suppliers
relating to the operations of our vessels. Such losses, if not covered by
insurance, could have a material adverse effect on our financial condition.
In
the normal course of business, the Company enters into contracts that contain
a
variety of indemnifications with its customers, suppliers and service
providers. Further, the Company indemnifies its Directors and officers who
are, or were, serving at the Company’s request in such capacities. The
Company’s maximum exposure under these arrangements is unknown as of December
31, 2006. The Company does not anticipate incurring any significant costs
relating to these arrangements.
RISK
FACTORS RELATED TO OUR COMMON STOCK
You
may not be able to sell your common stock when you want to and, if you do,
you
may not be able to receive the price that you want. Although our
common stock trades on the American Stock Exchange, we do not know if an active
trading market for the common stock will continue or, if it does, at what prices
the common stock may trade. During 2006, the reported closing prices for our
common stock have ranged from a high of $15.70 to a low of $9.04. In addition,
the stock markets in general, including the American Stock Exchange, have
experienced extreme price and trading volume fluctuations. These fluctuations
have resulted in volatility in the market prices of securities that has often
been unrelated or disproportionate to changes in operating performance. These
broad market fluctuations may adversely affect the market prices of our common
stock. Further, possible additional issuances could significantly increase
the
number of shares of our common stock outstanding, and could result in a decline
in the market price of our common stock. Therefore, you may not be able to
sell
our common stock when you want and, if you do, you may not receive the price
you
want.
We
cannot assure you that we will pay any dividends. In March
2005, our board of Directors initiated a cash dividend policy. The timing
and amount of dividends, if any, could be affected by factors affecting cash
flows, results of operations, required capital expenditures, or reserves.
Maintaining the dividend policy will depend on our cash earnings, financial
condition and cash requirements and could be affected by factors, including
the
loss of a vessel, required capital expenditures, reserves established by the
Board of Directors, increased or unanticipated expenses, additional borrowings
or future issuances of securities, which may be beyond our control.
______________________________
We
have no unresolved staff
comments.
______________________________
We
lease two properties, both of which
house offices used in the administration of our operations. One such property
is
approximately 1,233 square feet, is located in London and has a nine year lease.
The other property is approximately 1,130 square feet, is located in Monaco
and
has a three year lease. We do not own or lease any other real
properties.
At
December 31, 2006, the Company’s
fleet consisted of the following vessels:
Name
|
|
Type
|
|
Year
Built
|
|
DWT
|
|
CBM
|
|
%
ownership
|
|
|
|
|
|
|
|
|
|
|
|
Deauville
|
|
LPG
Carrier
|
|
1995
|
|
2,601
|
|
3,516
|
|
100.0%
|
Auteuil
|
|
LPG
Carrier
|
|
1995
|
|
2,588
|
|
3,516
|
|
100.0%
|
Malvern
|
|
LPG
Carrier
|
|
1990
|
|
4,148
|
|
3,206
|
|
100.0%
|
Cheltenham
|
|
LPG
Carrier
|
|
1990
|
|
4,318
|
|
3,208
|
|
100.0%
|
Longchamp
|
|
LPG
Carrier
|
|
1990
|
|
4,316
|
|
3,207
|
|
100.0%
|
Blackfriars
Bridge
|
|
LPG
Carrier
|
|
1981
|
|
4,400
|
|
5,647
|
|
100.0%
|
London
Bridge
|
|
LPG
Carrier
|
|
1980
|
|
4,400
|
|
5,673
|
|
100.0%
|
Coniston
|
|
LPG
Carrier
|
|
1991
|
|
4,833
|
|
4,015
|
|
100.0%
|
Barnes
Bridge
|
|
LPG
Carrier
|
|
1982
|
|
16,225
|
|
15,370
|
|
100.0%
|
Kew
Bridge
|
|
LPG
Carrier
|
|
1983
|
|
16,228
|
|
15,364
|
|
100.0%
|
Maersk
Houston
|
|
LPG
Carrier
|
|
1993
|
|
23,270
|
|
20,700
|
|
100.0%
|
La
Forge
|
|
LPG
Carrier
|
|
1981
|
|
45,587
|
|
70,793
|
|
100.0%
|
Chelsea
Bridge
|
|
LPG
Carrier
|
|
1987
|
|
51,466
|
|
77,749
|
|
100.0%
|
Tower
Bridge
|
|
LPG
Carrier
|
|
1991
|
|
49,245
|
|
75,353
|
|
100.0%
|
Galileo
|
|
LPG
Carrier
|
|
1983
|
|
47,593
|
|
59,725
|
|
50.0%
|
Maersk
Belawan
|
|
Container
Carrier
|
|
1983
|
|
37,212
|
|
-
|
|
25.8%
|
Maersk
Brisbane
|
|
Container
Carrier
|
|
1976
|
|
37,129
|
|
-
|
|
25.8%
|
Maersk
Barcelona
|
|
Container
Carrier
|
|
1976
|
|
37,115
|
|
-
|
|
25.8%
|
Ankara
|
|
Container
Carrier
|
|
1975
|
|
37,116
|
|
-
|
|
25.8%
|
______________________________
ITEM
3: LEGAL
PROCEEDINGS
Various
claims, suits, and complaints,
including those involving government regulations and product liability, arise
in
the ordinary course of the shipping business. In addition, losses may arise
from
disputes with charterers, agents, insurance and other claims with suppliers
relating to the operations of the Company’s vessels.
Following
the extended dry-docking of La Forge in 2006, the charterers lodged a claim
against the Company for damages arising out of the deprivation of use of the
vessel and compensation was demanded for the additional cost of hiring
replacement vessels. The Company intended to challenge this claim; however
the
charterers agreed to substantially reduce the quantum of their claim if a
settlement could be reached out of court and the Company considered the
settlement proposal worth accepting rather than incurring the costs of
arbitration. The Company received a settlement proposal of $1,050,000 net of
hire due to the Company from the same charterers and
adjusted accruals to an equal amount. The Company will seek
to recover the full amount lost from the technical managers who actually
budgeted, planned and executed the dry dock.
______________________________
ITEM
4: SUBMISSION OF
MATTERS TO A VOTE OF SECURITYHOLDERS
On
June 27, 2006, at a duly constituted
Annual Meeting of Shareholders, the holders of a majority of the outstanding
shares of the Company’s common stock approved the deletion of Article SEVEN,
Restrictions upon Indebtedness of the Corporation, from the Company’s Articles
of Incorporation. The Company’s Articles of Amendment amending the
Articles of Incorporation to reflect such deletion became effective on August
7,
2006 upon their filing with the Liberian International Ship and Corporate
Registry.
_________________________
PART
II
ITEM
5: MARKET
FOR
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE
RANGE OF COMMON
STOCK
Since
May 31, 1989, the Company's
Common Stock has traded on the American Stock Exchange. The ticker symbol for
the Company's Common Stock is “MCX”. As of February 15, 2007, there were 54
record holders of Common Stock.
The
high and low sales prices for the
Company's Common Stock for the last two fiscal years are set forth
below:
Quarter
ended
|
|
2006
|
|
|
2005
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31
|
|
|
15.70
|
|
|
|
12.02
|
|
|
|
8.93
|
|
|
|
3.55
|
|
June
30
|
|
|
13.88
|
|
|
|
10.10
|
|
|
|
10.11
|
|
|
|
7.59
|
|
September
30
|
|
|
11.93
|
|
|
|
10.11
|
|
|
|
10.35
|
|
|
|
8.95
|
|
December
31
|
|
|
10.50
|
|
|
|
9.04
|
|
|
|
15.82
|
|
|
|
9.30
|
|
DIVIDENDS
In
March 2007, the Company’s Board of
Directors announced an expected dividend of $0.25 per share to be paid in four
equal quarterly installments. The first quarterly installment was declared
on
March 21, 2007 and is payable on April 30, 2007. During 2006, the Company’s
Board of Directors declared dividends of $0.25 per share as well as a common
stock dividend of one share for every twenty shares owned, rounded up to the
nearest multiple. During 2005, the Company’s Board of Directors declared
dividends of $0.25 per share.
The
Company has been advised that
distributions to shareholders who are not citizens or residents of Liberia
will
not be subject to tax by Liberia under its laws as currently in effect. There
is
no income tax treaty between Liberia and the United States.
SECURITIES
AUTHORIZED UNDER EQUITY
COMPENSATION PLAN
On
March
24, 2006, the Company filed a registration statement on Form S-8 to register
the
re-offer and resale of up to 357,996 shares of common stock of the Company,
which have been issued or will be issued under the Company Stock Option Plan
to
the Company’s employees.
As
of December 31, 2006
|
|
|
|
|
|
|
|
|
|
Plan
category
|
|
(a)
Number of securities to be issued upon exercise of
outstanding
options
|
|
|
(b)
Weighted average exercise price of outstanding options
|
|
|
(c)
Number of securities remaining available for future
issuance under equity
compensation plans (excluding securities reflected
in column
(a)
|
|
Equity
compensation plans approved by security holders
|
|
|
47,000
|
|
|
$
|
9.228
|
|
|
|
-
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
47,000
|
|
|
$
|
9.228
|
|
|
|
-
|
|
The
following selected financial data
for the years ended December 31, 2006, 2005, 2004, 2003 and 2002 are derived
from the Consolidated Financial Statements of the Company. The Company’s books
and records are maintained in U.S. dollars, which is the Company’s functional
currency. The data should be read in conjunction with the Consolidated Financial
Statements, related notes and other information included herein.
The
Company is in the business of
investing in, owning and operating vessels. As a result, the composition and
size of the Company’s fleet may vary significantly year to year (see Note 3:
Acquisitions and Sales of Vessels to the Consolidated Financial Statements
in
Item 8).
Consolidated
Statements of Operations Data
|
|
Years
ended December 31
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Charterhire
and Other Income
|
|
$ |
52,417,310
|
|
|
$ |
35,396,519
|
|
|
$ |
31,895,393
|
|
|
$ |
35,797,522
|
|
|
$ |
41,858,999
|
|
Commission
on Charterhire
|
|
|
(541,978 |
) |
|
|
(532,281 |
) |
|
|
(759,673 |
) |
|
|
(895,394 |
) |
|
|
(1,100,422 |
) |
Vessel
Operating Expenses
|
|
|
(23,186,469 |
) |
|
|
(13,983,069 |
) |
|
|
(16,821,562 |
) |
|
|
(17,875,984 |
) |
|
|
(19,547,436 |
) |
Amortization
of Dry- docking Costs
|
|
|
(1,790,657 |
) |
|
|
(808,129 |
) |
|
|
(1,433,150 |
) |
|
|
(1,176,659 |
) |
|
|
(575,185 |
) |
Depreciation
|
|
|
(13,247,717 |
) |
|
|
(8,114,264 |
) |
|
|
(5,140,639 |
) |
|
|
(8,295,583 |
) |
|
|
(9,127,713 |
) |
General
and Administrative Expenses
|
|
|
(2,689,630 |
) |
|
|
(2,254,864 |
) |
|
|
(2,577,213 |
) |
|
|
(1,419,368 |
) |
|
|
(1,382,587 |
) |
Income
from vessel operations
|
|
|
10,960,859
|
|
|
|
9,703,912
|
|
|
|
5,163,156
|
|
|
|
6,134,534
|
|
|
|
10,125,656
|
|
Impairment
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,693,650 |
) |
|
|
(1,687,370 |
) |
Net
Gain on sale of vessels
|
|
|
1,035,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,785,253
|
|
|
|
-
|
|
Recognized
deferred gain on sale of vessels
|
|
|
4,763,338
|
|
|
|
4,515,383
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity
in (Loss)/Gain from Associated Companies
|
|
|
(288,627 |
) |
|
|
113,983
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
OPERATING
INCOME
|
|
|
16,471,212
|
|
|
|
14,333,278
|
|
|
|
5,163,156
|
|
|
|
5,226,137
|
|
|
|
8,438,286
|
|
Interest
Expense
|
|
|
(6,784,088 |
) |
|
|
(4,018,670 |
) |
|
|
(3,463,491 |
) |
|
|
(4,866,062 |
) |
|
|
(6,418,537 |
) |
Interest
Income
|
|
|
462,084
|
|
|
|
454,037
|
|
|
|
156,964
|
|
|
|
110,603
|
|
|
|
127,559
|
|
(Loss)/Gains
on debt extinguishment
|
|
|
-
|
|
|
|
-
|
|
|
|
(744,250 |
) |
|
|
2,620,477
|
|
|
|
94,598
|
|
NET
INCOME
|
|
$ |
10,149,208
|
|
|
$ |
10,768,645
|
|
|
$ |
1,112,379
|
|
|
$ |
3,091,155
|
|
|
$ |
2,241,906
|
|
Per
Share amounts (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Net Income
|
|
$ |
1.07
|
|
|
$ |
1.16
|
|
|
$ |
0.12
|
|
|
$ |
0.34
|
|
|
$ |
0.25
|
|
Diluted
Net Income
|
|
$ |
1.06
|
|
|
$ |
1.14
|
|
|
$ |
0.12
|
|
|
$ |
0.33
|
|
|
$ |
0.24
|
|
(1)
All
prior period basic and diluted earnings per share calculations presented have
been restated to reflect the impact of the stock dividends declared in March
2004 and April 2006.
Consolidated
Balance Sheet Data
|
|
December
31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Current
Assets
|
|
$ |
12,033,564
|
|
|
$ |
15,733,128
|
|
|
$ |
13,885,893
|
|
|
$ |
19,727,175
|
|
|
$ |
18,787,275
|
|
Current
Liabilities
|
|
$ |
39,242,508
|
|
|
$ |
17,749,812
|
|
|
$ |
11,980,513
|
|
|
$ |
10,718,847
|
|
|
$ |
20,869,488
|
|
Total
Assets
|
|
$ |
221,329,389
|
|
|
$ |
148,742,523
|
|
|
$ |
80,317,068
|
|
|
$ |
87,316,016
|
|
|
$ |
112,629,237
|
|
Long-term
Debt
|
|
$ |
124,269,936
|
|
|
$ |
77,326,000
|
|
|
$ |
37,500,000
|
|
|
$ |
47,081,690
|
|
|
$ |
65,461,243
|
|
Shareholders’
Equity
|
|
$ |
48,247,207
|
|
|
$ |
40,466,810
|
|
|
$ |
30,836,555
|
|
|
$ |
29,228,585
|
|
|
$ |
25,788,339
|
|
_________________________________________________
ITEM
7: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with the
selected consolidated financial data set forth above and the Consolidated
Financial Statements included elsewhere in this Report.
OVERVIEW
Revenues
and Expenses
Since
its
formation, the Company has been engaged in the business of investing in, owning
and operating commercial cargo vessels. As of December 31, 2006, the Company
owned interests in nineteen vessels. Fourteen LPG carriers were wholly owned.
Each of the Company’s wholly owned vessels is owned, in turn, by a separate
wholly owned subsidiary of the Company. In addition, the Company had a 50%
interest in one LPG carrier and a 25.8% percent interest in four
containerships.
The
Company generally employs its vessels on time charter, bareboat charter or
spot
charter. With time charters, the Company receives a fixed charterhire per
on-hire day and is responsible for meeting the operating expenses of the
vessels, such as crew costs, voyage expenses, insurance, repairs and
maintenance. In the case of bareboat charters, the Company receives a fixed
charterhire per day for the vessel and the charterer is responsible for all
the
costs associated with the vessel's operation during the bareboat charter period.
In the case of voyage charters, the vessel is contracted only for a voyage
between two ports and the Company is paid for the cargo transported and pays
for
the voyage costs and operating costs.
In
all
chartering arrangements, both ship-owner and charterer will generally employ
the
services of one or more brokers, who are paid a commission on the total value
of
the daily charterhire or a lump sum payable under the charter party or
contract.
The
level
of the Company's revenues and expenses will vary from year to year depending
on,
among other things, the number of vessels controlled by the Company during
each
year, the type of employment and the charter rates of the vessels.
Shipping
markets
The
Company’s primary focus is the carriage of Liquefied Petroleum Gas (LPG). LPG is
a by-product of crude oil refining or natural gas production and it is
considered a clean fuel relative to other fossil fuels.
The
LPG
trade is set to increase dramatically over the next five years as major
Liquefied Natural Gas (“LNG”) terminals in Qatar, West Africa and other regions
are completed. LPG production will represent between 5 and 10% of the off take
of LNG, a significant increase over to-day’s capacity. These major projects will
require additional ships as the production comes on line.
World
seaborne trade of LPG stood at 76.4 million tons in 2005 and is forecasted
to
grow by over 30% to about 102 million tons by 2011 as pressure increases to
reduce the production of green house gasses and to move towards cleaner forms
of
energy. LPG was commonly flared off in the production of crude oil, a practice
which has now all but ceased.
The
industry operates in three sectors. Very large gas carriers (“VLGC”) of circa
70,000 cbm or above operate as mother ships, transporting product mainly from
the Arabian Gulf to various destinations. The Company owns four ships which
fall
into this category. In 2006, the market reached the highest recorded freights
($65 per ton on the bench mark AG/Japan voyage) and some of the lowest ($19
per
ton).
As
the
Company was aware of the build-up of production caused by the commissioning
of
the new LNG plants, three of these four vessels were covered by pre-arranged
time charters. The fourth vessel was on time charter for much of
the year, returning to the spot market in the third quarter. Further period
employment is expected to be arranged for this vessel as production builds
up.
During
the year 2006, the Company entered the mid-sized market purchasing three new
vessels, between 15,000CBM and 21,000CBM. The market for this size was quite
competitive, with strong rates experienced during 2006. The Company’s ships were
purchased with contracts for periods ranging from two to five years, so the
Company had no exposure to the spot market in 2006.
The
small
sector (3,500 to 6,000 cbm) was robust in 2006 with rates remaining historically
firm. The Company’s small ships were employed during the year with most of the
oil majors or traders, where they enjoy a good reputation.
The
Company’s traditional strength is in our customer base and the relationships we
share with our customers. This area remains a key area of development. As we
expand the range of ship sizes in which we operate, we seek to expand our
relationships with our customers in these additional size brackets. Marketing
is
conducted from our head office in Monaco with assistance from our new London
office.
The
table
below demonstrates the variation in freight rates on the Arabian Gulf/Japan
route. The table also shows the evolution of 12-month time charter rates for
vessels of sizes and types similar to the Company’s ships.
LPG
market
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Voyage
rates ($/mt) Arabian Gulf/Japan
|
|
|
36.15
|
|
|
|
40.51
|
|
|
|
46.71
|
|
12-month
time charter ($/day)
|
|
|
|
|
|
|
|
|
|
|
|
|
78,000
m3
average daily charter rate
|
|
|
27,822
|
|
|
|
33,538
|
|
|
|
37,327
|
|
15,000
m3
average daily charter rate
|
|
|
17,699
|
|
|
|
22,353
|
|
|
|
23,014
|
|
3,500
m3
average daily charter rate
|
|
|
6,247
|
|
|
|
7,566
|
|
|
|
7,401
|
|
Sources: ©
Clarkson Research Services Limited; © Lorentzen & Stemoco;© Barry
Rogliano Salles;
©
Inge
Steensland
AS.
The
Company retained exposure to the Container market through its partial ownership
of four 2500 TEU container ships. In 2006, the market for containerships was
30-35% lower than the average 2005 rates. The four container vessels, which
are
25.8% owned by the Company are fixed on long term charters with
A.P.Moller-Maersk until February 1, 2008, September 1, 2008, May 15, 2009 and
February 1, 2009, respectively. The timing of the contracts has resulted in
the
vessels earning rates below current market levels.
Market
value of the fleet
On
the basis of appraisals received
from two leading independent shipbrokers, the average appraised value of the
Company’s fully owned fleet in January 2007 was approximately $240,875,000
compared to a book value of $190,990,515 on December 31, 2006. The excess of
appraised value over book value was approximately $49.9 million.
In
January 2006, the appraised value of
the Company’s fleet was approximately $174,675,000 compared to a book value of
$121,991,571 at December 31, 2005. The excess of appraised value over book
value
was approximately $52.7 million.
Retained
earnings.
As
of
December 31, 2006, the Company's retained earnings were
nil.
RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31,
2005
Significant
events during 2006
In
2006, the Company took further steps
to focus on the LPG sector. Between March and July 2006, the Company purchased
five LPG vessels representing a total capacity of 62,754 cbm, thereby starting
to build a presence in the mid size sector. In June, the Company sold its small
coastal bulkers, which it considered to be non-core to its main business. In
the
later part of the year, the Company sold the six smaller LPG vessels
representing a total capacity of 20,668 cbm, each with a four year charterback.
A portion of the cash raised from this transaction is expected to be reinvested
in the LPG sector (see Note 3. Purchase and sale of vessels to the
financial statements in Item 8).
In
2006, for the first time since its
formation, the Company changed technical managers on its fleet. The Company’s
wholly owned vessels are now technically managed by Anglo Eastern, Hanseatic
or
Wallem. Management believes that moving to a competitive arms-length pool of
service providers ensures best practice for the Company. The
change of technical manager resulted in a heavy concentration of non-recurring
transition costs of approximately $687,530, including the payment of three
months’ cancellation management fees due to the previous manager, crew
repatriation expenses, new crew traveling on-board, hiring and training costs,
superintendent fees to supervise the manager change and upgrading to new
managers’ standards among other things. This resulted in the incurrence of extra
costs and a concentration of costs in a short period of time. These costs,
which
are included in vessel operating expenses, can be estimated to be approximately
$687,530. The detail of these costs is given below:
Cancellation
fees
|
|
$ |
229,500
|
|
Manning
expenses
|
|
|
144,249
|
|
Repairs
and maintenance
|
|
|
185,434
|
|
Stores
|
|
|
93,747
|
|
Spares
|
|
|
7,930
|
|
Superintendent
fees
|
|
|
2,530
|
|
Lub
oil
|
|
|
2,177
|
|
Others
|
|
|
21,963
|
|
Total
|
|
$ |
687,530
|
|
In
2006, the Company incurred a
significant amount of off-hire time related for the most part to the dry-dock
of
the La Forge. The dry-dock lasted approximately 125 days whereas a special
survey dry-dock for a vessel of comparable size and age usually lasts
approximately four to five weeks. The excess off-hire time cost approximately
$1,790,886 to the Company in lost revenues. The lost trading days directly
and
adversely impacted the Company’s charterhire revenue and net income as the
Company does not include off-hire time incurred to perform the dry-dock in
the
cost of dry-dock. The cost of the dry-dock also exceeded the budgeted amounts.
Dry-dock costs are deferred and amortized over five years to the next
intermediate or special survey. The technical managers responsible have been
changed and the vessel is now back in full operation. Following the extended
dry-docking of the vessel, the charterers lodged a claim against the Company
for
damages arising out of the deprivation of use of the vessel and the Company
has
recorded a reserve of $1,050,000 in this regard which it will seek to recover
from the technical manager.
Net
income in 2006 was negatively impacted by other factors. The Company wrote
off
$220,210 of issuance costs of the loan granted by Scotiabank in July 2006 (see
Note 6. Long term debt). The late delivery by the sellers of Tycho Brahe and
Immanuel Kant on July 24, instead of July 1 as planned, resulted in the receipt
of compensation of $613,455, which was recorded as a reduction in purchase
price
(see Note 3: Acquisitions and sale of vessels to the Consolidated Financial
Statements in Item 8). If such delivery had occurred on time, net income would
have been approximately $450,000 higher.
The
following table illustrates the effects of the events discussed above on the
Company’s earnings in 2006. The non-GAAP disclosure of earnings is not
preferable to GAAP net earnings but is shown as a supplement to such disclosure
for comparability to the prior years’ earnings.
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Net
income, before costs related to La
Forge dry-dock, change of managers,
loss on debt extinguishment and lost
income related to late delivery of
two vessels acquired in July
|
|
$ |
14,347,834
|
|
|
$ |
10,768,645
|
|
|
|
1,856,629
|
|
Per
share
|
|
$ |
1.51
|
|
|
$ |
1.16
|
|
|
$ |
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La
Forge excess dry-dock off-hire
|
|
|
(1,790,886 |
) |
|
|
-
|
|
|
|
-
|
|
Provision
for the La Forge settlement
|
|
|
(1,050,000 |
) |
|
|
|
|
|
|
|
|
Costs
related to change of managers
|
|
|
(687,530 |
) |
|
|
-
|
|
|
|
-
|
|
Loss
on early debt extinguishment
|
|
|
(220,210 |
) |
|
|
-
|
|
|
|
(744,250 |
) |
Lost
income related to late delivery of
two vessels acquired in
July
|
|
|
(450,000 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$ |
10,149,208
|
|
|
$ |
10,768,645
|
|
|
$ |
1,112,379
|
|
Per
share
|
|
$ |
1.07
|
|
|
$ |
1.16
|
|
|
$ |
0.12
|
|
On
December 18, 2006, the Company signed agreements to sell the LPG carriers
Auteuil, Deauville, Cheltenham, Malvern, Coniston and Longchamp to
Beteiligungsgesellschaft LPG Tankerflotte mbH & Co. KG (“LTF”), a special
purpose German KG company formed by the German finance house MPC Munchmeyer
Petersen AG (“MPC”) for a total price of $52 million and to charter back the
vessels for four years. The actual delivery of the vessels is to take place
in
2007. As part of the transaction, the Company will take a stake of approximately
25% of LTF, which will make it the largest shareholder in the buying company
(see Note 3: Acquisitions and sale of vessels to the Consolidated Financial
Statements in Item 8).
Revenue
The
Company had gross revenue from
charterhire and other sources of $52,417,310 for the year ended December 31,
2006, a 48% increase from gross revenue of $35,396,519 in 2005. The revenue
increase resulted principally from the acquisition of five vessels (see Note
3:
Acquisitions and sales of vessels to the Consolidated Financial Statements
in
Item 8) and from a general increase in the charter rates of LPG vessels. The
increase was partially offset by the lost revenues related to the dry-docks,
in
particular the dry-dock of La Forge as discussed above. The incident of the
Kew
Bridge did not generate any off-hire in 2006, as the Company received the hire
from insurance or from charterers, and therefore had no incidence on
revenues.
The
average revenue per day per vessel was $11,770 in 2006 compared to $10,066
in
2005. The increase was due to higher charter rates, the purchase of larger
vessels and the fact that some vessels were employed on a voyage basis rather
than on time charter. In 2006, the Company's on-hire performance of the vessels
was 93.12% on a potential 4,329 days compared to 97.6% on a potential 3,021
days
in 2005. In 2006, the vessels experienced off-hire time for the following
reasons: (i) 3.41% of the total available days were lost due to dry-docking
and planned repair time, (ii) 2.18% of the total available days were lost
due to technical reasons (“operating off-hire”) and (iii) 1.29% of the total
available days were lost due to positioning or waiting for
employment.
Costs
and Expenses
Commissions
on charterhire were $541,978 in 2006, a 1.8% increase from $532,281 incurred
during 2005. Commissions decreased from 1.5% of revenues in 2005 to 1.0% in
2006. This decrease was principally due to the lack of commissions on the
charterhire of some vessels acquired.
Vessel
operating expenses plus amortization of dry-docking costs totaled $24,977,126
for the year ended December 31, 2006, representing an increase of 69% from
2005
in which vessel operating expenses plus amortization of dry-docking amounted
to
$14,791,198. Vessel operating expenses comprise vessel running costs, direct
costs (such as fuel costs, port charges and canal dues incurred directly while
vessels are unemployed or are employed on voyage charters) and management fees.
As a percentage of revenue, vessel operating expenses plus amortization of
dry-docking costs were 47.6% in 2006 compared to 41.8% in 2005. The increase
in
operating expenses was due to several factors: the Company acquired five vessels
in 2006, the Company recorded an accrual of $1,050,000 for the settlement of
the
La Forge dispute with the vessel charterers and, finally, several vessels were
operated on voyage charters. For voyage charters, the vessel is contracted
for a
voyage between two ports: the Company is paid for the tonnage transported and
pays for all voyage costs, including port expenses and bunker, in addition
to
the operating expenses of the vessels, such as crew costs, insurance, repairs
and maintenance.
As
a result of the change in technical
managers in the third quarter of 2006, the Company incurred a heavy
concentration of expenses and non-recurring expenses relating to extra crew
travel, superintendent fees, training costs and three months of cancellation
fees. These costs were approximately $687,530.
Depreciation
was $13,247,717 for the
year ended December 31, 2006, compared to $8,114,264 in 2005. The
increase in depreciation was principally due to the purchase of five LPG vessels
in 2006.
General
and administrative expenses were $2,689,630 for the year ended December 31,
2006, compared to $2,254,864 in 2005. This represented 5.1% of revenue in
2006
compared to 6.4% of revenue in 2005. On January 4, 2006, the Company opened
an
office in London having annual rent equal to approximately $88,800. On June
1,
2006, the Monaco office was moved to new premises having annual rent equal
to
approximately $47,800. In 2006, the Company’s lease and rates expense amounted
to $202,514 compared to $89,167 in 2005 and $87,206 in 2004. The London and
Monaco offices employed four and five people, respectively, on a full time
basis
as of March 1, 2007.
Impairment
Loss
As
of December 31, 2006, the Company
evaluated the recoverability of its vessels in accordance with FAS 144 and
determined that no provision for impairment loss was required. As of December
31, 2005, the Company similarly determined that no provision for impairment
loss
was required.
Interest
Income and Expense
Interest
expense was $6,784,088 for the year ended December 31, 2006 compared to
$4,018,670 in 2005 and represented 12.9% of revenue compared with 11.3% in
2005.
The increase in interest expense resulted from the increase in the Company’s
debt related to its acquisition of five vessels (see Note 6: Long Term Debt
to
the Consolidated Financial Statements in Item 8).
The
Company had entered into an interest rate swap agreement as a result of which
the variable rate of the loan granted by Fortis Bank in April 2005 (the “Fortis
Loan”), exclusive of margin, had been fixed at 3.075 % until October 2007. Since
this loan was to be prepaid in 2007 with the sale of the small LPG vessels,
the
swap agreement was terminated on December 21, 2006 and the Company received
$386,800, the value of the swap on such date. This amount was recorded as a
reduction of interest expense.
In
addition, the Company recorded a
loss on debt extinguishment of $220,210 representing the write off of the
unamortized balance of the debt issuance costs incurred in 2005 in connection
with the $68 million Scotia Loan.
Interest
income was $462,084 in 2006 compared to $454,037 in 2005.
Deferred
gain on sale of vessels
Recognized
deferred gain was $4,763,338
in 2006 compared to $4,515,383 in 2005. Recognized deferred gain represents
the
portion of deferred gain on the sale of assets recognized as income during
the
year. Unrecognized deferred gain at December 31, 2006 was $8,436,563, which
is
expected to be recognized during 2007, 2008 and 2009.
Gain
on sale of vessels
In
June 2006, the Company sold two
coastal bulk carriers to an unrelated third party for a net price of $1,229,495.
The sale generated a net gain of $1,035,642.
Equity
in (Loss) / Income of associated companies
Equity
in net loss of associated
companies was $288,627 for the year ended December 31, 2006 compared to equity
in net income of associated companies $113,983 for the year ended December
31,
2005.
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
MUNIA
share of net income
|
|
$ |
582,895
|
|
|
$ |
389,764
|
|
|
|
|
|
|
|
|
|
|
Waterloo
share of net loss
|
|
$ |
(871,522 |
) |
|
$ |
(275,780 |
) |
Equity
in( losses) / income of associated companies
|
|
$ |
(288,627 |
) |
|
$ |
113,983
|
|
In
January 2005, the Company invested
$4 million in MUNIA and MUNIA simultaneously purchased four container vessels
from the Company (see Note 4: Investments in associated companies to the
Consolidated Financial Statements in Item 8). The Company’s 25.8% share of
MUNIA’s net income was $582,895 for the year ended December 31, 2006 compared to
$389,764 for the year ended December 31, 2005. The Company received dividends
of
$360,000 in 2006 and $110,000 in 2005. The operating expenses of the vessels
exceeded the guaranteed level in 2006 and $198,604 was paid to MUNIA under
the
guarantee. In 2005, $44,453 was paid to Munia under the guarantee in relation
to
the Maersk Barcelona incident (see Contingent liabilities). The on-hire
performance of the container vessels was 98.33% on a potential 1,460 days in
2006 and 99.9% on a potential 1,460 days in 2005. The off-hire was due to the
dry-dock of one of the vessels in December 2006. Such dry-dock had not been
anticipated at the time of the sale to MUNIA and in order to effectuate the
dry-dock, MUNIA agreed to waive its rights under the operating guarantee and
MUNIA and the Company agreed to share in the costs of the dry-dock. The
Company’s share of the dry-dock approximately $1.1 million was recorded as an
increase of its investment in MUNIA.
In
April 2005, the Company invested in
Waterloo Shipping Limited (“Waterloo”), a joint venture company set up on a
50/50 basis by the Company and Petredec Limited to acquire the LPG carrier
Galileo (see Note 4: Investments in associated companies to the Consolidated
Financial Statements in Item 8). The Company’s 50% portion of Waterloo’s net
loss was $871,522 for the year ended December 31, 2006 compared to $275,780
for
the year ended December 31, 2005. The Galileo was dry-docked in 2006 and
extensive upgrading was performed to enable the vessel to trade for an
additional five years. As a result, the on-hire performance of the Galileo
was
64.3% on a potential 365 days in 2006 compared to 86.7% on a potential 270
days
in 2005. The off hire associated with the time in dry-dock decreased Waterloo’s
revenues and net income by approximately $2,050,212 in 2006. Reflecting the
extensive upgrading performed, the total cost of the dry-dock was approximately
$5.6 million.
As
a result of the extended life of the
ship, the charter with Petredec was extended by an additional year to April
2010. In order to fund the cost of the dry-dock, the Company and Petredec each
advanced an additional $1,850,000 to Waterloo in 2006 and expect to make further
advances in 2007. The Company’s investment in Waterloo was $3,184,620 at
December 31, 2006 compared to $2,206,143 at December 31, 2005. In addition,
Waterloo borrowed an additional $2 million under the Danish Ship Finance loan.
As of December 31, 2006, the amount outstanding under the loan was $9,539,064
and repayable in 14 quarterly repayments of $735,156 (first twelve), $342,192
(thirteenth) and $375,000 (fourteenth). The Galileo was valued in January 2007
by two leading independent brokers at $22 million as against a book value of
$17.6 million as of December 31, 2006.
Net
Income
Net
income for the year ended December 31, 2006 was $11,054,501 as compared to
a net
income of $10,768,645 for the year ended December 31, 2005.
Impact
of Inflation
We
do not consider inflation to be a
significant risk to the cost of doing business in the foreseeable future.
Inflation has a moderate impact on operating expenses, dry-docking expenses
and
corporate overhead.
Subsequent
events
On
February 2, 2007, the Company paid the fourth quarterly dividend installment
of
$594,259 ($0.0625 per share) which was declared in 2006.
As
discussed in Note 3 to the consolidated financial statements in Item 8, the
Company delivered five of six vessels to LTF in January 2007. Upon actual
delivery of the vessels, the Company received $42 million, prepaid $17,973,435,
the corresponding portion of the Fortis Loan and reinvested $4,361,539 in LTF
for 25% of the equity. The net proceeds to the Company were approximately
$19,665,026. The delivery of the remaining vessel is expected to take
place mid 2007. The Company expects to reinvest the excess proceeds in other
LPG
vessels and is considering several potential acquisitions. However, the Company
does not currently have any commitment for capital expenditures.
As
of
February 19, 2007, after nine and a half years with the Company, Ms. Sergent,
the Company’s Chief Financial Officer accepted a position with another shipping
company and will leave the Company on or about April 2, 2007. The Board of
Directors offered Ms Sergent its thanks for her time and contributions to the
Company especially during the last 2.5 years when the Company initiated its
new
business strategy and its fortunes improved. She will be replaced on an interim
basis by Mr. Gorchakov, the Company’s Chief Investment Officer.
In
February 2007, the Company made an
additional advance of $500,000 to Waterloo to fund the cost of the dry-dock
that
took place in 2006.
In
February 2007, the Company posted a
$2.5 million bank guarantee in favor of the La Forge charterers. The bank’s
guarantee is secured by a cash deposit of $2.5million. In March 2007, the
charterers agreed to substantially reduce the quantum of their claim if a
settlement could be reached out of court and the Company considered the
settlement proposal worth accepting rather than incurring the costs of
arbitration. The Company received a settlement proposal of $1,050,000 net
of hire due to the Company from the charterers. The $2.5 million guarantee
will be cancelled once a settlement is concluded with the La Forge
charterers.
On
March
5, 2007, the Company prepaid $3,246,414, the portion of the Fortis Loan
attributable to the London Bridge and Blackfriars Bridge. After this prepayment,
the amount outstanding on the Fortis Loan as of March 15, 2007 was $4,186,818,
corresponding to the attributable portion outstanding on the remaining vessel
to
be delivered to LTF in June 2007. This amount will be prepaid at the time of
sale of the vessel.
On
March
21, 2007, the Board of Directors declared the dividend first quarterly
installment of $0.0625 which is payable on April 30, 2007.
RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND DECEMBER 31,
2004
Significant
events during 2005
In
2005, the Company had decided to
focus its activities in the LPG sector. In January, the Company sold four
container vessels, while retaining a 25.8% interest. In April, the Company
bought two very large gas carriers from Bergesen and acquired a 50% interest
in
another one bought from Shell (see in Item 8 the consolidated financial
statements Note 3: Sale and Purchase of vessels and Note 4: Investments in
Associated Companies, included elsewhere in this document).
Following
various share transactions that took place in 2005, by the end of 2005, Navalmar
owned approximately 45.2% of the Company while V.Ships owned approximately
3.2%
of the Company.
Revenue
The
Company had gross revenue from
charterhire and other sources of $35,396,519 for the year ended December 31,
2005, a 11% increase from gross revenue of $31,895,393 in 2004. The revenue
increase resulted mainly from a change in the fleet composition (see Significant
Events during 2005).
The
average rate per day on hire was
$10,066 in 2005 ($7,313 in 2004 for all vessels). In 2005, the Company's on-hire
performance of the vessels on time charter excluding the vessels sold in January
2005 was 97.6% on a potential 3,021 days, (99.4% on a potential 4,026 days
in
2004 for all vessels). The decrease in on-hire performance was mainly due to
the
fact that four vessels underwent dry-docking in 2005.
In
2005,
the vessels on time charter experienced off-hire time for the following reasons:
(i) 1.99% of the total available days were lost due to dry-docking and
planned repair time, (ii) 0.38% of the total available days were lost due
to technical reasons (“operating off-hire”) and (iii) 0.08% % of the total
available days were lost due to underperformance of the vessel.
Costs
and Expenses
Commission
on charterhire was $532,281 in 2005, a 29.9% decrease from the $759,673 incurred
during 2004. This decrease results principally from the lack of commissions
on
the charterhire of the last two vessels acquired.
Vessel
operating expenses plus amortization of dry-docking costs totaled $14,791,198
for the year ended December 31, 2005, representing a decrease of 23% from 2004
in which vessel operating expenses plus amortization of dry-docking amounted
to
$18,254,712. Vessel operating expenses comprise vessel running costs, direct
costs (such as fuel costs, port charges and canal dues incurred directly while
vessels are unemployed or are employed on voyage charters) and management fees.
As a percentage of revenue, vessel operating expenses plus amortization of
dry-docking costs were equal to 41.8% in 2005 compared to 57.2% in 2004. The
decrease in vessel operating expenses as a percentage of revenues in 2005 is
due
to the increase in charterhire. The decrease in operating expenses is due to
the
fact that the Company sold four vessels in January and purchased two in
April.
Depreciation
was $8,114,264 for the year ended December 31, 2005, compared to $5,140,639
in
2004. The increase in depreciation is principally due to the purchase
of two VLGC vessels in April 2005 which was partially offset by the reduction
in
depreciation due to the sale of four container vessels in January
2005.
General
and administrative expenses
were $2,254,864 for the year ended December 31, 2005, compared to $2,577,213
in
2004. This represented 6.4% of revenue in 2005 as compared to 8.1% of revenue
in
2004. In the second half of 2004, the Company had incurred certain non-recurring
expenses in relation with the change of ownership of the Company and the offer
for additional equity received by the Company.
Impairment
Loss
As
of December 31, 2005, the Company
evaluated the recoverability of its vessels in accordance with FAS 144 and
determined that no provision for impairment loss was required. As of December
31, 2004, the Company also had determined that no provision for impairment
loss
was required.
In
February 2006, the Company received
appraisals for its entire fleet from leading independent shipbrokers. On this
basis, the appraised value of the Company’s fully owned fleet as of December 31,
2005 was approximately $174,675,000 (compared to a book value of $121,991,571
on
December 31, 2005).
Interest
Income and Expense
Interest
expense amounted to $4,018,670 for the year ended December 31, 2005 as compared
to $3,463,491 in 2004, and represented 11.3% of revenue as compared with 10.8%
in 2004. The increase in interest expense resulted from the increase in the
Company’s debt (see Note 6: Long Term Debt to the Consolidated Financial
Statements in Item 8).
Interest
income totaled $454,037 in 2005, a 189% increase from interest income of
$156,964 in 2004. The increase in interest earnings was due to higher interest
rates.
Deferred
gain on sale of vessels
Recognized
deferred gain totaled
$4,515,383 in 2005 and represents the portion of Deferred Gain on sale of assets
recognized as income during the year.
Equity
in Income / (Loss) of associated companies
Equity
in net income of associated
companies totaled $113,983 for the year ended December 31, 2005 (see Note 4:
Investment in associated Companies to the Consolidated Financial Statements
in
Item 8).
In
January 2005, the Company invested
$4 million in MUNIA (see Note 4: Investments in associated companies to the
Consolidated Financial Statements in Item 8). The Company’s 25.8% share of
MUNIA’s net income amounted to $389,764 for the year ended December 31, 2005.
The on-hire performance of the container vessels was 99.9% on a potential 1,460
days in 2005. The Company received dividends of $110,000 in July 2005 and
$180,000 in January 2006. The operating expenses of the vessels were
approximately at the guaranteed level in 2005 and no payment were made or
received under the guarantee, except for the expenses accrued in relation to
the
Maersk Barcelona incident.
The
LPG
carrier Galileo, owned by Waterloo Shipping Limited (see below Liquidity and
Sources of Capital - Investing activities) has incurred additional operating
expenses to be brought to a standard the Company believes to be required for
long term safe operation. In addition, the ship has suffered technical off-hire
during the second and third quarters to allow this work to take place. The
vessel suffered no off-hire in the fourth quarter of 2005. Management believes
the Galileo will prove a positive investment going forward and valuations have
shown a fair market value in excess of her current book value. In 2005, the
on-hire performance of the Galileo was 86.7% on a potential 270 days. Because
of
the Galileo’s start up costs, the Company’s 50% portion of Waterloo’s net loss
amounted to $275,780 for the year ended December 31, 2005.
Net
Income
Net
income for the year ended December 31, 2005 was $10,768,645 as compared to
net
income of $1,112,379 for the year ended December 31, 2004.
Impact
of Inflation
We
do not consider inflation to be a
significant risk to the cost of doing business in the foreseeable future.
Inflation has a moderate impact on operating expenses, dry-docking expenses
and
corporate overhead.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of the Company's consolidated financial statements in accordance
with accounting principles generally accepted in the United States requires
that
Management make estimates and assumptions affecting the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from those
estimates. The critical accounting policies are those that are considered to
involve a higher degree of judgment in their application.
Revenue
recognition
The
Company employs its vessels on time charter, bareboat charter or voyage charter.
With time and bareboat charters, the Company receives a fixed charterhire per
on-hire day. Time and bareboat charter revenue is recognized on an accrual
basis
and is recorded over the term of the charter as service is provided. In the
case
of voyage charters, the vessel is contracted for a voyage between two or several
ports: the Company is paid for the cargo transported. Voyage charter revenue
is
recorded based on the percentage of service completed at the balance sheet
date.
A voyage is deemed to commence upon the completion of discharge of the vessel's
previous cargo and is deemed to end upon the completion of discharge of the
current cargo. Hire received in advance represents cash received prior to
year-end related to revenue applicable to periods after December 31 of each
year. Other income consists of demurrage, pooling of income or lump sum expenses
and guarantee fees and is recognized
as received, which approximates when it is earned.
Depreciation
and amortization
We
record
the value of our vessels at their cost (which includes pre-operating costs
directly attributable to the vessel) less accumulated depreciation. We
depreciate our LPG vessels on a straight-line basis over their estimated useful
lives, estimated to be 30 years from date of initial delivery from the shipyard.
Depreciation is based on cost less the estimated residual scrap value. For
the
larger vessels, we estimate residual scrap value as the lightweight tonnage
of
each vessel multiplied by $175 scrap value per ton, which management estimates
to approximate the historical average price of scrap steel. For the smaller
vessels, Management’s estimates of the residual scrap value range from zero to
$200,000. An increase in the useful life of a vessel would have the effect
of
decreasing the annual depreciation charge and extending it into later periods.
An increase in the residual scrap value would decrease the amount of the annual
depreciation charge. A decrease in the useful life of a vessel would have the
effect of increasing the annual depreciation charge. A decrease in the residual
scrap value would increase the amount of the annual depreciation
charge.
Deferred
dry-dock cost
Our
vessels are dry-docked 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 the dry-docks as they occur and amortize
these costs on a straight line basis over the period between dry-docks. Costs
capitalized as part of the dry-dock include actual costs incurred at the
dry-dock yard; cost of fuel consumed between the vessel’s last discharge port
prior to the dry-dock and the time the vessel leaves the dry-dock yard; cost
of
hiring riding crews to effect repairs on a ship and parts used in making such
repairs that are reasonably made in anticipation of reducing the duration or
cost of the dry-dock; cost of travel, lodging and subsistence of our personnel
sent to the dry-dock site to supervise; and the cost of hiring a third party
to
oversee a dry-dock. We believe that these criteria are consistent with GAAP
guidelines and industry practice, and that our policy of capitalization reflects
the economics and market values of the vessels.
Impairment
of long-lived assets
In
accordance with SFAS 144 “Accounting
for the Impairment or Disposal of Long-Lived Assets”, the Company’s vessels are
regularly reviewed for impairment. The Company performs the impairment
valuations at the individual vessel level pursuant to paragraph 10 of SFAS
144.
To
consider whether there is an impairment indicator, the Company compares the
book
value and the market value of each vessel at the end of each quarterly reporting
period. At year end, the market value used by the Company is equal to the
average of the appraisals provided by two leading independent shipbrokers.
Appraisals are based on the technical specifications of each vessel, but are
not
based on a physical inspection of the vessel. At quarter end, the market values
are assessed by the Management on the basis of market information, shipping
newsletters, sale of comparable vessels reported in the press, informal
discussions with shipbrokers or unsolicited proposals received from third
parties for the vessels. If a vessel is in the process of being sold, the sale
price is deemed to be its market value and no broker appraisals are
made.
Whenever
a vessel market value is above its book value, the Company considers there
is no
indication of impairment. Whenever a vessel market value is below its book
value, the Company considers there is a potential impairment and performs a
recoverability test. The Company estimates the undiscounted future cash flows
attributable to the vessel in order to determine if the book value of such
vessel is recoverable.
The
assumptions used to determine whether the sum of undiscounted cash flows
expected to result from the use and eventual disposition of the vessel exceeds
the carrying value involve a considerable degree of estimation on the part
of
Management. Actual results could differ from those estimates, which could have
a
material effect on the recoverability of the vessels. The most significant
assumptions used are:
-
|
The
time of final disposal corresponds to the estimated useful life of
the
vessel: 25 years for a container vessel or 30 years for an LPG vessel,
or
the end of the current charter if longer. These assumptions are identical
to the ones used for depreciation
purposes.
|
-
|
The
estimated value at time of disposal is the estimated scrapping price,
calculated as lightweight of the vessel in tons times a certain price
per
ton, estimated by Management relative to market
price.
|
-
|
The
projected increase in costs and in revenues is equal to the current
inflation rate.
|
-
|
The
charter rates used in such computations are estimated by Management
on the
basis of past historical rates and modulated by its assessment of
current
and expected future economic and industry trends. They are subjective
as
they correspond to the Company’s best estimate of an average long term
rate.
|
-
|
The
maintenance of the vessel is estimated at one dry-dock every 2.5
years,
alternating intermediate and special survey
dry-docks,
|
-
|
Days
on hire are estimated at a level consistent with the Company’s on-hire
statistics (see Management’s discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations –
Revenue).
|
If
the
book value of the vessel exceeds the estimated undiscounted future cash flows
attributable to the vessel, the Company recognizes an impairment loss equal
to
the excess of the book value over the market value as defined
above.
The
Company’s investment in MUNIA is also reviewed for impairment at year end and at
each quarter end. To consider whether there is an indication of impairment,
the
Company compares the fair market value or estimated scrap value of each
container vessel at the end of the reporting period with the amount which
corresponds to a full recovery of the investment (see Note 4: Investment in
Associated Companies to the consolidated financial statements in Item 8). The
Company performs the impairment valuations at the individual vessel level
pursuant to paragraph 10 of SFAS 144. Whenever the fair market value or the
estimated scrap value of a vessel is below the amount necessary for the Company
to recover its investment corresponding to such vessel, the Company considers
there is a potential impairment and performs a recoverability test. To perform
the recoverability test, the Company estimates the undiscounted future cash
flows attributable to the investment in order to determine if the book value
of
such investment is recoverable. If the book value of the investment exceeds
the
estimated undiscounted future cash flows attributable to the investment, the
Company recognizes an impairment loss equal to the excess of the book value
over
the scrap value.
The
Company’s investment in Waterloo is also reviewed for impairment at year end and
at each quarter end in accordance with the Company’s impairment review
policies
LIQUIDITY
AND SOURCES OF CAPITAL
Cash
and working capital
The
Company had $1,838,044 in available cash on December 31, 2006 compared to
$12,292,015 at December 31, 2005. In addition, on December 31, 2006, deposits
totaling $4,594,402 compared to $1,759,237 at December 31, 2005 were placed
in a
retention account pledged to guarantee the Company’s performance under the
Scotia Loan agreement. The Company’s loan agreements contain debt covenants that
require minimum liquid assets of $5,000,000 as defined in the loan
agreements.
The
ratio of current assets to current
liabilities decreased from 0.89 at December 31, 2005 to 0.31 at December 31,
2006. The decrease in liquidity was due to a combination of factors described
below and was restored in January 2007, as expected, following the sale of
the
small LPG vessels. The acquisition of five LPG carriers in 2006 for
$82,221,718 was financed with approximately $8.2 million of Company’s cash and
$74 million of additional long term debt. As a result of the acquisitions,
the
Company’s cash balances decreased by approximately $ 8.2 million and the current
portion of long term debt increased by approximately $14 million. The three
largest vessels were purchased with long term charters which are expected to
provide cash flow sufficient to cover the interest and principal repayments.
Another factor which contributed to the reduced liquidity was the dry-dock
costs
of $6,901,638 incurred in 2006, a portion of which resulted in a large increase
in accounts payable and accruals at year end. Liquidity was restored in January
2007 following the sale of five of the six small LPG carriers and the receipt
of
net proceeds of $19,665,026 (see Subsequent events).
Accounts
payable increased from $747,692 at December 31, 2005 to $4,290,287 at December
31, 2006. Accounts payable included approximately $2 million of expenses related
to the dry-docking of vessels and accounts payable of the recently acquired
vessels.
Accrued
expenses increased from $2,466,845 at December 31, 2005 to $4,338,367 at
December 31, 2006. The increase was due to dry-dock costs, for which the final
invoice had not yet been received as of December 31, 2006, to accruals of the
recently acquired vessels and to the $1,050,000 accrued for the La Forge
settlement.
Inventories
increased from $406,643 at December 31, 2005 to $1,592,890 at December 31,
2006
because of the inventories of the recently acquired vessels and the acquisition
of the bunker of the three vessels trading on voyages at the end of December
2006. For voyage charters, the vessel is contracted for a voyage between two
ports. The Company is paid for the tonnage transported and pays for all voyage
costs, including port expenses and bunker, in addition to the operating expenses
of the vessels, such as crew costs, insurance, repairs and
maintenance.
Operating
activities
The
Company generated cash flows from
operations of $16,531,808 in 2006 compared to $14,437,039 in 2005. The increase
was due to the purchase of five vessels in 2006 and to higher charter rates.
However, the cash flow generated by operations was adversely impacted by the
dry-dock of the La Forge and the change of technical managers.
During
the second and third quarter of 2006, the Company incurred a significant amount
of off-hire related for the most part to the dry-dock of the La Forge. The
dry-dock lasted approximately 125 days whereas a special survey dry-dock for
a
vessel of comparable size and age usually lasts approximately 4 to 5 weeks.
The
excess off-hire was approximately $1,790,886. It directly and adversely impacted
the Company’s net income as the Company does not include off-hire time incurred
to perform the dry-dock in the cost of dry-dock. The cost of the dry-dock also
exceeded the budgeted amounts. Dry-dock costs are deferred and amortized over
five years to the next intermediate or special survey. The technical managers
responsible have been changed and the vessel is now back in full
operation.
For
the
first time in 18 years, the Company changed technical managers on its fleet.
The
vessels are now technically managed by Anglo Eastern, Hanseatic or Wallem.
Management believes that moving to a competitive arms-length pool of service
providers ensures best practice for the Company. The change of manager resulted
in non-recurring costs of approximately $687,530 which were included in the
operating expenses.
In
2006,
the Company dry-docked three vessels at a cost of $6,901,638. In 2005, the
Company dry-docked four vessels at a cost of $1,920,922. The cost of a dry-dock
depends on the size and age of the vessel. The dry-dock is an investment in
the
ship upgrading and life extension that is considered by management to be
essential to strengthen the quality of operations the Company wishes to offer
its customers.
Investing
activities
In
2006, the Company purchased five LPG
carriers for a total cost of $82.2 million, including pre-operating and
acquisition costs (see Note 3: Acquisitions and sales of vessels to the
Consolidated Financial Statements in Item 8). The acquisitions were funded
with
the Company’s cash holdings and long term debt of $74 million (see Note 8: Long
term debt to the Consolidated Financial Statements in Item 8).
In
2006, the Company sold the two
coastal bulk carriers for net proceeds of $1,229,495.
In
2006, the Company made additional
contributions of $1,850,000 to Waterloo to partially fund the dry-dock of
Galileo. The Company also contributed $1,113,876 to MUNIA for the dry-dock
of
the Belawan and received $360,000 from MUNIA in dividends.
The
level of restricted cash
fluctuates as monthly transfers are made under the Scotia Loan agreement to
retention accounts, which are applied in discharge of the next principal and
interest payment due under the loan.
Consistent
with the establishment of
new and modern offices, the Company purchased $242,283 worth of furniture and
equipment in 2006, concurrent with the Company’s occupation of its new offices
both in Monaco and London.
Financing
activities
During
2006, the Company repaid net borrowings of $73,888,888 and borrowed $134,884,000
to partially finance the acquisition of five vessels. The Company’s long term
debt, including the current portion, increased from $89,442,000 as of December
31, 2005 to $150,437,112 as of December 31, 2006.
Dividend
and dividend Policy
The
Company paid a dividend of $0.25
per share in 2006 in four equal quarterly installments for a total of
$2,377,035. The last installment of $0.0625 per share, amounting to $594,259,
was paid on February 2, 2007.
In
March
2005, the Company announced that the Board of Directors initiated a cash
dividend policy. Under the policy, the Board plans to declare quarterly
dividends to shareholders and make dividend payments in May, August,
November and February of each year. Any dividends paid will be subject
to the terms and conditions of the Company’s loan agreements.
Contractual
debt obligations
The
Company loan agreements contain
financial covenants related to minimum liquidity reserves of $5,000,000, minimum
value clauses for the vessels, minimum interest coverage of 2:1 and minimum
tangible net worth, all as defined in the loan agreements. The Company has
complied with all applicable debt covenants, or received the appropriate waivers
from lenders, for all periods presented.
In
January 2007, the Company prepaid $17,973,435, the portion of the Fortis Loan
attributable to the five vessels sold to LTF. In March 2007, the Company prepaid
$3,256,414, the portion of the Fortis Loan attributable to the Blackfriars
Bridge and London Bridge. The amount outstanding on the Fortis Loan as of March
15, 2007 was $4,186,818, corresponding to the attributable portion of the vessel
to be delivered to LTF in June 2007. This amount will be prepaid at the time
of
sale of the vessel. As of March 15, 2007, after the prepayments and the
capitalization of the lease obligations related to the five vessels sold, the
Company's contractual obligations were as follows:
Payments
due by period
|
|
Total
|
|
|
Less
than 1 year
|
|
|
2-3
years
|
|
|
4-5
years
|
|
|
More
than 5 years
|
|
Fortis
Loan
|
|
$ |
4,186,818
|
|
|
$ |
4,186,818
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Scotia
Loan
|
|
$ |
120,544,750
|
|
|
$ |
19,389,400
|
|
|
$ |
34,026,050
|
|
|
$ |
29,993,300
|
|
|
$ |
37,136,000
|
|
Capitalized
lease obligations
|
|
$ |
42,000,000
|
|
|
$ |
8,859,301
|
|
|
$ |
20,579,654
|
|
|
$ |
12,561,045
|
|
|
|
-
|
|
Total
|
|
$ |
166,731,568
|
|
|
$ |
32,435,519
|
|
|
$ |
54,605,704
|
|
|
$ |
42,554,345
|
|
|
$ |
37,136,000
|
|
Future
cash requirements
In
2007, the Company expects to
dry-dock one vessel for an estimated total cost of approximately $1,800,000.
In
February 2007, the Company advanced $500,000 to Waterloo and expects to make
additional contributions in 2007, not to exceed $500,000. These advances are
necessary to pay for the dry-dock costs of the vessel that took place in
2006.
Management
believes that the Company with its current arrangements has sufficient funds
to
enable the Company to meet its liquidity requirements throughout 2007. In
particular, the sale of the small LPG vessels to LTF will provide approximately
$24.4 million of net proceeds to the Company in 2007. Out of this amount, $19.7
million was received in January 2007. The balance will be received at the time
of the sale of the last vessel in June 2007.
Guarantees
and Off-Balance Sheet Financial Arrangements
The
Company issued guarantees in
relation to the Fortis and Scotia loans (see Note 8: Long term debt to the
Consolidated Financial Statements in Item 8). In addition, the Company issued
a
guarantee of $850,000 in relation with the loan granted by Danish Ship Finance
to Waterloo (see Note 4: Investment in Associated Companies to the Consolidated
Financial Statements in Item 8).
In
connection with the sale of the
container vessels to MUNIA in January 2005, the Company agreed to guarantee
certain levels of operating expenses and of employment for the vessels until
February 1, 2008, September 1, 2008, May 15, 2009 and February 1, 2009, for
each
vessel, or earlier in case of sale or total loss of a vessel. As a result,
the
excess or surplus of operating expenses, up to a certain extent, will be
absorbed by the Company. As compensation for issuing such guarantee, the Company
receives a daily guarantee fee for each vessel, which is included in revenues.
The Company cannot estimate the amount of any future payments required under
the
MUNIA guarantee at this time (see Note 4: Investment in Associated Companies
to
the Consolidated Financial Statements in Item 8).
In
connection with the sale of the small LPG vessels in January 2007, the Company
agreed to guarantee the difference between the full management budget and the
actual ship operating expenses for an amount not to exceed $135 per day and
per
vessel for four years after the delivery of each vessel.
The
Company had no other off-balance
sheet financial arrangements as of December 31, 2006.
Contingencies
On
September 20, 2005, the m/v ‘Maersk
Barcelona’ owned by MUNIA suffered a malfunction of her oily water separator,
which resulted in an accidental overboard discharge of oil-contaminated water
off the coast of France. On March 22, 2006, the technical managers of the vessel
were fined 720,000 euros ($949,464 equivalent at December 31, 2006 exchange
rate) and the captain 80,000 euros ($105,496 equivalent at December 31, 2006
exchange rate) by the French court, a judgment which they intend to appeal.
All
the expenses to be incurred by the Company under the MUNIA guarantee were
accrued for in 2005 and the Company expects that costs beyond the deductible
will be covered by insurance, as the discharge was unintentional.
In
the
third quarter of 2006, the Kew Bridge suffered a grounding incident in Ratnagiri
off the West Coast of India and was re-floated with a combination of lightening
cargo from the vessel into another ship and by pulling with tugs. In 2006,
the
incident did not materially impact the Company’s revenues as the off-hire was
covered by insurance and charterers until January 14, 2007. The repairs on
the
vessel started in February 2007 and are currently expected to be finished in
June 2007. The Company is currently engaged in discussions with the charterers
with regard to compensating the Company for a portion of lost revenues in 2007.
The Company has not been required to advance any material funds in connection
with this incident and Management does not believe that the Company will incur
significant costs related to the incident as repair costs are expected to be
covered by insurance.
Following the extended dry-docking of La Forge in 2006, the charterers lodged
a
claim against the Company for damages arising out of the deprivation of use
of
the vessel and compensation was demanded for the additional cost of hiring
replacement vessels. The Company intended to challenge this claim; however
the
charterers agreed to substantially reduce the quantum of their claim if a
settlement could be reached out of court and the Company considered the
settlement proposal worth accepting rather than incurring the costs of
arbitration. The Company received a settlement proposal of $1,050,000 net of
hire due to the Company from the same charterers and adjusted accruals to
an equal amount. The Company will seek to recover the full amount lost from
the
technical managers who actually budgeted, planned and executed the dry
dock.
Various claims, suits, and complaints, including those involving government
regulations and product liability, arise in the ordinary course of the shipping
business. In addition, losses may arise from disputes with charterers, agents,
insurance and other claims with suppliers relating to the operations of the
Company’s vessels. Management believes that all such matters are either
adequately covered by insurance or are not expected to have a material adverse
effect on the Company.
In
the
normal course of business, the Company enters into contracts that contain a
variety of indemnifications with its customers, suppliers and service
providers. Further, the Company indemnifies its Directors and officers who
are, or were, serving at the Company’s request in such capacities. The
Company’s maximum exposure under these arrangements is unknown as of December
31, 2006. The Company does not anticipate incurring any significant costs
relating to these arrangements.
ITEM
7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The
Company operates
internationally and is exposed to certain market risks that, in the normal
course of business, include fluctuations in interest rates and currency exchange
rates. While the Company occasionally uses derivative financial instruments
to
reduce these risks, the Company does not enter into derivative financial
instruments for trading or speculative purposes.
Impact
of Interest Rate fluctuations
As
of December 31, 2006, the Company
had $123,326,000 of debt outstanding at variable rates, which have been fixed
through the use of interest rate swap agreements as detailed below.
As
of September 30, 2006
|
|
Notional
amount
|
|
|
Fair
value
|
|
|
Interest
rate
|
|
Expiration
|
First
swap / Scotia Loan
|
|
$ |
35,682,500
|
|
|
|
289,830
|
|
|
|
4.580 |
% |
April
2010
|
Second
swap / Scotia Loan
|
|
$ |
21,643,500
|
|
|
|
486,428
|
|
|
|
4.545 |
% |
April
2010
|
Third
swap / Scotia Loan
|
|
$ |
8,000,000
|
|
|
|
(127,713 |
) |
|
|
5.700 |
% |
April
2010
|
Fourth
swap / Scotia Loan
|
|
$ |
58,000,000
|
|
|
|
(1,005,462 |
) |
|
|
5.690 |
% |
April
2011
|
Total
|
|
$ |
123,326,000
|
|
|
|
(356,917 |
) |
|
|
|
|
|
As
a result, as of December 31, 2006,
the Company had $27,111,112 of variable interest debt whose interest rates
have
not been fixed. A one-percentage point variation in interest rate would increase
or decrease the amount of annual interest paid by approximately $233,415.
However, out of this amount $19,667,879 was repaid in January 2007 and
$3,256,414 in March 2007 through prepayments and scheduled repayment, leaving
only $4,186,818 of variable interest rate debt at the end of March
2007.
Impact
of currency fluctuations
The
Company’s functional currency is the US dollar; however, a number of trade
transactions related to normal vessel operations are performed in other
currencies. Trade payables and accrued expenses as well as cash and trade
receivables in foreign currencies are converted at year end exchange rates
and
therefore recorded at fair value. The Company does not hold any other assets
or
liabilities denominated in foreign currencies. Increasing weakness of the
United
States dollar could have a negative impact on the Company’s overheads as
approximately 61% of the general and administrative expenses are either in
Euros
or pounds sterling.
ITEM
8: FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
31
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
Consolidated
Balance Sheets at December 31, 2006 and 2005
|
|
32
|
Consolidated
Statements of Income for the Years ended December 31, 2006, 2005
and
2004
|
|
34
|
Consolidated
Statements of Shareholders’ Equity for the Years ended December 31, 2006,
2005 and 2004
|
|
35
|
Consolidated
Statements of Cash Flows for the Years ended December 31, 2006, 2005
and
2004
|
|
36
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
37
|
|
|
|
Financial
Statements Schedule:
|
|
|
Schedule
II – Valuation and Qualifying Accounts
|
|
56
|
All
other
schedules for MC Shipping Inc. and subsidiaries have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the respective consolidated financial statements or notes
thereto.
______________________________
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Shareholders and Board of Directors
MC
Shipping Inc.
We
have audited the accompanying
consolidated balance sheets of MC Shipping Inc. and subsidiaries as of December
31, 2006 and 2005, and the related consolidated statements of income,
shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2006. Our audits also included the financial statement
schedule listed in the index at Item 15(a)(2) of Form 10-K. These consolidated
financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We
conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
As
discussed in Notes 1 and 9 to the
consolidated financial statements, in 2006, the Company adopted Statement of
Financial accounting Standards no. 123(R), “Share Based Payment”, as revised,
effective January 1, 2006.
In
our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of MC Shipping Inc. and subsidiaries as
of
December 31, 2006 and 2005 and the consolidated results of their operations
and
their cash flows for each of the three years in the period ended December 31,
2006 in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a
whole, presents fairly in all material respects the information set forth
therein.
/s/
Moore
Stephens Hays LLP
New
York,
NY
March
30,
2007
MC
SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
DECEMBER
31
|
|
|
DECEMBER
31
|
|
|
|
2006
|
|
|
2005
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
1,838,044
|
|
|
$ |
12,292,015
|
|
Restricted
cash
|
|
|
4,594,402
|
|
|
|
1,759,237
|
|
Charterhire
receivables
|
|
|
1,668,948
|
|
|
|
13,583
|
|
Recoverable
from insurers, net
|
|
|
1,037,523
|
|
|
|
68,807
|
|
Inventories
|
|
|
1,592,890
|
|
|
|
406,643
|
|
Receivables
from affiliates
|
|
|
-
|
|
|
|
202,208
|
|
Prepaid
expenses and other current assets
|
|
|
1,301,757
|
|
|
|
990,635
|
|
TOTAL
CURRENT ASSETS
|
|
|
12,033,564
|
|
|
|
15,733128
|
|
|
|
|
|
|
|
|
|
|
VESSELS,
AT COST
|
|
|
236,127,238
|
|
|
|
155,406,193
|
|
Less
– Accumulated depreciation
|
|
|
(45,136,723 |
) |
|
|
(33,414,622 |
) |
|
|
|
190,990,515
|
|
|
|
121,991,571
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Investments
in associated companies
|
|
|
8,801,155
|
|
|
|
6,485,906
|
|
Furniture
and equipment (net of accumulated depreciation
of $26,638 at December
31, 2006 and $13,596 at December 31, 2005)
|
|
|
225,071
|
|
|
|
3,139
|
|
Dry-docking
costs (net of accumulated amortization of $3,457,217 in
2006 and $1,772,673 in 2005)
|
|
|
8,056,312
|
|
|
|
3,139,184
|
|
Debt
issuance cost (net of accumulated amortization
of $99,395 in 2006 and
$68,511 in 2005)
|
|
|
432,024
|
|
|
|
429,290
|
|
Other
assets
|
|
|
790,748
|
|
|
|
960,305
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
221,329,389
|
|
|
$ |
148,742,523
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL
PART
OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
MC
SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
DECEMBER
31
|
|
|
DECEMBER
31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
4,290,287
|
|
|
$ |
747,692
|
|
Charterhire
received in advance
|
|
|
1,518,088
|
|
|
|
801,043
|
|
Accrued
expenses
|
|
|
4,338,367
|
|
|
|
2,466,845
|
|
Payable
to affiliates
|
|
|
369,423
|
|
|
|
-
|
|
Accrued
interest
|
|
|
1,964,908
|
|
|
|
1,061,128
|
|
Dividend
payable
|
|
|
594,259
|
|
|
|
557,104
|
|
Current
portion of long term debt
|
|
|
26,167,176
|
|
|
|
12,116,000
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
39,242,508
|
|
|
|
17,749,812
|
|
|
|
|
|
|
|
|
|
|
LONG
TERM DEBT
|
|
|
|
|
|
|
|
|
Secured
loans, net of current portion
|
|
|
124,269,936
|
|
|
|
77,326,000
|
|
OTHER
LIABILITIES
|
|
|
1,133,175
|
|
|
|
-
|
|
DEFERRED
GAIN ON SALE OF VESSELS
|
|
|
8,436,563
|
|
|
|
13,199,901
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
173,082,182
|
|
|
|
108,275,713
|
|
|
|
|
|
|
|
|
|
|
COMMITMENT
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value - 20,000,000 shares
authorized 9,508,141 shares
issued and outstanding at December 31, 2006 (8,913,658 at December
31, 2005)
|
|
|
95,081
|
|
|
|
89,137
|
|
Additional
paid-in capital
|
|
|
48,459,807
|
|
|
|
49,411,285
|
|
Retained
earnings / (deficit)
|
|
|
-
|
|
|
|
(10,024,072 |
) |
Accumulated
other comprehensive (loss) / income
|
|
|
(307,681 |
) |
|
|
990,460
|
|
TOTAL
SHAREHOLDERS’ EQUITY
|
|
|
48,247,207
|
|
|
|
40,466,810
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$ |
221,329,389
|
|
|
$ |
148,742,523
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL
PART
OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
MC
SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
|
|
FOR
THE YEARS ENDED DECEMBER 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
CHARTERHIRE
AND OTHER INCOME
|
|
$ |
52,417,310
|
|
|
$ |
35,396,519
|
|
|
$ |
31,895,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission
on charterhire
|
|
|
(541,978 |
) |
|
|
(532,281 |
) |
|
|
(759,673 |
) |
Vessel
operating expenses
|
|
|
(23,186,469 |
) |
|
|
(13,983,069 |
) |
|
|
(16,821,562 |
) |
Amortization
of dry-docking costs
|
|
|
(1,790,657 |
) |
|
|
(808,129 |
) |
|
|
(1,433,150 |
) |
Depreciation
|
|
|
(13,247,717 |
) |
|
|
(8,114,264 |
) |
|
|
(5,140,639 |
) |
General
and administrative expenses
|
|
|
(2,689,630 |
) |
|
|
(2,254,864 |
) |
|
|
(2,577,213 |
) |
INCOME
FROM VESSEL OPERATIONS
|
|
|
10,960,859
|
|
|
|
9,703,912
|
|
|
|
5,163,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on sale of vessels
|
|
|
1,035,642
|
|
|
|
-
|
|
|
|
-
|
|
Recognized
deferred gain on sale of vessels
|
|
|
4,763,338
|
|
|
|
4,515,383
|
|
|
|
-
|
|
Equity
in (loss) / income of associated companies
|
|
|
(288,627 |
) |
|
|
113,983
|
|
|
|
-
|
|
OPERATING
INCOME
|
|
|
16,471,212
|
|
|
|
14,333,278
|
|
|
|
5,163,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(6,784,088 |
) |
|
|
(4,018,670 |
) |
|
|
(3,463,491 |
) |
Interest
income
|
|
|
462,084
|
|
|
|
454,037
|
|
|
|
156,964
|
|
Loss
on early debt extinguishment
|
|
|
-
|
|
|
|
-
|
|
|
|
(744,250 |
) |
NET
INCOME
|
|
$ |
10,149,208
|
|
|
$ |
10,768,645
|
|
|
$ |
1,112,379
|
|
EARNINGS
PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
1.07
|
|
|
$ |
1.16
|
|
|
$ |
0.12
|
|
Diluted
earnings per share
|
|
$ |
1.06
|
|
|
$ |
1.14
|
|
|
$ |
0.12
|
|
Basic
weighted average number of shares outstanding
|
|
|
9,472,458
|
|
|
|
9,300,224
|
|
|
|
9,190,656
|
|
Diluted
weighted average number of shares outstanding
|
|
|
9,554,995
|
|
|
|
9,467,942
|
|
|
|
9,296,033
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL
PART
OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
MC
SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
Shares
Issued
|
|
|
Common
Stock
at par
Value
|
|
|
Treasury
Stock
At
cost
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
/
(Deficit)
|
|
|
Accumulated
Other
Comprehensive
(loss)
/ income
|
|
|
Total
Shareholders’
Equity
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2003
|
|
|
8,530,238
|
|
|
$ |
85,302
|
|
|
$ |
(891,806 |
) |
|
$ |
52,135,576
|
|
|
$ |
(21,905,096 |
) |
|
$ |
(195,391 |
) |
|
$ |
29,228,585
|
|
|
|
|
N Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,112,379
|
|
|
|
|
|
|
|
1,112,379
|
|
|
$ |
1,112,379
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,231 |
) |
|
|
(39,231 |
) |
|
|
(39,231 |
) |
Unrealized
gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371,724
|
|
|
|
371,724
|
|
|
|
371,724
|
|
Realization of
accumulated unrealized losses on cancelled cash flow
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,500
|
|
|
|
124,500
|
|
|
|
124,500
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,569,372
|
|
T Issuance
of stock to Directors
|
|
|
12,052
|
|
|
|
121
|
|
|
|
|
|
|
|
19,879
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
Exercise
of stock options
|
|
|
29,901
|
|
|
|
299
|
|
|
|
|
|
|
|
18,299
|
|
|
|
|
|
|
|
|
|
|
|
18,598
|
|
|
|
|
|
Stock
dividend declared
|
|
|
193,783
|
|
|
|
1,938
|
|
|
|
891,806
|
|
|
|
(893,744 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
December
31, 2004
|
|
|
8,765,974
|
|
|
|
87,660
|
|
|
|
-
|
|
|
|
51,280,010
|
|
|
|
(20,792,717 |
) |
|
|
261,602
|
|
|
|
30,836,555
|
|
|
|
|
|
N Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,768,645
|
|
|
|
|
|
|
|
10,768,645
|
|
|
$ |
10,768,645
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,117 |
) |
|
|
(22,117 |
) |
|
|
(22,117 |
) |
Unrealized
gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,975
|
|
|
|
750,975
|
|
|
|
750,975
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,497,503
|
|
Issuance
of stock options related to compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,932
|
|
|
|
|
|
|
|
|
|
|
|
74,932
|
|
|
|
|
|
Issuance
of stock to Directors
|
|
|
4,766
|
|
|
|
48
|
|
|
|
|
|
|
|
14,952
|
|
|
|
|
|
|
|
|
|
|
|
15,
000
|
|
|
|
|
|
Exercise
of stock options
|
|
|
142,918
|
|
|
|
1,429
|
|
|
|
|
|
|
|
261,266
|
|
|
|
|
|
|
|
|
|
|
|
262,695
|
|
|
|
|
|
Cash
dividend declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,219,875 |
) |
|
|
|
|
|
|
|
|
|
|
(2,219,875 |
) |
|
|
|
|
December
31, 2005
|
|
|
8,913,658
|
|
|
|
89,137
|
|
|
|
-
|
|
|
|
49,411,285
|
|
|
|
(10,024,072 |
) |
|
|
990,460
|
|
|
|
40,466,810
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,149,208
|
|
|
|
|
|
|
|
10,149,208
|
|
|
$ |
10,149,208
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,081
|
|
|
|
19,081
|
|
|
|
19,081
|
|
Unrealized
loss on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,317,222 |
) |
|
|
(1,317,222 |
) |
|
|
(1,317,222 |
) |
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,851,067
|
|
Issuance
of stock to Directors
|
|
|
2,056
|
|
|
|
20
|
|
|
|
|
|
|
|
19,980
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
Stock
dividend declared
|
|
|
453,029
|
|
|
|
4,530
|
|
|
|
|
|
|
|
(4,530 |
) |
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Cash
dividend declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,251,899 |
) |
|
|
(125,136 |
) |
|
|
|
|
|
|
(2,377,035 |
) |
|
|
|
|
Exercise
of stock options
|
|
|
139,398
|
|
|
|
1,394
|
|
|
|
|
|
|
|
1,284,971
|
|
|
|
|
|
|
|
|
|
|
|
1,286,365
|
|
|
|
|
|
December 31,
2006
|
|
|
9,508,141
|
|
|
$ |
95,081
|
|
|
|
-
|
|
|
$ |
48,459,807
|
|
|
$ |
-
|
|
|
$ |
(307,681 |
) |
|
$ |
48,247,207
|
|
|
|
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL
PART
OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
MC
SHIPPING INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
FOR
THE YEARS ENDED DECEMBER 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
NET
INCOME
|
|
$ |
10,149,208
|
|
|
$ |
10,768,645
|
|
|
$ |
1,112,379
|
|
Adjustments
to reconcile Net Income to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
13,247,717
|
|
|
|
8,114,264
|
|
|
|
5,140,639
|
|
Recognized
deferred gain on sale of vessels
|
|
|
(4,763,338 |
) |
|
|
(4,515,383 |
) |
|
|
-
|
|
Amortization
of dry-docking costs
|
|
|
1,790,657
|
|
|
|
808,129
|
|
|
|
1,433,150
|
|
Amortization
of debt issuance costs
|
|
|
30,884
|
|
|
|
58,188
|
|
|
|
128,092
|
|
Net
gain on sale of vessels
|
|
|
(1,035,642 |
) |
|
|
-
|
|
|
|
-
|
|
Loss
on debt extinguishment
|
|
|
220,210
|
|
|
|
-
|
|
|
|
744,250
|
|
Equity
in (loss) / income of associated companies
|
|
|
288,627
|
|
|
|
(113,983 |
) |
|
|
-
|
|
Share-based
compensation to Directors
|
|
|
20,000
|
|
|
|
15,000
|
|
|
|
20,000
|
|
Share-based
employee compensation
|
|
|
-
|
|
|
|
74,932
|
|
|
|
-
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Charterhire
receivables
|
|
|
(1,655,365 |
) |
|
|
(8,748 |
) |
|
|
8,276
|
|
Recoverable
from insurers
|
|
|
(968,716 |
) |
|
|
(13,278 |
) |
|
|
752,001
|
|
Inventories
|
|
|
(1,186,247 |
) |
|
|
637,710
|
|
|
|
(461,965 |
) |
Receivables
from / payable to affiliates
|
|
|
571,631
|
|
|
|
(121,716 |
) |
|
|
(4,398 |
) |
Prepaid
expenses and other current assets
|
|
|
(311,122 |
) |
|
|
(670,852 |
) |
|
|
(94,073 |
) |
Dry-docking
costs capitalized
|
|
|
(6,901,638 |
) |
|
|
(1,920,922 |
) |
|
|
(368,579 |
) |
Accounts
payable
|
|
|
3,542,595
|
|
|
|
217,732
|
|
|
|
(82,799 |
) |
Accrued
expenses and charterhire received in advance
|
|
|
2,588,567
|
|
|
|
(362,742 |
) |
|
|
(1,389,379 |
) |
Accrued
interest
|
|
|
903,780
|
|
|
|
1,470,063
|
|
|
|
(416,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
16,531,808
|
|
|
|
14,437,039
|
|
|
|
6,521,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of vessels
|
|
|
(82,221,718 |
) |
|
|
(83,220,649 |
) |
|
|
-
|
|
Investments
in associated companies
|
|
|
(2,603,876 |
) |
|
|
(6,371,924 |
) |
|
|
-
|
|
Proceeds
from disposals of vessels
|
|
|
1,229,495
|
|
|
|
29,802,138
|
|
|
|
-
|
|
Purchase
of furniture and equipment and other assets
|
|
|
(242,283 |
) |
|
|
(3,531 |
) |
|
|
(197 |
) |
(Increase)
/ decrease in restricted cash
|
|
|
(2,835,165 |
) |
|
|
3,240,763
|
|
|
|
(4,384,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(86,673,548 |
) |
|
|
(56,553,203 |
) |
|
|
(4,384,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
of long-term debt
|
|
|
(73,888,888 |
) |
|
|
(23,558,000 |
) |
|
|
(23,621,243 |
) |
Drawdown
of term loan
|
|
|
134,884,000
|
|
|
|
68,000,000
|
|
|
|
45,000,000
|
|
Payment
of debt issuance costs
|
|
|
(253,828 |
) |
|
|
(263,641 |
) |
|
|
(351,239 |
) |
Payments
for repurchases of Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,999,150 |
) |
Proceeds
from issuance of stock
|
|
|
1,286,365
|
|
|
|
262,695
|
|
|
|
18,598
|
|
Dividends
paid
|
|
|
(2,339,880 |
) |
|
|
(1,662,771 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
59,687,769
|
|
|
|
42,778,283
|
|
|
|
(6,953,034 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) / INCREASE IN CASH
|
|
|
(10,453,971 |
) |
|
|
662,119
|
|
|
|
(4,816,686 |
) |
CASH
AT BEGINNING OF YEAR
|
|
|
12,292,015
|
|
|
|
11,629,896
|
|
|
|
16,446,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AT END OF YEAR
|
|
$ |
1,838,044
|
|
|
$ |
12,292,015
|
|
|
$ |
11,629,896
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL
PART
OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
MC
SHIPPING INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1: ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES
BASIS
OF
PRESENTATION: MC Shipping Inc. is incorporated in
the Republic of Liberia and, through its subsidiaries, owns and operates a
fleet
of fourteen wholly owned LPG vessels as of December 31, 2006. In addition,
the
Company has a 25.8% percent interest in an entity that owns and operates four
containerships and a 50% interest in another entity that owns and operates
one
LPG carrier. The accompanying consolidated financial statements include the
accounts of MC Shipping Inc. and its wholly owned subsidiaries (the “Company”)
and have been prepared in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”). Although the Company’s
fleet operates under the Bahamas and the St. Vincent & the Grenadines flags,
its books and records are maintained in US Dollars, which is the Company’s
functional currency.
ACCOUNTING
ESTIMATES: The preparation of consolidated
financial statements in conformity with US GAAP requires Management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities, at the date
of
the consolidated financial statements, and the reported amounts of revenue
and
expenses during the reporting period. Actual results could differ from those
estimates and assumptions.
PRINCIPLES
OF
CONSOLIDATION: The consolidated
financial statements
include the accounts of MC Shipping Inc. and its wholly owned subsidiaries.
All
inter-company accounts and transactions have been eliminated in consolidation.
Investments of 20-50%
ownership in associated companies, where the Company does not exercise control
of the entity, are accounted for under the equity method.
FOREIGN
CURRENCY
TRANSLATION: The Company’s books and records are maintained in
U.S. Dollars. The functional currency of the Company is the U.S. Dollar since
the Company’s vessels operate in international shipping markets, which primarily
transact business in U.S. Dollars. A number of trade transactions related to
normal vessel operations performed in other currencies during the year are
converted into U.S. Dollars using the exchange rates in effect at the time
of
the transactions. The resulting gains or losses from these transactions are
recorded in vessel operating expenses. At the balance sheet dates, trade
payables and accrued expenses as well as cash and trade receivables in foreign
currencies are converted at year end exchange rates. The resulting gains or
losses from this translation are recorded as other comprehensive income or
loss.
REVENUE
RECOGNITION: The Company employs its vessels on
time charter, bareboat charter or voyage charter. With time and bareboat
charters, the Company receives a fixed charterhire per on-hire day. Time and
bareboat charter revenue is recognized on an accrual basis and is recorded
over
the term of the charter as service is provided. In the case of voyage charters,
the vessel is contracted for a voyage between two or several ports: the Company
is paid for the cargo transported. Voyage charter revenue is recorded based
on
the percentage of service completed at the balance sheet date. A voyage is
deemed to commence upon the completion of discharge of the vessel's previous
cargo and is deemed to end upon the completion of discharge of the current
cargo. Charterhire received in advance represents cash received prior to
year-end related to revenue applicable to periods after December 31 of each
year. Other income consists of demurrage, pooling of income or lump sum expenses
and guarantee fees and is recognized
as received, which approximates when it is earned.
OPERATING
EXPENSES: When the Company employs its vessels on
time charter, it is responsible for all the operating expenses of the vessels,
such as crew costs, voyage expenses, insurance, repairs and maintenance. These
expenses are incurred by the technical managers of the vessels and reimbursed
by
the Company under the management agreements. When the Company employs its vessel
on bareboat charters, the Company pays no operating expenses as the charterer
is
responsible for all the costs associated with the vessel's operation during
the
bareboat charter period. In the case of voyage charters, the vessel is
contracted only for a voyage between two or several ports: the Company pays
for
all voyage costs in addition to the operating expenses, voyage costs consist
mainly in port expenses and bunker consumption. Voyage expenses are recorded
based on the percentage of service completed at the balance sheet date on the
same basis as the related voyage revenue.
VESSEL
REPAIR AND
OVERHAUL: Normal vessel repair and maintenance
costs are charged to expense when incurred. Costs incurred during periodic
inspections for regulatory and insurance purposes are deferred and charged
to
income ratably over the period of five years to the next intermediate or special
survey dry-docking.
VESSELS
AND
DEPRECIATION: Vessels are stated at cost, which
includes contract price and other direct costs relating to acquiring and placing
the vessels in service. Depreciation is calculated, based on cost, less
estimated residual value, using the straight-line method, over the remaining
economic life of each vessel. The economic life of LPG carriers is assumed
to
extend from the date of their construction to the date of the final special
survey which is closest to 30 years from the date of their
construction.
IMPAIRMENT
OF LONG-LIVED ASSETS: In accordance with SFAS 144
“Accounting for the Impairment or Disposal of Long-Lived
Assets”, the Company’s
long lived assets are regularly reviewed for impairment. The Company performs
the impairment valuations at the individual vessel level pursuant to paragraph
10 of SFAS 144.
To
determine whether there is an impairment indicator, the Company compares the
book value and the market value of each vessel at the end of each quarterly
reporting period. At year end, the market value used by the Company is equal
to
the average of the appraisals provided by two leading independent shipbrokers.
Appraisals are based on the technical specifications of each vessel, but are
not
based on a physical inspection of the vessel. At quarter end, the market values
are assessed by Management on the basis of market information, shipping
newsletters, sale of comparable vessels reported in the press, informal
discussions with shipbrokers or unsolicited proposals received from third
parties for the vessels. If a vessel is in the process of being sold, the sale
price is deemed to be its market value and no broker appraisals are
made.
Whenever
a vessel’s market value is above its book value, the Company considers there is
no indication of impairment. Whenever a vessel’s market value is below its book
value, the Company considers there is a potential impairment and performs a
recoverability test. The Company estimates the undiscounted future cash flows
attributable to the vessel in order to determine if the book value of such
vessel is recoverable.
The
assumptions used to determine whether the sum of undiscounted cash flows
expected to result from the use and eventual disposition of the vessel exceeds
the carrying value involve a considerable degree of estimation on the part
of
Management. Actual results could differ from those estimates, which could have
a
material effect on the recoverability of the vessels.
The
most
significant assumptions used are:
-
|
The
time of final disposal corresponds to the estimated useful life of
the
vessel: 25 years for a container vessel or 30 years for an LPG vessel,
or
the end of the current charter if longer. These assumptions are identical
to the ones used for depreciation
purposes.
|
-
|
The
estimated value at time of disposal is the estimated scrapping price,
calculated as lightweight of the vessel in tons times a certain price
per
ton, conservatively estimated by Management relative to market
price.
|
-
|
The
projected increase in costs and in revenues is equal to the current
inflation rate.
|
-
|
The
charter rates are estimated by Management on the basis of past historical
rates and modulated by its assessment of current economic and industry
trends. They are subjective as they correspond to the Company’s best
estimate of an average long term
rate.
|
-
|
The
maintenance of the vessel is estimated at one dry-dock every 2.5
years,
alternating intermediate and special survey
dry-docks,
|
-
|
Days
on hire are estimated at a level consistent with the Company’s on-hire
statistics (see Management’s discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations –
Revenue).
|
If
the
book value of the vessel exceeds the estimated undiscounted future cash flows
attributable to the vessel, the Company recognizes an impairment loss equal
to
the excess of the book value over the market value.
The
Company’s investment in MUNIA is
also reviewed for impairment at year end and at each quarter end in accordance
with the Company’s impairment review policies. To determine whether there is an
indication of impairment, the Company compares the fair market value or the
estimated scrap value of each container vessel at the end of the reporting
period with the amount, which corresponds to a full recovery of the investment
(see Note 4. Investment in Associated Companies). The Company performs the
impairment valuations at the individual vessel level pursuant to paragraph
10 of
SFAS 144. Whenever the fair market value or the estimated scrap value of a
vessel is below the amount necessary for the Company to recover its investment
corresponding to such vessel, the Company considers there is a potential
impairment and performs a recoverability test. To perform the recoverability
test, the Company estimates the undiscounted future cash flows attributable
to
the investment in order to determine if the book value of such investment is
recoverable. If the book value of the investment exceeds the estimated
undiscounted future cash flows attributable to the investment, the Company
recognizes an impairment loss equal to the excess of the book value over the
scrap value.
The
Company’s investment in Waterloo is
also reviewed for impairment at year end and at each quarter end in accordance
with the Company’s impairment review policies
SEGMENT
REPORTING: Although separate vessel financial information is
available to Management, Management internally evaluates the
performance of the enterprise as a whole and not on the basis of separate
business units, different types of charter or size or category of vessel. As
a
result, the Company has determined it operates as one reportable segment. Since
the Company’s vessels regularly move between countries in international waters
over hundreds of trade routes, it is impractical to assign revenues or earnings
from the transportation of international LPG products by geographic
area.
DEBT
ISSUANCE
COSTS: Debt issuance costs are amortized, using
the interest method, over the terms of the related credit facilities.
Amortization of debt issuance costs, included in interest expense, amounted
to
$52,483 in 2006, $58,188 in 2005 and $128,092 in 2004. In 2006, an amount of
$220,210 representing the unamortized balance of the debt issuance costs
incurred in 2005 in connection with the loan granted by Scotiabank in 2005
was
written off and recorded as interest expense. In 2005, an amount of $116,194
representing the unamortized balance of the debt issuance costs incurred in
2004
in connection with the $15 million prepaid under the Fortis Loan was written
off
and recorded as a reduction of the Deferred Gain on sale of vessels. In 2004,
debt issuance costs of $385,101 were written off as a result of the Company’s
debt refinancing and recorded as a loss on debt extinguishment.
INTEREST
RATE
SWAPS: SFAS 133 “Accounting for Derivative Instruments and Hedging
Activities” requires the Company to recognize its derivative instruments as
either assets or liabilities in the balance sheet at fair value. The accounting
for changes in the fair value of a derivative instrument depends on whether
it
has been designated and qualifies as part of a hedging relationship and further,
on the type of hedging relationship. For those derivative instruments that
are
designated and qualify as hedging instruments, the Company must designate the
hedging instrument, based upon the exposure being hedged, as a fair value hedge,
cash flow hedge or a hedge of a net investment in a foreign
operation.
The
Company enters, from time to time,
into interest-rate swap agreements to modify the interest characteristics of
its
outstanding debt (See Note 6. Long-term Debt). Each interest-rate swap agreement
is designated with all of the principal balance and term of a specific debt
obligation. These agreements involve the exchange of amounts based on a fixed
interest rate for amounts based on variable interest rates over the life of
the
agreement.
The
Company’s interest-rate swaps are
designated and qualify as cash flow hedges. As a result, the fair value of
the
interest rate swaps is included in the accompanying balance sheets in other
assets or other liabilities. The effective portion of the gain or loss on the
interest rate swaps is reported as an increase or decrease in other
comprehensive income. The gains or losses on these instruments are reclassified
into earnings in the same line item associated with the forecasted transaction
in the same period during which the hedged transaction affects
earnings.
INVENTORIES:
Inventories primarily consists of lubricating oil, victualling and
in
some cases bunker (only if the vessel is operated on voyage charter). They
are
stated at the lower of cost or market, and are accounted for on a first-in,
first-out basis.
STOCK-BASED
COMPENSATION: The Company has a stock-based employee compensation
plan, which is described more fully in Note 9. On January 1, 2006, the Company
adopted FASB Statement No. 123 (R) and uses the “modified prospective” method,
which requires all share-based payments to employees, including grants of
employee stock options, to be recognized as compensation expense in the
statement of income based on estimated fair value at issue date. The adoption
of
this Statement did not have a material impact on the Company’s consolidated
financial position or results of operations. In prior years, the Company
accounted for the plan under the recognition and measurement principles of
APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations.
RESTRICTED
CASH:
Certain cash balances are pledged to guarantee the Company’s
performance under the loan agreements. They are classified as Current assets
or
Other Assets depending on the expected length of time of the
restriction.
EARNINGS
PER SHARE: Basic and diluted earnings per share
are calculated in accordance with FASB Statement No. 128, Earnings per Share.
Basic earnings per share are computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for
the
period. Diluted earnings per share reflect the potential dilution that could
occur if outstanding options were exercised or converted into common stock.
All
prior period basic and diluted earnings per share calculations presented have
been restated to reflect the impact of the stock dividend declared in April
2006.
Earnings
Per Share
|
|
Year
Ended
December
31, 2006
|
|
|
Year
Ended
December
31, 2005
|
|
|
Year
Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
10,149,208
|
|
|
$ |
10,768,645
|
|
|
$ |
1,112,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
9,472,458
|
|
|
|
9,300,224
|
|
|
|
9,190,656
|
|
Dilutive
effect of employee stock options
|
|
|
82,537
|
|
|
|
167,718
|
|
|
|
105,377
|
|
Diluted
average number of common shares
|
|
|
9,554,995
|
|
|
|
9,467,942
|
|
|
|
9,296,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic earnings per share
|
|
$ |
1.07
|
|
|
$ |
1.16
|
|
|
$ |
0.12
|
|
-
Diluted earnings per share
|
|
$ |
1.06
|
|
|
$ |
1.14
|
|
|
$ |
0.12
|
|
There
were no stock options or common stock equivalent that could potentially dilute
basic EPS in the future that were not included in the computation of diluted
EPS
for each period presented.
TAXATION:
The Company is not subject to corporate income taxes in Liberia because
its income is derived from non-Liberian sources. The Monaco and London
subsidiaries are subject to corporate income taxes in their respective
countries, but the amounts are not deemed significant. The Company believes
that
it is not subject to corporate income taxes in other jurisdictions, including
the United States.
RECOVERABLE
FROM INSURERS:
Insurance receivables correspond to amounts recoverable under
either Hull & Machinery insurance or Loss of Earnings insurance. Hull &
Machinery insurance covers repair costs beyond a certain deductible and Loss
of
Earnings insurance covers the loss in revenues resulting from the immobilization
of the vessel beyond a certain number of days. The vessel values
covered and the values of the deductibles are negotiated every year with the
insurance companies and the premiums are fixed accordingly. The submission
of an
insurance claim following the occurrence of an incident or accident is always
decided on a case by case basis by the Company’s Management after discussion
with the technical managers. The Company’s insurance claims are handled by the
Company’s staff. Upon submission of an insurance claim, the Company immediately
records the loss corresponding to the deductible in the operating expenses
of
the vessel. The repair costs incurred by the Company or the insured hire are
recorded as recoverable from insurers; such amounts are based on discussions
between the Company and the insurance underwriters which indicate that the
recovery is probable. Such amounts never include contingent gains as the
Insurers repay the costs incurred on the basis of invoices after deduction
of a
deductible. The amounts recoverable from Insurance are reviewed by Management
on
a quarterly basis and adjusted if necessary.
LOSSES
/ GAINS ON EARLY
DEBT EXTINGUISHMENT: Losses or Gains on early debt extinguishment
may include write offs of debt issuance costs, gains/losses on cancelled swaps
following a refinancing and gain/losses on repurchases of long term notes
calculated as the difference between face value and purchase price together
with
brokerage commission of the Notes repurchased.
DEFERRED
GAIN ON SALE OF
VESSELS:
The
deferred gain on sale of vessels was calculated as the sale
price less book value and unamortized dry-dock costs of the vessels at the
time
of sale to MUNIA (see Note 4), transaction costs and write off of the
unamortized balance of the debt issuance costs incurred in 2004 in connection
with the Fortis Loan corresponding to the $15 million prepayment. The deferred
gain on sale of vessels to MUNIA originally amounted to $17,715,284 and is
being
recognized ratably as income by the Company until February 1, 2008, September
1,
2008, May 15, 2009 and February 1, 2009 for each of the respective
vessels.
RECENT
ACCOUNTING
PRONOUNCEMENTS:
In
September 2006, the Securities and Exchange Commission issued SAB 108, to
address diversity in practice in quantifying financial statement misstatements.
SAB 108 requires that the Company quantify misstatements based on their impact
on each of its financial statements and related disclosures. SAB 108 became
effective for fiscal years ending after November 15, 2006. The adoption of
SAB 108 does not have a material impact on the consolidated financial statements
of the Company.
In
September 2006, the FASB issued SFAS No. 157 ("SFAS 157"). SFAS 157 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. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. The adoption of SFAS 157 is not expected to have a material impact
on the consolidated financial statements of the Company.
Management
does not believe that any
other recently issued, but not yet effective accounting pronouncements, if
currently adopted, would have a material impact on the consolidated financial
statements of the Company.
RECLASSIFICATIONS:
Certain reclassifications have been made to the accompanying consolidated
financial statements in prior years to conform to the current
presentation.
NOTE
2: RELATED COMPANY TRANSACTIONS
The
By-Laws of the Company provide that
related transactions and transactions giving rise to potential conflicts of
interest are subject to review by the Audit Committee of the
Company.
V.Ships
As
of May
13, 2004, V.Investments Limited, V.Ships Group LTD., V.Holdings Limited, Greysea
Limited, Close Securities Limited, Close Investment Partners Limited, Navalmar
(UK) Limited, Bogazzi Fimpar SpA, and Enrico Bogazzi purchased 4,168,000 common
shares of the Company from the Vlasov Investment Corporation and filed a joint
Form 13D to report that they might be deemed to have shared beneficial ownership
of 4,308,790 common shares, which represented approximately 49.39% of the common
stock outstanding. On October 5, 2005, Navalmar Transportes Maritimos LDA,
a
sister company to Navalmar (UK) Limited, purchased 1,780,000 common shares
of
the Company from V.Investments Limited. On November 30, 2005, Navalmar
Transportes Maritimos LDA purchased 2,800,744 common shares of the Company
from
Navalmar (UK) Limited. On December, 15 2005, Navalmar Transportes Maritimos
LDA
sold 555,555 common shares of the Company to Weco-Rederi A/S, a non-affiliated
third party. Following the transaction, Navalmar’s ownership in the Company was
44.4%.
On
August 1, 2006, V.Ships sold its
remaining 2.8% interest in the Company for an aggregate price of $2,872,119
($10.80 per share) to Weco-Rederi and ceased to be an affiliate of MC Shipping.
Following the transaction, Weco-Rederi’s ownership in the Company’s shares
increased from 6.1% to 8.9%.
For
18 years, the Company had employed
the services of V.Ships as technical manager for its vessels and V.Ships was
entitled to remuneration in line with current industry practice. During the third quarter
of 2006, the
technical management of the vessels managed by V.Ships was
transferred to
three non-related technical managers on industry competitive terms. The four
container vessels owned by MUNIA, in which the Company owns 25.8%, are still
managed by V.Ships.
Since
V.Ships ceased to be an affiliate
of the Company on August 1, 2006, the related company disclosure with respect
to
V.Ships, when available, only covers the period from January 1 through August
1,
2006. Comparables for the previous periods are stated for the full
year.
The
Company, via its wholly owned
subsidiaries, was party to management agreements with V.Ships for the technical
operation of some of its vessels. The management agreements were “cost-plus”
contracts under which the Company reimbursed all costs incurred by V.Ships
for
the operation of the Company's vessels and V.Ships was paid a fixed management
fee. In 2006, the
management fees were fixed at the rate of $8,500 per vessel/per month. In 2005,
the fees were $9,250 per vessel/per month for large LPG carriers and $9,167
per
vessel/per month for smaller LPG carriers compared to $8,855 and $8,753,
respectively, in 2004. From January 1 to August 1, 2006, the Company paid
management fees of $535,500 to V.Ships compared to $1,006,756 in 2005 and
$1,150,926 in 2004.
Prior
to August 1, 2006, from time to
time, the Company employed the services of an affiliate of V.Ships for legal
work related to the acquisition and disposal of vessels. Legal fees were
determined in light of current industry practice. From January 1 to August
1,
2006, the Company paid legal fees of $37,598 to an affiliate of V.Ships compared
to $37,876 in 2005 and $33,443 in 2004.
Prior
to May 31, 2006, the Company
leased office space from and reimbursed telecommunication expenses to various
affiliates of V.Ships. From January 1 to August 1, 2006, the rental cost and
telecommunication expenses paid to affiliates of V.Ships totaled approximately
$49,663, compared to $104,455 in 2005 and $133,416 in 2004.
Prior
to July 1, 2006, the Company
outsourced certain bookkeeping functions to an affiliate of V.Ships. From
January 1 to August 1, 2006, the Company paid approximately $21,250 for
accounting services to an affiliate of V.Ships compared to $28,833 in 2005
and
$31,000 in 2004.
From
August 2004 to October 31, 2005,
the Company paid a fee of £10,000 per month to V.Investments in consideration of
V.Ships permitting the Company’s President and Chief Executive Officer (the
“CEO”), then a full time employee of V.Ships, to provide his services to the
Company on a part time basis. The Company also reimbursed V.Ships for all
business expenses incurred by the CEO in the provision of his services. In
2005
and 2004, fees paid to V.Investments amounted to $181,958 and $95,379,
respectively.
In
addition, as technical manager of
the Company’s fleet, until the third quarter of 2006, V.Ships occasionally
utilized the services of its affiliates to arrange for crew and staff traveling,
port agency services, manning, safety and training services, and miscellaneous
other services as described below.
Prior
to August 1, 2006, the Company
used the services of a company affiliated with V.Ships for crew and staff
travel. From January 1 to August 1, 2006, V.Ships did not disclose the amount
of
such travel expenses which were included in vessel operating or general and
administrative expenses. In 2005, these expenses totaled $378,340 compared
to
$267,670 in 2004.
Prior
to August 1, 2006, the Company
occasionally used the port agency services of various companies affiliated
with
V.Ships. From January 1 to August 1, 2006, V.Ships did not disclose the amount
paid to these companies for port and other costs, which were included in vessel
operating expenses. In 2005, these costs totaled $278,719 compared to $313,754
in 2004.
Prior
to August 1, 2006, the Company
used various companies affiliated with V.Ships for manning, safety and training.
From January 1 to August 1, 2006, V.Ships did not disclose the amount of such
expenses which were included in vessel operating expenses. In 2005, these costs
totaled $ 253,375 compared to $346,129 in 2004.
MPC
Steamship
On
December 18, 2006, the Company
entered into agreements to sell the LPG carriers, Auteuil, Deauville,
Cheltenham, Malvern, Coniston and Longchamp to Beteiligungsgesellschaft LPG
Tankerflotte mbH & Co. KG (“LTF”), a special purpose German KG company
formed by the German finance house MPC Munchmeyer Petersen AG (“MPC”) for
a
total sale price of $52 million. The Company will charter back the vessels
for a
period of four years and reinvest $5.75 million in the KG company for
approximately 25% of the equity (see Note 3). Mr Schomburg (Director) is a
member of the Supervisory Board of MPC Münchmeyer Petersen Steamship GmbH &
Co. KG. Mr Schomburg excused himself from discussions relating to this
transaction.
Other
Certain
of the directors of the Company
are involved in outside business activities similar to those conducted by the
Company. Mr. Bogazzi and Mr Wedell-Wedellsborg (Directors) are
involved in the business of purchasing, owning and selling cargo vessels through
their shipping companies. As a result of these affiliations, such
persons may experience conflicts of interest in connection with the selection,
purchase, operation and sale of the Company’s vessels and those of other
entities affiliated with such persons.
At
December 31, 2006, the Company had
intercompany balances for trade accounts payable to affiliates of $369,423
compared to $202,208 for receivable from affiliates at December 31, 2005. The
balance at December 31, 2006 included $296,475 payable to MUNIA for amounts
due
under the guarantee agreement and for the dry-dock of a vessel. The balance
at
December 31, 2005 included a $180,789 receivable from MUNIA for the payment
of
lube oil remaining on board at the time of sale of the container
vessels.
No
officer was indebted to the Company
at any time since the beginning of the fiscal year 2006.
NOTE
3: ACQUISITIONS AND SALES OF
VESSELS
On
January 20, 2005, the Company sold four container vessels to MUNIA for
$29,843,360. and reinvested $4 million in MUNIA for a 25.8%
equity participation. The sale generated a net accounting gain of $17,715,284,
which was recorded as a deferred gain on sale of vessels. As part of the
transaction, the Company has agreed to guarantee certain levels of operating
expenses and of employment for the vessels (see Note 4: Investment in Associated
Companies).
In
April 2005, the Company acquired two
very large gas carriers from the Bergesen Group of Norway. The vessels, Tower
Bridge (ex Berge Flanders) of 75,000 m3 capacity
(built
1991) and Chelsea Bridge (ex Berge Kobe) of 77,000 m3 capacity
(built
1987) were acquired for considerations of $50,717,250 and $32,260,000,
respectively. The vessels are time-chartered to the Bergesen Group for a minimum
period of five years.
On
March 30 and 31, 2006, the Company
purchased two LPG vessels from the Bernhard Schulte Group of Germany at a total
cost of approximately $11 million. The vessels, Hermann Schulte renamed
Blackfriars Bridge (built 1980) and Dorothea Schulte renamed London Bridge
(built 1981), are semi-refrigerated LPG carriers of 5,600 cbm capacity each.
The
vessels were time-chartered back to the Schulte Group for one year. The
technical management of the vessels is contracted to Wallem, an unrelated
technical manager.
In
June
2006, the Company sold two coastal bulk carriers to an unrelated third party.
The sale generated net proceeds of $1,229,495 and a net gain of $1,035,642.
A
coastal bulk carrier (also known as a multipurpose seariver vessel) is a small
vessel capable of carrying general cargo and/or bulk cargo both on rivers and
at
sea.
On
July 13, 2006, the Company purchased
the LPG vessel Hans Maersk, renamed Maersk Houston, from the A.P.Moller-Maersk
Group for approximately $40 million. The vessel (built 1993) is a
semi-refrigerated LPG carrier of 20,700 cbm capacity. The vessel was
time-chartered back to the A.P.Moller-Maersk Group for five years. The technical
management of the vessel is contracted to Wallem.
On
July 24, 2006, the Company purchased
two LPG vessels from the Bernhard Schulte Group of Germany at a net cost of
approximately $31.1 million. As the vessels were contracted to be delivered
on
July 1st, the purchase price was reduced by $613,455 as compensation for the
late delivery. This amount has been recorded as a reduction of the purchase
price of the vessel. The vessels, Tycho Brahe renamed Barnes Bridge (built
1982)
and Immanuel Kant renamed Kew Bridge (built 1983), are semi-refrigerated LPG
carriers of 15,360 cbm capacity each. The vessels were time-chartered back
to
the Schulte Group for two years. The technical management of the vessels is
contracted to Hanseatic, an unrelated technical manager. Hanseatic is a company
affiliated with the Schulte Group.
On
December 18, 2006, the Company entered into agreements for the sale of the
LPG
carriers, Auteuil, Deauville, Cheltenham, Malvern, Coniston and Longchamp to
LTF, a special purpose German KG company formed by the German finance house
MPC
for a total price of $52 million. Simultaneously, the Company agreed to charter
back the vessels at $225,000 per month for a period of four years and reinvest
$5,400,000 in the KG company for approximately 25% of the equity, thereby
remaining committed to the ships and its customers. As part of the transaction,
the Company has agreed to guarantee the difference between the full management
budget and the actual ship operating expenses for an amount not to exceed $135
per day and per vessel for four years after the delivery of each vessel. Upon
actual delivery of the vessels, the Company will prepay the attributable portion
of the Fortis Loan corresponding to the vessels sold, in the amount of
$22,160,254.
LTF
is a
limited partnership with equity in the amount of approximately $21.7 million.
The limited partners of LTF include MC Shipping (approximately 25%) and certain
German individual investors (approximately 75%). The limited partners will
participate in the profits and losses of the partnership in accordance with
the
ratio of their partnership interest. An Advisory Board will be elected by the
limited partners and general partner at the first shareholder
meeting. LTF will borrow $33.8 million from Hypo Vereinsbank to
finance the balance of the purchase price of the vessels and the working
capital. The bank loan bears interest at 5.76% and is repayable in 32 equal
quarterly installments beginning six months after delivery of the respective
vessel. The loan is secured by mortgages on the vessels and is non-recourse
to
the partners of LTF.
The
total
book value of the vessels to be sold was $32.3 million as of December 31,
2006. A summary of the Company’s vessels is as follows:
|
|
Vessels,
at cost
|
|
|
Accumulated
depreciation
|
|
|
Net
book value
|
|
Vessels
to be sold
|
|
$ |
52,519,871
|
|
|
$ |
20,188,756
|
|
|
$ |
32,331,115
|
|
Other
vessels
|
|
|
183,607,367
|
|
|
|
24,947,967
|
|
|
|
158,659,400
|
|
Total
vessels
|
|
$ |
236,127,238
|
|
|
$ |
45,136,723
|
|
|
$ |
190,990,515
|
|
The
transaction is a sale and leaseback with continuing involvement that does not
qualify for sale-leaseback accounting under US GAAP and will be accounted for
as
a financing under US GAAP. As a result:
-
|
The
vessels will remain on the balance sheet of the Company and will
be
depreciated to zero over the four year charter
period.
|
-
|
The
revenues from chartering out the vessels by the Company will be recorded
as revenues, just as previously. The Company cannot estimate at this
time
the revenues it will derive from the employment of the vessels over
the
next four years, since the vessels are currently employed on voyages
or
time charters not exceeding one
year.
|
-
|
The
Company will not pay for the vessels’ operating expenses since it is
time-chartering the vessels from LTF, however it is guaranteeing
up to
$135 per day per vessel if the operating expenses exceed a pre-agreed
budget.
|
-
|
Upon
receiving the sale proceeds, the Company will record a liability
of $52
million for the amount received. After the $22.2 million prepayment
of the
Fortis Loan, the debt of the Company will increase by a net amount
of
$29.8 million.
|
-
|
Each
charter payment paid to LTF will be recorded part as interest and
part as
principal. The breakdown between principal and interest will be calculated
so that the $52 million liability is amortized over the four year
charter
period.
|
-
|
The
Company’s $5.4 million investment in the KG company will be recorded as an
investment in associated companies.
|
NOTE
4: INVESTMENT
IN ASSOCIATED COMPANIES
MUNIA
In
January 2005, the Company invested
$4 million in MUNIA. Simultaneously, MUNIA purchased four container vessels
from
the Company for approximately $29.8 million and chartered them to AP Møller
until February 1, 2008, September 1, 2008, May 15, 2009 and February 1, 2009,
for each vessel respectively. MUNIA contracted the technical management of
the
vessels to V.Ships.
MUNIA
is a limited partnership with
equity in the amount of $15.5 million as of December 31, 2006. The limited
partners of MUNIA include the Company with an equity contribution of $4 million
(25.8%) and TERTIA Beteiligungstreuhand GmbH (“TERTIA”) with an equity
contribution of $11,500,000 (74.2%). TERTIA is a fiduciary partner who holds
in
trust the limited partnership interests held by German individual investors
(the
“Individual Investors”) and the participations of V.Ships (1%) and ALCAS GmbH, a
subsidiary of KGAL (1%). The Company’s investment in MUNIA was $5,616,535 at
December 31, 2006, which included the additional amounts invested in 2006 as
discussed below, compared to $4,279,764 at December 31, 2005. The Company
accounts for its investment in MUNIA using the equity method of
accounting.
MUNIA
borrowed $18 million from
Danmarks Skibskreditfond to finance the balance of the purchase price of the
vessels and the working capital. The bank loan bears interest at LIBOR plus
1.05% and consists of four advances of $4.5 million each. Each advance is
repayable in equal semi-annual installments of $450,000 plus a balloon payment
due on February 1, 2008, September 1, 2008, May 15, 2009 and February 1, 2009,
for each vessel respectively. The loan is secured by mortgages on the vessels
and is non-recourse to the partners of MUNIA. Swap agreements were concurrently
entered into, as a result of which the interest rate has been effectively fixed
at rates ranging from 4.73 to 4.85% depending on the final maturity of each
advance. MUNIA accounts for its interest rate swap agreements as fair value
hedges.
The
managing partner is MUNIA
Mobilien-Verwaltungsgesellschaft mbH (the “Managing Partner”). The Managing
Partner has sole power of representation toward third parties and manages the
business affairs of MUNIA. V.Ships received a fee of $230,000 from
MUNIA as a broker fee on the acquisition of the vessels.
The
Company participates for 25.8% in
the profits and losses of MUNIA and will receive the following percentages
of
the net sale proceeds of each of the ships: 0% of the first $3.9 million, 100%
of the next $1 million and 40% of any amount in excess of $4.9 million. The
25.8% share of net income of MUNIA included in the Company's financial
statements was $582,895 for the year ended December 31, 2006 and $389,764 for
the year ended December 31, 2005. The Company received dividends from MUNIA
of
$360,000 in 2006 and $110,000 in 2005.
As
part of the sale transaction, the
Company agreed to guarantee certain levels of operating expenses and of
employment for the vessels until February 1, 2008, September 1, 2008, May 15,
2009 and February 1, 2009, for each vessel (or earlier in case of sale or total
loss of a vessel) (“MUNIA guarantee”). As a result, the off hire and the excess
or surplus of operating expenses, up to a certain extent, will be absorbed
by
the Company. As compensation for issuing such guarantee, the Company receives
a
daily guarantee fee for each vessel, which is included in Charterhire and Other
Income. In 2006, the operating expenses of the vessels exceeded the guaranteed
level and the Company paid $198,604 to MUNIA under the operating expense
guarantee, compared to $44,453 in 2005 in relation to the Maersk Barcelona
incident (see below). The Company cannot estimate the amount of any future
payments required under this guarantee at this time.
In
December 2006, one of the vessels
owned by MUNIA was dry-docked. Such dry-dock had not been anticipated at the
time of the sale to MUNIA and in order to effectuate the dry-dock, MUNIA agreed
to waive its rights under the operating guarantee and MUNIA and the Company
agreed to share in the costs of the dry-dock. The cost of the dry-dock amounted
to approximately $1.4 million (including off-hire) and was split between MUNIA
(approximately $300,000) and the Company (approximately $1.1 million). The
Company’s share of the dry-dock was recorded as an additional investment in
MUNIA and is anticipated to be recovered from the increased value of the vessel.
The Company agreed to share in the dry-dock in order to protect its investment
in the residual net sale proceeds of the vessel.
On
September 20, 2005, the m/v ‘Maersk
Barcelona’ owned by MUNIA suffered a malfunction of her oily water separator,
which resulted in an accidental overboard discharge of oil-contaminated water
off the coast of France. On March 22, 2006, the technical managers of the vessel
were fined 720,000 euros ($949,464 equivalent at December 31, 2006 exchange
rate) and the captain 80,000 euros ($105,496 equivalent at December 31, 2006
exchange rate) by a French court, a judgment which they intend to appeal. All
expenses to be incurred by the Company under the MUNIA guarantee were accrued
for in 2005 and the Company expects that costs beyond the deductible will be
covered by insurance, or by the responsible party.
WATERLOO
In
April 2005, Waterloo Shipping
Limited (“Waterloo”), a joint venture company owned on a 50/50 basis by the
Company and Petredec Limited, a leading LPG trading and shipping company,
acquired the 1983-built,59,725 cbm LPG carrier Galileo for $16 million and
chartered the vessel to Petredec for a period of four years. The Company and
Petredec each advanced an amount of $2,481,923 to Waterloo and Waterloo borrowed
$11.2 million from Danish Ship Finance. The Danish Ship Finance loan bears
interest at LIBOR plus 1.05% and was repayable in 16 equal quarterly
installments of $610,156 plus a balloon payment of $1,437,504. The loan is
non-recourse to the joint venture partners, except for a corporate guarantee
limited to $850,000 for each joint venture partner. The Company accounts for
its
investment in Waterloo using the equity method of accounting.
The
Galileo dry-docked in the second
and third quarters of 2006 and extensive upgrading was performed to enable
the
vessel to operate for an additional five years. Reflecting the extended life
of
the ship, the charter with Petredec was extended by an additional year to April
2010. In order to fund the cost of the dry-dock in 2006, the Company and
Petredec each advanced to Waterloo an additional amount of $1,350,000 in 2006
and $500,000 in February 2007. In September 2006, Waterloo borrowed an
additional amount of $2 million under the Danish Ship Finance loan. As of
December 31, 2006, the amount outstanding under the loan was $9,539,064
repayable in 14 quarterly repayments of $735,156 (first twelve), $342,192
(thirteenth) and $375,000 (fourteenth). The other terms of the loan remain
unchanged.
The
Company’s 50% share of the net loss
of Waterloo was $871,522 for the year ended December 31, 2006 compared to
$275,781 for the year ended December 31, 2005. The Company’s investment in
Waterloo was $3,184,620 at December 31, 2006 compared to $2,206,143 at December
31, 2005. The Galileo was valued in January 2007 by two leading independent
brokers at $22 million as against Waterloo’s current book value of $17.6 million
as of December 31, 2006.
NOTE
5: IMPAIRMENT
OF LONG LIVED ASSETS
In
accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long
Lived Assets”, the Company’s vessels are regularly reviewed for impairment. The
Company performs the impairment valuations at the individual vessel level
pursuant to paragraph 10 of SFAS 144. As of December 31, 2006, the Company
evaluated the recoverability of its vessels and its investments in accordance
with FAS 144 and determined that no provision for impairment loss was required.
As of December 31, 2005 and 2004, the Company evaluated the recoverability
of
its vessels and its investments in accordance with FAS 144 and determined that
no provision for impairment loss was required.
NOTE
6: LONG-TERM
DEBT
Long-term
debt consisted of the
following at December 31, 2006 and 2005:
|
|
2006
|
|
|
2005
|
|
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
Scotia
Loan
|
|
|
123,326
|
|
|
|
64,442
|
|
Fortis
Loan
|
|
|
27,111
|
|
|
|
25,000
|
|
|
|
|
150,437
|
|
|
|
89,442
|
|
less
current portion
|
|
|
26,167
|
|
|
|
12,116
|
|
Long
term debt
|
|
|
124,270
|
|
|
|
77,326
|
|
In
March 1998, the Company issued
$100,000,000 of 10-year Senior Notes (the “Notes”). The Notes were issued
pursuant to an Indenture (the “Indenture”) between the Company and Bankers Trust
Company as trustee. Interest on the Notes was payable semi-annually in arrears
on March 1 and September 1 at a rate of 11.25% per annum. The Company’s
obligations under the Indenture were guaranteed on a senior unsecured basis
by
substantially all of the Company’s existing vessel-owning subsidiaries. The
Indenture contained various business and financial covenants. The Board of
Directors had authorized Management to repurchase Notes in the open market
at
times, prices and volumes, which Management deemed appropriate. In 2004, the
Company repurchased Notes having a total face value of $6,540,000 for a cash
outlay of approximately $6,107,900 and recorded a net gain of $363,119 on the
transactions. The repurchased Notes were retired. Debt issuance costs of
$385,101 were written off as a result of this repurchase of Notes and recorded
as a reduction of gains on debt extinguishment. On September 30, 2004 the
Company called the remaining $21.1 million of Notes outstanding. The date fixed
for redemption was November 1, 2004 and the redemption price was 103.75% in
accordance with the terms of the Indenture. The Company recorded a
net loss of $975,918, corresponding to the call premium for $791,250 and the
write off of the Notes issuance costs for $183,938.
In
June 1998, the Company entered into
a long-term debt agreement with Fortis Bank and Banque Nationale de Paris.
The
facility bore interest at LIBOR plus 1.25% and the final repayment date was
fixed at June 30, 2006. The vessel-owning subsidiaries had granted ship
mortgages over their vessels as security for the advances and the Company had
issued a guarantee in relation to the facility. Repayment schedules (consisting
of semi-annual instalments plus a balloon) were determined in relation to each
drawing at the time the advances are made by reference to the ages and to the
types of vessels acquired. The outstanding amount of this facility of
$14,729,815 was fully repaid on October 27, 2004 as part of the refinancing
of
the Company’s debt described below.
On
October 11, 2004, the Company
entered into a $45,000,000 loan agreement with Fortis Bank in order to refinance
all of its outstanding debt. The facility bore interest at LIBOR plus 1.25%
and
was repayable over six years in equal quarterly instalments. The borrowers
were
the then existing vessel-owning subsidiaries, except for the coastal bulker
subsidiaries Concurrently, the Company entered into an interest rate swap
agreement as a result of which the variable rate, exclusive of margin, was
effectively fixed at 3.075 % until October 2007. On January 20, 2005, upon
the
sale of the container vessels to MUNIA, the Company repaid $15 million under
this loan and the repayment schedule of the remaining loan was reduced
proportionately. An amount of $116,194 representing the unamortized balance
of
the debt issuance costs incurred in 2004 in connection with the prepaid portion
of the Fortis Loan was written off and recorded as a reduction of the Deferred
Gain on sale of vessels. Concurrently with such prepayment, cash balances of
$5
million held as collateral by Fortis Bank were released. In April 2006, the
Company refinanced the then outstanding balance of $23,750,000 as described
below.
On
April
24, 2006, the Company entered into a $31,750,000 loan agreement with Fortis
Bank
(the “Fortis Loan”) in order to refinance the outstanding amount of the previous
loan granted by Fortis of $23,750,000 and for the balance to partially refinance
the acquisition of the Blackfriars Bridge and London Bridge (see Note 3:
Acquisitions and Sales of Vessels). The borrowers are the vessel-owning
subsidiaries of Auteuil, Deauville, Cheltenham, Malvern, Coniston, Longchamp,
Blackfriars Bridge and London Bridge. The Fortis Loan bears interest at LIBOR
plus 1.25% and is repayable in equal quarterly installments until October 2010.
The existing interest rate swap agreement hedging the Fortis Loan remained
in
place until December 21, 2006. On such date, the Company terminated the interest
rate swap agreement and received $386,800, which was recorded as a reduction
of
interest expense in 2006. As of December 31, 2006, the amount outstanding under
the Fortis Loan was $27,111,112.
In
September 2001, the Company had been
granted a $17,700,000 credit facility by Scotiabank. The facility consisted
of
two advances, bore interest at LIBOR plus 2% and was non-recourse to the
Company. A first advance of $13,462,500 was drawn to finance the acquisition
of
a second-hand LPG vessel. This first advance was repayable over five
years in equal quarterly instalments. A swap agreement was concurrently entered
into with Scotiabank, as a result of which the variable rate on the loan,
exclusive of margin, has been effectively fixed at 4.595%. The swap’s notional
amount and duration followed the scheduled repayments of the underlying loan.
On
September 30, 2004, the swap was cancelled at a cost of $124,500 and the
cancellation cost was recorded as interest expense. The outstanding amount
of
this advance $5,385,000 was fully repaid on October 27, 2004 as part of the
refinancing of the Company’s debt described above. The second advance had been
fully prepaid in 2003.
In
April 2005, the Company entered into
a $68,000,000 loan agreement with Scotiabank in order to partially fund the
acquisition of two vessels, the Tower Bridge and Chelsea Bridge. The loan
consisted of two advances and bore interest at LIBOR plus 0.85%. The first
advance of $41 million was repayable over eleven years in twenty two equal
semi-annual installments of $1,772,500 plus a balloon payment of $2,005,000
in
April 2016. The second advance of $27 million was repayable over seven years
in
fourteen equal semi-annual installments of $1,785,500 plus a balloon payment
of
$2,003,000 in April 2012. Swap agreements were concurrently entered into as
a
result of which the variable rates, exclusive of margin, have been effectively
fixed until October 2010 at 4.58% and 4.545%, respectively for the first and
second advance. In July 2006, the then outstanding balance under the loan
granted by Scotiabank of $60,884,000 was refinanced as described
below.
On
July 10, 2006, the Company entered
into a $126,884,000 loan agreement with Scotiabank in order to refinance the
outstanding amount of the previous loan granted by Scotiabank of $60,884,000
granted in April 2005 and for the balance to partially finance the acquisition
of the Maersk Houston, Kew Bridge and Barnes Bridge. As of December 31, 2006,
the amount outstanding under the Scotia Loan was $123,326,000. The loan is
structured in five advances as follows:
1)
Advance A in an amount of
$27,429,000 was used to repay the outstanding amount of the loan granted in
April 2005 by Scotiabank to partially fund the acquisition of the Chelsea Bridge
($23,429,000) and for working capital purposes. Advance A was drawn on July
24,
2006 and is repayable as follows: one semi-annual repayment of $1,785,500 on
October 5, 2006, eleven semi-annual repayments of $2,149,100 plus a balloon
of
$2,003,400 on April 5, 2012. Advance A bears interest at LIBOR plus
0.85%.
2)
Advance B in an amount of
$41,455,000 was used to repay the outstanding amount of the loan granted on
April 5, 2005 by Scotiabank to partially fund the acquisition of the Tower
Bridge ($37,455,000) and for working capital purposes. Advance B was drawn
on
July 24, 2006 and is repayable as follows: one semi-annual repayment of
$1,772,500 in October 2006, nineteen semi-annual repayments of $1,983,100 plus
a
balloon of $2,003,600 on April 5, 2016. Advance B bears interest at LIBOR plus
0.85%.
3)
Advance C in an amount of
$37,000,000 was used to partially fund the acquisition of the Maersk Houston.
Advance C was drawn on July 13, 2006 and is repayable as follows: nineteen
quarterly repayments of $1,080,000 starting on January 24, 2007, twenty
quarterly repayments of $674,000 plus three balloon amounts of $1,000,000
payable upon the occurrence of certain circumstances relating to the Chelsea
Bridge, Tycho Brahe and Immanuel Kant. Advance C bears interest at LIBOR plus
0.95%.
4)
Advance D in an amount of
$11,000,000 was used to partially fund the acquisition of the Kew Bridge.
Advance D was drawn on July 24, 2006 and is repayable in seven quarterly
repayments of $875,500 starting on January 24, 2007 and ten quarterly repayments
of $487,150. Advance D bears interest at LIBOR plus 0.95%.
5)
Advance E in an amount of
$10,000,000 was used to partially fund the acquisition of the Barnes Bridge.
Advance E was drawn on July 24, 2006 and is repayable in seven quarterly
repayments of $825,750 starting on January 24, 2007 and ten quarterly repayments
of $421,975. Advance E bears interest at LIBOR plus 0.95%.
The
existing interest rate swap
agreements hedging the previous loan granted by Scotiabank remained in place.
In
addition, an interest rate swap agreement was entered into with Scotiabank,
as a
result of which the variable rate on the additional amount of $8,000,000 granted
under Advances A and B, has been effectively fixed at 5.70% (exclusive of
margin) for 3.7 years. Another interest rate swap agreement was also entered
into with Scotiabank, as a result of which the variable rate on the Advances
C,
D and E has been effectively fixed at 5.69% (exclusive of margin) for the first
five years. Each of the interest rate swaps’ notional amounts and durations
match the scheduled repayments of the corresponding advances.
The
Company has issued guarantees in
relation to the loans and the borrowers have granted ship mortgages over the
vessels as security. The Blackfriars Bridge and London Bridge, following the
March 2007 prepayment (see Subsequent events) and the La Forge are the Company’s
only vessels not pledged as collateral under any debt agreement. The loan
agreements contain financial covenants related to minimum liquidity reserves
of
$5,000,000, minimum value clauses for the vessels, minimum interest coverage
of
2:1 and minimum tangible net worth, all as defined in the loan agreements.
Under
the Scotiabank agreement, monthly transfers are made to retention accounts,
which are applied in discharge of the next principal and interest payment due
under the loan. The Company has complied with all applicable debt covenants,
or
received the appropriate waivers from lenders, for all periods
presented.
As
of December 31, 2006, the aggregate maturities of long-term debt in each of
the
subsequent five years ending December 31 were as follows:
2007
|
|
$ |
26,167,176
|
|
2008
|
|
|
25,375,051
|
|
2009
|
|
|
22,998,676
|
|
2010
|
|
|
22,998,684
|
|
2011
|
|
|
15,087,525
|
|
Thereafter
|
|
|
37,810,000
|
|
Total
|
|
$ |
150,437,112
|
|
The
interest rates applicable to the
Company's long-term debt as of December 31, 2006 ranged from 4.325% to 6.74%.
During the year ended December 31, 2006, interest paid in relation to the
long-term debt totaled $5,881,880 (2005 - $3,211,999; 2004 -
$4,208,195).
NOTE
7: FAIR
VALUE OF FINANCIAL INSTRUMENTS
At
December 31, 2006 and 2005, the
Company’s financial instruments had the following fair values:
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Fair
Value
|
|
|
Book
Value
|
|
|
Fair
Value
|
|
|
Book
Value
|
|
Cash
|
(a)
|
|
|
1,838,044
|
|
|
|
1,838,044
|
|
|
|
12,292,015
|
|
|
|
12,292,015
|
|
Restricted
Cash
|
(a)
|
|
|
4,494,402
|
|
|
|
4,494,402
|
|
|
|
1,759,237
|
|
|
|
1,759,237
|
|
Long-term
debt:
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
|
26,167,176
|
|
|
|
26,167,176
|
|
|
|
12,116,000
|
|
|
|
12,116,000
|
|
Non-current
portion:
|
|
|
|
124,269,936
|
|
|
|
124,269,936
|
|
|
|
77,326,000
|
|
|
|
77,326,000
|
|
Interest
rate swaps
|
(c)
|
|
|
(356,917 |
) |
|
|
(356,917 |
) |
|
|
960,305
|
|
|
|
960,305
|
|
a)
|
Carrying
value approximates fair value due to short term
maturities.
|
b)
|
Carrying
value approximates fair value as variable interest rate approximates
market rates.
|
c)
|
The
fair values of the interest rate swaps are based on independent
valuations. They estimate the amount the Company would have received
or
paid, had the interest rate swaps been terminated on the balance
sheet
date.
|
NOTE
8: SHAREHOLDERS'
EQUITY TRANSACTIONS
In
March 2007, the Company’s Board of
Directors announced a dividend of $0.25 per share to be declared and paid in
four equal quarterly installments commencing in April 2007. The first quarterly
installment was declared on March 21, 2007 and is payable on April 30, 2007.
The
final 2006 dividend payment of $594,259, which was accrued at December 31,
2006,
was paid on February 2, 2007. In 2006, the Company declared dividends of $0.25
per share and a common stock dividend of one share for every twenty shares
owned, rounded up to the nearest multiple. 453,029 shares of common stock were
distributed as stock dividend on April 28, 2006. In 2005, the Company declared
dividends of $0.25 per share. Cash dividends were recorded as a reduction of
Additional Paid-In Capital due to the Company’s accumulated deficit, with the
exception of the dividend payment made on February 2, 2007, which was recorded
partly as a reduction of retained earnings and partly as a reduction of
Additional Paid-In Capital.
Directors,
who are not officers of the
Company or of an affiliated Company, each receive $5,000 of their total annual
compensation by the allotment of shares of the Company’s common stock of
equivalent value. Further shares will be similarly granted in future years.
Pursuant to this arrangement, the following allotments have been
made:
Total
number of shares allotted
|
Total
compensation in USD
|
Period
|
Ending
|
4,766
|
$15,000
|
9
months
|
December
31, 2004
|
2,056
|
$20,000
|
12
months
|
December
31, 2005
|
1,876
(1)
|
$20,000
|
12
months
|
December
31, 2006
|
(1)
The shares allotted for 2006 were issued in 2007.
In
2005,
142,918 shares of common stock were issued in connection with the exercise
of
stock options for total proceeds of $262,695 and 186,398 options granted under
the stock option plan. In 2006, 139,398 stock options were exercised at a price
of $9.228 representing proceeds of $1,286,365 for the Company (see Note 9:
Stock
Option Plan). On
March
24, 2006, the Company filed a registration statement on Form S-8 to register
the
re-offer and resale of up to 357,996 shares of common stock of the Company,
which have been issued or will be issued under the Company Stock Option Plan
to
the Company’s employees. In 2004, 29,901 shares were issued and 100,000 options
granted under the stock option plan (see Note 9).
Accumulated
other comprehensive income consists of currency translation adjustments and
unrealized gains or losses on cash flow hedges as follows:
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustments
|
|
$ |
49,236
|
|
|
$ |
30,155
|
|
|
$ |
52,272
|
|
Unrealized
(losses) / gains on cash flow hedges
|
|
|
(356,917 |
) |
|
|
960,305
|
|
|
|
209,330
|
|
Accumulated
Comprehensive (loss) / Income
|
|
$ |
(307,681 |
) |
|
$ |
990,460
|
|
|
$ |
261,602
|
|
NOTE
9: STOCK
OPTION PLAN
On
June 20, 2001, the shareholders
authorized the creation of a Stock Option Plan for the Company’s employees. A
maximum of 407,871 shares or 5% of the Company’s outstanding shares were
authorized for issuance under this Stock Option Plan. Under the terms of the
Stock Option Plan, the options give the holder the right to purchase one share
per option; they expire ten years after the creation of the plan, on June 20,
2011, regardless of the grant date. Options granted under this plan are granted
with an exercise price equal to the average of the Company’s stock price over
the ten days prior to the grant date. At the inception of the plan, the options
vested 25% per annum, commencing one year after the grant date of the respective
option. As of June 14, 2005, the Board modified the vesting conditions of the
stock options under the terms of the plan in order to provide management with
additional incentive. The options now vest 100% on the day following the grant
date.
On
June
20, 2001, the Company’s Board of Directors approved the issuance of 163,148
options at an exercise price of $0.622 per share. The intrinsic value of these
options on the grant date was $0.128 per share. On September 17, 2004, the
Company’s Board of Directors approved the issuance of 100,000 options at an
exercise price of $2.36 per share. The intrinsic value of these options on
the
grant date was $0.44 per share. On June 14, 2005, the Company’s Board of
Directors approved the issuance of 186,398 options at an exercise price of
$9.228 per share. The intrinsic value of these options on the grant date was
$0.402 per share. As of December 31, 2007, there were no additional options
to
be granted under the plan.
In
2006,
139,398 stock options were exercised at a price of $9.228 representing proceeds
of $1,286,365 for the Company. On March 24, 2006, the Company filed a
registration statement on Form S-8 to register the re-offer and resale of up
to
357,996 shares of common stock of the Company, which have been issued or will
be
issued under the Company Stock Option Plan to the Company’s employees. As of
December 31, 2006, the 47,000 options outstanding had an exercise price of
$9.228 per share and a remaining contractual life of 4.47
years.
The
following table summarizes the activity under the stock plan in the last three
years:
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2004
|
|
|
|
Number
of shares
|
|
|
Weighted
average exercise price
|
|
|
Number
of shares
|
|
|
Weighted
average exercise price
|
|
|
Number
of shares
|
|
|
Weighted
average exercise price
|
|
Options
outstanding at the beginning of the year
|
|
|
186,398
|
|
|
$ |
9.228
|
|
|
|
142,918
|
|
|
$ |
1.840
|
|
|
|
101,499
|
|
|
$ |
0.622
|
|
Options
granted
|
|
|
-
|
|
|
|
|
|
|
|
186,398
|
|
|
$ |
9.228
|
|
|
|
100,000
|
|
|
$ |
2.360
|
|
Options
exercised
|
|
|
139,398
|
|
|
$ |
9.228
|
|
|
|
142,918
|
|
|
$ |
1.840
|
|
|
|
29,901
|
|
|
$ |
0.622
|
|
Options
forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,680
|
|
|
$ |
0.622
|
|
Options
outstanding at the end of the year
|
|
|
47,000
|
|
|
$ |
9.228
|
|
|
|
-
|
|
|
|
-
|
|
|
|
142,918
|
|
|
$ |
1.840
|
|
Options
exercisable at the end of the year
|
|
|
47,000
|
|
|
$ |
9.228
|
|
|
|
186,398
|
|
|
$ |
9.228
|
|
|
|
19,729
|
|
|
$ |
0.622
|
|
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123(R) "Share Based Payments" using the "modified prospective"
method. Under this method, awards that are granted, modified, or settled after
January 1, 2006, are measured and accounted for at fair value in accordance
with
SFAS 123(R). The adoption of this Statement did not have a material impact
on
the Company's financial position or results of operations.
The
following table illustrates the effect on net income and earnings per share
if
the Company had applied the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation in 2004 and 2005.
|
|
Year
ended
|
|
|
Year
ended
|
|
|
|
December
31
|
|
|
December
31
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$ |
10,768,645
|
|
|
$ |
1,112,379
|
|
|
|
|
|
|
|
|
|
|
Add:
Stock-based employee compensation expense included in
reported net
income
|
|
|
74,932
|
|
|
|
-
|
|
Deduct:
total stock-based employee compensation expense determined
under fair
value based method for all awards
|
|
|
(642,875 |
) |
|
|
(32,787 |
) |
|
|
|
|
|
|
|
|
|
Proforma
net income
|
|
$ |
10,200,702
|
|
|
$ |
1,079,592
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
– as reported
|
|
$ |
1.16
|
|
|
$ |
0.12
|
|
Basic
– pro forma
|
|
$ |
1.10
|
|
|
$ |
0.12
|
|
|
|
|
|
|
|
|
|
|
Diluted
– as reported
|
|
$ |
1.14
|
|
|
$ |
0.12
|
|
Diluted
– pro forma
|
|
$ |
1.08
|
|
|
$ |
0.12
|
|
The
fair
value for the options granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions. The fair
value of the options granted during the years ended December 31, 2005 and 2004
were $2.96 and $1.23 per share, respectively.
Options
granted in year
|
|
2005
|
|
|
2004
|
|
Risk-free
interest rate
|
|
|
3.70 |
% |
|
|
3.6 |
% |
Volatility
|
|
|
54 |
% |
|
|
58 |
% |
Expected
option term (in years)
|
|
|
2
|
|
|
|
4
|
|
Dividend
yield
|
|
|
2.50 |
% |
|
|
3.50 |
% |
Fair
value of options granted
|
|
$ |
2.96
|
|
|
$ |
1.23
|
|
For
purposes of pro forma disclosures, prior to June 14, 2005, the options vested
on
a pro-rata basis and the estimated fair value of the options was amortized
to
expense over the options’ vesting period in accordance with the accelerated
expense attribution method under FASB Interpretation No. 28. The Company had
not
recognized compensation expense in connection with the issuance of the options,
as the amounts of amortization of the intrinsic value of the options to be
recorded as expense over the options’ vesting period was not
significant.
After
June 14, 2005, the options vested 100% on the day following the grant date
and
the estimated intrinsic value of the options was expensed in full on the day
after the grant. In connection with the granting of the options in June 2005,
the Company recognized non-cash compensation expense of $74,932 which was equal
to the amount of the intrinsic value of the options, under FASB Interpretation
No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock
Option Award Plans”.
NOTE
10: CHARTERS
Eleven
of the Company's fourteen wholly-owned vessels are currently employed on time
charter. Future minimum revenues from these non-cancelable charters are as
follows for the years ending December 31:
2007
|
|
$ |
46,404,325
|
|
2008
|
|
$ |
31,201,200
|
|
2009
|
|
$ |
24,721,200
|
|
2010
|
|
$ |
11,986,200
|
|
2011
|
|
$ |
3,870,600
|
|
In
2006,
the Company had three charterers from which revenues exceeded 10% of total
revenues from charterhire. Revenues from these charterers amounted to
$15,711,707, $11,270,281 and $9,774,787 respectively representing 30.0%, 21.5%
and 18.6% of total revenues.
In
2005, the Company had three charterers from which revenues exceeded 10% of
total
revenues from charter hires. Revenues from these charterers amounted to
$12,481,360, $9,731,326 and $9,052,303 respectively representing 35.3%, 27.5%
and 25.6% of total revenues.
In
2004,
the Company had three charterers from which revenues exceeded 10% of total
revenues from charterhire. Revenues from these charterers amounted to
$12,202,388, $8,817,095 and $8,281,170 respectively representing 38.3%, 27.6%
and 26.0% of total revenues from charterhire.
NOTE
11: 2006
AND 2005 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Results
of operations for the quarterly
periods ended in 2006 and 2005 are as follows:
2006
|
|
March
31
|
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
Charterhire
and Other Revenue
|
|
$ |
10,107,255
|
|
|
$ |
9,940,984
|
|
|
$ |
14,054,515
|
|
|
$ |
18,314,556
|
|
Recognized
deferred gain on sale of vessels
|
|
$ |
1,174,522
|
|
|
$ |
1,187,572
|
|
|
$ |
1,200,622
|
|
|
$ |
1,200,622
|
|
Net
Income
|
|
$ |
3,711,899
|
|
|
$ |
2,022,865
|
|
|
$ |
1,301,138
|
|
|
$ |
3,113,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share amounts
|
|
$ |
0.40
|
|
|
$ |
0.21
|
|
|
$ |
0.14
|
|
|
$ |
0.32
|
|
2005
|
|
March
31
|
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
Charterhire
and Other Revenue
|
|
$ |
6,238,486
|
|
|
$ |
9,628,735
|
|
|
$ |
9,796,898
|
|
|
$ |
9,732,400
|
|
Recognized
deferred gain on sale of vessels
|
|
$ |
926,567
|
|
|
$ |
1,187,572
|
|
|
$ |
1,189,597
|
|
|
$ |
1,211,647
|
|
Net
Income
|
|
$ |
2,046,755
|
|
|
$ |
2,861,999
|
|
|
$ |
2,921,619
|
|
|
$ |
2,938,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share amounts
|
|
$ |
0.22
|
|
|
$ |
0.31
|
|
|
$ |
0.31
|
|
|
$ |
0.32
|
|
NOTE
12: CONTINGENCIES
On
September 20, 2005, the m/v ‘Maersk
Barcelona’ owned by MUNIA suffered a malfunction of her oily water separator,
which resulted in an accidental overboard discharge of oil-contaminated water
off the coast of France. On March 22, 2006, the technical managers of the vessel
were fined 720,000 euros ($949,464 equivalent at December 31, 2006 exchange
rate) and the captain 80,000 euros ($105,496 equivalent at December 31, 2006
exchange rate) by a French court, a judgment which they intend to appeal. All
expenses to be incurred by the Company under the MUNIA guarantee are accrued
for
and the Company expects that costs beyond the deductible will be covered by
insurance or by the responsible party.
Following
the extended dry-docking of
La Forge in 2006, the charterers lodged a claim against the Company for damages
arising out of the deprivation of use of the vessel and compensation was
demanded for the additional cost of hiring replacement vessels. The Company
intended to challenge this claim; however the charterers agreed to substantially
reduce the quantum of their claim if a settlement could be reached out of court
and the Company considered the settlement proposal worth accepting rather than
incurring the costs of arbitration. The Company received a settlement proposal
of $1,050,000 net of hire due to the Company from the same charterers and
adjusted accruals to an equal amount. The Company will seek to recover the
full amount lost from the technical managers who actually budgeted, planned
and
executed the dry dock.
In
the
third quarter of 2006, the Kew Bridge suffered a grounding incident in Ratnagiri
off the West Coast of India and was re-floated with a combination of lightening
cargo from the vessel into another ship and by pulling with tugs. In 2006,
the
incident did not materially impact the Company’s revenues as the off-hire was
covered by insurance and charterers until January 14, 2007. The repairs on
the
vessel started in February 2007 and are currently expected to be finished in
June 2007. The Company is currently engaged in discussions with the charterers
with regard to compensating the Company for a portion of lost revenues in 2007.
The Company has not been required to advance any material funds in connection
with this incident and Management does not believe that the Company will incur
significant costs related to the incident as repair costs are expected to be
covered by insurance.
Various
claims, suits, and complaints, including those involving government regulations
and product liability, arise in the ordinary course of the shipping business.
In
addition, losses may arise from disputes with charterers, agents, insurance
and
other claims with suppliers relating to the operations of the Company’s vessels.
Management believes that all such matters are either adequately covered by
insurance or are not expected to have a material adverse effect on the
Company.
In
the
normal course of business, the Company enters into contracts that contain a
variety of indemnifications with its customers, suppliers and service
providers. Further, the Company indemnifies its
Directors
and officers who are, or were, serving at the Company’s request in such
capacities. The Company’s maximum exposure under these arrangements is
unknown as of December 31, 2006. The Company does not anticipate incurring
any significant costs relating to these arrangements.
NOTE
13: CASH FLOW SUPPLEMENTARY
INFORMATION
As
supplementary information to the
consolidated statement of cash flows, the following payments were made in the
last three years:
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Interest
paid in relation to long term debt
|
|
$ |
5,881,880
|
|
|
$ |
3,211,999
|
|
|
$ |
4,208,195
|
|
Income
tax paid
|
|
$ |
29,898
|
|
|
$ |
15,290
|
|
|
$ |
18,306
|
|
NOTE
14: SUBSEQUENT EVENTS
On
February 2, 2007, the Company paid the fourth quarterly dividend installment
of
$594,259 ($0.0625 per share) which was declared in 2006.
As
discussed in Note 3, in January 2007, the Company delivered five of six vessels
to LTF. Upon actual delivery of the vessels, the Company received $42 million,
prepaid $17,973,435, the corresponding portion of the Fortis Loan and reinvested
$4,361,539 in LTF for an interest equal to approximately 25% of the equity.
The
net proceeds to the Company were approximately $19,665,026. The
delivery of the remaining vessel is expected to take place mid 2007. The Company
expects to reinvest the excess proceeds in other LPG vessels and is considering
several potential acquisitions. However, the Company does not currently have
any
commitment for capital expenditures.
As
of
February 19, 2007, after nine and a half years with the Company, the Company’s
Chief Financial Officer accepted a position with another shipping company and
will leave the Company on or about April 2, 2007. The Chief Financial Officer
will be replaced on an interim basis by Mr. Gorchakov, the Company’s Chief
Investment Officer.
In
February 2007, the Company made an
additional advance of $500,000 to Waterloo to fund the cost of the dry-dock
that
took place in 2006.
In
February 2007, the Company posted a
$2.5 million bank guarantee in favor of the La Forge charterers. The Bank’s
guarantee is secured by a cash deposit of $2.5million. In March 2007, the
charterers agreed to substantially reduce the quantum of their claim if a
settlement could be reached out of court and the Company considered the
settlement proposal worth accepting rather than incurring the costs of
arbitration. The Company received a settlement proposal of $1,050,000 net
of hire due to the Company from the charterers. The $2.5 million guarantee
will be cancelled once a settlement is concluded with the La Forge
charterers.
On
March
5, 2007, the Company prepaid $3,246,414, the portion of the Fortis Loan
attributable to the London Bridge and Blackfriars Bridge. After this prepayment,
the amount outstanding on the Fortis Loan as of March 15, 2007 was $4,186,818,
corresponding to the attributable portion outstanding on the remaining vessel
to
be delivered to LTF in June 2007. This amount will be prepaid at the time of
sale of the vessel.
On
March
21, 2007, the Board of Directors declared the dividend first quarterly
installment of $0.0625 which is payable on April 30, 2007.
______________________________
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
Year
ended
|
|
Balance
at
Beginning
Of
Period
|
|
Charged
to Costs
And
Expenses
|
|
Credited
to
Costs
And
Expenses
|
|
|
Balance
at
End
of
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
and allowances deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2004
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful receivables
|
|
$ |
110,000
|
|
|
|
|
|
|
$ |
110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful receivables
|
|
$ |
110,000
|
|
|
|
$ |
(20,600 |
) |
|
$ |
89,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful receivables
|
|
$ |
89,400
|
|
|
|
$ |
(33,463 |
) |
|
$ |
55,937
|
|
____________________________
ITEM
9: CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
______________________________
Evaluation
of disclosure controls and procedures.
The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company’s “disclosure controls and procedures” (as defined
in the Securities and Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as
of
December 31, 2006, (the “Evaluation Date”). Based on such review,
they have concluded that, as of the Evaluation Date, our disclosure controls
and
procedures were not entirely effective, because of the changes discussed
below.
Changes
in internal controls.
In
the
third quarter of 2006, the Company transferred the technical management of
nine
vessels to three different ship managers. Technical managers are responsible
for
the accounting of all of the operating expenses of the vessels, except for
the
voyage expenses. Control procedures had been in place with the prior technical
manager for many years and while new control procedures have been established
with the new technical managers, Management identified certain shortfalls in
such controls and as a result, hired additional technical and accounting staff
and reviewed procedures to address these issues. We intend to continue to
monitor our internal controls, and if any weaknesses are identified, we will
take steps to implement additional internal controls as necessary.
______________________________
ITEM
9B: OTHER
INFORMATION
Not
applicable
______________________________
PART
III
ITEM
10: DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY
The
directors and executive officers of
the Company are as follows:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Charles
B. Longbottom
|
|
76
|
|
Chairman
of the Board of Directors
|
Antony
Crawford
|
|
50
|
|
Chief
Executive Officer and President
|
Dominique
Sergent *
|
|
52
|
|
Vice
President, Chief Financial Officer and Treasurer
|
Graham
G. Pimblett
|
|
52
|
|
Vice
President, Chief Operating Officer
|
Enrico
Bogazzi
|
|
66
|
|
Director
|
Johan
Wedell-Wedellsborg
|
|
37
|
|
Director
|
John
H. Blankley
|
|
59
|
|
Director
|
Anton
Pardini
|
|
43
|
|
Director
|
Horst
Schomburg
|
|
77
|
|
Director
|
*
Ms
Sergent resigned as Vice President, Chief Financial officer and Treasurer on
February 19, 2007, effective April 2, 2007. The biography of her interim
successor, Alexander Gorchakov, appears below.
There
are no family relationships
between any of the directors and executive officers.
Mr.
Longbottom has been a director of
the Company since 1989 and was elected Chairman of the Board of the Company
in
May 2004. Messrs. Blankley and Schomburg were originally elected as directors
at
the 1995 annual meeting. Mr. Crawford and Bogazzi were elected as directors
at
the 2004 annual meeting. Messrs. Pardini and Wedell-Wedellsborg were appointed
as directors in September 2004 and June 2006, respectively.
Under
the Company’s Articles of
Incorporation, the Board of Directors is divided into two classes of at least
three persons, each of whom is elected for a two-year term. Messrs. Longbottom,
Pardini, Schomburg and Crawford are Class “A” directors and Messrs. Bogazzi,
Blankley and Wedell-Wedellsborg are Class “B” directors. The Class “A” directors
were re-elected at the 2006 Annual Meeting and serve until the 2008 Annual
Meeting. The Class “B” directors were re-elected at the 2005 Annual Meeting and
serve until the 2007 Annual Meeting. Officers are appointed by the Board of
Directors and serve until their successors are appointed and qualified. The
Articles of Incorporation and By-laws of the Company provide that the Company
will, to the full extent authorized by the Business Corporation Act of Liberia,
indemnify each of its officers and directors against judgments, fines, amounts
paid in settlement, and expenses incurred in the defense of any action commenced
against any such officer or director by reason of the fact that he is or was
an
officer or director of the Company.
Section
3.11 of the By-Laws of the
Company provides that there shall be an Audit Committee of the Board of
Directors (the “Committee”) consisting of three or more directors, a majority of
whom are not officers of the Company and are not currently and have not
previously been employees of the Company, Navalmar, V.Ships or their respective
affiliates. The Committee is currently comprised of Messrs. Longbottom,
Schomburg, Pardini and Blankley, all of whom are independent directors. Section
3.11, which may not be amended or repealed except upon approval of the holders
of two-thirds of the outstanding shares of Common Stock, provides that the
Committee shall review the following matters and advise and consult with the
entire Board of Directors with respect thereto:
|
(i)
|
the
preparation of the Company's annual financial statements in collaboration
with the Company's independent certified
accountants;
|
|
(ii)
|
the
sale or other disposition of the Company's
vessels;
|
|
(iii)
|
the
mortgaging of any of the Company's vessels as security for indebtedness
of
the Company or any of its
subsidiaries;
|
|
(iv)
|
the
performance by V.Ships of its obligations under the management
agreements,
as long as V.Ships was an affiliated company;
and
|
|
(v)
|
all
agreements between the Company and V.Ships, any officer of the
Company, or
affiliates of V.Ships or any such officer, as long as V.Ships was
an
affiliated company.
|
The
Company's Board of Directors has determined that the Company has at least
one
audit committee financial expert serving on its audit committee. The audit
committee financial expert is Mr. Blankley. Mr. Blankley is an independent
director and served as Chief Financial Officer of BP North America Inc.,
Stolt-Nielsen Inc., Harris Chemical Group Inc. and Hvide Marine Inc. between
1983 and 1999.
The
Company has adopted a Code of
Ethics that applies to the Company's directors, officers and employees. The
Code
of Ethics is displayed on the Company’s website:
www.mcshipping.com.
The
Nominating and Corporate Governance
Committee consists of three or more Independent Directors. Its members are
currently the same as the Audit Committee. The purpose of the Nominating and
Corporate Governance Committee is to:
|
(i)
|
Identify
individuals qualified to become members of the Board of Directors
of the
Company and recommend to the Board nominees for election as Directors
;
|
|
(ii)
|
Maintain
oversight of the operation and effectiveness of the Board and the
corporate governance and Management of the Company
;
|
|
(iii)
|
Develop,
update as necessary and recommend to the Board corporate governance
principles and policies applicable to the Company, including the
Company’s
Corporate Governance Guidelines ;
and
|
|
(iv)
|
Monitor
compliance with such corporate governance principles and
policies.
|
Antony
S. Crawford was appointed Chief Executive Officer, President, Chief
Operating Officer and a Director of the Company in August 2004. He became
a full
time Chief Executive Officer in November 2005. Mr. Crawford was until November
2005 a director and minority shareholder of V.Holdings Limited and the
Chief
Executive Officer of V. Investments Limited. From 1983 to 2005, Mr. Crawford
was
a director and finally Chief Executive Officer of V.Ships PLC (formerly
Silver
Line Ltd), which he had joined in 1983 as a ship-broker, when it was an
affiliate of the Vlasov Group. From 1978 to 1983, Mr. Crawford worked as
chartering manager with Euro Canadian Group, a container bulk operator,
and from
1973 to 1978 as a shipbroker with shipbrokers Lambert Brothers
Limited.
Dominique
Sergent was
appointed Vice President and Chief Financial Officer in 2000 after joining
the
Company in 1997 as Treasurer. Her prior career includes positions as Vice
President in the Capital Markets Group of Bankers Trust (now Deutsche Bank)
in
New York, Vice President in the investment banking division of E.F. Hutton
(now
Lehman Brothers) and in the international department of Banque Worms. Ms.
Sergent holds an MBA degree from Harvard Business School. Ms. Sergent accepted
a
position with another company and will leave the Company on or about
April 2, 2007.
Graham
G. Pimblett was appointed Vice President, Operations of the Company in
1996 and Chief Operating Officer in 2006. Mr. Pimblett has been with the Company
from its foundation in 1989. Prior to that, he had worked within the Vlasov
Group since 1971 and held various operational positions during that
period.
Alexander
Gorchakov joined the Company in 2004 as Investment Analysis Officer and
was appointed Corporate Secretary in November 2004. From 1995 to 2004, he worked
within the V.Ships and Vlasov groups where he held various financial management
and accounting positions. His prior career includes a range of managerial
positions in the Black Sea Shipping Company. Mr. Gorchakov holds a
Shipmanagement and Engineering diploma from Odessa State Maritime University
of
Ukraine and an MSc degree in Shipping, Trade
and
Finance from Cass (former City University) Business School of London. Mr.
Gorchakov will assume the role of Chief Financial Officer on an interim basis
from April 2, 2007.
Charles
B. Longbottom
is the former Chairman of Seascope Shipping Limited and of Seascope
Insurance Services Limited. He is also the former Chairman of Austin &
Pickersgill Shipbuilders, A&P Appledore International, and of Illingworth
Morris Pension Trustees Limited. Mr. Longbottom was previously a non-executive
director of Newman Martin & Buchan Ltd. and a part-time member of the Board
of British Shipbuilders. Mr. Longbottom is a former Member of the British
Parliament.
Enrico
Bogazzi is the
Chief Executive Officer of and a majority shareholder in CO.FI.PA Spa (formerly
known as Bogazzi Fimpar Spa), which in turn is a controlling shareholder in
Navalmar Transportes Maritimos LDA, a major shareholder in the Company. He
has
directorships in a number of private shipping and shipping related companies
in
Europe. He holds a law degree from the University of Pisa.
Johan
Wedell-Wedellsborg is the owner and Chief Executive Officer of
Weco-Rederi Holding A/S (formerly known as Weco-Rederi A/S) and the Chief
Executive Officer of Dannebrog Rederi, a chemical tanker shipowning and
operating subsidiary of Weco-Rederi. Weco-Rederi is the parent company of
Nordana Line, a multipurpose RoRo liner carrier and is also engaged in the
real
estate business. Mr. Wedell-Wedellsborg holds a BA degree in Shipping from
the
Shipping School of Hamburg.
John
H. Blankley is
the owner of Seafirst Capital, an independent consulting and investing Company,
which he established in 1994. He is the former director and Chief Financial
Officer of Hvide Marine Inc. Mr. Blankley was Chief Financial Officer and a
director of BP North America Inc., he was also an Executive Vice President
and
Chief Financial Officer of Stolt-Nielsen Inc., and director and Chief Financial
Officer of Harris Chemicals Group Inc.
Horst
Schomburg is
member of the Supervisory Board of MPC Münchmeyer Petersen Steamship GmbH &
Co. KG. He was previously the Chairman of the Advisory Board of Hamburg
Südamerikanische Dampfschiffahrts Gesellschaft Eggert & Amsinck (Hamburg
South American Shipping Company – “Hamburg-Süd”). Mr. Schomburg is also the
former President and Chief Executive Officer, and a member of the Managing
Board
of Hamburg-Süd.
Anton
U. Pardini
retired on December 31, 2006 from Schnitzer
Investment Corp., where he was a Director and the company’s President and Chief
Executive. He was previously President and Chief Executive Officer of Lasco
Shipping Co., and prior to that General Counsel for the Schnitzer Group of
Companies, which then included Schnitzer Steel, Schnitzer Investment Corp.,
Lasco Shipping and several other companies. Mr Pardini began his career with
Stoel Rives, a major U.S. law firm.
See
also
Item 13: Certain relationships and related transactions)
COMPENSATION
DISCUSSION AND ANALYSIS
This
section addresses the role of the
compensation committee, summarizes the Company’s compensation policy, describes
the elements of our executive compensation and director compensation and
describes the changes in compensation to be implemented in 2007.
COMPENSATION
COMMITTEE
In
accordance with section 3.12 of the
Company's By-Laws, the Board of Directors has designated from among its members
a Compensation Committee, consisting of the four independent directors, which
reviews all matters related to executive compensation. The Committee is
currently comprised of Messrs. Longbottom,
Blankley,
Schomburg and Pardini. For biographies of the Compensation Committee’s members,
please see Item 10). The Chairman of the Compensation Committee is elected
by
its members and is currently Mr. Longbottom.
The
Compensation Committee meets three
times a year, the agenda is prepared by the Chairman. The Chief Executive
Officer attends Compensation Committee’s meetings, but is excluded there from
when his compensation is an agenda item. Proposals to be discussed by the
Committee are submitted by the Chief Executive Officer or any Committee
member.
None
of the Company’s executive
officers serves as a member of the Board of Directors or compensation committee
of any entity that has one or more of its executive officers serving as a member
of our Board of Directors or Compensation Committee.
The
Compensation Committee approves all
compensation decisions relative to the executive officers and the directors.
The
Compensation Committee is responsible for setting a compensation policy aiming
at attracting and retaining key people, executives and/or directors critical
to
our success. In setting this policy, the Compensation Committee recognizes
the
importance of simplicity, transparency and accountability.
COMPENSATION
POLICY
Executives
- The Company’s executive
compensation policy is designed to reward service and performance, to provide
an
adequate balance between short and long term rewards and to align the interests
of Management and shareholders. The Company compensates its executives using
a
combination of salary, bonus and option plans (see below). The last options
available under the 2001 Stock Option Plan were distributed in 2005 and the
Compensation Committee is currently analyzing various plan
alternatives.
Directors
- The Company’s director
compensation policy is designed to attract and retain individuals who have
a
thorough knowledge of its industry. Independent directors receive an annual
fee,
paid partly in cash and partly in shares, in order to align their interests
with
shareholders. All independent directors receive equal compensation, however
the
chairman of the Board receives additional
compensation. Non-independent directors receive no compensation for
serving on the Board. A comparison of the directors’ fees to other comparable
companies was performed in 2006 by the Chairman of the Compensation Committee
and the Chief Executive Officer. As result, the Board decided to increase the
directors’ fees in 2007.
EXECUTIVE
COMPENSATION
The
table
below summarizes the compensation of our principal executive officer, our
principal financial officer and our chief operating officer for each of the
last
three years. We do not have any other named executive officers.
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-equity
Incentive
Plan
compen-
sation
($)
|
Change
in Pension
Value
and Non-quali-fied
deferred Compensation
Earnings
($)
|
All
other
compensation
($)
|
Total
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Antony
Crawford
*
CEO
|
2006
2005
2004
|
371,000
52,010
-
|
-
100,000
-
|
-
-
-
|
-
168,720
123,000
|
-
-
-
|
-
-
-
|
-
-
-
|
371,000
320,730
123,000
|
Dominique
Sergent
CFO
|
2006
2005
2004
|
153,252
143,864
123,465
|
35,000
35,000
54,842
|
-
-
-
|
-
139,120
-
|
-
-
-
|
-
-
-
|
-
-
-
|
188,252
317,984
178,307
|
Graham
Pimblett
COO
|
2006
2005
2004
|
153,252
122,042
103,781
|
40,000
35,000
54,842
|
-
-
-
|
-
139,120
-
|
-
-
-
|
-
-
-
|
-
-
-
|
193,252
296,162
158,623
|
*
|
Mr
Crawford was paid by the Company starting November 7,
2005.
|
Prior
to
such date, Mr Crawford was delegated by the V.Ships group to the Company. The
amounts in the table do not include the consideration paid to V.Ships of
$181,958 for the period from January 1st to October
31,
2005 and of $95,379 for the period from August 1st to December
31,
2004, for which Mr. Crawford did not receive any direct benefit (see Note 2:
Related Company transactions to the Consolidated Financial Statements in Item
8).
(c)
|
Salaries
are paid in total or in part in foreign currencies. Mr Crawford salary
is
paid in British Pounds (GBP). Ms Sergent and Mr Pimblett’s salaries are
paid in euros (€). The amounts are converted in USD using the average
monthly exchange rates.
|
|
|
Currency
|
Salary
Expressed
in
Local
currency
|
Exchange
rate used for conversion
USD
per GBP or €
|
Antony
Crawford
|
2006
2005
2004
|
GBP
GBP
GBP
|
200,000
29,443
-
|
1.8550
1.7665
-
|
Dominique
Sergent
|
2006
2005
2004
|
€
€
€
|
121,100
118,739
71,346
|
1.2655
1.2116
1.2452
|
Graham
Pimblett
|
2006
2005
2004
|
€
€
€
|
121,100
100,728
67,383
|
1.2655
1.2116
1.2452
|
Option
awards are valued at the grant date fair value determined in accordance
with
FASB N°123R.
Options
granted in 2004 - $1.23 per option. Options granted in 2005 - $2.96 per
option
(see Note 9 to the financial statements – Stock Options).
The
Company’s executives are compensated using a combination of salary, bonus and
stock options.
Base
salary
The
Company rewards the level of
responsibility undertaken by our executives through salary. The compensation
is
determined by market forces.
Bonus
The
Company rewards short term performance through a bonus. Bonuses are
discretionary and proposed by the CEO to the Compensation
Committee.
Plan
based awards
Stock
Option Plan
The
Company’s stock option plan was
established in 2001 for all of the Company’s employees, in order to incentivize
and reward employees in connection with the expansion of the Company. By
allowing the options to vest over a period of four years, the plan aimed at
rewarding long term performance and encouraging retention. The Compensation
Committee modified the plan in 2004 to shorten the vesting horizon of the
options. In March 2006, the Company filed a registration statement on Form
S-8
to register the re-offer and re-sale of the shares issued under the stock option
plan in order to remove the trading restrictions on such stocks and facilitate
their re-sale by employees. Option grants are decided in a discretionary manner.
For details of the plan, see Note 9 – Stock Option Plan to the Consolidated
Financial Statements in Item 8.
Stock
award plan
The
Company did not currently have a stock award plan for its executives in 2006.
The Compensation Committee is evaluating plan alternatives.
Grants
of plan based awards
No
grants of awards were made during the year ended December 31, 2006.
Outstanding
equity awards at December 31, 2006
The
following table shows unexercised
options, options that have not vested and equity incentive plan awards for
each
named executive outstanding as of December 31, 2006.
|
Option
awards
|
Stock
awards
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of Securities
Underlying
Unexercised
Unearned
options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
that
Have
not
Vested
(#)
|
Market
value of
shares
or
Units of
Stock
that
Have
not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
that
Have
not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Marketr
or
Payout
Value
of
Unearned
Shares,
Units
or other
Rights
that
Have
not
Vested
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Dominique
Sergent
|
47,000
|
-
|
-
|
9.228
|
June
2011
|
-
|
-
|
-
|
-
|
Options
exercised and stock vested
The
following table reports each
exercise of stock options, SARs and similar instruments and each vesting of
stock, including restricted stock, restricted stock units and similar
instruments during the year ended December 31, 2006 for each of our named
executive officer on a aggregate basis.
Name
|
Option
Awards
|
Stock
awards
|
|
Number
of Shares
Acquired
on Exercise
(#)
|
Value
Realized on
Exercise
($)
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized on
Vesting
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
Antony
Crawford
|
57,000
|
232,104
|
-
|
-
|
Dominique
Sergent
|
-
|
-
|
-
|
-
|
Graham
Pimblett,
|
47,000
|
203,604
|
-
|
-
|
(b)
|
Mr
Crawford exercised 57,000 options at a price of $9.228 on March 24,
2006
when the price of the stock was $13.3. Mr Pimblett exercised 47,000
options at a price of $9.228 on April 10, 2006 when the price of
the stock
was $13.56.
|
Non
equity incentive plan compensation
The
Company does not have a non equity incentive plan for its
executives.
Pension
benefits
The
Company does not have a pension plan for its executives.
Non
qualified Deferred Compensation
The
Company does not have a non qualified deferred compensation plan for its
executives.
All
other compensation
Potential
payments upon termination or change of control If an officer of the Company
is dismissed, other than for cause, or made redundant, that officer will receive
12 months salary at the last monthly salary rate prior to the
announced dismissal or redundancy. However, in the event of a sale by the
current majority shareholders of their controlling stake whereby an officer
was
dismissed or made redundant, that officer will receive 18 months salary at
the
last monthly salary rate prior to the announced dismissal or
redundancy.
The
following table quantifies the estimated payments that would be made to the
executive officers of the Company in the event of termination of employment
related or not to a change of control in 2007 (based on December 31, 2006
exchange rates).
Name
|
|
No
change of control
|
|
|
Change
of control
|
|
Antony
Crawford
CEO,
President
|
|
$ |
371,000
|
|
|
$ |
556,500
|
|
Dominique
Sergent *
Chief
Financial officer
|
|
$ |
164,837
|
|
|
$ |
247,256
|
|
Graham
Pimblett
Chief
Operating Officer
|
|
$ |
164,837
|
|
|
$ |
247,256
|
|
*
Ms.
Sergent resigned on February 19, 2007 and these commitments are now without
object.
Other
employees of the company have
similar payments upon termination and / or change of control.
Directors
and officers liability
insurance The Company has in force a policy of directors and officers
liability insurance in the amount of $10,000,000 for the benefit of the
directors and officers of the Company. The premium paid by the Company in
respect of directors and officers as a group for the policy year ending June
30,
2007 was $65,000.
Change
in executive compensation
As
of
January 1, 2007, Ms. Sergent’s and Mr. Pimblett’s salaries increased by 3.2%
from € 121,100 to €125,000. Mr Crawford’s salary remained
unchanged.
DIRECTOR
COMPENSATION
The
following table summarizes the
compensation of our Directors for the year ended December 31, 2006.
Name
|
Fees
Earned or
Paid
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-equity
Incentive
Plan
Compensation
($)
|
Change
in Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
All
other
Compensation
($)
|
Total
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
C.
Longbottom
|
40,000
|
5,000
|
-
|
-
|
-
|
-
|
45,000
|
J.
Blankley,
A.
Pardini, and
H.
Schomburg, each
|
30,000
|
5,000
|
-
|
-
|
-
|
-
|
35,000
|
E.
Bogazzi, A. Crawford,
J.Wedell-Wedellsborg
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
A
benchmarking of the director fees was performed in 2006 and as a result, as
from
January 1st,
2007, director fees will be as follows: Mr Longbottom will receive $70,000
of
which $50,000 paid in cash and $20,000 paid in shares. Messrs Blankley, Pardini,
Schomburg, Bogazzi and Wedell-Wedellsborg will receive each $50,000, of which
$30,000 in cash and $20,000 in shares.
ITEM
12: SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the
number of shares of Common Stock of the Company beneficially owned as of March
1, 2007 by (i) each beneficial owner of more than 5% of
the outstanding shares of the Company's Common Stock, (ii) each of the Company's
directors, nominees for director and executive officers and (iii) for all
executive officers and directors of the Company as a group. Except as otherwise
indicated, each of the persons named below has sole voting and investment power
with respect to the shares of Common Stock beneficially owned by
them.
Name
|
|
Amount
of Beneficial ownership
|
|
|
Percent
|
|
Navalmar
Transportes Maritimos LDA (1)
Rua
Dos Murcas 15 - 2nd
Andar, Sala
G
9000058
Funchal S1 – Madeira
|
|
|
4,226,448
|
|
|
|
44.4
|
|
Weco-Rederi
Holding A/S
Rungsted
Strandvej 113
Rungsted
Kyst – G7
Denmark
– 2960
|
|
|
849,270
|
|
|
|
8.9
|
|
Charles
B. Longbottom
|
|
|
43,800
|
|
|
|
*
|
|
John
H. Blankley
|
|
|
29,286
|
|
|
|
*
|
|
Horst
Schomburg
|
|
|
32,367
|
|
|
|
*
|
|
Graham
Pimblett
|
|
|
20,200
|
|
|
|
*
|
|
Dominique
Sergent
|
|
|
60,392
|
|
|
|
*
|
|
Antony
Crawford
|
|
|
164,850
|
|
|
|
1.7
|
|
Anton
Pardini
|
|
|
1,320
|
|
|
|
*
|
|
All
officers and directors as a Group
(7 persons)
|
|
|
352,215
|
|
|
|
3.7
|
|
Statements
contained in the above table and in the footnotes thereto as to securities
beneficially owned by directors, executive officers or shareholders or over
which they exercise control or direction are, in each instance, based upon
information obtained from such persons and/or, in the case of 5% shareholders,
from Schedule 13Ds, 13Gs or other beneficial ownership disclosure filed with
Securities and Exchange Commission by such shareholder. Amounts beneficially
owned include any shares the person has the right to acquire within 60 days
through the exercise of options, warrants or other convertible security. All
executive officers and directors of the Company may be deemed to be affiliates
of the Company.
ITEM
13: CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The
By-Laws of the Company provide that related transactions and transactions giving
rise to potential conflicts of interest are subject to review by the Audit
Committee of the Company.
V.Ships
Until
August 1, 2006, the ship
management company, V.Ships, owned 265,937 shares of MC Shipping or 2.8% of
the
shares outstanding and was deemed to share beneficial ownership of its shares
with Navalmar (45.2%) . On August 1, V.Ships sold its interest in the Company
for an aggregate price of $2,872,119 ($10.80 per share) to Weco-Rederi A/S,
another shareholder of the Company, and ceased to be an affiliate of MC
Shipping. Following the transaction, Weco-Rederi’s ownership in the Company’s
shares increased from 6.1% to 8.9%.
For
18 years, the Company employed the
services of V.Ships as technical manager for its vessels and V.Ships was
entitled to remuneration based on then current industry practice. For the rates
of fees and other amounts that were paid to V.Ships, see Item 1: Business -
Compensation to Affiliates and Note 2: Related Company Transactions of the
Consolidated Financial Statements in Item 8. During the third quarter
of 2006,
technical management of the vessels managed by V.Ships was transferred to three
non-related technical managers on favourable
terms.
The
Audit Committee reviews
relationships with related parties on a regular basis and will take action
if it
believes that any costs are being charged unfairly to the Company
MPC
Steamship
On
November 6, 2006, the Board of the
Company approved the sale of six small LPG carriers to a special purpose German
KG company to be formed by the German finance house MPC Steamship for a total
sale price of $52 million. The Company will charter back the vessels for a
period of four years and reinvest $5.75 million in the KG company for 25% of
the
equity (see Note 3: Acquisitions and sales of vessels to the Consolidated
Financial Statements in Item 8). Mr. Schomburg (Director) is a member of the
Supervisory Board of MPC Münchmeyer Petersen Steamship GmbH & Co. KG. Mr.
Schomburg excused himself from discussions relating to this
transaction.
Other
Certain
of the directors and executive
officers of the Company are involved in outside business activities similar
to
those conducted by the Company. Mr. Bogazzi and Mr Wedell-Wedellsborg
(Directors) are involved in the business of purchasing, owning and selling
cargo
vessels through their shipping companies. As a result of these
affiliations, such persons may experience conflicts of interest in connection
with the selection, purchase, operation and sale of the Company’s vessels and
those of other entities affiliated with such persons.
No
officer was indebted to the Company
at any time since the beginning of the fiscal year 2006.
ITEM
14: PRINCIPAL ACCOUNTING FEES AND
SERVICES
Audit
fees
Audit
fees amounted to approximately USD $219,854 ($111,374 in 2005). Our auditors
also provided tax related advice.
Year
ended December 31
|
|
2006
|
|
|
2005
|
|
Audit
fees
|
|
$ |
186,555
|
|
|
$ |
25,721
|
|
Audit
related fees
|
|
$ |
4,603
|
|
|
$ |
54,647
|
|
Tax
advice fees
|
|
$ |
28,686
|
|
|
$ |
31,006
|
|
All
other fees
|
|
|
|
|
|
|
-
|
|
Total
|
|
$ |
219,854
|
|
|
$ |
111,374
|
|
Audit
Committee’s Pre-approval Policies and Procedures
Before
the Company or its subsidiaries engage an accountant to render services, the
engagement must be (i) approved by the Audit Committee; or (ii) entered into
pursuant to pre-approval policies and procedures, detailed as to particular
service, established by the Audit Committee. The Audit Committee must
pre-approve all permissible non-audit services and all audit, review or attest
engagements on the part of the Company's auditors, except pre-approval for
(i)
all such services which, in the aggregate, do not constitute more than 5% of
the
total amount of revenues paid by the audit client to its accountant in the
fiscal year services are provided; (ii) such services which were not recognized
by the Company as non-audit services at the time of the engagement; or (iii)
services that are promptly brought to the attention of the Audit Committee
and
approved prior to the completion of the audit by the Audit Committee or one
or
more designated representatives. The Audit
Committee must be informed of each service and may not delegate its
responsibilities to the Company’s Management. All the services for which the
above-described audit-related fees and tax advice fees were paid were
pre-approved by the Audit Committee.
PART
IV
ITEM
15: EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM
10-K
(a)(1) |
Financial
Statements
|
|
|
The
following consolidated statements of MC Shipping Inc. and subsidiaries
are
included in ITEM 8:
|
|
|
(i)
|
Report
of Independent Registered Public Accounting Firm;
|
|
|
(ii)
|
Consolidated
Balance Sheets at December 31, 2006 and 2005;
|
|
|
(iii)
|
Consolidated
Statements of Income for the Years ended December 31, 2006,
2005 and
2004;
|
|
|
(iv)
|
Consolidated
Statements of Cash Flows for the Years ended December 31, 2006,
2005 and
2004;
|
(v)
|
Consolidated
Statements of Shareholders’ Equity for the Years ended December 31, 2006,
2005 and 2004; and
|
(vi)
|
Notes
to Consolidated Financial Statements.
|
|
|
(a)(2)
|
Financial
Statement Schedule
|
|
|
(i)
|
Schedule
II - Valuation and Qualifying Accounts
|
|
|
(a)(3)
|
|
|
Exhibits
|
|
3.1
|
|
Articles
of Incorporation, as amended (incorporated by reference to the
Company's
Form 8-K filed on August 9, 2006).
|
|
10.1
|
-
|
Agreements
for the purchase of Hermann Schulte and Dorothea Schulte dated
February
24, 2006 (incorporated by reference to Exhibit 10.6 to the Company’s Form
10-K for the year ended December 31, 2005).
|
|
10.2
|
-
|
Loan
Agreement with Fortis Bank and Guarantee Agreement dated April
19, 2006
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for
the quarter ended March 31, 2006).
|
|
10.3
|
-
|
Agreement
for the purchase of Hans Maersk dated June 14, 2006 (incorporated
by
reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended
June 30, 2006).
|
|
10.4
|
-
|
Agreement
for the purchase of Immanuel Kant dated June 21, 2006 (incorporated
by
reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended
June 30, 2006).
|
|
10.5
|
-
|
Agreement
for the purchase of Tycho Brahe dated June 21, 2006 (incorporated
by
reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended
June 30, 2006).
|
|
10.6
|
-
|
Loan
and Guarantee Agreement with Scotia Bank dated July 10, 2006 (incorporated
by reference to Exhibit 99.1 to the Company’s Form 8-K dated July 20,
2006).
|
|
10.7
|
-
|
Agreement
for the sale of Auteuil dated December 18, 2006 (incorporated by
reference
to Exhibit 99.1 to the Company’s Form 8-K dated December 22,
2006)
|
|
10.8
|
-
|
Agreement
for the sale of Deauville dated December 18, 2006 (incorporated
by
reference to Exhibit 99.2 to the Company’s Form 8-K dated December 22,
2006)
|
|
10.9
|
-
|
Agreement
for the sale of Cheltenham dated December 18, 2006 (incorporated
by
reference to Exhibit 99.3 to the Company’s Form 8-K dated December 22,
2006)
|
|
10.10
|
-
|
Agreement
for the sale of Malvern dated December 18, 2006 (incorporated by
reference
to Exhibit 99.5 to the Company’s Form 8-K dated December 22,
2006)
|
|
10.11
|
-
|
Agreement
for the sale of Coniston dated December 18, 2006 (incorporated
by
reference to Exhibit 99.4 to the Company’s Form 8-K dated December 22,
2006)
|
|
10.12
|
-
|
Agreement
for the sale of Longchamp dated December 18, 2006 (incorporated
by
reference to Exhibit 99.6 to the Company’s Form 8-K dated December 22,
2006)
|
|
21
|
-
|
List
of Subsidiaries.
|
|
31
|
-
|
Certifications
provided by the Chief Executive Officer and the Chief Financial
Officer of
the Company pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32
|
-
|
Certifications
provided by the Chief Executive Officer and the Chief Financial
Officer of
the Company pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
The
Company will furnish to its
shareholders copies of any exhibits to this Form 10-K upon request to the
Secretary of the Company for a fee limited to the duplicating and postage costs
associated with any such mailing.
(b)
|
Reports
on Form 8-K filed after December 31,
2006:
|
The
Company filed a report on Form 8-K
on February 23, 2007.
Pursuant
to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
|
MC
SHIPPING
INC.
|
|
|
|
(Company)
|
|
|
|
|
|
|
|
|
|
Date:
March 30, 2007
|
|
/S/
ANTONY S CRAWFORD
|
|
|
|
Antony.
S. Crawford
|
|
|
|
Chief
Executive Officer and President
|
|
Pursuant
to the requirements of the
Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the
dates indicated.
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/S/
DOMINIQUE SERGENT
|
|
Vice
President, Chief Financial Officer and Treasurer
|
|
March
30, 2007
|
Dominique
Sergent
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/
CHARLES B. LONGBOTTOM
|
|
Chairman
of the Board
|
|
March
30, 2007
|
Charles
B. Longbottom
|
|
|
|
|
|
|
|
|
|
/S/
ENRICO BOGAZZI
|
|
Director
|
|
March
30, 2007
|
Enrico
Bogazzi
|
|
|
|
|
|
|
|
|
|
/S/
JOHN H. BLANKLEY
|
|
Director
|
|
March
30, 2007
|
John
H. Blankley
|
|
|
|
|
|
|
|
|
|
/S/
ANTON
PARDINI
|
|
Director
|
|
March
30, 2007
|
Anton
Pardini
|
|
|
|
|
|
|
|
|
|
/S/
HORST
SCHOMBURG
|
|
Director
|
|
March
30, 2007
|
Horst
Schomburg
|
|
|
|
|
|
|
|
|
|
/S/
JOHAN WEDELL-WEDELLSBORG
|
|
Director
|
|
March
30, 2007
|
Johan
Wedell-Wedellsborg
|
|
|
|
|
|
|
|
|
|
69