Form 10Q Quarterly Report
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
|
For
the
quarterly period ended March 31, 2006
OR
r
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
|
For
the
transition period from _________________________ to
_________________________
Commission
file number ___________
GENCO
SHIPPING & TRADING LIMITED
(Exact
name of registrant as specified in its charter)
Republic
of the Marshall Islands
(State
or other jurisdiction
incorporation
or organization)
|
|
98-043-9758
(I.R.S.
Employer
Identification
No.)
|
|
|
|
299
Park Avenue (20th
Floor), New York, New York 10171
(Address
of principal executive
offices) (Zip
Code)
|
|
(646)
443-8550
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
X
No
Indicate
by checkmark whether registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes
No
X
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
Yes
No
X
APPLICABLE
ONLY TO CORPORATE ISSUERS:
The
number of shares outstanding of each of the issuer’s classes of common stock, as
of May 11, 2006:
Common
stock, $0.01 per share 25,434,212 shares.
Genco
Shipping & TradingLimited
Form
10-Qfor
the
three
months ended
March 31,
2006
and
2005
Page
PART
I. FINANCIAL
INFORMATION
Item 1. |
Financial Statements |
|
|
a) Consolidated
Balance
Sheets |
|
|
March
31, 2006 and
December 31, 2005 |
3 |
|
|
|
|
b) Consolidated
Statements of Operations
For
the three months
ended March 31, 2006 and 2005
|
4 |
|
|
|
|
c) Consolidated
Statements of Shareholders’ Equity and Comprehensive Income
For the three months ended March 31, 2006 and
2005
|
5 |
|
|
|
|
d) Consolidated
Statements of Cash Flows
For
the three
months ended March 31, 2006 and 2005
|
6 |
|
|
|
|
e) Notes
to
Consolidated Financial Statements
For
the three
months ended March 31, 2006 and 2005
|
7 |
|
|
|
Item
2. |
Management’s
Discussion and Analysis of
Financial
Position and Results of Operations
|
20 |
|
|
|
Item 3. |
Quantitative
and Qualitative Disclosures about Market Risk
|
34 |
|
|
|
Item
4. |
Control
and Procedures |
36 |
|
|
|
|
PART
II OTHER INFORMATION
|
|
|
|
|
Item 1. |
Legal
Proceedings |
36 |
|
|
|
Item 2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
36 |
|
|
|
Item 3. |
Defaults
Upon Senior Securities |
36 |
|
|
|
Item 4. |
Submission
of Matters to a Vote of Security Holders |
36 |
|
|
|
Item 5. |
Other
Information |
36 |
|
|
|
Item 6. |
Exhibits |
37 |
Genco
Shipping & Trading Limited
Consolidated
Balance Sheets as of March 31, 2006
And
December 31, 2005
(U.S.
Dollars in thousands)
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
54,894
|
|
$
|
46,912
|
|
Due
from charterers
|
|
|
306
|
|
|
219
|
|
Prepaid
expenses and other current assets
|
|
|
2,444
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
57,644
|
|
|
49,705
|
|
|
|
|
|
|
|
|
|
Noncurrent
assets:
|
|
|
|
|
|
|
|
Vessels,
net of accumulated depreciation of $28,997 and $22,659,
respectively
|
|
|
423,972
|
|
|
430,287
|
|
Deferred
drydock, net of accumulated depreciation of $60 and $35,
respectively
|
|
|
426
|
|
|
152
|
|
Other
assets, net of accumulated amortization of $200 and $126,
respectively
|
|
|
5,464
|
|
|
5,967
|
|
Fixed
assets, net of accumulated depreciation and amortization of $104
and $49,
respectively
|
|
|
1,745
|
|
|
1,522
|
|
Fair
value of derivative instruments
|
|
|
6,785
|
|
|
2,325
|
|
Total
noncurrent assets
|
|
|
438,392
|
|
|
440,253
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
496,036
|
|
$
|
489,958
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
5,909
|
|
$
|
5,978
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,909
|
|
|
5,978
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
4,786
|
|
|
4,576
|
|
Deferred
rent credit
|
|
|
596
|
|
|
479
|
|
Long
term debt
|
|
|
130,683
|
|
|
130,683
|
|
Total
noncurrent liabilities
|
|
|
136,065
|
|
|
135,738
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
141,974
|
|
|
141,716
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, par value $0.01; 100,000,000 shares authorized; issued and
|
|
|
|
|
|
|
|
outstanding
25,434,212 and 13,500,000 shares at March 31, 2006 and December 31,
2005,
respectively
|
|
|
254
|
|
|
254
|
|
Paid
in capital
|
|
|
306,019
|
|
|
305,500
|
|
Accumulated
other comprehensive income
|
|
|
6,309
|
|
|
2,325
|
|
Retained
earnings
|
|
|
41,480
|
|
|
40,163
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
354,062
|
|
|
348,242
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
496,036
|
|
$
|
489,958
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
Genco
Shipping & Trading Limited
Consolidated
Statements of Operations for the Three Ended March 31, 2006 and
2005
(U.S.
Dollars in Thousands, Except Earnings per Share)
(Unaudited)
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
32,572
|
|
$
|
21,399
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
1,104
|
|
|
890
|
|
Vessel
operating expenses
|
|
|
4,559
|
|
|
2,016
|
|
General
and administrative expenses
|
|
|
2,449
|
|
|
260
|
|
Management
fees
|
|
|
347
|
|
|
331
|
|
Depreciation
and amortization
|
|
|
6,417
|
|
|
3,981
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
14,876
|
|
|
7,478
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
17,696
|
|
|
13,921
|
|
|
|
|
|
|
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
Income
from derivative instruments
|
|
|
476
|
|
|
-
|
|
Interest
income
|
|
|
569
|
|
|
83
|
|
Interest
expense
|
|
|
(2,163
|
)
|
|
(2,620
|
)
|
|
|
|
|
|
|
|
|
Other
(expense) income
|
|
|
(1,118
|
)
|
|
(2,537
|
)
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
16,578
|
|
$
|
11,384
|
|
|
|
|
|
|
|
|
|
Earnings
per share-basic
|
|
$
|
0.66
|
|
$
|
0.84
|
|
Earnings
per share-diluted
|
|
$
|
0.66
|
|
$
|
0.84
|
|
Weighted
average common shares outstanding-basic
|
|
|
25,260,000
|
|
|
13,500,000
|
|
Weighted
average common shares outstanding-diluted
|
|
|
25,304,448
|
|
|
13,500,000
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
Genco
Shipping & Trading Limited
Consolidated
Statement of Shareholders’ Equity (Unaudited)
For
the
Three Months Ended March 31, 2006
(U.S.
Dollars in Thousands)
|
|
Common
Stock
|
|
Paid
in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other Comprehensive Income
|
|
Comprehensive
Income
|
|
Total
|
|
Balance
- January 1, 2006
|
|
$
|
254
|
|
$
|
305,500
|
|
$
|
40,163
|
|
$
|
2,325
|
|
|
|
|
$
|
348,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
16,578
|
|
|
|
|
|
16,578
|
|
|
16,,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
derivative gains from cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
3,984
|
|
|
3,984
|
|
|
3,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid
|
|
|
|
|
|
|
|
|
(15,261
|
)
|
|
|
|
|
|
|
|
(15,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock amortization
|
|
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- March 31, 2006
|
|
$
|
254
|
|
$
|
306,019
|
|
$
|
41,480
|
|
$
|
6,309
|
|
|
|
|
$
|
354,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
Genco
Shipping & Trading Limited
Consolidated
Statement of Cash Flows for the Three Months Ended March 31, 2006 and
2005
(U.S.
Dollars in Thousands)
(Unaudited)
|
|
For
the Three Months
Ended
March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
16,578
|
|
$
|
11,384
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
6,417
|
|
|
3,981
|
|
Amortization
of deferred financing costs
|
|
|
74
|
|
|
202
|
|
Amortization
of value of time charter acquired
|
|
|
456
|
|
|
-
|
|
Unrealized
gain on derivative instruments
|
|
|
(476
|
)
|
|
-
|
|
Amortization
of restricted stock compensation expense
|
|
|
519
|
|
|
-
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in due from charterers
|
|
|
(87
|
)
|
|
635
|
|
Decrease
(increase) in prepaid expenses and other current assets
|
|
|
130
|
|
|
(729
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
273
|
|
|
1,074
|
|
Increase
in deferred revenue
|
|
|
210
|
|
|
1,128
|
|
Increase
in deferred rent credit
|
|
|
117
|
|
|
-
|
|
Deferred
drydock costs incurred
|
|
|
(299
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
23,912
|
|
|
17,675
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of vessels, net of deposits
|
|
|
(23
|
)
|
|
(193,270
|
)
|
Purchase
of other fixed assets
|
|
|
(619
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(642
|
)
|
|
(193,270
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from credit facilities
|
|
|
-
|
|
|
192,907
|
|
Cash
dividends paid
|
|
|
(15,261
|
)
|
|
-
|
|
Payment
of deferred financing costs
|
|
|
(27
|
)
|
|
(305
|
)
|
Increase
in restricted cash
|
|
|
-
|
|
|
(7,108
|
)
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(15,288
|
)
|
|
185,494
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
7,982
|
|
|
9,899
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
46,912
|
|
|
7,431
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
54,894
|
|
$
|
17,330
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
2,225
|
|
$
|
1,418
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
Genco
Shipping & Trading Limited
(U.S.
Dollars in Thousands Except Per Share Data)
Notes
to Consolidated Financial Statements for
the
Three Months Ended March 31, 2006 and 2005(unaudited)
1
-
GENERAL INFORMATION
The
accompanying consolidated financial statements include the accounts of Genco
Shipping & Trading Limited (“GS&T”) and its wholly owned
subsidiaries (collectively, the “Company”). The Company is engaged in the ocean
transportation of drybulk cargoes worldwide through the ownership and operation
of drybulk carrier vessels. GS&T was incorporated on September 27, 2004
under the laws of the Marshall Islands and is the sole owner of all of the
outstanding shares of the following subsidiaries: Genco Ship Management LLC,
and
the 17 ship-owning subsidiaries as set forth below. The Company began operations
on December 6, 2004 with the delivery of its first vessel.
The
Company agreed to acquire a fleet of 16 drybulk carriers from an unaffiliated
third party on November 19, 2004. As of October 14, 2005, the Company had taken
delivery of all of the vessels as shown below:
|
|
|
|
|
Wholly
Owned
Subsidiaries
|
Vessels
Acquired
|
dwt
|
Date
Delivered
|
Year
Built
|
|
|
|
|
|
Genco
Reliance Limited
|
Genco
Reliance
|
29,952
|
12/6/04
|
1999
|
Genco
Glory Limited
|
Genco
Glory
|
41,061
|
12/8/04
|
1984
|
Genco
Vigour Limited
|
Genco
Vigour
|
73,941
|
12/15/04
|
1999
|
Genco
Explorer Limited
|
Genco
Explorer
|
29,952
|
12/17/04
|
1999
|
Genco
Carrier Limited
|
Genco
Carrier
|
47,180
|
12/28/04
|
1998
|
Genco
Sugar Limited
|
Genco
Sugar
|
29,952
|
12/30/04
|
1998
|
Genco
Pioneer Limited
|
Genco
Pioneer
|
29,952
|
1/4/05
|
1999
|
Genco
Progress Limited
|
Genco
Progress
|
29,952
|
1/12/05
|
1999
|
Genco
Wisdom Limited
|
Genco
Wisdom
|
47,180
|
1/13/05
|
1997
|
Genco
Success Limited
|
Genco
Success
|
47,186
|
1/31/05
|
1997
|
Genco
Beauty Limited
|
Genco
Beauty
|
73,941
|
2/7/05
|
1999
|
Genco
Knight Limited
|
Genco
Knight
|
73,941
|
2/16/05
|
1999
|
Genco
Leader Limited
|
Genco
Leader
|
73,941
|
2/16/05
|
1999
|
Genco
Marine Limited
|
Genco
Marine
|
45,222
|
3/29/05
|
1996
|
Genco
Prosperity Limited
|
Genco
Prosperity
|
47,180
|
4/4/05
|
1997
|
Genco
Trader Limited
|
Genco
Trader
|
69,338
|
6/7/05
|
1990
|
Genco
Muse Limited
|
Genco
Muse
|
48,913
|
10/14/05
|
2001
|
|
|
|
|
|
The
purchase price of the initial 16 vessels aggregated to approximately $421,900,
which was funded from initial capital contributions of $75,172 in conjunction
with GS&T’s issuance of common stock to Fleet
Acquisition LLC (the “Former Parent Company”),
and
from borrowings under the Company’s Original Credit Facility, and from the
Company’s cash flows from operations. Additionally, on October 14, 2005 the
Company acquired the Genco Muse with an existing time charter for $34,450,
which
was funded entirely by the Company’s New Credit Facility. The portion of the
purchase price attributable to the vessel was $30,958 (see Note 4).
On
July
22, 2005, the Company completed its initial public offering of 11,760,000 shares
at $21 per share resulting in gross proceeds of $246,960. After underwriting
commissions and other offering expenses, net proceeds to the Company were
$230,305.
Prior
to
its initial public offering, the Company was 100% owned by Fleet Acquisition
LLC, a limited liability company organized on November 3, 2004 under the
laws of the Marshall Islands. Fleet Acquisition LLC was owned 66.53% by OCM
Principal Opportunities III Fund, L.P. and OCM Principal Opportunities Fund
IIIA, L.P., collectively, (“Oaktree”) of which Oaktree Management LLC is the
General Partner, 26.63% by Peter Georgiopoulos, and 6.84% by others. As of
December 31, 2005 and March 31, 2006, Fleet Acquisition LLC maintained a 53.08%
ownership in the Company. On April 14, 2006, Fleet Acquisition LLC distributed
1,050,210 shares to certain of
its
members, all of whom except Peter Georgiopoulos ceased to be members upon such
distribution.
The
remaining 12,449,790 shares of the Company stock owned by Fleet Acquisition
LLC
continue to be held by Oaktree and by Peter
Georgiopoulos,
our chairman. Of
Fleet
Acquisition LLC’s remaining equity holders, Oaktree
owns
approximately 71.4% of its equity and Mr. Georgiopoulos
owns
approximately 28.6%
of
its equity.
As
a
result of this share distribution, Oaktree and Peter Georgiopoulos own
approximately 48.96% of the Company through Fleet Acquisition, LLC.
On
July
18, 2005, prior to the closing of the public offering of GS&T’s common
stock, GS&T’s Board of Directors and stockholder approved a split (in the
form of a stock dividend, giving effect to a 27,000:1 common stock split) of
the
Company’s common stock. All share and per share amounts relating to common
stock, included in the accompanying consolidated financial statements and
footnotes, have been restated to reflect the stock split for all periods
presented.
2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of consolidation
The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”), which include the accounts of Genco Shipping & Trading Limited and
its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with the instructions to Form 10-Q and, therefore, do not include
all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States of America. However, in
the
opinion of the management of the Company, all adjustments necessary for a fair
presentation of financial position and operating results have been included
in
the statements. Interim results are not necessarily indicative of results for
a
full year. Reference is made to the December 31, 2005 consolidated financial
statements of Genco Shipping & Trading Ltd. contained in its Annual Report
on Form 10-K for the year ended December 31, 2005.
Business
geographics
The
Company’s vessels regularly move between countries in international waters, over
hundreds of trade routes and, as a result, the disclosure of geographic
information is impracticable.
Vessel
acquisitions
When
the
Company enters into an acquisition transaction, it determines whether the
acquisition transaction was the purchase of an asset or a business based on
the
facts and circumstances of the transaction. As is customary in the shipping
industry the purchase of a vessel is normally treated as a purchase of an asset
as the historical operating data for the vessel is not reviewed nor is material
to our decision to make such acquisition.
When
a
vessel is acquired with an existing time charter, the Company allocates the
purchase price of the vessel and the time charter, based on, among other things,
vessel market valuations and the present value (using an interest rate which
reflects the risks associated with the acquired charters) of the difference
between (i) the contractual amounts to be paid pursuant to the charter terms
and
(ii) management's estimate of the fair market charter rate, measured over a
period equal to the remaining term of the charter. The capitalized above-market
(assets) and below-market (liabilities) charters are amortized as a reduction
or
increase, respectively, to voyage revenues over the remaining term of the
charter.
Segment
reporting
The
Company reports financial information and evaluates its operations by charter
revenues and not by the length of ship employment for its customers, i.e.,
spot
or time charters. The Company does not use discrete financial information to
evaluate the operating results for different types of charters. Although revenue
can be identified for these types of charters, management cannot and does not
separately identify expenses, profitability or other financial information
for
these charters. As a result, management, including the chief operating decision
maker, reviews operating results solely by revenue per day and operating results
of the fleet and thus, the Company has determined that it operates under one
reportable segment. Furthermore, when the Company charters a vessel to a
charterer, the charterer is free to trade the vessel worldwide and, as a result,
the disclosure of geographic information is impracticable.
Revenue
and voyage expense recognition
Since
the
Company’s inception, revenues have been generated from time charter agreements
and pool agreements. A time charter involves placing a vessel at the charterer’s
disposal for a set period of time during which the charterer may use the vessel
in return for the payment by the charterer of a specified daily hire rate.
In
time charters, operating costs including crews, maintenance and insurance are
typically paid by the owner of the vessel and specified voyage costs such as
fuel and port charges are paid by the charterer. There are certain other
non-specified voyage expenses such as commissions which are borne by the
Company. Time charter revenues are recorded over the term of the charter as
service is provided. Revenues are recognized on a straight line basis as the
average revenue over the term of the respective time charter
agreement.
In
December 2005 and February 2006, the Genco Trader and Genco Leader,
respectively, entered into the Baumarine Panamax Pool. Vessel pools, such as
the
Baumarine Panamax Pool, provide cost effective commercial management activities
for a group of similar class vessels. The pool arrangement provides the benefits
of a large-scale operation, and chartering efficiencies that might not be
available to smaller fleets. Under the pool arrangement, the vessels operate
under a time charter agreement whereby the cost of bunkers and port expenses
are
borne by the charterer and operating costs including crews, maintenance and
insurance are typically paid by the owner of the vessel. Since the members
of
the pool share in the revenue generated by the entire group of vessels in the
pool, and the pool operates in the spot market, the revenue earned by these
two
vessels is subject to the fluctuations of the spot market.
Included
in the standard time charter contracts with our customers, are certain
performance parameters, which if not met can result in customer claims. As
of
March 31, 2006 and December 31, 2005, the Company had a reserve of $382 and
$316, respectively, associated with estimated customer claims against the
Company for time charter performance issues.
Vessel
operating expenses
Vessel
operating expenses include crew wages and related costs, the cost of insurance,
expenses relating to repairs and maintenance, the cost of spares and consumable
stores, and other miscellaneous expenses. Vessel operating expenses are
recognized when incurred.
Vessels,
net
Vessels,
net are stated at cost less accumulated depreciation. Included in vessel costs
are acquisition costs directly attributable to the acquisition of a vessel
and
expenditures made to prepare the vessel for its initial voyage. Vessels are
depreciated on a straight-line basis over their estimated useful lives,
determined to be 25 years from the date of initial delivery from the
shipyard.
Depreciation
expense is calculated based on cost less the estimated residual scrap value.
The
costs of significant replacements, renewals and betterments are capitalized
and
depreciated
over
the shorter of the vessel’s remaining estimated useful life or the estimated
life of the renewal or betterment. Undepreciated cost of any asset component
being replaced that was acquired after the initial vessel purchase is written
off as a component of vessel operating expense. Expenditures for routine
maintenance and repairs are expensed as incurred. Scrap value is
estimated
by the Company by taking the cost of steel times the weight of the ship noted
in
lightweight ton (lwt). At March 31, 2006 and December 31, 2005, the Company
estimated the residual value of vessels to be $175/lwt.
Fixed
assets, net
Fixed
assets, net are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are based on a straight line basis over the
estimated useful life of the specific asset placed in service. The following
table is used in determining the estimated useful lives:
Description
|
Useful
lives
|
Leasehold
improvements
|
15
years
|
Furniture,
fixtures & other equipment
|
10
years
|
Vessel
equipment
|
2-5
years
|
Computer
equipment
|
4
years
|
Deferred
drydocking costs
The
Company’s vessels are required to be drydocked approximately every 30 to 60
months for major repairs and maintenance that cannot be performed while the
vessels are operating. The Company capitalizes the costs associated with the
drydockings as they occur and depreciate these costs on a straight-line basis
over the period between drydockings. Costs capitalized as part of a vessel’s
drydocking include actual costs incurred at the drydocking yard; cost of parts
that are reasonably made in anticipation of reducing the duration or cost of
the
drydocking; cost of travel, lodging and subsistence of personnel sent to the
drydocking site to supervise; and the cost of hiring a third party to oversee
the drydocking.
Inventory
Inventory
consists of lubricants and stores which are stated at the lower of cost or
market. Cost is determined by the first-in, first-out method.
Impairment
of long-lived assets
The
Company follows Statement of Financial Accounting Standards (“SFAS”)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than their carrying
amounts. In the evaluation of the fair value and future benefits of long-lived
assets, the Company performs an analysis of the anticipated undiscounted future
net cash flows of the related long-lived assets. If the carrying value of the
related asset exceeds the undiscounted cash flows, the carrying value is reduced
to its fair value. Various factors including anticipated future charter rates,
estimated scrap values, future drydocking costs and estimated vessel operating
costs, are included in this analysis.
For
three
months ended March 31, 2006 and 2005, no impairment charges were recorded,
based
on the analysis described above.
Deferred
financing costs
Deferred
financing costs, included in other assets, consist of fees, commissions and
legal expenses associated with securing loan facilities. These costs are
amortized over the life of the related debt, which is included in interest
expense. In July 2005, the Company entered into a new credit facility (the
“New
Credit Facility”), which resulted in a write-off of $4,103, in July 2005, of
unamortized deferred financing costs associated with the Original Credit
Facility.
Cash
and cash equivalents
The
Company considers highly liquid investments such as time deposits and
certificates of deposit with an original maturity of three months or less to
be
cash equivalents.
Income
taxes
Pursuant
to Section 883 of the U.S. Internal Revenue Code of 1986 as amended (the
“Code”), qualified income derived from the international operations of ships is
excluded from gross income and exempt from U.S. federal income tax if a company
engaged in the international operation of ships, meets certain requirements.
Among other things, in order to qualify, the company must be incorporated in
a
country which grants an equivalent exemption to U.S. corporations and must
satisfy certain qualified ownership requirements.
The
Company is incorporated in the Marshall Islands. Pursuant to the income tax
laws
of the Marshall Islands, the Company is not subject to Marshall Islands income
tax. The Marshall Islands has been officially recognized by the Internal Revenue
Service as a qualified foreign country that currently grants the requisite
equivalent exemption from tax.
Based
on
the ownership of our common stock prior to our initial public offering on
July 22, 2005 as discussed in note 1, we qualified for exemption from income
tax
for 2005 under Section 883, since for more than half of 2005, we were a
Controlled Foreign Corporation (“CFC”) and satisfied certain other criteria in
the Section 883 regulations. We were a CFC, as defined in the Code, since until
the initial public offering on July 22, 2005, over 50% of our stock was owned
by
United States holders each of whom owned ten percent or more of our voting
stock, or US 10% Owners. During that time, approximately 93% of our common
stock
was held by US 10% Owners.
Immediately
following the initial public offering, the US 10% Owners beneficially owned
less
than 50% of our stock. If such owners were to continue to own less than 50%
of
our stock and there were no additional US 10% Owners during 2006, we would
no
longer be eligible to qualify for exemption from tax under Section 883 based
on
being a CFC. Instead, we could only qualify for exemption if we satisfy the
publicly traded requirement of the Section 883 regulations. In order to meet
the
publicly traded requirements for 2006 and future years, our stock must be
treated as being primarily and regularly traded on Nasdaq for more than
half the days of any such year. Under the Section 883 regulations, our
qualification for the publicly traded requirement may be jeopardized if
shareholders of our common stock that own five percent or more of our stock
own,
in the aggregate, 50% or more of our common stock. As of March 31, 2006, we
believe that such five percent or more shareholders are limited to Oaktree
and
Peter Georgiopoulos, our Chairman which own approximately 48.96% of our common
stock through
Fleet Acquisition, LLC.
However
if such shareholders were to increase their ownership in excess of 50% of our
common stock for more than half the days of 2006, we would not be eligible
to
claim exemption from tax under Section 883. We can therefore give no assurance
that changes and shifts in the ownership of our stock by five percent or more
shareholders will permit us to qualify for exemption from tax in 2006 or in
future years.
If
the
Company does not qualify for the exemption from tax under Section 883, it likely
would be subject to a 4% tax on the gross “shipping income” (without the
allowance for any deductions) that is treated as derived from sources within
the
United States or “United States source shipping income.” For these purposes,
“shipping income” means any income that is derived from the use of vessels, from
the hiring or leasing of vessels for use, or from the performance of services
directly related to those uses; and “United States source shipping income”
includes 50% of shipping income that is attributable to transportation that
begins or ends, but that does not both begin and end, in the United
States.
Deferred
revenue
Deferred
revenue primarily relates to cash received from charterers prior to it being
earned. These amounts are recognized as income when earned.
Comprehensive
income
The
Company follows Statement of Financial Accounting Standards No. 130 “Reporting
Comprehensive Income,” which establishes standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income is comprised of net income and amounts related to the adoption of SFAS
No. 133.
Restricted
stock awards
In
2006
the Company has adopted the Financial Accounting Standards Board issued SFAS
No. 123R, Share-Based Payment, for restricted stock issued under its equity
incentive plan. Adoption of this new accounting policy did not change the method
of accounting for restricted stock awards. However deferred compensation costs
from restricted stock have been classified as a component of paid in capital
as
required by SFAS No. 123R.
Accounting
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include vessel and drydock
valuations and the valuation of amounts due from charterers. Actual results
could differ from those estimates.
Concentration
of credit risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk are amounts due from charterers. With respect to amounts due from
charterers, the Company attempts to limit its credit risk by performing ongoing
credit evaluations and, when deemed necessary, requiring letters of credit,
guarantees or collateral. Although the Company earned 100% and 100% of revenues
from eleven and ten customers, for the three months ended March 31, 2006 and
2005, respectively, management does not believe significant risk exists in
connection with the Company’s concentrations of credit at March 31, 2006 and
December 31, 2005.
For
the
three months ended March 31, 2006 and 2005, there are three and two customers
respectively, which individually account for more than 10% of revenue for the
respective period.
Fair
value of financial instruments
The
estimated fair values of the Company’s financial instruments such as amounts due
from charterers, accounts payable and long term debt approximate their
individual carrying amounts as of March 31, 2006 and December 31, 2005 due
to
their short-term maturity or the variable-rate nature of the respective
borrowings.
The
fair
value of the interest rate swaps (used for purposes other than trading) is
the
estimated amount the Company would receive to terminate the swap agreements
at
the reporting date, taking into account current interest rates and the
creditworthiness of the swaps’ counterparty.
Interest
rate risk management
The
Company is exposed to the impact of interest rate changes. The Company’s
objective is to manage the impact of interest rate changes on its earnings
and
cash flow in relation to its borrowings. The Company held three interest rate
risk management instruments at March 31, 2006 and one at December 31, 2005,
in
order to manage future interest costs and the risk associated with changing
interest rates.
For
the
swap that is effectively hedged the
differential to be paid or received for this swap agreement is recognized as
an
adjustment to interest expense as incurred. The change in value on this swap
is
reflected as a component of other comprehensive income (“OCI”).
For
the
forward interest rate swaps, the change in the value for these swaps and the
rate differential to be paid or received for these swaps is recognized as income
from derivative instruments and is listed as a component of other (expense)
income until such time the Company has obligations which are designated against
the swap.
Derivative
financial instruments
To
manage
its exposure to fluctuating interest rates, the Company uses interest rate
swap
agreements. Interest rate differentials to be paid or received under these
agreements are accrued and recognized as an adjustment of interest expense
related to the designated debt. The interest rate differential on the swaps
that
do not have designated debt associated with them will be reflected
as
income
from derivative instruments and is listed as
a
component of other (expense) income. The fair value of the interest rate swap
agreements and changes in fair value are recognized in the financial statements
as non-current asset or liability.
Amounts
receivable or payable arising at the settlement of interest rate swaps are
deferred and amortized as an adjustment to interest expense over the period
of
interest rate exposure provided the designated liability continues to
exist.
3
-
CASH FLOW INFORMATION
The
Company had non-cash operating and investing activities not included in the
Consolidated Statement of Cash Flows for items included in accounts payable
and
accrued expenses for the purchase of fixed assets of approximately $82 and
$0
for the three months ended March 31, 2006 and 2005, respectively.
The
Company entered into the 4.485% Swap during 2005 and the 5.075% Swap and 5.25%
Swap during March 2006, collectively (the “Swaps”). The Swaps are described and
discussed in Note 2. The Swaps have a fair value of $6,785 and $2,325 as of
March 31, 2006 and December 31, 2005, respectively.
The
Company granted restricted stock to its employees in 2005. The fair value of
such restricted stock was $2,940 on the grant dates and was recorded in equity
as part of paid in capital.
4
-
VESSEL ACQUISITION
On
October 14, 2005, the Company took delivery of the Genco Muse, a 48,913 dwt
Handymax drybulk carrier and the results of its operations is included in the
consolidated results of the Company after that date. The vessel is a 2001
Japanese-built vessel. The total purchase price of the vessel was $34,450.
The
purchase price included the assumption of an existing time charter with Qatar
Navigation QSC at a rate of $26.5 per day. Due to the above market rate of
the
existing time charter, the Company has capitalized $3,492 of the purchase price
as an asset which is being amortized as a reduction of voyage revenues through
September 2007 (the remaining term of the charter). For the three months ended
March 31, 2006 and 2005, $456 and $0 was amortized. At March 31, 2006 and
December 31, 2005 $2,638 and $3,094, respectively, remains unamortized.
The
purchase of the Genco Muse is consistent with the Company's strategy of
selectively expanding the number of high-quality vessels in the
fleet.
5
-
EARNINGS PER COMMON SHARE
The
computation of basic earnings (loss) per share is based on the weighted average
number of common shares outstanding during the year. The computation of diluted
earnings (loss) per share assumes the vesting of granted restricted stock awards
(see Note 16), for which the assumed proceeds upon grant are deemed to be the
amount of compensation cost attributable to future services and not yet
recognized using the treasury stock method, to the extent dilutive. For the
three months ended March 31, 2006, the restricted stock grants are
dilutive. For the three months ended March 31, 2005 there were no
restricted shares granted.
The
components of the denominator for the calculation of basic earnings per share
and diluted earnings per share are as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding, basic:
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic
|
|
25,260,0000
|
|
13,500,000
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding, diluted:
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic
|
|
25,260,000
|
|
13,500,000
|
|
|
|
|
|
|
|
|
|
Weighted
average restricted stock awards
|
|
44,448
|
|
-
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, diluted
|
|
25,304,448
|
|
13,500,000
|
|
|
6
-
RELATED PARTY TRANSACTIONS
The
following are related party transactions not disclosed elsewhere in these
financial statements:
During
the three months ended March 31, 2006 and 2005, the Company incurred travel
related expenditures totaling $139 and $0, respectively, reimbursable to General
Maritime Corporation or its service provider, where the Company Chairman, Peter
C. Georgiopoulos also serves as Chairman of the Board, Chief Executive Officer
and President, and Stephen A. Kaplan also serves as a director. Approximately,
$49 of these travel expenditures were paid from the gross proceeds received
from
the initial public offering and as such were included in the determination
of
net proceeds. At March 31, 2006 there was $139 owed to General Maritime
Corporation. There were no amounts due to General Maritime Corporation at
December 31, 2005.
During
the three months ended March 31, 2006 and 2005, the Company incurred legal
services aggregating $1 and $107 from Constantine Georgiopoulos, father of
Peter
C. Georgiopoulos, Chairman of the Board. At March 31, 2006 and December 31,
2005, $1 and $27, respectively, were outstanding to Constantine
Georgiopoulos.
The
Company has obtained an insurance policy through Leeds & Leeds
Company Inc., a broker. Leeds & Leeds Company Inc. which at March
31, 2006 holds less than 0.1% ownership in Fleet Acquisition LLC. The Company
incurred $693 and $361 of insurance expense to them for the three months ended
March 31, 2006 and 2005, respectively. The amounts due to Leeds & Leeds
Company, Inc. at March 31, 2006 and December 31, 2005 were $181 and $0,
respectively.
7
-
LONG-TERM DEBT
Long-term
debt consists of the following:
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Revolver,
New Credit Facility
|
|
$
|
130,683
|
|
$
|
130,683
|
|
Less:
Current portion of revolver
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
130,683
|
|
$
|
130,683
|
|
New
credit facility
The
Company entered into the New Credit Facility as of July 29, 2005. The New Credit
Facility is with a syndicate of commercial lenders consisting of Nordea Bank
Finland Plc, New York Branch, DnB NOR Bank ASA, New York Branch and Citigroup
Global Markets Limited. The New Credit Facility has been used to refinance
our
indebtedness under the Company's Original Credit Facility, and may be used
in
the future to acquire additional vessels and for working capital requirements.
Under the terms of the New Credit Facility, borrowings in the amount
of
$106,233 were used to repay indebtedness under the
Original Credit Facility, and additional net borrowings of $24,450 were obtained
to fund the acquisition of the Genco Muse. After these net borrowings
$319,317 remains available to fund future vessel acquisitions. The Company
may borrow up to $20,000 of the $319,317 for working capital
purposes.
The
New
Credit Facility has a term of ten years maturing on July 29, 2015. The facility
permits borrowings up to 65% of the fair value of the vessels that secure the
obligations under the New Credit Facility up to the facility limit, provided
that conditions to drawdown are satisfied. Certain of these conditions require
the Company, among other things, to provide to the lenders acceptable valuations
of the vessels in our fleet confirming that the aggregate amount outstanding
under the facility (determined on a pro forma basis giving effect to the amount
proposed to be drawn down) will not exceed 65% of the value of the vessels
pledged as collateral. The New Credit Facility limit is $450,000 for a period
of
six years. Thereafter, the facility limit is reduced by an amount equal to
8.125% of the total $450,000 commitment, semi-annually over a period of
four years and is reduced to $0 on the tenth anniversary.
The
obligations under the New Credit Facility are secured by a first priority
mortgage on each of the vessels in our fleet as well as any future vessel
acquisitions pledged as collateral and funded by this facility. The New Credit
Facility is also secured by a first priority security interest in our earnings
and insurance proceeds related to the collateral vessels. The Company may grant
additional security interest in vessels acquired that are not
mortgaged.
All
of
our vessel-owning subsidiaries are full and unconditional joint and several
guarantors of our New Credit Facility. Each of these subsidiaries is wholly
owned by GS&T. GS&T has no independent assets or
operations.
Interest
on the amounts drawn is payable at the rate of 0.95% per annum over LIBOR until
the fifth anniversary of the closing of the New Credit Facility and 1.00% per
annum over LIBOR thereafter. The Company is also obligated to pay a commitment
fee equal to 0.375% per annum on any undrawn amounts available under the
facility. On July 29, 2005, the Company paid an arrangement fee to the lenders
of $2,700 which equates to 0.6% of the total commitment of $450,000. The $2,700
along with other costs has been capitalized as deferred financing costs to
date.
Under
the
terms of the New Credit Facility, the Company is permitted to pay or declare
dividends in accordance with its dividend policy so long as no default or event
of default has occurred and is continuing or would result from such declaration
or payment.
The
New
Credit Facility has certain financial covenants that require among other things
to ensure that the fair market value of the collateral vessels maintains a
certain multiple as compared to the outstanding indebtedness; maintain a certain
ratio of total indebtedness to total capitalization; maintain a certain ratio
of
earnings before interest, taxes, depreciation and amortization to interest
expense; maintain a net worth of approximately $263 million; and maintain
working capital liquidity in an amount of not less than $500 per vessel securing
the borrowings. Additionally there are certain non-financial covenants that
require among other things to provide the lender with certain legal
documentation such as the mortgage on a newly acquired vessel using funds from
the New Credit Facility, and other periodic communications with the lender
that
include certain compliance certificates at the time of borrowing and on a
quarterly basis. For the period since facility inception through March 31,
2006,
the Company has been in compliance with these covenants.
The
New
Credit Facility permits the issuance of letters of credit up to a maximum amount
of $50,000. The conditions under which the letter of credit amounts can be
issued are substantially the same as the conditions for borrowing funds under
the facility. Each letter of credit must terminate within twelve months, but
can
be extended for successive periods also not exceeding twelve months. The Company
pays a fee of 1/8 of 1% per annum on the amount of letters of credit
outstanding. At March 31, 2006 and December 31, 2005, there were no letters
of
credit issued under the New Credit Facility.
The
following table sets forth our maturity dates of the revolver as
of:
|
|
|
|
Period
Ending December 31,
|
|
Total
|
|
|
|
|
|
2006
(April 1, 2006 - December 31, 2006)
|
|
$
|
-
|
|
2007
|
|
|
-
|
|
2008
|
|
|
-
|
|
2009
|
|
|
-
|
|
2010
|
|
|
-
|
|
Thereafter
|
|
|
130,683
|
|
|
|
|
|
|
|
|
$
|
130,683
|
|
Letter
of credit
In
conjunction with the Company entering into a new long-term office space lease
(See Note 14 - Lease Payments), the Company was required to provide a letter
of
credit to the landlord in lieu of a security deposit. As of September 21, 2005,
the Company obtained an annually renewable unsecured letter of credit with
DnB
NOR Bank in the amount of $650 at a fee of 1% per annum. The letter of credit
is
reduced to $520 on August 1, 2006 and is cancelable on each renewal date
provided the landlord is given 150 days minimum notice.
Original
Credit Facility
The
Original Credit Facility, entered into on December 3, 2004, has been refinanced
by the New Credit Facility. The Original Credit Facility had a five year
maturity at a rate of LIBOR plus 1.375% per year until $100 million had been
repaid and thereafter at LIBOR plus 1.250%. This facility was retired with
proceeds from the initial public offering and proceeds from our New Credit
Facility.
The
Company's entry into the New Credit Facility in July 2005 which resulted in
a
write-off to interest expense of $4,103 of unamortized deferred financing costs
associated with the Original Credit Facility, in the third quarter of
2005.
Interest
rate swap agreements
Effective
September 14, 2005, the Company entered into an interest rate swap agreement
with DnB NOR Bank to manage interest costs and the risk associated with changing
interest rates. The notional principal amount of the swap is $106,233 and has
a
fixed interest rate on the notional amount of 4.485% through July 29, 2015
(the
“4.485% Swap”). The swap's expiration date coincides with the expiration of the
New Credit Facility on July 29, 2015. The differential to be paid or received
for this swap agreement is recognized as an adjustment to interest expense
as
incurred. The change in value on this swap is reflected as a component of other
comprehensive income (“OCI”).
The
Company has determined that the 4.485% Swap continues to effectively hedge
the
debt. Interest income pertaining to this interest rate swap for the three months
ended March 31, 2006 and 2005 was $11 and $0, respectively.
The
Company, on March 24, 2006, entered into a forward interest rate swap agreement
with a notional amount of $50,000,and has
a
fixed interest rate on the notional amount of 5.075% from January
2, 2008 through January 2, 2013 (the “5.075% Swap”) The
change in the value of this swap and the rate differential to be paid or
received for this swap agreement is recognized as income from derivative
instruments and is listed as a component of other (expense) income until such
time the Company has obligations which are designated against the
swap.
The
Company, on March 29, 2006, entered into a forward interest rate swap agreement
with a notional amount of $50,000 and has
a
fixed interest rate on the notional amount of 5.25% from January
2, 2007 through January 2, 2014 (the“5.25% Swap”). The
change in the value of this swap and the rate differential to be paid or
received for this swap agreement is recognized as income from derivative
instruments and is listed as a component of other (expense) income until such
time the Company has obligations which are designated against the
swap.
For
the
swap agreements for which there is designated debt associated with it, the
total interest rate is fixed at the fixed interest rate of swap
plus the applicable margin on the debt of 0.95% in the first 5 years of the
New Credit Facility and 1.0% in the last five years.
The
5.075% Swap and the 5.25% Swap do not have any interest income or expense as
the
swaps are not effective until, January 2, 2008 and January 2, 2007,
respectively. The rate differential on these two instruments will be reflected
as income from derivative instruments and is listed as a component of other
(expense) income once effective.
The
asset
associated with all the swaps at March 31, 2006 and December 31, 2005 is $6,785
and $2,325, respectively, and is presented as the fair value of derivatives
on
the balance sheet. As of March 31, 2006 and December 31, 2005, the Company
has
OCI of $3,984 and $2,325, respectively, related to the 4.485% Swap. The 5.075%
Swap and 5.25% Swap, combined, resulted in income from derivative instruments
of
$476 for the three months ended March 31, 2006, due to the increase in the
value
of these instruments.
Interest
rates
The
effective interest rates, including the cost associated with unused commitment
fees, and the rate differential on the 4.485% Swap, for the three months ended
March 31, 2006 and 2005, were 6.39% and 3.91%, respectively. The interest rates
on the debt, excluding the unused commitment fess ranged from 5.20% to 5.83%
and
from 3.69% to 4.25% for the three months ended March 31, 2006 and 2005,
respectively.
8
-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The
estimated fair values of the Company’s financial instruments are as
follows:
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
|
Carrying
Value
|
|
Carrying
Value
|
|
Carrying
Value
|
|
Carrying
Value
|
|
Cash
|
|
$
|
54,894
|
|
$
|
54,894
|
|
$
|
46,912
|
|
$
|
46,912
|
|
Floating
rate debt
|
|
|
130,683
|
|
|
130,683
|
|
|
130,683
|
|
|
130,683
|
|
Derivative
instruments - net asset position
|
|
|
6,785
|
|
|
6,785
|
|
|
2,325
|
|
|
2,325
|
|
The
fair
value of the revolving credit facilities are estimated based on current rates
offered to the Company for similar debt of the same remaining maturities. The
carrying value approximates the fair market value for the variable rate loans.
The fair value of the interest rate swap (used for purposes other than trading)
is the estimated amount the Company would receive to terminate the swap
agreement at the reporting date, taking into account current interest rates
and
the creditworthiness of the swap counterparty.
9
-
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consist of the following:
|
|
March
31, 2006
|
|
December
31, 2005
|
|
Lubricant
inventory and other stores
|
|
$
|
1,096
|
|
$
|
1,019
|
|
Prepaid
items
|
|
|
791
|
|
|
809
|
|
Other
|
|
|
557
|
|
|
746
|
|
Total
|
|
$
|
2,444
|
|
$
|
2,574
|
|
10
-
OTHER ASSETS, NET
Other
assets consist of the following:
(i)
Deferred financing costs which include fees, commissions and legal expenses
associated with securing loan facilities. These costs are amortized over the
life of the related debt, which is included in interest expense. In July 2005,
the Company entered into the New Credit Facility, which resulted in a write-off
of $4,103, in the third quarter of 2005, of unamortized deferred financing
costs
associated with the Original Credit Facility. The Company has incurred
additional deferred financing costs of $3,027 on the New Credit Facility.
Accumulated amortization of deferred financing costs as of March 31, 2006 and
December 31, 2005 was $200 and $126, respectively.
(ii)
Value of time charter acquired which represents the value assigned to the time
charter acquired with the Genco Muse in October 2005. The value assigned to
the
time charter was $3,492. This intangible asset is amortized as a component
of
revenue over the minimum life of the time charter. The amount amortized for
this
intangible asset was $456 and $0 for the three months ended March 31, 2006
and
2005. At March 31, 2006 and December 31, 2005, $2,638 and $3,094,
respectively, remains unamortized.
11
-
FIXED ASSETS
Fixed
assets consist of the following:
|
|
March
31, 2006
|
|
December
31, 2005
|
|
Fixed
assets:
|
|
|
|
|
|
Vessel
equipment
|
|
$
|
207
|
|
$
|
69
|
|
Leasehold
improvements
|
|
|
1,270
|
|
|
1,146
|
|
Furniture
and fixtures
|
|
|
96
|
|
|
96
|
|
Computer
equipment
|
|
|
276
|
|
|
260
|
|
Total
cost
|
|
|
1,849
|
|
|
1,571
|
|
Less:
accumulated depreciation and amortization
|
|
|
104
|
|
|
49
|
|
Total
|
|
$
|
1,745
|
|
$
|
1,522
|
|
12
-
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following:
|
|
March
31, 2006
|
|
December
31, 2005
|
|
Accounts
payable
|
|
$
|
1,691
|
|
$
|
1,018
|
|
Accrued
general and administrative
|
|
|
1,846
|
|
|
2,701
|
|
Accrued
vessel operating expenses
|
|
|
2,372
|
|
|
2,259
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,909
|
|
$
|
5,978
|
|
13
-
REVENUE FROM TIME CHARTERS
Total
revenue earned on time charters for the three months ended March 31, 2006 and
2005 was $32,572 and $21,399, respectively. Future minimum time charter revenue,
based on vessels committed to noncancelable time charter contracts as of March
31, 2006 is expected to be $78,911 for the balance of 2006 and $10,581 during
2007, assuming no off-hire time is incurred.
14
-
LEASE PAYMENTS
In
September 2005, the Company entered into a 15-year lease for office space in
New
York, New York. The monthly rental is as follows: Free rent from September
1,
2005 to July 31, 2006, $40 per month from August 1, 2006 to August 31, 2010,
$43
per month from September 1, 2010 to August 31, 2015, and $46 per month from
September 1, 2015 to August 31, 2020. The Company obtained a tenant work credit
of $324. The monthly straight-line rental expense from September 1, 2005 to
August 31, 2020 is $39. As a result of the straight-line rent calculation
generated by the free rent period and the tenant work credit, the Company has
a
deferred rent credit at March 31, 2006 and December 31, 2005 $596 and $479,
respectively. The Company has the option to extend the lease for a period of
5
years from September 1, 2020 to August 31, 2025. The rent for the renewal period
will be based on prevailing market rate for the six months prior to the
commencement date of the extension term.
Future
minimum rental payments on the above lease for the next five years and
thereafter are as follows: $202 for 2006, $486 per year for 2007 through 2009,
$496 for 2010 and $5,168 thereafter.
15
-
SAVINGS PLAN
In
August
2005, the Company established a 401(K) Plan (the “Plan”) which is available to
full-time employees who meet the Plan’s eligibility requirements. This Plan is a
defined contribution plan, which permits employees to make contributions up
to
96 percent of their annual salaries with the Company matching up to the first
six percent. The matching contribution vests immediately. For three months
ended
March 31, 2006 and 2005, the Company’s matching contribution to the Plan was $34
and $0, respectively.
16-
STOCK AWARDS
On
July
12, 2005, the Company’s Board of Directors approved the Genco Shipping and
Trading Limited 2005 Equity Incentive Plan (the “Plan”). Under this plan the
Company’s compensation committee, another designated committee of the board of
directors or the board of directors or the board of directors, may grant a
variety of stock-based incentive awards to employees, directors and consultants
whom the compensation committee (or other committee or the board of directors)
believes are key to the Company’s success. The compensation committee may award
incentive stock options, nonqualified stock options, stock appreciation rights,
dividend equivalent rights, restricted stock, unrestricted stock and performance
shares. The aggregate number of shares of common stock available for award
under
the Plan is 2,000,000 shares.
On
October 31, 2005, the Company made grants of restricted common stock under
its
equity incentive plan in the amount of 118,612 shares to the executive officers,
employees and directors of the Company. The executive and employee grants vest
ratably on each of the four anniversaries of the date of the Company’s initial
public offering (July 22, 2005). Grants to directors vest in full on the
earliest of the first anniversary of the grant date, the date of the next annual
shareholders meeting of the Company, which is scheduled for May 18, 2006, and
the first anniversary of the Company’s initial public offering. Upon grant of
the restricted stock, an amount of unearned compensation equivalent to the
market value at the date of the grant, or $1,949, was recorded as a component
of
paid in capital in shareholders’ equity. The unamortized portion of this award
at March 31, 2006 and December 31, 2005 was $1,311 and $1,689, respectively.
Amortization of this charge, which is included in general and administrative
expenses was $378 and $0, for the three months ended March 31, 2006 and 2005,
respectively, and the remaining expense for the years ended 2006, 2007, 2008
and
2009 will be $653, $394, $200, and $64, respectively.
On
December 21, 2005, the Company made grants of restricted common stock under
its
equity incentive plan in the amount of 55,600 shares to the executive officers
and employees of the Company. These grants vest ratably on each of the four
anniversaries of the determined vesting date beginning with November 15, 2006.
Upon grant of the restricted stock, an amount of unearned compensation
equivalent to the market value at the date of the grant, or $991, was recorded
as a component of paid in capital in shareholders’ equity. The unamortized
portion of this award at March 31, 2006 and December 31, 2005 was $833 and
$974,
respectively. Amortization of this charge, which is included in general and
administrative expenses was $141 and $0, for the three months ended March 31,
2006 and 2005, respectively, and remaining expense for the years ended 2006,
2007, 2008 and 2009 will be $392, $253, $134, and $54, respectively.
17
-
LEGAL PROCEEDINGS
From
time
to time the Company may be subject to legal proceedings and claims in the
ordinary course of its business, principally personal injury and property
casualty claims. Such claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources. The Company
is
not aware of any legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the Company,
its
financial condition, results of operations or cash flows.
18
-
SUBSEQUENT EVENTS
On
April
27, 2006, the Board of Directors declared a dividend of $0.60 per share to
be
paid on or about May 26, 2006 to shareholders of record as of May 15,
2006. The aggregate amount of the dividend is expected to be $15,261,
which the Company anticipates will be funded from cash on hand at the time
payment is to be made.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This
report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward looking statements are based on management’s current expectations and
observations. Included among the factors that, in our view, could cause actual
results to differ materially from the forward looking statements contained
in
this report are the following: (i) changes in demand or rates in the drybulk
shipping industry; (ii) changes in the supply of or demand for drybulk products,
generally or in particular regions; (iii) changes in the supply of drybulk
carriers including newbuilding of vessels or lower than anticipated scrapping
of
older vessels; (iv) changes in rules and regulations applicable to the cargo
industry, including, without limitation, legislation adopted by international
organizations or by individual countries and actions taken by regulatory
authorities; (v) increases in costs and expenses including but not limited
to:
crew wages, insurance, provisions, repairs, maintenance and general and
administrative expenses; (vi) the adequacy of our insurance arrangements; (vii)
changes in general domestic and international political conditions; (viii)
changes in the condition of the Company’s vessels or applicable maintenance or
regulatory standards (which may affect, among other things, our anticipated
drydocking or maintenance and repair costs) and unanticipated drydock
expenditures; and other factors listed from time to time in our public filings
with the Securities and Exchange Commission including, without limitation,
our
Annual Report on Form 10-K for the year ended December 31, 2005 and subsequent
reports on Form 8-K. Our ability to pay dividends in any period will depend
upon
factors including the limitations under our loan agreements, applicable
provisions of Marshall Islands law and the final determination by the Board
of
Directors each quarter after its review of our financial performance. The timing
and amount of dividends, if any, could also be affected by factors affecting
cash flows, results of operations, required capital expenditures, or reserves.
As a result, the amount of dividends actually paid may vary.
The
following management’s discussion and analysis should be read in conjunction
with our historical consolidated financial statements and the related notes
included in this 10-Q.
General
We
are a
Marshall Islands company incorporated in September 2004 to transport iron
ore, coal, grain, steel products and other drybulk cargoes along worldwide
shipping routes through the ownership and operation of drybulk carrier vessels.
As of March 31, 2006, our fleet consisted of five Panamax, seven Handymax and
five Handysize drybulk carriers, with an aggregate carrying capacity of
approximately 839,000 dwt. The average age of our fleet was approximately 8.8
years as of December 31, 2005 as compared to the average age for the world
fleet
of approximately 15 years for the drybulk shipping segments in which we compete.
All of the vessels in our fleet are on time charters to reputable charterers,
including Lauritzen Bulkers, Cargill, HMMC, BHP, DS Norden, EDF Man Shipping,
and NYK Europe or operate in the Baumarine panamax pool. With the exception
of
the Genco Leader and the Genco Trader, our vessels are fixed on long-term time
charters with original terms greater than one year that expire (assuming the
option periods in the time charters are not exercised) between August 2006
and September 2007.
Each
vessel in our fleet was delivered to us on the date specified in the following
chart:
|
|
|
|
Vessel
Acquired
|
Date
Delivered
|
Class
|
Year
Built
|
|
|
|
|
Genco
Reliance
|
12/6/04
|
Handysize
|
1999
|
Genco
Glory
|
12/8/04
|
Handymax
|
1984
|
Genco
Vigour
|
12/15/04
|
Panamax
|
1999
|
Genco
Explorer
|
12/17/04
|
Handysize
|
1999
|
Genco
Carrier
|
12/28/04
|
Handymax
|
1998
|
Genco
Sugar
|
12/30/04
|
Handysize
|
1998
|
Genco
Pioneer
|
1/4/05
|
Handysize
|
1999
|
Genco
Progress
|
1/12/05
|
Handysize
|
1999
|
Genco
Wisdom
|
1/13/05
|
Handymax
|
1997
|
Genco
Success
|
1/31/05
|
Handymax
|
1997
|
Genco
Beauty
|
2/7/05
|
Panamax
|
1999
|
Genco
Knight
|
2/16/05
|
Panamax
|
1999
|
Genco
Leader
|
2/16/05
|
Panamax
|
1999
|
Genco
Marine
|
3/29/05
|
Handymax
|
1996
|
Genco
Prosperity
|
4/4/05
|
Handymax
|
1997
|
Genco
Trader
|
6/7/05
|
Panamax
|
1990
|
Genco
Muse
|
10/14/05
|
Handymax
|
2001
|
|
|
|
|
We
intend
to grow our fleet through timely and selective acquisitions of vessels in a
manner that is accretive to our cash flow. In connection with this growth
strategy, we negotiated the New Credit Facility, which has been used to
refinance the outstanding indebtedness under our previous credit facility
(“Original Credit Facility”) remaining after application of a portion of the net
proceeds of the initial public offering on July 22, 2005.
Our
management team and our other employees are responsible for the commercial and
strategic management of our fleet. Commercial management includes the
negotiation of charters for vessels, managing the mix of various types of
charters, such as time charters and voyage charters, and monitoring the
performance of our vessels under their charters. Strategic management includes
locating, purchasing, financing and selling vessels. We currently contract
with
Wallem Shipmanagement, an independent technical manager, to provide technical
management of our fleet at a lower cost than we believe would be possible
in-house. We
expect
to use other independent technical managers from time to time. Technical
management involves the day-to-day management of vessels, including performing
routine maintenance, attending to vessel operations and arranging for crews
and
supplies. Members of our New York City-based management team oversee the
activities of our independent technical managers.
Factors
Affecting Our Results of Operations
|
|
For
the three months ended March 31,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
Fleet
Data:
|
|
|
|
|
|
|
|
|
|
Ownership
days (1)
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
450.0
|
|
|
230.7
|
|
|
219.3
|
|
|
95.1
|
%
|
Handymax
|
|
|
630.0
|
|
|
320.7
|
|
|
309.3
|
|
|
96.4
|
%
|
Handysize
|
|
|
450.0
|
|
|
435.9
|
|
|
14.1
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,530.0
|
|
|
987.3
|
|
|
542.7
|
|
|
55.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
days (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
441.1
|
|
|
227.6
|
|
|
213.5
|
|
|
93.8
|
%
|
Handymax
|
|
|
630.0
|
|
|
318.5
|
|
|
311.5
|
|
|
97.8
|
%
|
Handysize
|
|
|
450.0
|
|
|
435.0
|
|
|
15.0
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,521.1
|
|
|
981.1
|
|
|
540.0
|
|
|
55.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
days (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
439.5
|
|
|
221.5
|
|
|
218.0
|
|
|
98.4
|
%
|
Handymax
|
|
|
629.1
|
|
|
317.2
|
|
|
311.9
|
|
|
98.3
|
%
|
Handysize
|
|
|
448.3
|
|
|
435.0
|
|
|
13.3
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,516.9
|
|
|
973.7
|
|
|
543.2
|
|
|
55.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
utilization (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
99.6
|
%
|
|
97.3
|
%
|
|
2.3
|
%
|
|
2.4
|
%
|
Handymax
|
|
|
99.9
|
%
|
|
99.6
|
%
|
|
0.3
|
%
|
|
0.3
|
%
|
Handysize
|
|
|
99.6
|
%
|
|
100.0
|
%
|
|
(0.4
|
%)
|
|
(0.4
|
%)
|
Fleet
average
|
|
|
99.7
|
%
|
|
99.2
|
%
|
|
0.5
|
%
|
|
0.5
|
%
|
We
believe that the following table reflects important measures for analyzing
trends in our results of operations. The table reflects our ownership days,
available days, operating days, fleet utilization, TCE rates and daily vessel
operating expenses for the three months ended March 31, 2006 and 2005. Because
predominately all of our vessels have operated on time charters, our TCE rates
equal our time charter rates less voyage expenses consisting primarily of
brokerage commissions paid by us to unaffiliated parties.
|
|
For
the three months ended March 31,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
|
|
(U.S.
dollars)
|
|
|
|
|
|
Average
Daily Results:
|
|
|
|
|
|
|
|
|
|
Time
Charter Equivalent (5)
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
$
|
23,403
|
|
$
|
28,234
|
|
|
($4,831
|
)
|
|
(17.1
|
%)
|
Handymax
|
|
|
21,400
|
|
|
20,877
|
|
|
523
|
|
|
2.5
|
%
|
Handysize
|
|
|
17,025
|
|
|
17,091
|
|
|
(66
|
)
|
|
(0.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
average
|
|
|
20,687
|
|
|
20,904
|
|
|
(217
|
)
|
|
(1.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily
vessel operating expenses (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
$
|
3,239
|
|
$
|
2,503
|
|
$
|
736
|
|
|
29.4
|
%
|
Handymax
|
|
|
2,884
|
|
|
1,917
|
|
|
967
|
|
|
50.4
|
%
|
Handysize
|
|
|
2,854
|
|
|
1,893
|
|
|
961
|
|
|
50.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
average
|
|
|
2,980
|
|
|
2,042
|
|
|
938
|
|
|
45.9
|
%
|
Definitions
In
order
to understand our discussion of our results of operations, it is important
to
understand the meaning of the following terms used in our analysis and the
factors that influence our results of operations.
(1)
Ownership days.
We
define ownership days as the aggregate number of days in a period during which
each vessel in our fleet has been owned by us. Ownership days are an indicator
of the size of our fleet over a period and affect both the amount of revenues
and the amount of expenses that we record during a period.
(2)
Available days.
We
define available days as the number of our ownership days less the aggregate
number of days that our vessels are off-hire due to scheduled repairs or repairs
under guarantee, vessel upgrades or special surveys and the aggregate amount
of
time that we spend positioning our vessels. Companies in the shipping industry
generally use available days to measure the number of days in a period during
which vessels should be capable of generating revenues.
(3)
Operating days.
We
define operating days as the number of our available days in a period less
the
aggregate number of days that our vessels are off-hire due to unforeseen
circumstances. The shipping industry uses operating days to measure the
aggregate number of days in a period during which vessels actually generate
revenues.
(4)
Fleet utilization.
We
calculate fleet utilization by dividing the number of our operating days during
a period by the number of our available days during the period. The shipping
industry uses fleet utilization to measure a company’s efficiency in finding
suitable employment for its vessels and minimizing the number of days that
its
vessels are off-hire for reasons other than scheduled repairs or repairs under
guarantee, vessel upgrades, special surveys or vessel positioning.
(5)
TCE rates.
We
define TCE rates as our revenues (net of voyage expenses) divided by the number
of our available days during the period, which is consistent with industry
standards. TCE rate is a common shipping industry performance measure used
primarily to compare daily earnings generated by vessels on time charters with
daily earnings generated by vessels on voyage charters, because charterhire
rates for vessels on voyage charters are generally not expressed in per-day
amounts while charterhire rates for vessels on time charters generally are
expressed in such amounts.
|
|
For
the three months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(U.S.
dollars in thousands)
|
|
Voyage
revenues
|
|
$
|
32,572
|
|
$
|
21,399
|
|
Voyage
expenses
|
|
|
1,104
|
|
|
890
|
|
Net
voyage revenue
|
|
$
|
31,468
|
|
$
|
20,509
|
|
|
|
|
|
|
|
|
|
(6)
Daily vessel operating expenses.
We
define daily vessel operating expenses to include crew wages and related costs,
the cost of insurance, expenses relating to repairs and maintenance (excluding
drydocking), the costs of spares and consumable stores, tonnage taxes and other
miscellaneous expenses. Daily vessel operating expenses are calculated by
dividing vessel operating expenses by ownership days for the relevant
period.
Operating
Data
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
|
|
(U.S.
dollars in thousands, except for per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
32,572
|
|
$
|
21,399
|
|
$
|
11,173
|
|
|
52.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
1,104
|
|
|
890
|
|
|
214
|
|
|
24.0
|
%
|
Vessel
operating expenses
|
|
|
4,559
|
|
|
2,016
|
|
|
2,543
|
|
|
126.1
|
%
|
General
and administrative expenses
|
|
|
2,449
|
|
|
260
|
|
|
2,189
|
|
|
841.9
|
%
|
Management
fees
|
|
|
347
|
|
|
331
|
|
|
16
|
|
|
4.8
|
%
|
Depreciation
and amortization
|
|
|
6,417
|
|
|
3,981
|
|
|
2,436
|
|
|
61.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
14,876
|
|
|
7,478
|
|
|
7,398
|
|
|
98.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
17,696
|
|
|
13,921
|
|
|
3,775
|
|
|
27.1
|
%
|
Other
(expense) income
|
|
|
(1,118
|
)
|
|
(2,537
|
)
|
|
1,419
|
|
|
(55.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
16,578
|
|
$
|
11,384
|
|
|
5,194
|
|
|
45.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - Basic
|
|
$
|
0.66
|
|
$
|
0.84
|
|
|
($0.18
|
)
|
|
(21.4
|
%)
|
Earnings
per share - Diluted
|
|
$
|
0.66
|
|
$
|
0.84
|
|
|
($0.18
|
)
|
|
(21.4
|
%)
|
Dividends
declared and paid per share
|
|
$
|
0.60
|
|
|
-
|
|
$
|
0.60
|
|
|
N/A
|
|
Weighted
average common shares outstanding - Basic
|
|
|
25,260,000
|
|
|
13,500,000
|
|
|
11,760,000
|
|
|
87.1
|
%
|
Weighted
average common shares outstanding - Diluted
|
|
|
25,304,448
|
|
|
13,500,000
|
|
|
11,804,448
|
|
|
87.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(1)
|
|
$
|
25,045
|
|
$
|
17,902
|
|
$
|
7,143
|
|
|
39.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
EBITDA
represents net income plus net interest expense, income tax expense,
depreciation and amortization, and amortization of the value of time
charter acquired, which is included as a component of other long-term
assets. EBITDA is included because it is used by management and certain
investors as a measure of operating performance. EBITDA is used by
analysts in the shipping industry as a common performance measure
to
compare results across peers. Our management uses EBITDA as a performance
measure in consolidating internal financial statements and it is
presented
for review at our board meetings. For these reasons, we believe that
EBITDA is a useful measure to present to our investors. EBITDA is
not an
item recognized by U.S. GAAP and should not be considered as an
alternative to net income, operating income or any other indicator
of a
company’s operating performance required by U.S. GAAP. EBITDA is not a
source of liquidity or cash flows as shown in our consolidated statement
of cash flows. The definition of EBITDA used here may not be comparable
to
that used by other companies.
|
|
|
For
the three months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(U.S.
dollars in thousands except
for
per share amounts)
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
16,578
|
|
$
|
11,384
|
|
Net
interest expense
|
|
|
1,594
|
|
|
2,537
|
|
Income
tax expense
|
|
|
—
|
|
|
—
|
|
Amortization
of value of time charter acquired (1)
|
|
|
456
|
|
|
—
|
|
Depreciation
and amortization
|
|
|
6,417
|
|
|
3,981
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
25,045
|
|
$
|
17,902
|
|
|
|
|
|
|
|
|
|
(1)
Amortization of value of time charter acquired is included in other long-term
assets.
Results
of Operations
REVENUES-
For
the
three months ended March 31, 2006 revenues grew 52% to $32.6 million versus
$21.4 million for the three months ended March 31, 2005. Revenues in both
periods consisted of charter payments for our vessels. The increase in revenues
was primarily due to the growth of our fleet throughout 2005.
The
average TCE rate of our fleet declined by 1% to $20,687 a day for the three
months ended March 31, 2006 from $20,904 a day for the three months ended March
31, 2005 mostly due to a lower freight market in 2006 as compared to 2005.
The
lower freight market in 2006 affected the TCE rates of the Genco Leader, the
vessel in our fleet that operates in the Baumarine Pool which is subject to
spot
market fluctuations.
For
the
three months ended March 31, 2006 and 2005, we had ownership days of 1,530.0
days and 987.3 days, respectively. Fleet utilization for the same three month
periods remained relatively static at 99.7% and 99.2%,
respectively.
The
following table sets forth information about the charters in our fleet as of
March 31, 2006:
Vessel
|
Time
Charter
Rate
(1)
|
Charterer
|
Charter
Expiration (2)
|
|
|
|
|
Genco
Beauty
|
$
29,000
|
Cargill
|
February
2007
|
Genco
Knight
|
29,000
|
BHP
|
February
2007
|
Genco
Leader
|
Spot
|
Baumarine
Panamax
Pool
|
Not
Applicable
|
Genco
Vigour
|
29,000
|
BHP
|
December
2006
|
Genco
Trader
|
Spot
|
Baumarine
Panamax Pool
|
Not
Applicable
|
Genco
Success
|
23,850
|
KLC
|
January
2007
|
Genco
Carrier
|
24,000
|
DBCN
Corporation
|
December
2006
|
Genco
Prosperity
|
23,000
|
DS
Norden
|
March
2007
|
Genco
Wisdom
|
24,000
|
HMMC
|
January
2007
|
Genco
Marine
|
26,000(3)
|
NYK
Europe
|
March
2007
|
Genco
Glory
|
18,250
|
EDF
Man Shipping
|
December
2006
|
Genco
Muse
|
26,500(4)
|
Qatar
Navigation QSC
|
September
2007
|
Genco
Explorer
|
17,250
|
Lauritzen
Bulkers
|
August
2006
|
Genco
Pioneer
|
17,250
|
Lauritzen
Bulkers
|
September
2006
|
Genco
Progress
|
17,250(5)
|
Lauritzen
Bulkers
|
September
2006
|
Genco
Reliance
|
17,250
|
Lauritzen
Bulkers
|
August
2006
|
Genco
Sugar
|
17,250
|
Lauritzen
Bulkers
|
August
2006
|
(1)
Time
charter rates presented are the gross daily charterhire rates before the
payments of brokerage commissions ranging from 1.25% to 5% to unaffiliated
third
parties. In a time charter, the charterer is responsible for voyage expenses
such as bunkers, port expenses, agents’ fees and canal dues.
(3)
The
time charter rate is $26,000 until March 2006 and
$18,000 thereafter. For purposes of revenue recognition, the charter contract
is
reflected on a straight-line basis in accordance with U.S. GAAP.
(4)
Since
this vessel was acquired with an existing time charter at an above market rate,
the Company allocates the purchase price between the vessel and an intangible
asset for the value assigned to the above market charterhire. This intangible
asset is amortized as a reduction to voyage revenues over the remaining term
of
the charter, resulting in a daily rate of approximately $22,000 recognized
as
revenue. For cash flow purposes, the Company will continue to receive $26,500
per day.
(5)
The
time charter rate was $21,560 through March 2005 and $17,250 thereafter.
For purposes of revenue recognition, the charter contract is reflected on a
straight-line basis in accordance with U.S. GAAP.
VOYAGE
EXPENSES-
For
the
three months ended March 31, 2006 and 2005, we did not incur port and canal
charges or any significant expenses related to the consumption of bunkers as
part of our vessels’ overall expenses, because all of our vessels were employed
under time charters that require the charterer to bear all of those
expenses.
For
the
three months ended March 31, 2006 and 2005, voyage expenses were $1.1and
$0.9 million, respectively, and consisted primarily of brokerage
commissions paid to unaffiliated parties.
VESSEL
OPERATING EXPENSES-
Vessel
operating expenses increased to $4.6 million from $2.0 million for the three
months ended March 31, 2006 and 2005, respectively. This was mostly due to
the
expansion of our fleet to 17 vessels for the three months ended March 31, 2006
as compared to an average of 11 vessels in operation for the three months ended
March 31, 2005.
For
the
three months ended March 31, 2006 and 2005, the average daily vessel operating
expenses for our fleet were $2,980 and $2,042 per day, respectively. As the
first quarter of 2005 was our initial period of operations for the majority
of
our fleet, we believe the three-month period ended March 31, 2006 is more
reflective of our daily vessel operating expenses. We believe daily vessel
operating expenses are best measured for comparative purposes over a 12-month
period in order to take into account all of the expenses that each vessel in
our
fleet will incur over a full year of operation.
Based
on
management’s estimates and budgets provided by our technical manager, we expect
our vessels to have daily vessel operating expenses during 2006 of:
Vessel
Type
|
|
Average
Daily
Budgeted
Amount
|
|
Panamax
|
|
$
|
3,468
|
|
Handymax
|
|
|
3,101
|
|
Handysize
|
|
|
3,016
|
|
Our
vessel operating expenses, which generally represent fixed costs, will increase
as a result of the expansion of our fleet. Other factors beyond our control,
some of which may affect the shipping industry in general, including, for
instance, developments relating to market prices for insurance, may also cause
these expenses to increase.
GENERAL
AND ADMINISTRATIVE EXPENSES-
For
the
three months ended March 31, 2006 and 2005, general and administrative expenses
were $2.4 and $0.3 million, respectively. The
increased general and administrative expenses were due to the expansion of
our
fleet during 2005 and costs related to operating as a publicly-traded company.
We expect general and administrative expenses to increase as a result of the
expansion of our fleet and the costs associated with running a public company
for a full twelve-month period, including the preparation of disclosure
documents, legal and accounting costs, incremental director and officer
liability insurance costs, incremental director and executive compensation,
and
costs related to compliance with the Sarbanes-Oxley Act of 2002.
MANAGEMENT
FEES-
For
the
three
months ended March 31, 2006 and 2005,
management fees were $0.3 and $0.3 million, respectively. Technical management
fees for the three months ended March 31, 2006 were paid to Wallem
Shipmanagement at the rate of $6,800 per ship per month.
INCOME
FROM DERIVATIVE INSTRUMENTS-
The
Company, on March 24, 2006, entered into a forward interest rate swap agreement
with a notional amount of $50 million and has
a
fixed interest rate on the notional amount of 5.075% from January
2, 2008 through January 2, 2013 (the “5.075% Swap”). Additionally, on March 29,
2006, the Company entered into a forward interest rate swap agreement with
a
notional amount of $50 million and has
a
fixed interest rate on the notional amount of 5.25% from January
2, 2007 through January 2, 2014 (the “5.25% Swap”).
The
purpose of the 5.075% Swap and the 5.25% Swap is to manage future interest
costs
and the risk associated with changing interest rates. The gain or loss in the
value of these swaps will be recognized as income from derivative instruments
and listed as a component of other (expense) income until such time the Company
has obligations which are designated against the swap. See Note 7- Long-term
debt of the financial statements for further details.
For
the
three
months ended March 31, 2006, income
from derivative instruments
was $0.5
million and is due solely to the gain in value of the 5.075% Swap and the 5.25%
Swap. For the three months ended March 31, 2005, the Company had no derivative
instruments in place.
DEPRECIATION
AND AMORTIZATION-
For
the
three months ended March 31, 2006 and 2005, depreciation and amortization
charges were $6.4 and $4.0 million, respectively, an increase of $2.4
million or 61%. The increase primarily was due to the growth in our fleet to
17
vessels for the three months ended March 31, 2006 as compared to an average
of
11 vessels in operation for the three months ended March 31, 2005.
NET
INTEREST EXPENSE-
Net
interest expense, which is the difference between interest income and interest
expense which are listed as components of other (expense) income, declined
to
$1.6 million from $2.5 million for the three months ended March 31, 2006
and 2005, respectively. Net interest expense consisted primarily of interest
payments made under our Original Credit Facility for the 2005 period, our New
Credit Facility for the 2006 period, and interest income as well as amortization
of deferred financing costs related to our credit facilities. The decrease
in
net interest expense was a result of a lower interest margin and a lower debt
outstanding under our New Credit Facility offset by higher interest rates during
2006.
LIQUIDITY
AND CAPITAL RESOURCES
To
date,
we have financed our capital requirements with cash flow from operations, equity
contributions and bank debt. We have used our funds primarily to fund vessel
acquisitions, regulatory compliance expenditures and the repayment of bank
debt
and the associated interest expense. We will require capital to fund ongoing
operations, acquisitions and debt service. We anticipate that internally
generated cash flow and borrowing under our New Credit Facility will be
sufficient to fund the operations of our fleet, including our working capital
requirements for the foreseeable future.
We
expect
to use our operating cash flows and borrowings and to review debt and equity
financing alternatives to fund any acquisitions and our dividend
policy. We
believe that our current cash balance as well as operating cash flows and
available borrowings under our New Credit Facility will be sufficient to meet
our liquidity needs for the next year.
Dividend
Policy
Our
dividend policy is to declare quarterly distributions to shareholders by each
February, May, August and November, which commenced in November 2005,
substantially equal to our available cash from operations during the previous
quarter, less cash expenses for that quarter (principally vessel operating
expenses and debt service) and any reserves our board of directors determines
we
should maintain. These reserves may cover, among other things, drydocking,
repairs, claims, liabilities and other obligations, interest expense and debt
amortization, acquisitions of additional assets and working capital. On February
9, 2006, the Board of Directors declared a dividend related to the fourth
quarter of 2005 of $0.60 per share, paid on March 10, 2006 to shareholders
of
record as of February 24, 2006. The aggregate amount of the dividend paid was
$15.3 million, which the Company funded from cash on hand. However, in the
future, we may incur other expenses or liabilities that would reduce or
eliminate the cash available for distribution as dividends. Additionally, on
April 27, 2006, the Board of Directors declared a dividend of $0.60 per share,
to be paid on or about May 26, 2006 to shareholders of record as of May 15,
2006.
The
declaration and payment of any dividend is subject to the discretion of our
board of directors. The timing and amount of dividend payments will depend
on
our earnings, financial condition, cash requirements and availability, fleet
renewal and expansion, restrictions in our loan agreements, the provisions
of
Marshall Islands law affecting the payment of distributions to shareholders
and
other factors. Our board of directors may review and amend our dividend policy
from time to time in light of our plans for future growth and other
factors.
We
believe that, under current law, our dividend payments from earnings and profits
will constitute “qualified dividend income” and, as such, will generally be
subject to a 15% U.S. federal income tax rate with respect to non-corporate
U.S.
shareholders that meet certain holding period and other requirements (through
2008). Distributions in excess of our earnings and profits will be treated
first
as a non-taxable return of capital to the extent of a U.S. shareholder's tax
basis in its common stock on a dollar-for-dollar basis and, thereafter, as
capital gain.
Cash
Flow
Net
cash
provided by operating activities for the three months ended March 31, 2006
and
2005, was $23.9 and $17.7 million, respectively. The increase primarily was
due to higher net income in the quarter ended March 31, 2006 due the operation
of a larger fleet. Net cash from operating activities for three months ended
March 31, 2006 was primarily a result of recorded net income of $16.6 million,
and depreciation and amortization charges of $6.4 million. For the three
months ended March 31, 2005, net cash provided from operating activities was
primarily a result of recorded net income of $11.4 million, and depreciation
and
amortization charges of $4.0 million.
During
the quarter ended March 31, 2005, the Company acquired a large portion of its
fleet and net cash used in investing activities declined to $0.6 million from
$193.3 million for the three months ended March 31, 2006 and 2005, respectively,
primarily for this reason. For the three months ended March 31 2006, the cash
used in investing activities related primarily to the purchase of fixed assets
associated with the Company’s office. For the three months ended March 31, 2005,
the cash used in investing activities related solely to the acquisition of
ten
vessels.
Net
cash
(used in) provided by financing activities for the three months ended March
31,
2006 and 2005 was ($15.3) and $185.5 million, respectively. For the three
months ended March 31 2006, net cash used by financing activities consisted
primarily of payment of cash dividends of $15.3 million. For the three months
ended March 31, 2005, the primary sources of net cash provided by financing
activities were proceeds of $192.9 from the Original Credit Facility to fund
vessel acquisitions.
New
Credit Facility
The
Company’s New Credit Facility is with a syndicate of commercial lenders
consisting of Nordea Bank Finland Plc, New York Branch, DnB NOR Bank ASA, New
York Branch and Citigroup Global Markets Limited. The New Credit Facility has
been used to refinance our indebtedness under our Original Credit Facility,
and
may be used in the future to acquire additional vessels and for working capital
requirements. Under the terms of our New Credit Facility, borrowings in the
amount of $106.2 million were used to repay indebtedness under our Original
Credit Facility and additional net borrowings of $24.5 million were obtained
to
fund the acquisition of the Genco Muse. After these net borrowings $319.3
million remains available to fund future vessel acquisitions. The Company may
borrow up to $20.0 million of the $319.3 million for working capital
purposes.
Interest
Rate Swap Agreements and Forward Freight Agreements
Effective
September 14, 2005, the Company entered into an interest rate swap agreement
with DnB NOR Bank to manage interest costs and the risk associated with changing
interest rates. The notional principal amount of the swap is $106.2 million
and
has a fixed interest rate on the notional amount of 4.485% through July 29,
2015
(the “4.485% Swap”). The swap's expiration date coincides with the expiration of
the New Credit Facility on July 29, 2015. The differential to be paid or
received for this swap agreement is recognized as an adjustment to interest
expense as incurred. The change in value on this swap is reflected as a
component of other comprehensive income (“OCI”).
The
change in the value for the 5.075% Swap and the 5.25% Swap and the rate
differential to be paid or received for these swap agreements is recognized
as
income from derivative instruments and is listed as a component of other
(expense) income until such time the Company has obligations which are
designated against the swaps.
For
the
swap agreements for which there is designated debt associated with it, the
total interest rate is fixed at the fixed interest rate of swap plus
the applicable margin on the debt of 0.95% in the first 5 years of the New
Credit Facility and 1.0% in the last five years.
For
the
4.485% Swap, the Company qualified for hedge accounting treatment and the
Company has determined that this interest rate swap agreement continues to
perfectly hedge the debt. Interest income pertaining to the 4.485% Swap for
the
three months ended March 31, 2006 and 2005 was $0.01 million and $0,
respectively. As of March 31, 2006, the 5.25% Swap and the 5.075% Swap
do
not
have any interest income or expense as the swaps are not effective until,
January 2, 2007 and January 2, 2008, respectively. The rate differential on
these two instruments will be reflected as income from derivative instruments
and is listed as a component of other (expense) income once
effective.
The
fair
values of the Swaps were $6.8 million and $2.3 million, respectively, as of
March 31, 2006 and December 31, 2005. The increase in the value was due to
higher LIBOR rates.
As
part
of our business strategy, we may enter into arrangements commonly known as
forward freight agreements, or FFAs, to hedge and manage market risks relating
to the deployment of our existing fleet of vessels. These arrangements may
include future contracts, or commitments to perform in the future a shipping
service between ship owners, charters and traders. Generally, these arrangements
would bind us and each counterparty in the arrangement to buy or sell a
specified tonnage freighting commitment “forward” at an agreed time and price
and for a particular route. Although FFAs can be entered into for a variety
of
purposes, including for hedging, as an option, for trading or for arbitrage,
if
we decided to enter into FFAs, our objective would be to hedge and manage market
risks as part of our commercial management. It is not currently our intention
to
enter into FFAs to generate a stream of income independent of the revenues
we
derive from the operation of our fleet of vessels. If we determine to enter
into
FFAs, we may reduce our exposure to any declines in our results from operations
due to weak market conditions or downturns, but may also limit our ability
to
benefit economically during periods of strong demand in the market. We have
not
entered into any FFAs as of March 31, 2006 and December 31, 2005.
Interest
Rates
The
effective interest rates, including the cost associated with the unused
commitment fees and the rate differential on the 4.485% Swap, for the three
months ended March 31, 2006 and 2005 were 6.39% and 3.91%, respectively. The
interest on the debt, excluding the unused commitment fees ranged from 5.20%
to
5.83% and from 3.69% to 4.25%, respectively, for the three months ended March
31, 2006 and 2005.
Contractual
Obligations
The
following table sets forth our future contractual obligations for the categories
set forth below, including the effective fixed rate on the interest rate swap
agreement that has designated debt associated with the swap. The interest and
fees are also reflective of the New Credit Facility and the interest rate swap
agreement.
|
|
Total
|
|
Within
One
Year
(1)
|
|
One
to Three
Years
|
|
Three
to Five
Years
|
|
More
than
Five
Years
|
|
|
|
(U.S.
dollars in thousands)
|
|
Bank
loans
|
|
$
|
130,683
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
130,683
|
|
Interest
and borrowing fees
|
|
$
|
76,893
|
|
$
|
6,398
|
|
$
|
16,952
|
|
$
|
16.980
|
|
$
|
36,563
|
|
Office
lease
|
|
$
|
7,323
|
|
$
|
202
|
|
$
|
971
|
|
$
|
982
|
|
$
|
5,168
|
|
(1) |
Represents
the nine month period ending December 31,
2006.
|
Interest
expense has been estimated using the fixed rate of 4.485% for the notional
amount of the 4.485% Swap and 5.0% for the unhedged portion, plus the applicable
bank margin of 0.95% in the first 5 years of the New Credit Facility and 1.0%
in
the last five years.
Capital
Expenditures
We
make
capital expenditures from time to time in connection with our vessel
acquisitions. Our vessel acquisitions consist of our fleet of five Panamax
drybulk carriers, seven Handymax drybulk carriers and five Handysize drybulk
carriers.
In
addition to acquisitions that we may undertake in future periods, we will incur
additional capital expenditures due to special surveys and drydockings. We
estimate our drydocking costs for our fleet through 2007 to be:
|
|
|
|
|
|
Year
|
|
Estimated
Drydocking Cost
(U.S.
dollars in millions)
|
|
Estimated
Offhire Days
|
|
|
|
|
|
|
|
2006
|
|
$
|
2.5
|
|
|
180
|
|
2007
|
|
|
2.8
|
|
|
160
|
|
The
costs
reflected depend upon the location where the drydockings are performed and
reflect drydocking our vessels in China, except for one vessel we currently
expect to drydock in Europe in 2006, and the Company estimates that each drydock
will result in 20 days of offhire. Actual results may vary. We believe that
the
funding of these costs will be met with cash we generate from
operations.
During
the first quarter of 2006 we had one vessel, the Genco Trader in drydock. We
expect one vessel to drydock in the second quarter, and an estimate an
additional seven vessels drydock in the second half of 2006.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
Inflation
Inflation
has only a moderate effect on our expenses given current economic conditions.
In
the event that significant global inflationary pressures appear, these pressures
would increase our operating, voyage, general and administrative, and financing
costs.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations
is
based upon our consolidated financial statements, which have been prepared
in
accordance with U.S. GAAP. The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amounts
of
assets and liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions
and
conditions.
Critical
accounting policies are those that reflect significant judgments of
uncertainties and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies, because they generally involve a
comparatively higher degree of judgment in their application. For a description
of all our significant accounting policies, see Note 2 to our consolidated
financial statements included in this 10-Q.
REVENUE
AND VOYAGE EXPENSE RECOGNITION-
Revenues
are generated from time charter agreements and pool agreements. A time charter
involves placing a vessel at the charterer’s disposal for a set period of time
during which the charterer may use the vessel in return for the payment by
the
charterer of a specified daily or monthly hire rate. In time charters, operating
costs such as for crews, maintenance and insurance are typically paid by the
owner of the vessel and specified voyage costs such as fuel, and port charges
are paid by the charterer. There are certain other non-specified voyage expenses
such as commissions which are borne by the Company. Time charter revenues are
recorded over the term of the charter as service is provided. Revenues are
recognized on a straight-line basis as the average revenue over the term of
the
respective time charter agreement. Vessel operating expenses are recognized
when
incurred.
In
December 2005 and February 2006, the Genco Trader and Genco Leader,
respectively, entered into the Baumarine Panamax Pool. Vessel pools, such as
the
Baumarine Panamax Pool, provide cost effective commercial management activities
for a group of similar class vessels. The pool arrangement provides the benefits
of a large-scale operation, and chartering efficiencies that might not be
available to smaller fleets. Under the pool arrangement, the vessels operate
under a time charter agreement whereby the cost of bunkers and port expenses
are
borne by the charterer and operating costs including crews, maintenance and
insurance are typically paid by the owner of the vessel. Since the members
of
the pool share in the revenue generated by the entire group of vessels in the
pool, and the pool operates in the spot market, the revenue earned by these
two
vessels is subject to the fluctuations of the spot market.
Our
standard time charter contracts with our customers specify certain performance
parameters, which if not met can result in customer claims. As of March 31,
2006
and December 31, 2005, the Company had a reserve of $0.4 million and $0.3
million, respectively, associated with estimated customer claims against the
Company for time charter performance issues.
VESSEL
ACQUISITIONS-
When
the
Company enters into an acquisition transaction, it determines whether the
acquisition transaction was the purchase of an asset or a business based on
the
facts and circumstances of the transaction.
When
a
vessel is acquired with an existing time charter, the Company allocates the
purchase price of the vessel and the time charter based on, among other things,
vessel market valuations and the present value (using an interest rate which
reflects the risks associated with the acquired charters) of the difference
between (i) the contractual amounts to be paid pursuant to the charter terms
and
(ii) management's estimate of the fair market charter rate, measured over a
period equal to the remaining term of the charter. The capitalized above-market
(assets) and below-market (liabilities) charters are amortized as a reduction
or
increase, respectively, to voyage revenues over the remaining term of the
charter.
DEPRECIATION-
We
record
the value of our vessels at their cost (which includes acquisition costs
directly attributable to the vessel and expenditures made to prepare the vessel
for its initial voyage) less accumulated depreciation. We depreciate our drybulk
vessels on a straight-line basis over their estimated useful lives, estimated
to
be 25 years from the date of initial delivery from the shipyard.
Depreciation is based on cost less the estimated residual scrap value. We
estimate the residual values of our vessels to be based upon $175 per
lightweight ton. An increase in the useful life of a drybulk vessel or in its
residual value would have the effect of decreasing the annual depreciation
charge and extending it into later periods. A decrease in the useful life of
a
drybulk vessel or in its residual value would have the effect of increasing
the
annual depreciation charge. However, when regulations place limitations over
the
ability of a vessel to trade on a worldwide basis, we will adjust the vessel’s
useful life to end at the date such regulations preclude such vessel’s further
commercial use.
IMPAIRMENT
OF LONG-LIVED ASSETS-
We
follow
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which requires impairment
losses to be recorded on long-lived assets
used
in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the asset’s
carrying amount. In the evaluation of the fair value and future benefits of
long-lived assets, we perform an analysis of the anticipated undiscounted future
net cash flows of the related long-lived assets. If the carrying value of the
related asset exceeds the undiscounted cash flows, the carrying value is reduced
to its fair value. Various factors including future charter rates, scrap values,
future drydock costs and vessel operating costs are included in this
analysis.
DEFERRED
DRYDOCKING COSTS-
Our
vessels are required to be drydocked approximately every 30 to 60 months
for major repairs and maintenance that cannot be performed while the vessels
are
operating. We capitalize the costs associated with drydockings as they occur
and
depreciate these costs on a straight-line basis over the period between
drydockings. Capitalized drydocking costs include actual costs incurred at
the
drydock yard; and cost of parts that are believed to be reasonably likely to
reduce the duration or cost of the drydocking; cost of travel, lodging and
subsistence of our personnel sent to the drydocking site to supervise; and
the
cost of hiring a third party to oversee a drydocking. We believe that these
criteria are consistent with U.S. GAAP guidelines and industry practice and
that
our policy of capitalization reflects the economics and market values of the
vessels.
FAIR
VALUE OF FINANCIAL INSTRUMENTS-
The
estimated fair values of the Company’s financial instruments such as amounts due
from charterers, accounts payable and long term debt approximate their
individual carrying amounts as of March 31, 2006 and December 31, 2005 due
to
their short-term maturity or the variable-rate nature of the respective
borrowings.
The
fair
value of the interest rate swaps (used for purposes other than trading) is
the
estimated amount the Company would receive to terminate the swap agreements
at
the reporting date, taking into account current interest rates and the
creditworthiness of the swap counterparty.
DERIVATIVE
FINANCIAL INSTRUMENTS-
To
manage
its exposure to fluctuating interest rates, the Company uses interest rate
swap
agreements. Interest rate differentials to be paid or received under these
agreements are accrued and recognized as an adjustment of interest expense
related to the designated debt. The interest rate differential on the swaps
that
do not have designated debt associated with it will be reflected as income
from
derivative instruments and is listed as a component of other (expense) income.
The fair value of the interest rate swap agreements and changes in fair value
are recognized in the financial statements as non-current asset or
liability.
Amounts
receivable or payable arising at the settlement of interest rate swaps are
deferred and amortized as an adjustment to interest expense over the period
of
interest rate exposure provided the designated liability continues to
exist.
INCOME
TAXES-
Pursuant
to Section 883 of the U.S. Internal Revenue Code of 1986 as amended (the
“Code”), qualified income derived from the international operations of ships is
excluded from gross income and exempt from U.S. federal income tax if a company
engaged in the international operation of ships meets certain requirements.
Among other things, in order to qualify, the company must be incorporated in
a
country which grants an equivalent exemption to U.S. corporations and must
satisfy certain qualified ownership requirements.
The
Company is incorporated in the Marshall Islands. Pursuant to the income tax
laws
of the Marshall Islands, the Company is not subject to Marshall Islands income
tax. The Marshall Islands has been officially recognized by the Internal Revenue
Service as a qualified foreign country that currently grants the requisite
equivalent exemption from tax.
Based
on
the ownership of our common stock prior to our initial public offering on
July 22, 2005, we qualified for exemption from income tax for 2005 under Section
883, since for more than half of 2005, we were a
Controlled
Foreign Corporation (“CFC”) and satisfied certain other criteria in the Section
883 regulations. We were a CFC, as defined in the Code, since until the initial
public offering on July 22, 2005, over 50% of our stock was owned by United
States holders each of whom owned ten percent or more of our voting stock,
or US
10% Owners. During that time, approximately 93% of our common stock was held
by
US 10% Owners.
Immediately
following the initial public offering, the US 10% Owners beneficially owned
less
than 50% of our stock. If such owners were to continue to own less than 50%
of
our stock and there were no additional US 10% Owners during 2006, we would
no
longer be eligible to qualify for exemption from tax under Section 883 based
on
being a CFC. Instead, we could only qualify for exemption if we satisfy the
publicly traded requirement of the Section 883 regulations. In order to meet
the
publicly traded requirements for 2006 and future years, our stock must be
treated as being primarily and regularly traded on Nasdaq for more than half
the
days of any such year. Under the Section 883 regulations, our qualification
for
the publicly traded requirement may be jeopardized if shareholders of our common
stock that own five percent or more of our stock own, in the aggregate, 50%
or
more of our common stock. As of March 31, 2006, we believe that such five
percent or more shareholders are limited to Oaktree and Peter Georgiopoulos,
our
Chairman which own approximately 48.96% of our common stock through
Fleet Acquisition, LLC.
However
if such shareholders were to increase their ownership in excess of 50% of our
common stock for more than half the days of 2006, we would not be eligible
to
claim exemption from tax under Section 883. We can therefore give no assurance
that changes and shifts in the ownership of our stock by five percent or more
shareholders will permit us to qualify for exemption from tax in 2006 or in
future years.
If
the
Company does not qualify for the exemption from tax under Section 883, it likely
would be subject to a 4% tax on the gross “shipping income” (without the
allowance for any deductions) that is treated as derived from sources within
the
United States or “United States source shipping income.” For these purposes,
“shipping income” means any income that is derived from the use of vessels, from
the hiring or leasing of vessels for use, or from the performance of services
directly related to those uses; and “United States source shipping income”
includes 50% of shipping income that is attributable to transportation that
begins or ends, but that does not both begin and end, in the United
States.
ITEM
3. QUALITATIVE
AND QUANTITATIVE MARKET RISK
Interest
rate
risk
The
Company is exposed to the impact of interest rate changes. The Company’s
objective is to manage the impact of interest rate changes on its earnings
and
cash flow in relation to its borrowings. The Company held three interest rate
risk management instruments at March 31, 2006 and one at December 31, 2005,
in
order to manage future interest costs and the risk associated with changing
interest rates.
Effective
September 14, 2005, the Company entered into the 4.485% Swap, on March 24,
2006,
the 5.075% Swap and on March 29, 2006, the 5.25% Swap, collectively the (the
“Swaps”). The Swaps manage interest costs and the risk associated with changing
interest rates.
For
the
swap agreements for which there is designated debt associated with it,
the total interest rate is fixed at the fixed interest rate of swap plus
the applicable margin on the debt of 0.95% in the first 5 years of the New
Credit Facility and 1.0% in the last five years.
The
asset
associated with the Swaps at March 31, 2006 and December 31, 2005 is $6.8 and
$2.3 million, respectively, and is presented as the fair value of derivatives
on
the balance sheet. As of March 31, 2006 and December 31, 2005, the Company
has
other OCI of $4.0 and $2.3 million, respectively, related to the 4.485% Swap.
The 5.075% Swap and the 5.25% Swap, combined, resulted in income from derivative
instruments of $0.5 million for the three months ended March 31, 2006, due
to
the increase in the value of these instruments.
Derivative
financial instruments
To
manage
its exposure to fluctuating interest rates, the Company uses interest rate
swap
agreements. Interest rate differentials to be paid or received under these
agreements are accrued and recognized as an adjustment of interest expense
related to the designated debt. The interest rate differential on the swaps
that
do not have
designated
debt associated with it will be reflected as income from derivative instruments
and is listed as a component of other (expense) income. The fair value of the
interest rate swap agreements and changes in fair value are recognized in the
financial statements as non-current asset or liability.
Amounts
receivable or payable arising at the settlement of interest rate swaps are
deferred and amortized as an adjustment to interest expense over the period
of
interest rate exposure provided the designated liability continues to
exist.
The
expiration date of the 4.485% Swap coincides with the expiration of the New
Credit Facility on July 29, 2015. The differential to be paid or received for
this swap agreement is recognized as an adjustment to interest expense as
incurred. The change in value on this swap is reflected as a component of other
comprehensive income (“OCI”).
The
change in the value for the 5.075% Swap and the 5.25% Swap and the rate
differential to be paid or received for these swap agreements is recognized
as
income from derivative instruments and is listed as a component of other
(expense) income until such time the Company has obligations which are
designated against the swaps.
For
the
swap agreements for which there is designated debt associated with it, the
total
interest rate is fixed at the fixed interest rate of
swap plus the applicable margin on the debt of 0.95% in the first 5 years
of the New Credit Facility and 1.0% in the last five years.
For
the
4.485% Swap, the Company qualified for hedge accounting treatment and the
Company has determined that this interest rate swap agreement, which initially
hedged the corresponding debt, continues to perfectly hedge the debt. Interest
income pertaining to the 4.485% Swap for the three months ended March 31, 2006
and 2005 was $0.01 million and $0, respectively. As of March 31, 2006, the
5.25%
Swap and 5.075% Swap do
not
have any interest income or expense as the swaps are not effective until,
January 2, 2007 and January 2, 2008, respectively. The rate differential on
these two instruments will be reflected as income
from derivative instruments and listed as
a
component of other (expense) income once effective.
The
fair
value of the derivative instruments were $6.8 million and $2.3 million,
respectively as of March 31, 2006 and December 31, 2005.
We
are
subject to market risks relating to changes in interest rates because we have
significant amounts of floating rate debt outstanding. We paid interest on
this
debt based on LIBOR plus an average spread of 1.35% on our Original Credit
Facility in the three months ended March 31, 2005. For the three months ended
March 31, 2006, we paid LIBOR plus 0.95% for the debt in excess of the swap
notional amount on the New Credit Facility, and on the interest rate swap,
an
effective rate of 4.485% plus a margin of 0.95% on the notional amount of $106.2
million. A 1% increase in LIBOR would result in an increase of $0.06 million
in
interest expense for the three months ended March 31, 2006 considering the
increase would be only on the unhedged portion of the debt.
Currency
and exchange
rates risk
The
international shipping industry’s functional currency is the U.S. Dollar.
Virtually all of our revenues and most of our operating costs are in
U.S. Dollars. We incur certain operating expense in currencies other than
the U.S. dollar, and the foreign exchange risk associated with these operating
expenses is immaterial.
ITEM
4. CONTROLS
AND PROCEDURES
Under
the
supervision and with the participation of our management, including our
President and Chief Financial Officer, we have evaluated the effectiveness
of
the design and operation of our disclosure controls and procedures pursuant
to
Rule 13a-15 of the Securities Exchange Act of 1934 as of the end of the period
covered by this Report. Based upon that evaluation, our President and Chief
Financial Officer have concluded that our disclosure controls and procedures
are
effective in timely alerting them at a reasonable assurance level to material
information required to be included in our periodic Securities and Exchange
Commission filings
PART
II:
OTHER
INFORMATION
From
time
to time the Company will be subject to legal proceedings and claims in the
ordinary course of its business, principally personal injury and property
casualty claims. Such claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources. The Company
is
not aware of any legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the Company,
its
financial condition, results of operations or cash flows.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not
applicable.
ITEM
3. DEFAULTS
UPON SENIOR SECURITES
Not
applicable.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM
5. OTHER
INFORMATION
In
compliance with Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, we
have
provided certifications of our Principal Executive Officer and Principal
Financial Officer to the Securities and Exchange Commission. The
certifications provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 accompanying this report have not been filed pursuant to the Securities
Exchange Act of 1934.
Item
6. Exhibits
Exhibit
|
Document
|
3.1
|
Amended
and Restated Articles of Incorporation of the Company as adopted
July 5,
2005 (incorporated by reference to Exhibit 3.1 to report on Form
S-1/A
dated July 6, 2005).
|
3.2
|
Amended
and Restated Bylaws of the Company as adopted April 4, 2006 (incorporated
by reference to Exhibit 3.2 to report on Form 8-K dated April 4,
2006).
|
3.3
|
Articles
of Amendment of Articles of Incorporation of the Company as adopted
July
21, 2005 (incorporated by reference to Exhibit 3.2 to report on Form
S-1/A
dated July 21, 2005).
|
31.1
|
Certification
of President pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.*
|
32.1
|
Certification of President pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
|
(*) Filed
with this Report.
(Remainder
of page left intentionally blank)
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
GENCO
SHIPPING
& TRADING LIMITED
|
|
|
DATE:
May 11, 2006
|
|
By:
/s/ ROBERT GERALD
BUCHANAN
Robert
Gerald Buchanan
President
(Principal
Executive Officer)
|
DATE:
May 11, 2006
|
|
By:
/s/ JOHN C.
WOBENSMITH
John
C. Wobensmith
Chief
Financial Officer, Secretary and Treasurer
(Principal
Financial and Accounting Officer)
|
Exhibit
Index
Exhibit
|
Document
|
|
|
3.1
|
Amended
and Restated Articles of Incorporation of the Company as adopted
July 5,
2005 (incorporated by reference to Exhibit 3.1 to report on Form
S-1/A
dated July 6, 2005).
|
3.2
|
Amended
and Restated Bylaws of the Company as adopted April 4, 2006 (incorporated
by reference to Exhibit 3.2 to report on Form 8-K dated April 4,
2006).
|
3.3
|
Articles
of Amendment of Articles of Incorporation of the Company as adopted
July
21, 2005 (incorporated by reference to Exhibit 3.2 to report on Form
S-1/A
dated July 21, 2005).
|
31.1
|
Certification of
President pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.*
|
32.1
|
Certification of President pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
|
(*) Filed
with this Report.
(Remainder
of page left intentionally blank)
39