Form 10-Q 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 September 30, 2006
OR
[
]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
|
For
the
transition period from _________________________ to
_________________________
Commission
file number 000-51442
GENCO
SHIPPING & TRADING LIMITED
(Exact
name of registrant as specified in its charter)
Republic
of the Marshall Islands
(State
or other jurisdiction
incorporation
or organization)
|
|
98-043-9758
(I.R.S.
Employer
Identification
No.)
|
|
|
|
299
Park Avenue (20th
Floor), New York, New York 10171
(Address
of principal executive offices)
(Zip Code)
|
|
(646)
443-8550
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes
X
No
Indicate
by checkmark whether registrant is a large accelerated filer, an accelerated
file, or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer ____ Accelerated
Filer ____ Non-Accelerated
Filer X
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
Yes No
X
The
number of shares outstanding of each of the issuer’s classes of common stock, as
of November 13, 2006:
Common
stock, $0.01 per share 25,434,212 shares.
Genco
Shipping & Trading Limited
Form
10-Q
for the three and nine months ended September 30, 2006 and 2005
PART
I FINANCIAL
INFORMATION
Item
1. Financial
Statements Page
a)
Consolidated
Balance Sheets -
September
30, 2006
and December 31, 2005
3
b) Consolidated
Statements of Operations
For the
three and nine months ended September 30, 2006 and 2005 4
c) Consolidated
Statements of Shareholders’ Equity and Comprehensive Income
For
the nine months ended
September 30, 2006 and 2005 5
d) Consolidated
Statements of Cash Flows
For
the nine months
ended September 30, 2006 and 2005 6
e)
Notes
to
Consolidated Financial Statements
Item
2.
Management’s
Discussion and Analysis of Financial
Condition and Results of Operations
22
Item
3.
Quantitative
and Qualitative Disclosures about Market Risk 40
Item
4.
Control
and Procedures
42
PART
II
OTHER
INFORMATION
Item
1. Legal
Proceedings
42
Item
1A. Risk
Factors 42
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds 42
Item
5.
Other
Information
42
Item
6.
Exhibits
44
PART
I: FINANCIAL INFORMATION
Genco
Shipping & Trading Limited
Consolidated
Balance Sheets as of September 30, 2006
And
December 31, 2005
(U.S.
Dollars in thousands)
|
|
September
30,
2006
|
|
December
31, 2005
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
65,599
|
|
$
|
46,912
|
|
Due
from charterers, net
|
|
|
217
|
|
|
219
|
|
Prepaid
expenses and other current assets
|
|
|
4,287
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
70,103
|
|
|
49,705
|
|
|
|
|
|
|
|
|
|
Noncurrent
assets:
|
|
|
|
|
|
|
|
Vessels,
net of accumulated depreciation of $41,884 and $22,659,
respectively
|
|
|
411,139
|
|
|
430,287
|
|
Deferred
drydock, net of accumulated amortization of $233 and $35,
respectively
|
|
|
1,853
|
|
|
152
|
|
Other
assets, net of accumulated amortization of $369 and $126,
respectively
|
|
|
5,066
|
|
|
5,967
|
|
Fixed
assets, net of accumulated depreciation and amortization of $265
and $49,
respectively
|
|
|
1,933
|
|
|
1,522
|
|
Deposits
on vessels
|
|
|
8,125
|
|
|
-
|
|
Fair
value of derivative instruments
|
|
|
4,158
|
|
|
2,325
|
|
Total
noncurrent assets
|
|
|
432,274
|
|
|
440,253
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
502,377
|
|
$
|
489,958
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
6,709
|
|
$
|
5,978
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
6,709
|
|
|
5,978
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
3,483
|
|
|
4,576
|
|
Deferred
rent credit
|
|
|
748
|
|
|
479
|
|
Fair
value of derivative instruments
|
|
|
1,202
|
|
|
-
|
|
Long
term debt
|
|
|
138,808
|
|
|
130,683
|
|
Total
noncurrent liabilities
|
|
|
144,241
|
|
|
135,738
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
150,950
|
|
|
141,716
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, par value $0.01; 100,000,000 shares authorized; issued and
|
|
|
|
|
|
|
|
outstanding
25,434,212 shares at September 30, 2006 and December 31,
2005
|
|
|
254
|
|
|
254
|
|
Paid
in capital
|
|
|
306,834
|
|
|
305,500
|
|
Accumulated
other comprehensive income
|
|
|
2,954
|
|
|
2,325
|
|
Retained
earnings
|
|
|
41,385
|
|
|
40,163
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
351,427
|
|
|
348,242
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
502,377
|
|
$
|
489,958
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
Genco
Shipping & Trading Limited
Consolidated
Statements of Operations for the Three and Nine Months Ended September 30,
2006
and 2005
(U.S.
Dollars in Thousands, Except Earnings per Share)
(Unaudited)
|
|
For
the Three Months
Ended
September 30,
|
|
For
the Nine Months
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
32,642
|
|
$
|
31,172
|
|
$
|
97,516
|
|
$
|
83,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
1,056
|
|
|
1,134
|
|
|
3,220
|
|
|
3,044
|
|
Vessel
operating expenses
|
|
|
5,757
|
|
|
3,818
|
|
|
15,022
|
|
|
9,250
|
|
General
and administrative expenses
|
|
|
2,055
|
|
|
1,222
|
|
|
6,808
|
|
|
2,415
|
|
Management
fees
|
|
|
353
|
|
|
326
|
|
|
1,047
|
|
|
1,135
|
|
Depreciation
and amortization
|
|
|
6,681
|
|
|
6,116
|
|
|
19,638
|
|
|
15,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
15,902
|
|
|
12,616
|
|
|
45,735
|
|
|
31,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
16,740
|
|
|
18,556
|
|
|
51,781
|
|
|
51,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expense)
income from derivative instruments
|
|
|
(2,195
|
)
|
|
-
|
|
|
2
|
|
|
-
|
|
Interest
income
|
|
|
827
|
|
|
329
|
|
|
2,080
|
|
|
595
|
|
Interest
expense
|
|
|
(2,468
|
)
|
|
(6,545
|
)
|
|
(6,859
|
)
|
|
(13,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expense) income
|
|
|
(3,836
|
)
|
|
(6,216
|
)
|
|
(4,777
|
)
|
|
(12,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
12,904
|
|
$
|
12,340
|
|
$
|
47,004
|
|
$
|
39,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share-basic
|
|
$
|
0.51
|
|
$
|
0.55
|
|
$
|
1.86
|
|
$
|
2.38
|
|
Earnings
per share-diluted
|
|
$
|
0.51
|
|
$
|
0.55
|
|
$
|
1.86
|
|
$
|
2.38
|
|
Weighted
average common shares outstanding-basic
|
|
|
25,288,695
|
|
|
22,575,652
|
|
|
25,270,831
|
|
|
16,558,462
|
|
Weighted
average common shares outstanding-diluted
|
|
|
25,371,882
|
|
|
22,575,652
|
|
|
25,338,031
|
|
|
16,558,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
Genco
Shipping & Trading Limited
Consolidated
Statement of Shareholders’ Equity and Comprehensive Income
(Unaudited)
For
the
Nine Months Ended September 30, 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
|
|
|
|
|
|
|
|
|
47,004
|
|
|
|
|
$
|
47,004
|
|
|
47,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
derivative gains from cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
629
|
|
|
629
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid
|
|
|
|
|
|
|
|
|
(45,782
|
)
|
|
|
|
|
|
|
|
(45,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock amortization
|
|
|
|
|
|
1,334
|
|
|
|
|
|
|
|
|
|
|
|
1,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2006
|
|
$
|
254
|
|
$
|
306,834
|
|
$
|
41,385
|
|
$
|
2,954
|
|
|
|
|
$
|
351,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
Genco
Shipping & Trading Limited
Consolidated
Statement of Cash Flows for the Nine Months Ended September 30, 2006 and
2005
(U.S.
Dollars in Thousands)
(Unaudited)
|
|
For
the Nine Months
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
47,004
|
|
$
|
39,342
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
19,638
|
|
|
15,767
|
|
Amortization
of deferred financing costs
|
|
|
243
|
|
|
4,536
|
|
Amortization
of value of time charter acquired
|
|
|
1,383
|
|
|
-
|
|
Unrealized
gain on derivative instruments
|
|
|
(2
|
)
|
|
-
|
|
Amortization
of restricted stock compensation expense
|
|
|
1,334
|
|
|
-
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
in due from charterers, net
|
|
|
2
|
|
|
288
|
|
Increase
in prepaid expenses and other current assets
|
|
|
(1,713
|
)
|
|
(2,246
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
589
|
|
|
2,277
|
|
(Decrease)
increase in deferred revenue
|
|
|
(1,093
|
)
|
|
2,912
|
|
Increase
in deferred rent credit
|
|
|
269
|
|
|
41
|
|
Deferred
drydock costs incurred
|
|
|
(1,333
|
)
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
66,321
|
|
|
62,730
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of vessels
|
|
|
(76
|
)
|
|
(235,982
|
)
|
Purchase
of other fixed assets
|
|
|
(1,050
|
)
|
|
(296
|
)
|
Deposits
on vessels to be acquired
|
|
|
(8,125
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(9,251
|
)
|
|
(236,278
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Cash
dividends paid
|
|
|
(45,782
|
)
|
|
-
|
|
Proceeds
from credit facilities
|
|
|
8,125
|
|
|
340,912
|
|
Repayments
on credit facilities
|
|
|
-
|
|
|
(357,000
|
)
|
Net
proceeds from issuance of common stock
|
|
|
-
|
|
|
230,143
|
|
Capital
contributions from shareholder
|
|
|
-
|
|
|
2,705
|
|
Payment
of deferred financing costs
|
|
|
(726
|
)
|
|
(3,370
|
)
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(38,383
|
)
|
|
213,390
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
18,687
|
|
|
39,842
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
46,912
|
|
|
7,431
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
65,599
|
|
$
|
47,273
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
6,491
|
|
$
|
8,147
|
|
|
|
|
|
|
|
|
|
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 and Nine Months Ended September 30, 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 20 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 June 7, 2005, the Company
had taken delivery of all of these vessels. 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, from borrowings under the Company’s
original credit facility entered
into on December 3, 2004 (the “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 entered into in July 2005 (the “New Credit Facility”). The portion of
the purchase price attributable to the vessel was $30,958 (see Note 4). Lastly,
the Company has agreed to acquire vessels to be renamed the Genco Acheron,
the
Genco Commander, and the Genco Surprise. The Genco Acheron and Genco Commander
were delivered in November 2006, and the Genco Surprise is expected to be
delivered on or about November 16 2006. Below is the list of the Company’s
wholly owned subsidiaries as of September 30, 2006:
|
|
|
|
|
Wholly
Owned
Subsidiaries
|
Vessels
|
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
|
Genco
Commander Limited
|
Genco
Commander
|
45,518
|
11/2/06
|
1994
|
Genco
Acheron Limited
|
Genco
Acheron
|
72,495
|
11/7/06
|
1999
|
Genco
Surprise Limited
|
Genco
Surprise
|
72,495
|
11/16/06
(1)
|
1998
|
(1)
Represents the estimated delivery date subject to the customary closing
conditions associated with this acquisition.
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 as reflected in equity for the year ended December 31,
2005.
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, 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 at September
30, 2006.
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 impractical.
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
September 30, 2006, the Company had a reserve of $197 against due from
charterers balance and an additional reserve of $399, each of which is
associated with estimated customer claims against the Company for time charter
performance issues. As of December 31, 2005, the Company had a reserve of $316
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 September 30, 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 5
years
Vessel
equipment 2-5
years
Computer
equipment
3
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 amortizes 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,
a component of prepaid expenses and other current assets, 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
and nine months ended September 30, 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.
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 September 30, 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% of revenues from
eleven and thirteen customers, for the three months ended September 30, 2006
and
2005, respectively, and 100% of revenues from eleven and fifteen customers,
for
the nine months ended September 30, 2006 and 2005, respectively, management
does
not believe significant risk exists in connection with the Company’s
concentrations of credit at September 30, 2006 and December 31,
2005.
For
the
three months ended September 30, 2006 and 2005, there are three customers in
each period, which individually account for more than 10% of revenue for the
respective period. For the nine months ended September 30, 2006 and 2005, there
are two and three 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 September 30, 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 or pay 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 September 30, 2006 and one at December 31, 2005,
in order to manage future interest costs and the risk associated with changing
interest rates.
The
differential
to be paid or received for the effectively hedged portion of any swap agreement
is recognized as an adjustment to interest expense as incurred. Additionally,
the
change in value
for the
portion of the swaps that are effectively hedged is
reflected as a component of other comprehensive income (“OCI”).
For
the
portion of the forward interest rate swaps that are not effectively hedged,
the
change in the value and the rate differential to be paid or received is
recognized as (expense) income from derivative instruments and is listed as
a
component of other (expense) income until such time the Company has obligations
against which the swap is designated and is an effective hedge.
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 for any portion of designated debt that is effectively hedged is
accrued and recognized as an adjustment of interest expense. The interest rate
differential on the swaps that do not have designated debt or is not effectively
hedged will be reflected as
(expense) income from derivative instruments and is listed as
a
component of other (expense) income. The fair value of the interest rate swap
agreements is recognized in the financial statements as a non-current asset
or
liability.
Amounts
receivable or payable arising at the settlement of hedged interest rate swaps
are deferred and amortized as an adjustment to interest expense over the period
of interest rate exposure provided the designated liability continues to exist.
Amounts receivable or payable arising at the settlement of unhedged interest
rate swaps are reflected as
(expense) income from derivative instruments and is listed as
a
component of other (expense) income.
New
accounting pronouncements
SFAS
157
- Fair Value Measurements: The FASB issued Statement No. 157 ("SFAS 57") on
September 15, 2006. SFAS 57 enhances existing guidance for measuring assets
and
liabilities using fair value. Prior to the Statement's issuance, guidance for
applying fair value was incorporated in several accounting pronouncements.
The
new statement provides a single definition of fair value, together with a
framework for measuring it, and requires additional disclosure about the use
of
fair value to measure assets and liabilities. While the statement does not
add
any new fair value measurements, it does change current practice. On such change
is a requirement to adjust the value of restricted stock for the effect of
the
restriction even if the restriction lapses within one year. The Statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The adoption
of this Statement on January 1, 2007, is not expected to have a material impact
on the financial statements of the Company.
3
-
CASH FLOW INFORMATION
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 7. The fair value of the 4.485% Swap is in an asset position
of $4,158 and $2,325 as of September 30, 2006 and December 31, 2005,
respectively. The fair values of the 5.075% Swap and 5.25% Swap are in a
liability position of $1,202 and $0 as of September 30, 2006 and December 31,
2005, respectively.
The
Company had non-cash operating items for dry docking costs not included in
the
Consolidated Statement of Cash Flows in the amount of $565 and $0, respectively,
for items included in deferred dry docking and accounts payable and accrued
expenses for the nine months ended September 30, 2006 and 2005.
The
Company granted restricted stock to its employees and directors 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.
Cash
paid
during the period for interest on the Consolidated Statement of Cash Flows
includes the rate differential associated with any hedged interest rate swap.
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
September, 2006 and 2005, $466 and $0, respectively was amortized, and for
the
nine months ended September, 2006 and 2005, $1,383 and $0 was amortized. At
September 30, 2006 and December 31, 2005 $1,710 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.
On
July
10, 2006, the Company entered into an agreement with affiliates of Franco
Compania Naviera S.A. under which the Company is to purchase three drybulk
vessels for an aggregate price of $81,250,
two of
which were delivered in November 2006 and the third of which is expected to
be
delivered on or about November 16, 2006.
The
acquisition is subject to customary closing conditions. The Company expects
to
finance the purchase from its credit facility. The acquisition consists of
a
1999 Japanese-built Panamax vessel to be named the Genco Acheron, a 1998
Japanese-built Panamax vessel to be named the Genco Surprise, and a 1994
Japanese-built Handymax vessel to be named the Genco Commander. With
the
addition of these vessels, Genco's fleet will consist of seven Panamax, eight
Handymax, and five Handysize drybulk carriers, with a total carrying capacity
of
approximately 1,029,000 dwt and an average fleet age of nine years. See
Subsequent Events - Note 18 for delivery of vessels subsequent to September
30,
2006.
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 and nine months ended September 30, 2006, the restricted stock grants
are
dilutive. For the three and nine months ended September 30, 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
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding, basic:
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic
|
|
|
25,288,695
|
|
|
22,575,652
|
|
|
25,270,831
|
|
|
16,558,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding, diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic
|
|
|
25,288,695
|
|
|
22,575,652
|
|
|
25,270,831
|
|
|
16,558,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average restricted stock awards
|
|
|
83,187
|
|
|
-
|
|
|
67,200
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, diluted
|
|
|
25,371,882
|
|
|
22,575,652
|
|
|
25,338,031
|
|
|
16,558,462
|
|
6
-
RELATED PARTY TRANSACTIONS
The
following are related party transactions not disclosed elsewhere in these
financial statements:
In
June
2006, the Company made an employee performing internal audit services available
to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C.
Georgiopoulos, also serves as Chairman of the Board, Chief Executive Officer
and
President, and Stephen A. Kaplan also serves as a director. For the nine months
ended September 30, 2006, the Company invoiced $17 to GMC for the time
associated with such internal audit services. In 2005, no such arrangement
was
in place. In April 2005, the Company began renting office space in a building
leased by GenMar Realty LLC, a company wholly owned by Peter C. Georgiopoulos,
the Chairman of the Board. There was no lease agreement between the Company
and
GenMar Realty LLC. The Company paid an occupancy fee on a month-to-month basis
in the amount of $55. For the nine months ended September 30, 2005, the Company
incurred $275. This lease was terminated at December 31, 2005, and there is
no
such arrangement in place for 2006. At September 30, 2006, the amount due the
Company from GMC is $9. No amounts were owed on December 31, 2005.
During
the nine months ended September 30, 2006 and 2005, the Company incurred
travel-related and miscellaneous expenditures totaling $186 and $113,
respectively. These travel-related expenditures are reimbursable to GMC or its
service provider. For the nine months ended September 30, 2006 and 2005,
approximately $49 and $113, respectively 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. Prior to the initial public
offering, and for the nine months ended September 30, 2005, the Company
purchased $25 of computers and incurred $17 of expense for consultative services
provided by GMC.
During
the nine months ended September 30, 2006 and 2005, the Company incurred legal
services (primarily in connection with vessel acquisitions) aggregating $64
and
$174, respectively, from Constantine Georgiopoulos, father of Peter C.
Georgiopoulos, Chairman of the Board. At September 30, 2006 and December 31,
2005, $36 and $27, respectively was outstanding to Constantine
Georgiopoulos.
7
-
LONG-TERM DEBT
Long-term
debt consists of the following:
|
|
September
30, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Revolver,
New Credit Facility
|
|
$
|
138,808
|
|
$
|
130,683
|
|
Less:
Current portion of revolver
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
138,808
|
|
$
|
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. In July 2006, the Company increased the line of credit by
$100,000 and in July 2006 borrowed $8,125 for deposits on the new vessels to
be
acquired. As of September 30, 2006, the amount available on the credit facility
to fund future vessel acquisitions is $411,192. The Company may borrow up to
$20,000 of the available credit facility 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. At September 30, 2006, the New Credit Facility limit
is
$550,000 for the balance of the initial period of six years. Thereafter,
the facility limit is reduced by an amount equal to 8.125% of the total $550,000
commitment, semi-annually over a period of four years and is reduced to $0
on the tenth anniversary.
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 on the original commitment of $450,000 and an additional $600 for
the
$100,000 commitment increase which equates to 0.6% of the total commitment
of
$550,000 as of July 12, 2006. These arrangement fees along with other costs
have
been capitalized as deferred financing costs.
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 September
30,
2006, the Company has been in compliance with these covenants, except for an
age
covenant in conjunction with the acquisition of the Genco Commander, a
1994
vessel, for which the Company obtained a waiver.
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 September 30, 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 September
30, 2006:
|
|
|
|
Period
Ending December 31,
|
|
Total
|
|
|
|
|
|
2006
(October 1, 2006 - December 31, 2006)
|
|
$
|
-
|
|
2007
|
|
|
-
|
|
2008
|
|
|
-
|
|
2009
|
|
|
-
|
|
2010
|
|
|
-
|
|
Thereafter
|
|
|
138,808
|
|
|
|
|
|
|
|
|
$
|
138,808
|
|
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, 2007 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 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 4.485% Swap is effectively hedged against our current debt and
therefore the change in value on this swap is reflected as a component of other
comprehensive income (“OCI”).
Interest
income (expense) pertaining to this interest rate swap for the three months
ended September 30, 2006 and 2005 was $240 and $(36), respectively. Interest
income (expense) pertaining to this interest rate swap for the nine months
ended
September 30, 2006 and 2005 was $385 and $(36), 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 (expense) income from
derivative instruments and is listed as a component of other (expense) income
until such time the Company has obligations against
which the swap is designated and is an effective hedge.
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 (expense) income from derivative
instruments and is listed as a component of other (expense) income until such
time the Company has obligations against which the swap is designated and is
an
effective hedge.
Effective July 2006, the Company has designated $32,575 of the swap’s notional
amount against the Company’s debt and has utilized hedge accounting whereby the
change in value for the portion of the swap that is effectively hedged is
recorded as a
component of OCI.
For
the
portion of the Company debt which has been hedged and the rate differential
on
the swap is in effect, 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 the portion of the swap that has not been designated
against the Company’s debt and any portion of the swap that is ineffectively
hedged for these two instruments will be reflected as (expense) income from
derivative instruments and is listed as a component of other (expense) income
once effective. The rate differential on any portion of the swaps that
effectively hedges our debt will be recognized as an adjustment to interest
expense as incurred.
The
asset
associated with the 4.485% Swap at September 30, 2006 and December 31, 2005
is
$4,158 and $2,325, respectively, and is presented as the fair value of
derivatives on the balance sheet. The liability associated with the 5.075%
Swap and the 5.25% Swap
at
September 30, 2006 and December 31, 2005 is $1,202 and $0, respectively, and
is
presented as the fair value of derivatives on the balance sheet. As of September
30, 2006 and December 31, 2005, the Company has accumulated OCI of $2,954 and
$2,325, respectively, related to the 4.485% Swap and a portion of the 5.25%
Swap
that is effectively hedged. The 5.075% Swap and portion of the 5.25% Swap that
has not been designated against the Company’s debt plus any portion not
effectively hedged, combined, resulted in (expense) income from derivative
instruments of $(2,195) and $2, respectively for the three and nine months
ended
September 30, 2006, due to the change 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
September 30, 2006 and 2005, were 6.74% and 5.26%, respectively. The interest
rates on the debt, excluding the unused commitment fess ranged from 6.14% to
6.45% and from 4.45% to 4.76% for the three months ended September 30, 2006
and
2005, respectively.
The
effective interest rates, including the cost associated with unused commitment
fees, and the rate differential on the 4.485% Swap, for the nine months ended
September 30, 2006 and 2005, were 6.56% and 4.60%, respectively. The interest
rates on the debt, excluding the unused commitment fees ranged from 5.20% to
6.45% and from 3.69% to 4.76% for the nine months ended September 30, 2006
and
2005, respectively.
8
-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The
estimated fair values of the Company’s financial instruments are as
follows:
|
|
September
30, 2006
|
|
December
31, 2005
|
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
Cash
|
|
$
|
65,599
|
|
$
|
65,599
|
|
$
|
46,912
|
|
$
|
46,912
|
|
Floating
rate debt
|
|
|
138,808
|
|
|
138,808
|
|
|
130,683
|
|
|
130,683
|
|
Derivative
instruments - asset position
|
|
|
4,158
|
|
|
4,158
|
|
|
2,325
|
|
|
2,325
|
|
Derivative
instruments - liability position
|
|
|
1,202
|
|
|
1,202
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 or pay to terminate the swap agreements 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:
|
|
September
30,
2006
|
|
December
31, 2005
|
|
Lubricant
inventory and other stores
|
|
$
|
1,393
|
|
$
|
1,019
|
|
Prepaid
items
|
|
|
1,556
|
|
|
809
|
|
Other
|
|
|
1,338
|
|
|
746
|
|
Total
|
|
$
|
4,287
|
|
$
|
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 deferred
financing costs of $3,725 on the New Credit Facility. Accumulated amortization
of deferred financing costs as of September 30, 2006 and December 31, 2005
was
$369 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 $466 and $0, respectively for the three months ended
September 30, 2006 and 2005, and $1,383 and $0, respectively for the nine months
ended September 30, 2006 and 2005. At September 30, 2006 and December 31,
2005, $1,710 and $3,094, respectively, remains unamortized.
11
-
FIXED ASSETS
Fixed
assets consist of the following:
|
|
September
30,
2006
|
|
December
31, 2005
|
|
Fixed
assets:
|
|
|
|
|
|
Vessel
equipment
|
|
$
|
508
|
|
$
|
69
|
|
Leasehold
improvements
|
|
|
1,142
|
|
|
1,146
|
|
Furniture
and fixtures
|
|
|
210
|
|
|
96
|
|
Computer
equipment
|
|
|
338
|
|
|
260
|
|
Total
cost
|
|
|
2,198
|
|
|
1,571
|
|
Less:
accumulated depreciation and amortization
|
|
|
265
|
|
|
49
|
|
Total
|
|
$
|
1,933
|
|
$
|
1,522
|
|
|
|
|
|
|
|
|
|
12
-
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following:
|
|
September
30,
2006
|
|
December
31, 2005
|
|
Accounts
payable
|
|
$
|
1,351
|
|
$
|
1,018
|
|
Accrued
general and administrative
|
|
|
3,145
|
|
|
2,701
|
|
Accrued
vessel operating expenses
|
|
|
2,213
|
|
|
2,259
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,709
|
|
$
|
5,978
|
|
13
-
REVENUE FROM TIME CHARTERS
Total
revenue earned on time charters for the three months ended September 30, 2006
and 2005 was $32,642 and $31,172, respectively, and for the nine months ended
September 30, 2006 and 2005 was $97,516 and $83,521, respectively. Future
minimum time charter revenue, based on vessels committed to noncancelable time
charter contracts as of September 30, 2006 is expected to be $30,335 for the
balance of 2006 and $47,061 during 2007, assuming no off-hire time is incurred
and the Genco Surprise is delivered on November 16, 2006.
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 September 30, 2006 and December 31, 2005 $748 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: $121 for the remainder of 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
maximum percentage and dollar limits allowable by IRS Code Sections 401(k),
402(g), 404 and 415 with the Company matching up to the first six percent of
each employee’s salary on a dollar-for-dollar basis. The matching contribution
vests immediately. For three months ended September 30, 2006 and 2005, the
Company’s matching contribution to the Plan was $19 and $10, respectively, and
for the nine months ended September 30, 2006 and 2005, the Company’s matching
contribution to the Plan was $70 and $10, 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, 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 111,412 shares to the executive officers
and employees and 7,200 shares to directors of the Company. The executive and
employee grants vest ratably on each of the four anniversaries of the date
of
the Company’s initial public offering (July 22, 2005). On July 22, 2006, 27,853
shares of the employees’ restricted stock vested. Grants to the directors vested
in full on May 18, 2006, the date of the Company’s annual shareholders’ meeting.
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 September 30, 2006 and December 31, 2005 was $782
and
$1,689, respectively. Amortization of this charge, which is included in general
and administrative expenses was $174 and $0, for the three months ended
September 30, 2006 and 2005, respectively, and $906 and $0, for the nine months
ended September 30, 2006 and 2005, respectively. The remaining expense for
the
years ended 2006, 2007, 2008 and 2009 will be $125, $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 September 30, 2006 and December 31, 2005 was $547
and
$974, respectively. Amortization of this charge, which is included in general
and administrative expenses was $144 and $0, for the three months ended
September 30, 2006 and 2005, respectively, and $427 and $0, for the nine months
ended September 30, 2006 and 2005, respectively. The remaining expense for
the
years ended 2006, 2007, 2008 and 2009 will be $106, $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
October 26, 2006, the Board of Directors declared a dividend of $0.60 per share
to be paid on or about November 30, 2006 to shareholders of record as of
November 16, 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.
The
Company took delivery of the Genco Commander, a 45,518 dwt Handysize drybulk
carrier, on November 2, 2006 pursuant to the agreement with Franco Compania
Naviera S.A. The total purchase price was $21,000 which a $2,100 deposit was
paid in July 2006. The balance of $18,900 was funded by utilizing the New Credit
Facility.
Additionally,
the Company also took delivery of the Genco Acheron, a 72,495 dwt Panamax
drybulk carrier, on November 7, 2006 pursuant to the aforementioned agreement
with Franco Compania Naviera S.A. The total purchase price was $30,750 which
a
$3,075 deposit was paid in July 2006. The balance of $27,675 was also funded
by
utilizing the New Credit Facility.
These
vessels acquisitions are consistent with the Company’s strategy of selectively
expanding the number of high-quality vessels in the fleet.
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 new building of vessels or lower than anticipated scrapping
of older vessels; (iv) changes in rules and regulations applicable to the cargo
industry, including, without limitation, legislation adopted by international
organizations or by individual countries and actions taken by regulatory
authorities; (v) increases in costs and expenses including but not limited
to:
crew wages, insurance, provisions, repairs, maintenance and general and
administrative expenses; (vi) the adequacy of our insurance arrangements; (vii)
changes in general domestic and international political conditions; (viii)
changes in the condition of the Company’s vessels or applicable maintenance or
regulatory standards (which may affect, among other things, our anticipated
drydocking or maintenance and repair costs) and unanticipated drydock
expenditures; (ix) the Company’s acquisition or disposition of vessels; (x) the
fulfillment of the closing conditions under the Company’s agreement to acquire
the remaining drybulk vessel; 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 10-Q and 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 September 30, 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 9
years as of September 30, 2006 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 and the
Genco Surprise is delivered in November 2006) between December 2006 and
November 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
|
Genco
Commander
|
11/2/06
|
Handymax
|
1994
|
Genco
Acheron
|
11/7/06
|
Panamax
|
1999
|
|
|
|
|
On
July
10, 2006, the Company entered into an agreement with affiliates of Franco
Compania Naviera S.A. under which the Company is to purchase three drybulk
vessels, two of which were delivered in November 2006 and the third of which
is
expected to be delivered on or about November 16, 2006. The acquisition is
subject to customary closing conditions. The acquisition consists of a 1999
Japanese-built Panamax vessel to be named the Genco Acheron, a 1998
Japanese-built Panamax vessel to be named the Genco Surprise, and a 1994
Japanese-built Handymax vessel to be named the Genco Commander. With
the
addition of these vessels, Genco's fleet will consist of seven Panamax, eight
Handymax, and five Handysize drybulk carriers, with a total carrying capacity
of
approximately 1,029,000 dwt and an average fleet age of nine years.
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 an increase in the New Credit Facility to $550 million.
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. As of September 30, 2006,
we contract with Wallem Shipmanagement, Anglo-Eastern Group and Barber
International Ltd., which are independent technical managers that provide
technical management of our fleet at a lower cost than we believe would be
possible in-house. Technical management involves the day-to-day management
of
vessels, including performing routine maintenance, attending to vessel
operations and arranging for crews and supplies. Members of our New York
City-based management team oversee the activities of our independent technical
managers.
Factors
Affecting Our Results of Operations
We
believe that the following table reflects important measures for analyzing
trends in our results of operations. The table reflects our ownership days,
available days, operating days, fleet utilization, TCE rates and daily vessel
operating expenses for the three and nine months ended September 30, 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 parties.
|
|
For
the three months ended September 30,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
Fleet Data:
|
|
|
|
|
|
|
|
|
|
Ownership days (1)
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
460.0
|
|
|
460.0
|
|
|
0.0
|
|
|
0.0
|
%
|
Handymax
|
|
|
644.0
|
|
|
552.0
|
|
|
92.0
|
|
|
16.7
|
%
|
Handysize
|
|
|
460.0
|
|
|
460.0
|
|
|
0.0
|
|
|
0.0
|
%
|
Total
|
|
|
1,564.0
|
|
|
1,472.0
|
|
|
92.0
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
days (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
459.7
|
|
|
460.0
|
|
|
(0.3
|
)
|
|
(0.1
|
%)
|
Handymax
|
|
|
629.6
|
|
|
552.0
|
|
|
77.6
|
|
|
14.1
|
%
|
Handysize
|
|
|
460.0
|
|
|
460.0
|
|
|
0.0
|
|
|
0.0
|
%
|
Total
|
|
|
1,549.3
|
|
|
1,472.0
|
|
|
77.3
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
days (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
452.7
|
|
|
457.7
|
|
|
(5.0
|
)
|
|
(1.1
|
%)
|
Handymax
|
|
|
623.5
|
|
|
551.3
|
|
|
72.2
|
|
|
13.1
|
%
|
Handysize
|
|
|
458.7
|
|
|
451.2
|
|
|
7.5
|
|
|
1.7
|
%
|
Total
|
|
|
1,534.9
|
|
|
1,460.2
|
|
|
74.7
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
utilization (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
98.5
|
%
|
|
99.5
|
%
|
|
(1.0
|
%)
|
|
(1.0
|
%)
|
Handymax
|
|
|
99.0
|
%
|
|
99.9
|
%
|
|
(0.9
|
%)
|
|
(0.9
|
%)
|
Handysize
|
|
|
99.7
|
%
|
|
98.1
|
%
|
|
1.6
|
%
|
|
1.6
|
%
|
Fleet
average
|
|
|
99.1
|
%
|
|
99.2
|
%
|
|
(0.1
|
%)
|
|
(0.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended September 30,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
|
|
(U.S.
dollars)
|
|
|
|
|
|
Average Daily Results:
|
|
|
|
|
|
|
|
|
|
Time Charter Equivalent (5)
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
$
|
24,111
|
|
$
|
22,937
|
|
$
|
1,174
|
|
|
5.1
|
%
|
Handymax
|
|
|
20,951
|
|
|
21,301
|
|
|
(350
|
)
|
|
(1.6
|
%)
|
Handysize
|
|
|
15,893
|
|
|
16,803
|
|
|
(910
|
)
|
|
(5.4
|
%)
|
Fleet average
|
|
|
20,387
|
|
|
20,407
|
|
|
(20
|
)
|
|
(0.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily vessel operating expenses (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
$
|
3,820
|
|
$
|
2,779
|
|
$
|
1,041
|
|
|
37.5
|
%
|
Handymax
|
|
|
3,770
|
|
|
2,603
|
|
|
1,167
|
|
|
44.8
|
%
|
Handysize
|
|
|
3,418
|
|
|
2,398
|
|
|
1,020
|
|
|
42.5
|
%
|
Fleet
average
|
|
|
3,681
|
|
|
2,594
|
|
|
1,087
|
|
|
41.9
|
%
|
|
|
For
the nine months ended September 30,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
Fleet Data:
|
|
|
|
|
|
|
|
|
|
Ownership days (1)
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
1,365.0
|
|
|
1,078.6
|
|
|
286.4
|
|
|
26.6
|
%
|
Handymax
|
|
|
1,911.0
|
|
|
1,415.7
|
|
|
495.3
|
|
|
35.0
|
%
|
Handysize
|
|
|
1,365.0
|
|
|
1,350.9
|
|
|
14.1
|
|
|
1.0
|
%
|
Total
|
|
|
4,641.0
|
|
|
3,845.2
|
|
|
795.8
|
|
|
20.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available days (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
1,355.8
|
|
|
1,073.2
|
|
|
282.6
|
|
|
26.3
|
%
|
Handymax
|
|
|
1,887.6
|
|
|
1,412.4
|
|
|
475.2
|
|
|
33.6
|
%
|
Handysize
|
|
|
1,365.0
|
|
|
1,350.0
|
|
|
15.0
|
|
|
1.1
|
%
|
Total
|
|
|
4,608.4
|
|
|
3,835.7
|
|
|
772.7
|
|
|
20.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating days (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
1,344.0
|
|
|
1,063.8
|
|
|
280.2
|
|
|
26.3
|
%
|
Handymax
|
|
|
1,864.5
|
|
|
1,401.9
|
|
|
462.6
|
|
|
33.0
|
%
|
Handysize
|
|
|
1,363.0
|
|
|
1,338.6
|
|
|
24.4
|
|
|
1.8
|
%
|
Total
|
|
|
4,571.4
|
|
|
3,804.3
|
|
|
767.1
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet utilization (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
|
99.1
|
%
|
|
99.1
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Handymax
|
|
|
98.8
|
%
|
|
99.3
|
%
|
|
(0.5
|
%)
|
|
(0.5
|
%)
|
Handysize
|
|
|
99.9
|
%
|
|
99.2
|
%
|
|
0.7
|
%
|
|
0.7
|
%
|
Fleet
average
|
|
|
99.2
|
%
|
|
99.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended September 30,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
|
|
(U.S.
dollars)
|
|
|
|
|
|
Average Daily Results:
|
|
|
|
|
|
|
|
|
|
Time Charter Equivalent (5)
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
$
|
23,492
|
|
$
|
25,684
|
|
|
($2,192
|
)
|
|
(8.5
|
%)
|
Handymax
|
|
|
21,050
|
|
|
21,261
|
|
|
(211
|
)
|
|
(1.0
|
%)
|
Handysize
|
|
|
16,639
|
|
|
16,951
|
|
|
(312
|
)
|
|
(1.8
|
%)
|
Fleet average
|
|
|
20,462
|
|
|
20,981
|
|
|
(519
|
)
|
|
(2.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily vessel operating expenses (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax
|
|
$
|
3,437
|
|
$
|
2,643
|
|
$
|
794
|
|
|
30.0
|
%
|
Handymax
|
|
|
3,243
|
|
|
2,409
|
|
|
834
|
|
|
34.6
|
%
|
Handysize
|
|
|
3,028
|
|
|
2,213
|
|
|
815
|
|
|
36.8
|
%
|
Fleet
average
|
|
|
3,237
|
|
|
2,406
|
|
|
831
|
|
|
34.5
|
%
|
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
September
30,
|
|
For
the nine months ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(U.S.
dollars in thousands)
|
|
Voyage
revenues
|
|
$
|
32,642
|
|
$
|
31,172
|
|
$
|
97,516
|
|
$
|
83,521
|
|
Voyage
expenses
|
|
|
1,056
|
|
|
1,134
|
|
|
3,220
|
|
|
3,044
|
|
Net
voyage revenue
|
|
$
|
31,586
|
|
$
|
30,038
|
|
$
|
94,296
|
|
$
|
80,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 September 30,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
|
|
(U.S.
dollars in thousands, except for per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
32,642
|
|
$
|
31,172
|
|
$
|
1,470
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
1,056
|
|
|
1,134
|
|
|
(78
|
)
|
|
(6.9
|
%)
|
Vessel
operating expenses
|
|
|
5,757
|
|
|
3,818
|
|
|
1,939
|
|
|
50.8
|
%
|
General
and administrative expenses
|
|
|
2,055
|
|
|
1,222
|
|
|
833
|
|
|
68.2
|
%
|
Management
fees
|
|
|
353
|
|
|
326
|
|
|
27
|
|
|
8.3
|
%
|
Depreciation
and amortization
|
|
|
6,681
|
|
|
6,116
|
|
|
565
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
15,902
|
|
|
12,616
|
|
|
3,286
|
|
|
26.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
16,740
|
|
|
18,556
|
|
|
(1,816
|
)
|
|
(9.8
|
%)
|
Other
(expense) income
|
|
|
(3,836
|
)
|
|
(6,216
|
)
|
|
2,380
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
12,904
|
|
$
|
12,340
|
|
|
564
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - Basic
|
|
$
|
0.51
|
|
$
|
0.55
|
|
|
($0.04
|
)
|
|
(7.3
|
%)
|
Earnings
per share - Diluted
|
|
$
|
0.51
|
|
$
|
0.55
|
|
|
($0.04
|
)
|
|
(7.3
|
%)
|
Dividends
declared per share
|
|
$
|
0.60
|
|
$
|
0.60
|
|
|
-
|
|
|
-
|
|
Dividends
paid per share
|
|
$
|
0.60
|
|
|
-
|
|
$
|
0.60
|
|
|
N/A
|
|
Weighted
average common shares outstanding - Basic
|
|
|
25,288,695
|
|
|
22,575,652
|
|
|
2,713,043
|
|
|
12.0
|
%
|
Weighted
average common shares outstanding - Diluted
|
|
|
25,371,882
|
|
|
22,575,652
|
|
|
2,796,230
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(1)
|
|
$
|
22,010
|
|
$
|
24,672
|
|
$
|
(2,662
|
)
|
|
(10.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended September 30,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
Change
|
|
|
|
(U.S.
dollars in thousands, except for per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
97,516
|
|
$
|
83,521
|
|
$
|
13,995
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
3,220
|
|
|
3,044
|
|
|
176
|
|
|
5.8
|
%
|
Vessel
operating expenses
|
|
|
15,022
|
|
|
9,250
|
|
|
5,772
|
|
|
62.4
|
%
|
General
and administrative expenses
|
|
|
6,808
|
|
|
2,415
|
|
|
4,393
|
|
|
181.9
|
%
|
Management
fees
|
|
|
1,047
|
|
|
1,135
|
|
|
(88
|
)
|
|
(7.8
|
%)
|
Depreciation
and amortization
|
|
|
19,638
|
|
|
15,767
|
|
|
3,871
|
|
|
24.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
45,735
|
|
|
31,611
|
|
|
14,124
|
|
|
44.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
51,781
|
|
|
51,910
|
|
|
(129
|
)
|
|
(0.2
|
%)
|
Other
(expense) income
|
|
|
(4,777
|
)
|
|
(12,568
|
)
|
|
7,791
|
|
|
(62.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
47,004
|
|
$
|
39,342
|
|
|
7,662
|
|
|
19.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - Basic
|
|
$
|
1.86
|
|
$
|
2.38
|
|
|
($0.52
|
)
|
|
(21.8
|
%)
|
Earnings
per share - Diluted
|
|
$
|
1.86
|
|
$
|
2.38
|
|
|
($0.52
|
)
|
|
(21.8
|
%)
|
Dividends
declared per share
|
|
$
|
1.80
|
|
$
|
0.60
|
|
$
|
1.20
|
|
|
N/A
|
|
Dividends
paid per share
|
|
$
|
1.80
|
|
|
-
|
|
$
|
1.80
|
|
|
N/A
|
|
Weighted
average common shares outstanding - Basic
|
|
|
25,270,831
|
|
|
16,558,462
|
|
|
8,712,369
|
|
|
52.6
|
%
|
Weighted
average common shares outstanding - Diluted
|
|
|
25,338,031
|
|
|
16,558,462
|
|
|
8,779,569
|
|
|
53.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(1)
|
|
$
|
74,138
|
|
$
|
67,677
|
|
$
|
6,461
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
EBITDA
represents net income plus net interest expense, income tax expense,
depreciation and amortization, plus amortization of restricted stock
compensation, 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 September 30,
|
|
For
the nine months ended September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(U.S.
dollars in thousands except for per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
$
12,904
|
|
|
$
12,340
|
|
|
$
47,004
|
|
|
$
39,342
|
|
Net
interest expense
|
|
|
1,641
|
|
|
6,216
|
|
|
4,779
|
|
|
12,568
|
|
Income
tax expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization
of value of time charter acquired (1)
|
|
|
466
|
|
|
—
|
|
|
1,383
|
|
|
—
|
|
Amortization
of restricted stock compensation
|
|
|
318
|
|
|
—
|
|
|
1,334
|
|
|
—
|
|
Depreciation
and amortization
|
|
|
6,681
|
|
|
6,116
|
|
|
19,638
|
|
|
15,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
$
22,010
|
|
|
$
24,672
|
|
|
$
74,138
|
|
|
$
67,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amortization of value of time charter acquired is included in other long-term
assets.
Results
of Operations
The
following table sets forth information about the charters in our
fleet:
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
24,000
|
(3)
|
|
KLC
|
|
January
2007
January
2008
|
|
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
|
|
18,000
|
(4)
|
|
NYK
Europe
|
|
March
2007
|
|
Genco
Glory
|
|
18,250
|
|
|
EDF
Man Shipping
|
|
December
2006
|
|
Genco
Muse
|
|
26,500
|
(5)
|
|
Qatar
Navigation QSC
|
|
September
2007
|
|
Genco
Explorer
|
|
13,500
|
|
|
Lauritzen
Bulkers
|
|
July
2007
|
|
Genco
Pioneer
|
|
13,500
|
|
|
Lauritzen
Bulkers
|
|
August
2007
|
|
Genco
Progress
|
|
13,500
|
|
|
Lauritzen
Bulkers
|
|
August
2007
|
|
Genco
Reliance
|
|
13,500
|
|
|
Lauritzen
Bulkers
|
|
July
2007
|
|
Genco
Sugar
|
|
13,500
|
|
|
Lauritzen
Bulkers
|
|
July
2007
|
|
Genco
Surprise (6)
|
|
25,000
|
|
|
Cosco
Bulk Carrier Co., Ltd.
|
|
12
to 14 months from delivery date
|
|
Genco
Commander (6)
|
|
19,750
|
|
|
A/S
Klaveness
|
|
11
to 13 months from delivery date
|
|
Genco
Acheron (6)
|
|
28,500
|
|
|
Global
Maritime Investments Limited
|
|
55
to 135 days from delivery date
|
|
(1)
Time
charter rates presented are the gross daily charterhire rates before the
payments of brokerage commissions ranging from 1.25% to 5% to third parties.
In
a time charter, the charterer is responsible for voyage expenses such as
bunkers, port expenses, agents’ fees and canal dues.
(2)
The
dates presented on this table represent the earliest dates that our charters
may
be terminated. Except with respect to the Genco Trader and Genco Leader
charters, under the terms of the contracts, charterers are entitled to extend
time charters from two to four months in order to complete the vessel's final
voyage plus any time the vessel has been off-hire.
(3)
The
Company extended time charter for an additional eleven to thirteen months at
a
rate of $24,000 per day, less a 5% third party brokerage commission. The time
charter would commence February 1, 2007 following the expiration of the vessel's
current time charter in January 2007. The extension is subject to completion
of
definitive agreements acceptable to both Genco and Korea Line
Corporation.
(4)
The
time charter rate was $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.
(5)
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.
(6)
On
July 10, 2006, Genco Shipping & Trading Limited agreed to acquire three
drybulk vessels from affiliates of Franco Compania Naviera S.A., two of which
vessels were delivered in November 2006 and the third of which is expected
to be
delivered on or about November 16, 2006. The acquisition is subject to customary
closing conditions.
Three
months ended September 30, 2006 compared to the three months ended September
30,
2005
REVENUES-
For
the
three months ended September 30, 2006, revenues grew 4.7% to $32.6 million
versus $31.2 million for the three months ended September 30, 2005. Revenues
in
both periods consisted of charter payments for our vessels. The increase in
revenues was due to the operation of a larger fleet.
The
average TCE rate of our fleet declined by 0.1% to $20,387 a day for the three
months ended September 30, 2006 from $20,407 a day for the three months ended
September 30, 2005. The decrease was due mostly to higher charter rates achieved
in the third quarter of 2005 versus the third quarter of 2006 for the five
handysize vessels on charter with Lauritzen Bulkers A/S, which entered new
time
charter contracts at $13,500 per vessel per day during the third quarter of
2006. The aforementioned decrease was countered by higher rates achieved in
the
third quarter of 2006 versus the same period last year for the Genco Leader
and
Genco Trader, the two vessels operating in the Baumarine spot pool, which are
subject to fluctuations of the spot market.
For
the
three months ended September 30, 2006 and 2005, we had ownership days of 1,564.0
days and 1472.0 days, respectively. Fleet utilization for the same three month
periods remained relatively static at 99.1% and 99.2%,
respectively.
VOYAGE
EXPENSES-
For
the
three months ended September 30, 2006 and 2005, voyage expenses were $1.1 and
$1.1 million, respectively, and consisted primarily of brokerage
commissions paid to third parties.
VESSEL
OPERATING EXPENSES-
Vessel
operating expenses increased to $5.8 million from $3.8 million for the three
months ended September 30, 2006 and 2005, respectively. This was mostly due
to
lower than normal vessel operating expenses incurred in the third quarter of
2005 attributable to the start-up period of operations for our fleet. 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 incurs over a full year of operation. Furthermore, the
third
quarter
of 2006 experienced higher vessel operating costs due to the accelerated timing
of purchases of spares and stores for the three months ended September 30,
2006
as compared to the three months ended September 30, 2005.
For
the
three months ended September 30, 2006 and 2005, the average daily vessel
operating expenses for our fleet were $3,681 and $2,594 per day, respectively.
For the quarter ended September 30, 2006, daily vessel operating expenses for
our fleet were $497 above the $3,184 budgeted by the Company and our technical
managers for the 12-month period of 2006. The additional per day operating
expense for the third quarter of 2006 does not reflect a change in our operating
structure; rather it reflects timing issues related to the purchase of spares
and stores that are typically used throughout the year. We expect daily
operating expenses for our fleet for the full year of 2006 to remain within
the
$3,184 budgeted by the Company and our technical managers.
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 primarily consist of crew, maintenance and
insurance costs for the vessels, 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.
Based
on
our preliminary budget figures for 2007, we believe that the major operational
categories of crewing, lubes and insurance costs will rise, resulting in a
higher operating budget for 2007.
GENERAL
AND ADMINISTRATIVE EXPENSES-
For
the
three months ended September 30, 2006 and 2005, general and administrative
expenses were $2.1 and $1.2 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 September 30, 2006 and 2005,
management fees were $0.4 and $0.3 million, respectively. Technical management
fees for the three months ended September 30, 2006 were paid to our independent
ship managers.
(EXPENSE)
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”). Effective July 2006, the
Company has designated $32.6 million of the 5.25% Swap’s notional amount against
the Company’s debt and utilized hedge accounting.
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 the 5.075% Swap and the portion of the 5.25% Swap that has not been
designated against the Company’s debt and is not an effective hedge is
recognized as (expense) income from derivative instruments and listed as a
component of other (expense) income until such time the Company has obligations
against which the swap is designated and is an effective hedge. See Note 7-
Long-term debt of the financial statements for further details. The change
in
value for the portion of the 5.25% Swap that is effectively hedged has been
recorded as a component of OCI.
For
the
three
months ended September 30, 2006, (expense)
from derivative instruments
was
$(2.2) million and is due solely to the change in value of the 5.075% Swap
and
the portion
of the 5.25% Swap that has not been designated against the Company’s
debt.
For the
three months ended September 30, 2005, the Company had no derivative instruments
in place that resulted in (expense) income from derivative
instruments.
DEPRECIATION
AND AMORTIZATION-
For
the
three months ended September 30, 2006 and 2005, depreciation and amortization
charges were $6.7 and $6.1 million, respectively, an increase of $0.6
million or 9.2%. The increase primarily was due to the growth in our fleet
to 17
vessels for the three months ended September 30, 2006 as compared to an average
of 16 vessels in operation for the three months ended September 30,
2005.
NET
INTEREST EXPENSE-
Net
interest expense consisted mostly of interest payments made under our Original
Credit Facility and the New Credit Facility for the 2005 period, and our New
Credit Facility for the 2006 period; additionally interest income as well as
amortization of deferred financing costs related to our credit facilities is
included, in both periods. Net interest expense declined to $1.6 million from
$6.2 million for the three months ended September 30, 2006 and 2005,
respectively. The decrease in net interest expense was a result of a one-time
charge of $4.1 million in 2005 which is associated with the write-down of
unamortized deferred bank charges related to our Original Credit Facility,
lower
interest margin and a lower debt outstanding under our New Credit Facility
offset by higher interest rates during 2006.
Nine
months ended September 30, 2006 compared to the nine months ended September
30,
2005
REVENUES-
For
the
nine months ended September 30, 2006, revenues grew 16.8% to $97.5 million
versus $83.5 million for the nine months ended September 30, 2005. Revenues
in
both periods consisted of charter payments for our vessels. The increase in
revenues was due primarily to the operation of a larger fleet.
The
average TCE rate of our fleet declined by 2.5% to $20,462 a day for the nine
months ended September 30, 2006 from $20,981 a day for the nine months ended
September 30, 2005 mostly due to higher charter rates achieved in the 2005
versus 2006 for the Genco Leader, which is subject to fluctuations of the spot
market. Additionally, the five handysize vessels on charter with Lauritzen
Bulkers A/S, commenced new time charter contracts at $13,500 per vessel per
day
throughout the third quarter of 2006.
For
the
nine months ended September 30, 2006 and 2005, we had ownership days of 4,641.0
days and 3,845.2 days, respectively. Fleet utilization for the same nine month
period remained static at 99.2% and 99.2%, respectively.
VOYAGE
EXPENSES-
For
the
nine months ended September 30, 2006 and 2005, voyage expenses were $3.2 and
$3.0 million, respectively, and consisted primarily of brokerage
commissions paid to third parties.
VESSEL
OPERATING EXPENSES-
Vessel
operating expenses increased to $15.0 million from $9.3 million for the nine
months ended September 30, 2006 and 2005, respectively. This was mostly due
to
the expansion of our fleet to 17 vessels for the
nine
months ended September 30, 2006 as compared to an average of 14 vessels in
operation for the nine months ended September 30, 2005. The lower cost in 2005
was also due to the fact that 2005 was a start-up period as well as the
accelerated timing of purchases of spares and stores in the third quarter of
2006 compared to the corresponding period in 2005.
For
the
nine months ended September 30, 2006 and 2005, the average daily vessel
operating expenses for our fleet were $3,237 and $2,406 per day, respectively.
As 2005 was our initial period of operations for the majority of our fleet,
we
believe the nine-month period ended September 30, 2006 is more reflective of
our
daily vessel operating expenses excluding the accelerated timing of purchases
of
spares and stores in the third quarter of 2006 compared to the corresponding
period in 2005. 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.
Our
vessel operating expenses, which primarily consist of crew, maintenance and
insurance costs for the vessels, 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
nine months ended September 30, 2006 and 2005, general and administrative
expenses were $6.8 and $2.4 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
nine
months
ended September 30, 2006 and 2005,
management fees were $1.0 and $1.1 million, respectively. Technical management
fees for the nine months ended September 30, 2006 were paid to our independent
ship managers.
(EXPENSE)
INCOME FROM DERIVATIVE INSTRUMENTS-
For
the
nine months
ended September 30, 2006, (expense) income
from derivative instruments
was only
two thousand dollars and is due solely to the gain in value of the 5.075% Swap
and the
portion of the 5.25% Swap that has not been designated against the Company’s
debt.
For the
nine months ended September 30, 2005, the Company had no derivative instruments
in place that resulted in (expense) income from derivative
instruments.
DEPRECIATION
AND AMORTIZATION-
For
the
nine months ended September 30, 2006 and 2005, depreciation and amortization
charges were $19.6 and $15.8 million, respectively, an increase of $3.8
million or 24.6%. The increase primarily was due to the growth in our fleet
to
17 vessels for the nine months ended September 30, 2006 as compared to an
average of 14 vessels in operation for the nine months ended September 30,
2005.
NET
INTEREST EXPENSE-
Net
interest expense consisted mostly of interest payments made under our Original
Credit Facility and the New Credit Facility for the 2005 period, and our New
Credit Facility for the 2006 period; additionally, interest income as well
as
amortization of deferred financing costs related to our credit facilities is
included in both periods. Net
interest expense declined to $4.8 million from $12.6 million for the nine
months ended September 30, 2006 and 2005, respectively. The decrease in net
interest expense was a result of a one-time charge of $4.1 million in 2005
which
is associated with the write-down of unamortized deferred bank charges related
to our Original Credit
Facility,
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, April 27, 2006, and July 27, 2006 the Board of Directors declared
a
dividend related to the fourth quarter of 2005, the first quarter of 2006,
and
the second quarter of 2006, respectively, each for $0.60 per share. The
dividends were paid on March 10, 2006, May 26, 2006, and August 31, 2006 to
shareholders of record as of February 24, 2006, May 10, 2006, and August 17,
2006 respectively. The aggregate amount of the dividend paid was $45.8 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 October 26, 2006, the Board
of
Directors declared a dividend of $0.60 per share, to be paid on or about
November 30, 2006 to shareholders of record as of November 16,
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 nine months ended September 30, 2006
and 2005, was $66.3 and $62.7 million, respectively. The increase primarily
was due to higher net income and depreciation and amortization in the nine
months ended September 30, 2006 due to the operation of a larger fleet. Net
cash
from operating activities for nine months ended September 30, 2006 was primarily
a result of recorded net income of $47.0 million, and depreciation and
amortization charges of $19.6 million. For the nine months ended September
30, 2005,
net
cash provided from operating activities was primarily a result of recorded
net
income of $39.3 million, and depreciation and amortization charges of
$15.8 million.
During
the nine months ended September 30, 2005, the Company acquired a large portion
of its fleet and net cash used in investing activities declined to $9.3 million
from $236.3 million for the nine months ended September 30, 2006 and 2005,
respectively, primarily for this reason. For the nine months ended September
30
2006, the cash used in investing activities related primarily to the deposit
of
$8.1 million for the purchase of the three vessels to be acquired plus purchase
of fixed assets associated with the Company’s office. For the nine months ended
September 30, 2005, the cash used in investing activities relating to the
acquisition of vessels was $236.0 million.
Net
cash
(used in) provided by financing activities for the nine months ended September
30, 2006 and 2005 was $(38.4) and $213.4 million, respectively. For the
nine months ended September 30, 2006, net cash used by financing activities
consisted primarily of payment of cash dividends of $45.8 million offset by
the
$8.1 million of proceeds from credit facility used for deposit on the newly
acquired vessels. For the nine months ended September 30, 2005, the primary
sources of net cash provided by financing activities were proceeds of $231.2
from the Original Credit Facility to fund vessel acquisitions, net proceeds
from
our initial public offering of 230.1 million and $109.7 million in borrowings
from borrowings under our New Credit Facility. In addition, during the nine
months ended September 30, 2005, the Company retired $357.0 million of
outstanding debt under the Original Credit Facility.
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. In July 2006, the Company increased
the
line of credit by $100 million and borrowed $8.1 million for deposits on the
newly acquired vessels. As of September 30, 2006,
the
amount available on the credit facility to fund future vessel acquisition is
$411.2 million. The Company may borrow up to $20 million of the available credit
facility 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 rate differential to be paid
or
received for this swap agreement is recognized as (expense) 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.
Additionally the change in value and the rate differential on the portion of
the
5.25% Swap that has no designated debt or is not an effective hedge against
our
debt will be reflected as
a
component of other (expense) income. For
the
5.25% Swap, the change in value for the portion that has debt designated against
it and remains effectively hedged will be recorded as a component of OCI and
the
rate differential, once effective, on the portion of the 5.25% Swap that
effectively hedges our debt will be recognized as an adjustment to interest
expense as incurred. Effective July 2006, the Company has designated $32.6
million of debt against the 5.25% 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.
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 September 30, 2006 and 2005 was $0.2 million and $0,
respectively.
Interest
income pertaining to the 4.485% Swap for the nine months ended September 30,
2006 and 2005 was $0.4 million and $0, respectively. As of September 30, 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
fair
value of the 4.485% Swap was in an asset position of $4.2 million and $2.3
million, respectively, as of September 30, 2006 and December 31, 2005. The
fair
values of the 5.075% Swap and the 5.25% Swap were in a liability position of
$1.2 million and $0 million, respectively, as of September 30, 2006 and December
31, 2005. The change in the values was due to the fluctuations in the 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 September 30, 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 September 30, 2006 and 2005 were 6.74% and 5.26%, respectively.
The
interest on the debt, excluding the unused commitment fees ranged from 6.14%
to
6.45% and from 4.45% to 4.76%, respectively, for the three months ended
September 30, 2006 and 2005.
The
effective interest rates, including the cost associated with the unused
commitment fees and the rate differential on the 4.485% Swap, for the nine
months ended September 30, 2006 and 2005 were 6.56% and 4.60%, respectively.
The
interest on the debt, excluding the unused commitment fees ranged from 5.20%
to
6.45% and from 3.69% to 4.76%, respectively, for the nine months ended September
30, 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 also reflect the New Credit Facility and the interest rate swap agreements.
|
|
Total
|
|
Within
One
Year
(1)
|
|
One
to Three
Years
|
|
Three
to Five
Years
|
|
More
than
Five
Years
|
|
|
|
(U.S.
dollars in thousands)
|
|
Bank
loans (2)
|
|
$
|
185,383
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
185,383
|
|
Remainder
of purchase price of vessels (3)
|
|
$
|
26,550
|
|
$
|
26,550
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Interest
and borrowing fees
|
|
$
|
104,542
|
|
$
|
2,886
|
|
$
|
24,324
|
|
$
|
24,324
|
|
$
|
53,028
|
|
Office
lease
|
|
$
|
7,242
|
|
$
|
121
|
|
$
|
971
|
|
$
|
982
|
|
$
|
5,168
|
|
|
(1)
|
Represents
the three month period ending December 31,
2006.
|
|
(2)
|
Represents
the ending loan balance at September 30, 2006 plus $46,575 borrowed
to
fund the balance owed on the acquisition of the Genco Commander and
Genco
Acheron.
|
|
(3)
|
Represents the balance due for the acquisition of
the
Genco Surprise expected to be acquired on November 16,
2006. |
Interest
expense has been estimated using the fixed rate of 4.485% for the duration
of
the swap on the notional amount of the 4.485% Swap, fixed rate of 5.25% for
the
duration of the swap on $32,575, the portion of the 5.25% Swap that hedges
the
Company’s debt, and 5.375% for the remaining debt or for any period subsequent
that is not hedged, 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, during July 2006, the Company agreed to purchase two
additional Panamax vessels and one Handymax vessel which are expected to be
delivered during November 2006.
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
(1)
|
|
$
|
1.1
|
|
|
40
|
|
2007
|
|
|
3.8
|
|
|
200
|
|
|
(1)
|
Represents
the budget for the remaining quarter of 2006 for both Drydock cost
and
estimated offhire days.
|
The
costs
reflected are estimates based on drydocking our vessels in China. The Company
estimates that each drydock will result in 20 days of offhire. Actual costs
will
vary based on various factors, including where the drydockings are actually
performed. We expect to fund with cash from operations.
The
Genco
Trader and Genco Marine completed their drydocking during the first half of
2006, at a combined cost of $1.0 million. The Genco Marine exceeded the budget
due to the vessel drydocking in Portugal versus China. During third quarter,
the
Genco Muse completed drydocking at a cost of $0.9 million, exceeding its initial
budget due to the vessel drydocking in the United States due to positioning
rather than China.
We
expect
two vessels to drydock in the fourth quarter of 2006, and we estimate an
additional ten vessels to be drydocked during 2007. We have increased our
budgets put forward at the beginning of 2006 due to higher costs related to
drydocking materials, and the drydocking, in 2007 of the three newly acquired
vessels.
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 September
30,
2006, the Company had a reserve of $197 against due from charterers balance
and
an additional reserve of $399 both associated with estimated customer claims
against the Company for time charter performance issues. As of December 31,
2005, the Company had a reserve of $316 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
amortize 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 September 30, 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 or pay 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 for any portion of designated debt that is effectively hedged is
accrued and recognized as an adjustment of interest expense. The interest rate
differential on the swaps that do not have designated debt or is not effectively
hedged will be reflected as
(expense) income from derivative instruments and is listed as
a
component of other (expense) income. The fair value of the interest rate swap
agreements are recognized in the financial statements as non-current asset
or
liability.
Amounts
receivable or payable arising at the settlement of hedged interest rate swaps
are deferred and amortized as an adjustment to interest expense over the period
of interest rate exposure provided the designated liability continues to exist.
Amounts receivable or payable arising at the settlement of unhedged interest
rate swaps are reflected as
(expense) income from derivative instruments and is listed as
a
component of other (expense) income.
INCOME
TAXES-
Pursuant
to Section 883 of the U.S. Internal Revenue Code of 1986 as amended (the
“Code”), qualified income derived from the international operations of ships is
excluded from gross income and exempt from U.S. federal
income tax if a company engaged in the international operation of ships meets
certain requirements. Among other things, in order to qualify, the company
must
be incorporated in a country which grants an equivalent exemption to U.S.
corporations and must satisfy certain qualified ownership
requirements.
The
Company is incorporated in the Marshall Islands. Pursuant to the income tax
laws
of the Marshall Islands, the Company is not subject to Marshall Islands income
tax. The Marshall Islands has been officially recognized by the Internal Revenue
Service as a qualified foreign country that currently grants the requisite
equivalent exemption from tax.
Based
on
the ownership of our common stock prior to our initial public offering on
July 22, 2005, 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 September 30, 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. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT 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 September 30, 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
portion of the Company debt which has been hedged and the rate differential
on
the swap is in effect, 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 4.485% Swap at September 30, 2006 and December 31, 2005
is
$4.2 and $2.3 million, respectively, and is presented as the fair value of
the
derivative on the balance sheet. The liability associated with the 5.075% Swap
and 5.25% Swap at September 30,
2006
and
December 31, 2005 is $1.2 and $0 million, respectively, and is presented as
the
fair value of the derivatives on the balance sheet. As of September 30, 2006
and
December 31, 2005, the Company has accumulated OCI of $3.0 and $2.3 million,
respectively, related to the 4.485% Swap and a portion of the 5.25% Swap that
is
effectively hedged. The 5.075% Swap and the portion of the 5.25% Swap that
has
not been designated against the Company’s debt resulted in a (loss) from
derivative instruments of $2.2 for the three months ended September 30, 2006,
due to the change in the value of these instruments. The loss from derivative
instruments in the third quarter of 2006 off-sets (expense) income from
derivative instruments of $2.2 million recorded in the first half of 2006.
For
the period through September 30, 2005, there were no Swap instruments in place
that resulted in (expense) income from derivative 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 for any portion of designated debt that is effectively hedged is
accrued and recognized as an adjustment of interest expense. The interest rate
differential on the swaps that do not have designated debt or is not effectively
hedged will be reflected as
(expense) income from derivative instruments and is listed as
a
component of other (expense) income. The fair value of the interest rate swap
agreements are recognized in the financial statements as non-current asset
or
liability.
Amounts
receivable or payable arising at the settlement of hedged interest rate swaps
are deferred and amortized as an adjustment to interest expense over the period
of interest rate exposure provided the designated liability continues to exist.
Amounts receivable or payable arising at the settlement of unhedged interest
rate swaps are reflected as
(expense) income from derivative instruments and is listed as
a
component of other (expense) income.
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 rate differential to be paid
or
received for this swap agreement is recognized as (expense) income from
derivative instruments and is listed as a component of other (expense) income
until such time the Company has obligations against which the swap is designated
and
is an
effective hedge. Additionally the change in value and the rate differential
on
the portion of the 5.25% Swap that has not been designated against the Company’s
debt or is not an effective hedge against our debt will be reflected
as
a
component of other (expense) income. For
the
5.25% Swap, the change in value for the portion that has been designated against
the Company’s debt and remains effectively hedged will be recorded as a
component of OCI and the rate differential, once effective, on this portion
of
the 5.25% Swap is recognized as an adjustment to interest expense as incurred.
Effective July 2006, the Company has designated $32.6 million of the swap’s
notional amount against the Company’s debt.
For
the
portion of the Company debt which has been hedged and the rate differential
on
the swap is in effect, 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 September 30, 2006 and 2005 was $0.2 million and $0,
respectively. Interest income pertaining to the 4.485% Swap for the nine months
ended September 30, 2006 and 2005 was $0.4 million and $0, respectively. As
of
September 30, 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
fair
value of the 4.485% Swap was in an asset position at September 30, 2006 and
December 31, 2005 of $4.2 and $2.3 million, respectively. The fair value of
the
5.075% Swap and 5.25% Swap was in a liability position at September 30, 2006
and
December 31, 2005 of $1.2 and $0 million, respectively.
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, and paid LIBOR plus 0.95% for the debt in excess of the 4.485% Swap
notional amount on the New Credit Facility, and on the $106.2 million of the
Company’s debt that corresponds to the notional amount
of
the
4.485% Swap, an effective rate of 4.485% plus a margin of 0.95%for the nine
months ended September 30, 2005. For the nine months ended September 30, 2006,
we paid LIBOR plus 0.95% for the debt in excess of the 4.485% Swap notional
amount on the New Credit Facility, and on the $106.2 million of the Company’s
debt that corresponds to the notional amount of the 4.485% Swap, an effective
rate of 4.485% plus a margin of 0.95%. A 1% increase in LIBOR would result
in an
increase of $0.2 million in interest expense for the nine months ended September
30, 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
1A. RISK FACTORS
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31, 2005, which
could materially affect our business, financial condition or future results.
The
risks described in our Annual Report on Form 10-K are not the only risks
facing the Company. Additional risks and uncertainties not currently known
to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating results.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not
applicable.
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).
|
3.4
|
Articles
of Amendment of Articles of Incorporation of the Company as adopted
May
18, 2006 (incorporated by reference to Exhibit 3.1 to report on Form
8-K
dated May 22, 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:
November 13, 2006
|
|
By:
/s/ Robert Gerald
Buchanan
Robert
Gerald Buchanan
President
(Principal
Executive Officer)
|
DATE:
November 13, 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).
|
|
|
3.4
|
Articles
of Amendment of Articles of Incorporation of the Company as adopted
May
18, 2006 (incorporated by reference to Exhibit 3.1 to report on Form
8-K
dated May 22, 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)
45