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GNK > SEC Filings for GNK > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for GENCO SHIPPING & TRADING LTD

Form 10-Q for GENCO SHIPPING & TRADING LTD


9-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations. Included among the factors that, in our view, could cause actual results to differ materially from the forward looking statements contained in this report are the following: (i) declines in demand or rates in the drybulk shipping industry; (ii) prolonged weakness in drybulk shipping rates; (iii) changes in the supply of or demand for drybulk products, generally or in particular regions; (iv) changes in the supply of drybulk carriers including newbuilding of vessels or lower than anticipated scrapping of older vessels; (v) 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; (vi) increases in costs and expenses including but not limited to: crew wages, insurance, provisions, lube oil, bunkers, repairs, maintenance and general, administrative and management fee expenses; (vii) whether our insurance arrangements are adequate; (viii) changes in general domestic and international political conditions; (ix) acts of war, terrorism, or piracy; (x) changes in the condition of our 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; (xi) our acquisition or disposition of vessels; (xii) the amount of offhire time needed to complete repairs on vessels and the timing and amount of any reimbursement by our insurance carriers for insurance claims, including offhire days; (xiii) the completion of definitive documentation with respect to charters; (xiv) charterers' compliance with the terms of their charters in the current market environment; and other factors listed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2011 and subsequent reports on Form 8-K and Form 10-Q.

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 Form 10-Q.

General

We are a Marshall Islands company that transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes through the ownership and operation of drybulk carrier vessels. Excluding vessels of Baltic Trading Limited ("Baltic Trading"), as of November 9, 2012, our fleet consisted of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize drybulk carriers, with an aggregate carrying capacity of approximately 3,810,000 dwt, and the average age of our fleet is approximately 7.5 years, as compared to the average age for the world fleet of approximately 10 years for the drybulk shipping segments in which we compete. We seek to deploy our vessels on time charters, spot market-related time charters or in vessel pools trading in the spot market, to reputable charterers, including Cargill International S.A., Pacific Basin Chartering Ltd., Trafigura Beheer B.V., Swissmarine Services S.A., Klaveness Chartering and LB/IVS Pool, in which Lauritzen Bulkers A/S acts as the pool manager. The majority of the vessels in our current fleet are presently engaged under time charter and spot market-related time charter contracts that expire (assuming the option periods in the time charters are not exercised) between November 2012 and May 2015.

In addition, as of November 9, 2012, Baltic Trading's fleet consisted of two Capesize, four Supramax and three Handysize drybulk carriers with an aggregate carrying capacity of approximately 672,000 dwt.

See pages 34 - 37 for a table of all vessels that have been delivered to us, including Baltic Trading's vessels.

Depending on market conditions, we intend to acquire additional modern, high-quality drybulk carriers through timely and selective acquisitions of vessels in a manner that is accretive to our cash flow. We expect to fund acquisitions of additional vessels using cash reserves set aside for this purpose or additional borrowings and may consider additional debt or equity financing alternatives from time to time.

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, voyage charters and spot market-related time charters, and monitoring the performance of our vessels under their charters. Strategic management includes locating, purchasing, financing and selling vessels. We currently contract with three independent technical managers to provide technical management of our fleet at a lower cost than we believe would be possible in-house. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. Members of our New York City-based management team oversee the activities of our independent technical managers.


Table of Contents

From time to time in the current global economic environment, our charterers with long-term time charters may request to renegotiate the terms of our charters with them. As a general matter, we do not agree to make changes to the terms of our charters in response to such requests. The failure of any charterer to meet its obligations under our long-term time charters could have an adverse effect on our results of operations.

Baltic Trading, formerly a wholly-owned subsidiary of the Company, completed its IPO on March 15, 2010. As of September 30, 2012, the Company's wholly-owned subsidiary Genco Investments LLC owned 5,699,088 shares of Baltic Trading's Class B Stock, which represents a 25.09% ownership interest in Baltic Trading at September 30, 2012 and 83.40% of the aggregate voting power of Baltic Trading's outstanding shares of voting stock. Baltic Trading is consolidated with the Company, as we control a majority of the voting interest in Baltic Trading. Management's discussion and analysis of the Company's results of operations and financial condition in this section includes the results of Baltic Trading.

We entered into a long-term management agreement (the "Management Agreement") with Baltic Trading pursuant to which we apply our expertise and experience in the drybulk industry to provide Baltic Trading with commercial, technical, administrative and strategic services. The Management Agreement is for an initial term of approximately 15 years and will automatically renew for additional five-year periods unless terminated in accordance with its terms. Baltic Trading will pay us for the services we provide it as well as reimburse us for our costs and expenses incurred in providing certain of these services. Management fee income we earn from the Management Agreement net of any allocated shared expenses, such as salary, office expenses and other general and administrative fees, will be taxable to us. Upon consolidation with Baltic Trading, any management fee income earned will be eliminated for financial reporting purposes.

We provide technical services for drybulk vessels purchased by Maritime Equity Partners LLC ("MEP") under an agency agreement between us and MEP. These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services. The services are provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs and will be provided for an initial term of one year. MEP has the right to cancel provision of services on 60 days' notice with payment of a one-year termination fee upon a change of our control. We may terminate provision of the services at any time on 60 days' notice. Peter C. Georgiopoulos, our Chairman of the Board of Directors, is a minority investor in MEP, and affiliates of Oaktree Capital Management, L.P., of which Stephen A. Kaplan, one of our directors, is a principal, are majority investors in MEP. This arrangement was approved by an independent committee of our Board of Directors.

During January 2011, the Genco Success, a 1997-built Handymax vessel, was on charter to Korea Line Corporation ("KLC") when KLC filed for a rehabilitation application. We estimate that we have a claim of approximately $0.8 million against KLC related primarily to unpaid revenue earned prior to re-delivery of the vessel. If a rehabilitation plan is approved by the South Korean courts and it is determined that we will receive a cash settlement for our outstanding claim, any amounts due from KLC will be recorded once the collectibility of the receivable has been assessed and the amount has been deemed collectible.


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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, 2012 and 2011 on a consolidated basis, which includes the operations of Baltic Trading.

                                   For the Three Months Ended September 30,       Increase
                                         2012                    2011            (Decrease)    % Change
Fleet Data:
Ownership days (1)
Capesize                                      1,012.0                 1,012.0             -            -
Panamax                                         736.0                   736.0             -            -
Supramax                                      1,932.0                 1,932.0             -            -
Handymax                                        552.0                   552.0             -            -
Handysize                                     1,472.0                 1,360.7         111.3          8.2 %

Total                                         5,704.0                 5,592.7         111.3          2.0 %

Available days (2)
Capesize                                        999.2                 1,000.9          (1.7 )       (0.2 )%
Panamax                                         699.0                   736.0         (37.0 )       (5.0 )%
Supramax                                      1,874.7                 1,932.0         (57.3 )       (3.0 )%
Handymax                                        538.2                   552.0         (13.8 )       (2.5 )%
Handysize                                     1,472.0                 1,359.7         112.3          8.3 %

Total                                         5,583.1                 5,580.6           2.5          0.0 %

Operating days (3)
Capesize                                        998.9                 1,000.9          (2.0 )       (0.2 )%
Panamax                                         691.1                   731.1         (40.0 )       (5.5 )%
Supramax                                      1,836.9                 1,914.3         (77.4 )       (4.0 )%
Handymax                                        537.5                   551.5         (14.0 )       (2.5 )%
Handysize                                     1,472.0                 1,345.9         126.1          9.4 %

Total                                         5,536.4                 5,543.7          (7.3 )       (0.1 )%

Fleet utilization (4)
Capesize                                        100.0 %                 100.0 %           -            -
Panamax                                          98.9 %                  99.3 %        (0.4 )%      (0.4 )%
Supramax                                         98.0 %                  99.1 %        (1.1 )%      (1.1 )%
Handymax                                         99.9 %                  99.9 %           -            -
Handysize                                       100.0 %                  99.0 %         1.0 %        1.0 %
Fleet average                                    99.2 %                  99.3 %        (0.1 )%      (0.1 )%


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                                          For the Three Months Ended September 30,          Increase
                                               2012                      2011              (Decrease)       % Change
                                                       (U.S. dollars)
Average Daily Results:
Time Charter Equivalent (5)
Capesize                               $              12,261     $              28,815          (16,554 )       (57.4 )%
Panamax                                                6,537                    18,119          (11,582 )       (63.9 )%
Supramax                                               8,906                    14,600           (5,694 )       (39.0 )%
Handymax                                               8,554                    12,616           (4,062 )       (32.2 )%
Handysize                                              8,689                    10,617           (1,928 )       (18.2 )%

Fleet average                                          9,119                    16,447           (7,328 )       (44.6 )%

Daily vessel operating expenses (6)
Capesize                               $               5,507     $               5,528    $        (21)          (0.4 )%
Panamax                                                5,813                     4,972              841          16.9 %
Supramax                                               4,778                     4,491              287           6.4 %
Handymax                                               4,808                     4,209              599          14.2 %
Handysize                                              4,440                     4,321              119           2.8 %

Fleet average                                          4,956                     4,673              283           6.1 %




                                  For the Nine Months Ended September 30,       Increase
                                       2012                    2011            (Decrease)    % Change
Fleet Data:
Ownership days (1)
Capesize                                    3,014.0                 3,003.0          11.0          0.4 %
Panamax                                     2,192.0                 2,184.0           8.0          0.4 %
Supramax                                    5,754.0                 5,645.6         108.4          1.9 %
Handymax                                    1,644.0                 1,638.0           6.0          0.4 %
Handysize                                   4,384.0                 3,763.3         620.7         16.5 %

Total                                      16,988.0                16,233.9         754.1          4.6 %

Available days (2)
Capesize                                    2,983.9                 2,991.9          (8.0 )       (0.3 )%
Panamax                                     2,064.4                 2,165.7        (101.3 )       (4.7 )%
Supramax                                    5,610.1                 5,643.7         (33.6 )       (0.6 )%
Handymax                                    1,560.5                 1,608.3         (47.8 )       (0.3 )%
Handysize                                   4,384.0                 3,760.8         623.2         16.6 %

Total                                      16,602.9                16,170.4         432.5          2.7 %

Operating days (3)
Capesize                                    2,979.9                 2,991.4         (11.5 )       (0.4 )%
Panamax                                     2,051.0                 2,147.3         (96.3 )       (4.5 )%
Supramax                                    5,549.1                 5,600.4         (51.3 )       (0.9 )%
Handymax                                    1,542.7                 1,600.7         (58.0 )       (3.6 )%
Handysize                                   4,371.1                 3,728.8         642.3         17.2 %

Total                                      16,493.8                16,068.6         425.2          2.6 %

Fleet utilization (4)
Capesize                                       99.9 %                 100.0 %        (0.1 )%      (0.1 )%
Panamax                                        99.3 %                  99.1 %         0.2 %        0.2 %
Supramax                                       98.9 %                  99.2 %        (0.3 )%      (0.3 )%
Handymax                                       98.9 %                  99.5 %        (0.6 )%      (0.6 )%
Handysize                                      99.7 %                  99.2 %         0.5 %        0.5 %
Fleet average                                  99.3 %                  99.4 %        (0.1 )%      (0.1 )%


Table of Contents

                                    For the Nine Months Ended September 30,          Increase
                                        2012                      2011              (Decrease)     % Change
                                                (U.S. dollars)
Average Daily Results:
Time Charter Equivalent (5)
Capesize                        $              14,239     $              27,804    $    (13,565 )      (48.8 )%
Panamax                                         9,894                    22,374         (12,480 )      (55.8 )%
Supramax                                       10,002                    15,675          (5,673 )      (36.2 )%
Handymax                                        8,367                    16,793          (8,426 )      (50.2 )%
Handysize                                       8,567                    11,409          (2,842 )      (24.9 )%

Fleet average                                  10,218                    17,935          (7,717 )      (43.0 )%

Daily vessel operating
expenses (6)
Capesize                        $               5,403     $               5,306    $         97          1.8 %
Panamax                                         5,480                     4,821             659         13.7 %
Supramax                                        4,835                     4,538             297          6.5 %
Handymax                                        5,626                     4,731             895         18.9 %
Handysize                                       4,621                     4,401             220          5.0 %

Fleet average                                   5,040                     4,706             334          7.1 %


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 in a period 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 between time charters. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be capable of generating revenues.

(3) Operating days. We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.

(4) Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning.

(5) TCE rates. We define TCE rates as net voyage revenue (voyage revenues less voyage expenses) divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not expressed in per-day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.

                                       For the Three Months Ended         For the Nine Months Ended
                                             September 30,                      September 30,
                                         2012              2011              2012            2011

Voyage revenues (in thousands)      $       53,603    $       93,484    $      174,740    $   292,614
Voyage expenses (in thousands)               2,693             1,702             5,099          2,595
                                    $       50,910    $       91,782           169,641    $   290,019
Total available days                       5,583.1           5,580.6          16,602.9       16,170.4
Total TCE rate                      $        9,119    $       16,447    $       10,218    $    17,935


Table of Contents

(6) Daily vessel operating expenses. We define daily vessel operating expenses as vessel operating expenses divided by ownership days for the period. Vessel operating expenses 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.

Operating Data



                                                For the Three Months Ended
                                                      September 30,
                                              2012                      2011                 Change          % Change
                                          (U.S. dollars in thousands, except for per share amounts)
Revenue:
Voyage revenues                      $               53,603     $              93,484    $       (39,881 )       (42.7 )%
Service revenues                                        828                       828                  -             -

Total revenues                                       54,431                    94,312            (39,881 )       (42.3 )%

Operating Expenses:
Voyage expenses                                       2,693                     1,702                991          58.2 %
Vessel operating expenses                            28,272                    26,133              2,139           8.2 %
General, administrative and
management fees                                       8,622                     8,759               (137 )        (1.6 )%
Depreciation and amortization                        35,038                    34,378                660           1.9 %

Total operating expenses                             74,625                    70,972              3,653           5.1 %

Operating (loss) income                             (20,194 )                  23,340            (43,534 )      (186.5 )%
Other expense                                       (21,540 )                 (21,595 )               55          (0.3 )%

(Loss) income before income taxes                   (41,734 )                   1,745            (43,479 )    (2,491.6 )%
Income tax expense                                     (303 )                    (328 )               25          (7.6 )%

Net (loss) income                                   (42,037 )                   1,417            (43,454 )    (3,066.6 )%
Less: Net loss attributable to
noncontrolling interest                              (3,588 )                    (145 )           (3,443 )     2,374.5 %
Net (loss) income attributable to
Genco Shipping & Trading Limited     $              (38,449 )   $               1,562    $       (40,011 )    (2,561.5 )%

Net (loss) income per share -
basic                                $                (0.90 )   $                0.04    $         (0.94 )    (2,350.0 )%
Net (loss) income per share -
diluted                              $                (0.90 )   $                0.04    $         (0.94 )    (2,350.0 )%
Dividends declared and paid per
share                                $                    -     $                   -    $             -             -
Weighted average common shares
outstanding - basic                              42,885,810                35,157,110          7,728,700          22.0 %
Weighted average common shares
outstanding - diluted                            42,885,810                35,212,840          7,672,970          21.8 %

EBITDA (1)                           $               18,389     $              57,894    $       (39,505 )       (68.2 )%


Table of Contents

                                                 For the Nine Months Ended
                                                       September 30,
                                               2012                       2011                 Change           % Change
                                            (U.S. dollars in thousands, except for per share amounts)
Revenue:
Voyage revenues                       $               174,740      $          292,614    $         (117,874 )       (40.3 )%
Service revenues                                        2,466                   2,457                     9           0.4 %

Total revenues                                        177,206                 295,071              (117,865 )       (39.9 )%

Operating Expenses:
Voyage expenses                                         5,099                   2,595                 2,504          96.5 %
Vessel operating expenses                              85,622                  76,394                 9,228          12.1 %
General, administrative and
management fees                                        25,680                  25,908                  (228 )        (0.9 )%
Depreciation and amortization                         103,954                 101,484                 2,470           2.4 %
. . .
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