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GNK > SEC Filings for GNK > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for GENCO SHIPPING & TRADING LTD | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for GENCO SHIPPING & TRADING LTD


9-Aug-2013

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, 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 the our vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs) and


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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 time charters; (xiv) charterers' compliance with the terms of their charters in the current market environment; (xvi) the fulfillment of the closing conditions under, or the execution of additional documentation for, Baltic Trading's agreements to acquire vessels; and
(xvii) completion of definitive documentation for and funding of financing for the vessel acquisitions on acceptable terms; 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, 2012 and subsequent reports on Form 8-K and Form 10-Q. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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"), 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 was approximately 8.3 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., Swissmarine Services S.A. 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 August 2013 and November 2015.

In addition, Baltic Trading's fleet currently consists of two Capesize, four Supramax and three Handysize drybulk carriers with an aggregate carrying capacity of approximately 672,000 dwt. On July 2, 2013, Baltic Trading entered into agreements to purchase a 2010 built, 31,883 dwt Handysize drybulk vessel and a 2009 built, 31,887 dwt Handysize drybulk vessel from subsidiaries of Clipper Group for an aggregate purchase price of $41.0 million. The purchases are subject to completion of customary additional documentation and closing conditions. The vessels are expected to be delivered to Baltic Trading by the end of the third quarter of 2013. Baltic Trading intends to fund a portion of the purchase price of the vessels using proceeds from its registered follow-on common stock offering completed on May 28, 2013. For the remainder of the purchase price, Baltic Trading has obtained a commitment for approximately $20.0 million of commercial bank financing from a global lending institution, which is subject to definitive loan documentation. Under the terms of the commitment, the credit facility is to be repaid in 24 quarterly repayment installments of approximately $0.4 million each, the first of which is payable three months after the latest vessel delivery date, and a balloon payment of approximately $13.0 million concurrently with the last repayment installment. Interest on borrowings will be payable at the three-month LIBOR rate plus a margin of 3.35%.

See pages 31 - 34 for tables of all vessels that have been or are expected to be delivered to us, including Baltic Trading's vessels.

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.

Baltic Trading, formerly a wholly-owned subsidiary of the Company, completed its IPO on March 15, 2010. On May 28, 2013, Baltic Trading closed on an equity offering of 6,419,217 shares of common stock at an offering price of $3.60 per share. Baltic Trading received net proceeds of $21.6 million after deducting underwriters' fees and expenses. As of June 30, 2013, the Company's wholly-owned subsidiary Genco Investments LLC owned 5,827,471 shares of Baltic Trading's Class B Stock, which represents a 19.68% ownership interest in Baltic Trading at June 30, 2013 and 78.61% 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.


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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, controls and has a minority interest 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. On July 3, 2012, the original rehabilitation plan submitted by KLC was approved by the South Korean courts. As part of the original rehabilitation process, our claim of approximately $0.8 million would be settled in the following manner: 37%, or approximately $0.3 million, would be paid in cash in annual installments on December 30th of each year from 2012 through 2021 ranging in percentages from 0.5 to 43; the remaining 63%, or approximately $0.5 million, would be converted to KLC shares at a specified value per share. During the year ended December 31, 2012, we recorded two-thousand dollars as other operating income which represents the portion (0.5%) of the cash settlement that was due on December 30, 2012. On March 28, 2013, an amended rehabilitation plan was approved by the South Korean courts which provided that 1/10 of the 37% of the claim originally approved for cash payment would be paid in cash over a period of nine years from 2013 through 2021 ranging in percentages from 3 to 30; the remaining 9/10 of the 37% of the claim originally approved for cash payment would be converted to KLC shares at a specified value per share. As a result of this amendment, the total approved cash settlement has decreased from approximately $0.3 million to approximately thirty thousand dollars due during 2013 through 2021.

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 six months ended June 30, 2013 and 2012 on a consolidated basis, which includes the operations of Baltic Trading.

                                     For the Three Months Ended June 30,       Increase
                                         2013                  2012           (Decrease)    % Change
Fleet Data:
Ownership days (1)
Capesize                                     1,001.0               1,001.0             -            -
Panamax                                        728.0                 728.0             -            -
Supramax                                     1,911.0               1,911.0             -            -
Handymax                                       546.0                 546.0             -            -
Handysize                                    1,456.0               1,456.0             -            -

Total                                        5,642.0               5,642.0             -            -

Available days (2)
Capesize                                     1,001.0               1,001.0             -            -
Panamax                                        728.0                 682.6          45.4          6.7 %
Supramax                                     1,884.5               1,880.4           4.1          0.2 %
Handymax                                       531.5                 502.7          28.8          5.7 %
Handysize                                    1,445.4               1,456.0         (10.6 )       (0.7 )%

Total                                        5,590.4               5,522.7          67.7          1.2 %

Operating days (3)
Capesize                                     1,001.0                 997.3           3.7          0.4 %
Panamax                                        724.0                 680.7          43.3          6.4 %
Supramax                                     1,873.3               1,866.4           6.9          0.4 %
Handymax                                       525.0                 498.7          26.3          5.3 %
Handysize                                    1,440.9               1,455.1         (14.2 )       (1.0 )%

Total                                        5,564.2               5,498.2          66.0          1.2 %

Fleet utilization (4)
Capesize                                       100.0 %                99.6 %         0.4 %        0.4 %
Panamax                                         99.4 %                99.7 %        (0.3 )%      (0.3 )%
Supramax                                        99.4 %                99.3 %         0.1 %        0.1 %
Handymax                                        98.8 %                99.2 %        (0.4 )%      (0.4 )%
Handysize                                       99.7 %                99.9 %        (0.2 )%      (0.2 )%
Fleet average                                   99.5 %                99.6 %        (0.1 )%      (0.1 )%


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                                           For the Three Months Ended June 30,         Increase
                                              2013                   2012             (Decrease)       % Change
                                                     (U.S. dollars)
Average Daily Results:
Time Charter Equivalent (5)
Capesize                                $           6,064     $            14,986           (8,922 )       (59.5 )%
Panamax                                             7,017                  10,116           (3,099 )       (30.6 )%
Supramax                                            8,452                  11,001           (2,549 )       (23.2 )%
Handymax                                            6,677                   9,589           (2,912 )       (30.4 )%
Handysize                                           7,900                   9,412           (1,512 )       (16.1 )%

Fleet average                                       7,526                  11,067           (3,541 )       (32.0 )%

Daily vessel operating expenses (6)
Capesize                                $           5,200     $             5,410    $        (210 )        (3.9 )%
Panamax                                             4,735                   5,783           (1,048 )       (18.1 )%
Supramax                                            4,684                   4,974             (290 )        (5.8 )%
Handymax                                            4,729                   6,067           (1,338 )       (22.1 )%
Handysize                                           4,520                   4,858             (338 )        (7.0 )%

Fleet average                                       4,744                   5,232             (488 )        (9.3 )%




                                    For the Six Months Ended June 30,       Increase
                                         2013                2012          (Decrease)    % Change
Fleet Data:
Ownership days (1)
Capesize                                    1,991.0             2,002.0         (11.0 )       (0.5 )%
Panamax                                     1,448.0             1,456.0          (8.0 )       (0.5 )%
Supramax                                    3,801.0             3,822.0         (21.0 )       (0.5 )%
Handymax                                    1,086.0             1,092.0          (6.0 )       (0.5 )%
Handysize                                   2,896.0             2,912.0         (16.0 )       (0.5 )%

Total                                      11,222.0            11,284.0         (62.0 )       (0.5 )%

Available days (2)
Capesize                                    1,974.6             1,984.7         (10.1 )       (0.5 )%
Panamax                                     1,448.0             1,365.5          82.5          6.0 %
Supramax                                    3,746.9             3,735.5          11.4          0.3 %
Handymax                                    1,066.2             1,022.4          43.8          4.3 %
Handysize                                   2,869.9             2,912.0         (42.1 )       (1.4 )%

Total                                      11,105.6            11,020.1          85.5          0.8 %

Operating days (3)
Capesize                                    1,973.1             1,981.0          (7.9 )       (0.4 )%
Panamax                                     1,429.5             1,360.5          69.0          5.1 %
Supramax                                    3,729.7             3,711.0          18.7          0.5 %
Handymax                                    1,053.9             1,004.1          49.8          5.0 %
Handysize                                   2,854.4             2,899.5         (45.1 )       (1.6 )%

Total                                      11,040.6            10,956.1          84.5          0.8 %

Fleet utilization (4)
Capesize                                       99.9 %              99.8 %         0.1 %        0.1 %
Panamax                                        98.7 %              99.6 %        (0.9 )%      (0.9 )%
Supramax                                       99.5 %              99.3 %         0.2 %        0.2 %
Handymax                                       98.8 %              98.2 %         0.6 %        0.6 %
Handysize                                      99.5 %              99.6 %        (0.1 )%      (0.1 )%
Fleet average                                  99.4 %              99.4 %           -            -


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                                           For the Six Months Ended June 30,           Increase
                                              2013                  2012              (Decrease)       % Change
                                                     (U.S. dollars)
Average Daily Results:
Time Charter Equivalent (5)
Capesize                                $          5,932     $            15,235            (9,303 )       (61.1 )%
Panamax                                            6,821                  11,612            (4,791 )       (41.3 )%
Supramax                                           8,080                  10,553            (2,473 )       (23.4 )%
Handymax                                           6,790                   8,268            (1,478 )       (17.9 )%
Handysize                                          7,448                   8,505            (1,057 )       (12.4 )%

Fleet average                                      7,247                  10,774            (3,527 )       (32.7 )%

Daily vessel operating expenses (6)
Capesize                                $          5,436     $             5,350    $           86           1.6 %
Panamax                                            4,976                   5,312              (336 )        (6.3 )%
Supramax                                           4,704                   4,863              (159 )        (3.3 )%
Handymax                                           4,637                   6,040            (1,403 )       (23.2 )%
Handysize                                          4,469                   4,712              (243 )        (5.2 )%

Fleet average                                      4,802                   5,082              (280 )        (5.5 )%


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 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


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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 Six Months Ended
                                                June 30,                           June 30,
                                         2013              2012             2013             2012

Voyage revenues (in thousands)      $       44,941    $       62,112    $     84,617    $      121,137
Voyage expenses (in thousands)               2,867               995           4,139             2,405
                                    $       42,074    $       61,117          80,478    $      118,732
Total available days                       5,590.4           5,522.7        11,105.6          11,020.1
Total TCE rate                      $        7,526    $       11,067    $      7,247    $       10,774

(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 June 30,
                                              2013                         2012                Change       % Change
                                         (U.S. dollars in thousands, except for per share amounts)
Revenue:
Voyage revenues                      $                44,941      $                62,112    $  (17,171 )       (27.6 )%
Service revenues                                         819                          819             -             -

Total revenues                                        45,760                       62,931       (17,171 )       (27.3 )%

Operating Expenses:
Voyage expenses                                        2,867                          995         1,872         188.1 %
Vessel operating expenses                             26,766                       29,516        (2,750 )        (9.3 )%
General, administrative, and
management fees                                        8,480                        8,362           118           1.4 %
Depreciation and amortization                         34,722                       34,491           231           0.7 %

Total operating expenses                              72,835                       73,364          (529 )        (0.7 )%

Operating loss                                       (27,075 )                    (10,433 )     (16,642 )       159.5 %
Other expense                                        (21,571 )                    (19,716 )      (1,855 )         9.4 %

Loss before income taxes                             (48,646 )                    (30,149 )     (18,497 )        61.4 %
Income tax expense                                      (294 )                       (343 )          49         (14.3 )%

Net loss                                             (48,940 )                    (30,492 )     (18,448 )        60.5 %
Less: Net loss attributable to
noncontrolling interest                               (3,571 )                     (2,751 )        (820 )        29.8 %
Net loss attributable to Genco
Shipping & Trading Limited           $               (45,369 )    $               (27,741 )  $  (17,628 )        63.5 %

Net loss per share - basic           $                 (1.05 )    $                 (0.65 )  $    (0.40 )        61.5 %
Net loss per share - diluted         $                 (1.05 )    $                 (0.65 )  $    (0.40 )        61.5 %
Dividends declared and paid per
share                                $                     -      $                     -    $        -             -
Weighted average common shares
outstanding - basic                               43,196,895                   42,878,228       318,667           0.7 %
Weighted average common shares
outstanding - diluted                             43,196,895                   42,878,228       318,667           0.7 %

EBITDA (1)                           $                11,185      $                26,829    $  (15,644 )       (58.3 )%

. . .

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