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BALT > SEC Filings for BALT > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for BALTIC TRADING LTD

Form 10-Q for BALTIC TRADING LTD


7-Nov-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, 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) 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; (xii) our acquisition or disposition of vessels; (xiii) our ability to leverage Genco's relationships in the shipping industry; (xiv) the completion of definitive documentation with respect to charters; (xv) 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, the Company'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. Our ability to pay dividends in any period will depend upon various factors, including the limitations under any credit agreements to which we may be a party, 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. 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 condensed consolidated financial statements and the related notes included in this Form 10-Q.

General

We are a New York City-based company incorporated in October 2009 in the Marshall Islands to conduct a shipping business focused on the drybulk industry spot market. We were formed by Genco Shipping & Trading Limited (NYSE: GNK) ("Genco"), an international drybulk shipping company that also serves as our Manager. Our fleet currently consists of two Capesize vessels, four Supramax vessels and five Handysize vessels with an aggregate carrying capacity of approximately 736,000 dwt and the average age of our fleet is approximately 3.9 years, as compared to the average age for the world fleet of approximately 10 years for the drybulk shipping segments in which we compete. Our fleet contains three groups of sister ships, which are vessels of virtually identical sizes and specifications. We believe that maintaining a fleet that includes sister ships reduces costs by creating economies of scale in the maintenance, supply and crewing of our vessels.

On July 2, 2013, we 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 $41,000 renamed the Baltic Fox and the Baltic Hare, respectively. The Baltic Fox and Baltic Hare were delivered on September 6, 2013 and September 5, 2013, respectively. We funded a portion of the purchase price of the vessels using proceeds from our registered follow-on common stock offering completed on May 28, 2013. For the remainder of the purchase price, we drew down $22,000 on our secured loan agreement with DVB Bank SE (the "2013 Credit Facility"). Refer to Note 7 - Debt in our condensed consolidated financial statements for further information regarding this credit facility.


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On October 31, 2013, we entered into agreements to purchase a 2012-built 179,185 dwt Capesize drybulk vessel and a 2011-built 179,185 dwt Capesize drybulk vessel from affiliates of SK Shipping Co. Ltd. for an aggregate purchase price of $103,000. These vessels are to be renamed the Baltic Lion and the Baltic Tiger, respectively. The purchases are subject to completion of customary additional documentation and closing conditions. The vessels are expected to be delivered by the end of the fourth quarter of 2013. We plan to finance this acquisition in part through the proceeds from our common stock offering completed on September 25, 2013 and in part through commercial bank debt financing. We are in negotiations to obtain a commitment for commercial bank financing from a global lending institution. We are seeking to raise additional cash through commercial bank debt financing in order to fulfill our payment obligations under the agreements relating to the Capesize vessel acquisitions. There can be no assurance that we will be able to obtain the proposed commercial bank financing or any other financing, or that if we do so, that we will be able to borrow all or any of the amounts committed thereunder. We need to raise additional capital in order to fulfill these obligations. If we breach or do not fully perform our obligations under such agreements, we may forfeit the deposits and other amounts we have paid to the sellers in connection with the Capesize vessel acquisitions, and we may be liable to the sellers for any additional damages resulting from our actions.

We seek to leverage the expertise of Genco and its management to pursue growth opportunities in the drybulk shipping spot market. To pursue these opportunities, we operate a fleet of drybulk ships that transport iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. We currently operate all of our vessels on spot market-related time charters, short-term time charters or in pool agreements. We may also consider operating vessels in the spot market directly based on our view of market conditions. We have financed our fleet with equity capital and our 2010 Credit Facility and 2013 Credit Facility. We aim to grow our fleet through timely and selective acquisitions of vessels. We expect to fund acquisitions of additional vessels using equity and debt financing. We intend to distribute to our shareholders on a quarterly basis all of our net income less cash expenditures for capital items related to our fleet, other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous quarter, subject to any additional reserves our Board of Directors may from time to time determine are required for the prudent conduct of our business, as further described below under "Dividend Policy." We have declared dividends for the past eight quarters even though the application of the formula in our policy would not have resulted in a dividend, although we may not continue to do so.

Refer to page 23 for a table of all vessels that have been or are expected to be delivered to us.

Our operations are managed, under the supervision of our Board of Directors, by Genco as our Manager. We entered into a long-term management agreement (the "Management Agreement") pursuant to which our Manager and its affiliates apply their expertise and experience in the drybulk industry to provide us with commercial, technical, administrative and strategic services. The Management Agreement is for an initial term of approximately fifteen years and will automatically renew for additional five-year periods unless terminated in accordance with its terms. We pay our Manager fees for the services it provides us as well as reimburse our Manager for its costs and expenses incurred in providing certain of these services.

On May 28, 2013, we closed an equity offering of 6,419,217 shares of common stock at an offering price of $3.60 per share. We received net proceeds of $21,560 after deducting underwriters' fees and expenses. Additionally, on September 25, 2013, we closed an equity offering of 13,800,000 shares of common stock at an offering price of $4.60 per share. We received net proceeds of $59,481 after deducting underwriters' fees and expenses. Pursuant to the Management Agreement, for so long as Genco directly or indirectly holds at least 10% of the aggregate number of outstanding shares of our common stock and Class B stock, Genco will be entitled to receive at no cost an additional number of shares of Class B stock equal to 2% of the number of common shares issued, other than shares issued under the our 2010 Equity Incentive Plan. As a result of the equity offerings on May 28, 2013 and September 25, 2013, Genco was issued 128,383 and 276,000 shares, respectively, of Class B stock, which represents 2% of the number of common shares issued.


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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, Time Charter Equivalent
("TCE") rates and daily vessel operating expenses for the three and nine months
ended September 30, 2013 and 2012.

                                              For the Three Months Ended
                                                     September 30,                 Increase
                                                2013                2012          (Decrease)        % Change
Fleet Data:
Ownership days (1)
Capesize                                            184.0              184.0                -               -
Supramax                                            368.0              368.0                -               -
Handysize                                           326.1              276.0             50.1            18.2 %

Total                                               878.1              828.0             50.1             6.1 %

Available days (2)
Capesize                                            184.0              184.0                -               -
Supramax                                            368.0              368.0                -               -
Handysize                                           324.0              276.0             48.0            17.4 %

Total                                               876.0              828.0             48.0             5.8 %

Operating days (3)
Capesize                                            184.0              184.0                -               -
Supramax                                            365.2              361.7              3.5             1.0 %
Handysize                                           317.8              276.0             41.8            15.1 %

Total                                               867.0              821.7             45.3             5.5 %

Fleet utilization (4)
Capesize                                            100.0 %            100.0 %              -               -
Supramax                                             99.2 %             98.3 %            0.9 %           0.9 %
Handysize                                            98.1 %            100.0 %           (1.9 )%         (1.9 )%

Fleet average                                        99.0 %             99.2 %           (0.2 )%         (0.2 )%

Average Daily Results:
Time Charter Equivalent (5)
Capesize                                   $       18,135       $      4,701     $     13,434           285.8 %
Supramax                                            7,356              6,991              365             5.2 %
Handysize                                           8,340              9,124             (784 )          (8.6 )%

Fleet average                                       9,984              7,193            2,791            38.8 %

Daily vessel operating expenses (6)
Capesize                                   $        5,227       $      5,579     $       (352 )          (6.3 )%
Supramax                                            4,933              5,400             (467 )          (8.6 )%
Handysize                                           4,423              4,593             (170 )          (3.7 )%

Fleet average                                       4,805              5,171             (366 )          (7.1 )%


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                                             For the Nine Months Ended
                                                   September 30,               Increase
                                               2013               2012        (Decrease)        % Change
Fleet Data:
Ownership days (1)
Capesize                                           546.0            548.0            (2.0 )          (0.4 )%
Supramax                                         1,092.0          1,096.0            (4.0 )          (0.4 )%
Handysize                                          869.1            822.0            47.1             5.7 %

Total                                            2,507.1          2,466.0            41.1             1.7 %

Available days (2)
Capesize                                           546.0            548.0            (2.0 )          (0.4 )%
Supramax                                         1,074.1          1,086.7           (12.6 )          (1.2 )%
Handysize                                          867.0            822.0            45.0             5.5 %

Total                                            2,487.1          2,456.7            30.4             1.2 %

Operating days (3)
Capesize                                           546.0            548.0            (2.0 )          (0.4 )%
Supramax                                         1,070.9          1,070.9               -               -
Handysize                                          859.3            820.4            38.9             4.7 %

Total                                            2,476.2          2,439.3            36.9             1.5 %

Fleet utilization (4)
Capesize                                           100.0 %          100.0 %             -               -
Supramax                                            99.7 %           98.5 %           1.2 %           1.2 %
Handysize                                           99.1 %           99.8 %          (0.7 )%         (0.7 )%

Fleet average                                       99.6 %           99.3 %           0.3 %           0.3 %

Average Daily Results:
Time Charter Equivalent (5)
Capesize                                   $      10,056       $    5,722     $     4,334            75.7 %
Supramax                                           7,242            8,222            (980 )         (11.9 )%
Handysize                                          8,015            8,725            (710 )          (8.1 )%

Fleet average                                      8,129            7,833             296             3.8 %

Daily vessel operating expenses (6)
Capesize                                   $       5,381       $    5,225     $       156             3.0 %
Supramax                                           5,037            5,318            (281 )          (5.3 )%
Handysize                                          4,481            4,600            (119 )          (2.6 )%

Fleet average                                      4,919            5,058            (139 )          (2.7 )%

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


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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 (including voyage expenses to Parent)) 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,
                                               2013                2012              2013               2012

Voyage revenues (in thousands)             $       9,102       $       6,291     $      21,467       $   20,188
Voyage expenses (in thousands)                       238                 254               977              686
Voyage expenses to Parent (in thousands)             118                  82               272              260
                                           $       8,746       $       5,955     $      20,218       $   19,242
Total available days                               876.0               828.0           2,487.1          2,456.7
Total TCE rate                             $       9,984       $       7,193     $       8,129       $    7,833

(6) Daily vessel operating expenses. We define daily vessel operating expenses ("DVOE") 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.


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Operating Data

The following discusses our financial results for the three and nine months
ended September 30, 2013 and 2012:

                                               For the Three Months Ended
                                                      September 30,
                                               2013                   2012           Change        % Change
                                            (U.S. dollars in thousands, except for per share
                                                                amounts)
Revenues                                   $      9,102           $      6,291      $   2,811           44.7 %

Operating Expenses:
Voyage expenses                                     238                    254            (16 )         (6.3 )%
Voyage expenses to Parent                           118                     82             36           43.9 %
Vessel operating expenses                         4,219                  4,281            (62 )         (1.4 )%
General, administrative and technical
management fees                                   1,144                  1,069             75            7.0 %
Management fees to Parent                           659                    621             38            6.1 %
Depreciation                                      3,847                  3,724            123            3.3 %

Total operating expenses                         10,225                 10,031            194            1.9 %

Operating loss                                   (1,123 )               (3,740 )        2,617          (70.0 )%
Other expense                                    (1,139 )               (1,078 )          (61 )          5.7 %

Loss before income taxes                         (2,262 )               (4,818 )        2,556          (53.1 )%
Income tax expense                                   (8 )                   (4 )           (4 )        100.0 %
Net loss                                   $     (2,270 )         $     (4,822 )    $   2,552          (52.9 )%
Net loss per share of common and Class B
Stock:
Net loss per share - basic                 $      (0.08 )         $      (0.22 )    $    0.14          (63.6 )%
Net loss per share - diluted               $      (0.08 )         $      (0.22 )    $    0.14          (63.6 )%
Dividends declared and paid per share      $       0.01           $       0.05      $   (0.04 )        (80.0 )%

EBITDA (1)                                 $      2,712           $        (31 )    $   2,743       (8,848.4 )%


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                                                For the Nine Months Ended
                                                      September 30,
                                               2013                   2012            Change        % Change
                                            (U.S. dollars in thousands, except for per share
                                                                amounts)
Revenues                                   $     21,467           $     20,188       $   1,279            6.3 %

Operating Expenses:
Voyage expenses                                     977                    686             291           42.4 %
Voyage expenses to Parent                           272                    260              12            4.6 %
Vessel operating expenses                        12,332                 12,474            (142 )         (1.1 )%
General, administrative and technical
management fees                                   3,619                  3,525              94            2.7 %
Management fees to Parent                         1,881                  1,850              31            1.7 %
Depreciation                                     11,172                 11,090              82            0.7 %

Total operating expenses                         30,253                 29,885             368            1.2 %

Operating loss                                   (8,786 )               (9,697 )           911           (9.4 )%
Other expense                                    (3,171 )               (3,219 )            48           (1.5 )%

Loss before income taxes                        (11,957 )              (12,916 )           959           (7.4 )%
Income tax expense                                  (22 )                  (26 )             4          (15.4 )%
Net loss                                   $    (11,979 )         $    (12,942 )     $     963           (7.4 )%
Net loss per share of common and Class B
Stock:
Net loss per share - basic                 $      (0.46 )         $      (0.58 )     $    0.12          (20.7 )%
Net loss per share - diluted               $      (0.46 )         $      (0.58 )     $    0.12          (20.7 )%
Dividends declared and paid per share      $       0.03           $       0.23       $   (0.20 )        (87.0 )%

EBITDA (1)                                 $      2,378           $      1,371       $   1,007           73.5 %



(1) EBITDA represents net (loss) income plus net interest expense, taxes and depreciation. 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 our consolidated internal financial statements, and it is presented for review at our board meetings. We believe that EBITDA is useful to investors as the shipping industry is capital intensive which often results in significant depreciation and cost of financing. EBITDA presents investors with a measure in addition to net income (loss) to evaluate our performance prior to these costs. EBITDA is not an item recognized by U.S. GAAP and should not be considered as an alternative to net income (loss), operating income or any other indicator of a company's operating performance required by U.S. GAAP. EBITDA is not a measure 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. The following table demonstrates our calculation of EBITDA and provides a reconciliation of EBITDA to net loss for each of the periods presented above:

                          For the Three Months Ended           For the Nine Months Ended
. . .
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