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GNK > SEC Filings for GNK > Form 10-Q on 8-Nov-2013All Recent SEC Filings

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Form 10-Q for GENCO SHIPPING & TRADING LTD


8-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, 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 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; (xv) the Company's ability to obtain modifications or alternatives to its financing arrangements on acceptable terms; (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 8.5 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., 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, spot market-related time charter contracts and pool agreements that expire (assuming the option periods in the time charters are not exercised) between November 2013 and November 2015.

In addition, Baltic Trading's fleet currently consists of two Capesize, four Supramax and five Handysize drybulk carriers with an aggregate carrying capacity of approximately 736,000 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


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vessel from subsidiaries of Clipper Group for an aggregate purchase price of $41.0 million renamed the Baltic Fox and Baltic Hare, respectively. The Baltic Fox and Baltic Hare were delivered on September 6, 2013 and September 5, 2013, respectively. Baltic Trading funded a portion of the purchase price of the vessels using proceeds from its registered follow-on common stock offering complted on May 28, 2013. For the remainder of the purchase price, Baltic Tradng drew down $22.0 million on its secured loan agreement with DVB Bank SE (the "2013 Baltic Trading Credit Facility"). Refer to Note 9 - Debt in our condensed consolidated financial statements for further information regarding this credit facility.

On October 31, 2013, Baltic Trading 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. Baltic Trading plans to finance this acquisition in part through the proceeds from its common stock offering completed on September 25, 2013 and in part through commercial bank debt financing. Baltic Trading is in negotiations to obtain a commitment for commercial bank financing from a global lending institution. Baltic Trading is seeking to raise additional cash through commercial bank debt financing in order to fulfill its payment obligations under the agreements relating to the Capesize vessel acquisitions. There can be no assurance that Baltic Trading will be able to obtain the proposed commercial bank financing or any other financing, or that if it does so, that Baltic Trading will be able to borrow all or any of the amounts committed thereunder. Baltic Trading needs to raise additional capital in order to fulfill these obligations. If Baltic Trading breaches or does not fully perform its obligations under such agreements, Baltic Trading may forfeit the deposits and other amounts it has paid to the sellers in connection with the Capesize vessel acquisitions, and may be liable to the sellers for any additional damages resulting from its actions.

See pages 34 - 37 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. Additionally, on September 25, 2013, Baltic Trading cosed on an equity offering of 13,800,000 shares of common stock at an offering price of $4.60 per share. Baltic Trading received net proceeds of $59.5 million. As of September 30, 2013, the Company's wholly-owned subsidiary Genco Investments LLC owned 6,103,471 shares of Baltic Trading's Class B Stock, which represents a 13.97% ownership interest in Baltic Trading at September 30, 2013 and 70.90% 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, controls and has a minority interest in MEP. This arrangement was approved by an independent committee of our Board of Directors.


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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, 2013 and 2012 on a consolidated basis, which includes the operations of Baltic Trading.

                          For the Three Months Ended
                                 September 30,               Increase
                             2013               2012        (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                      1,522.1          1,472.0            50.1             3.4 %

Total                          5,754.1          5,704.0            50.1             0.9 %

Available days (2)
Capesize                       1,012.0            999.2            12.8             1.3 %
Panamax                          736.0            699.0            37.0             5.3 %
Supramax                       1,902.7          1,874.7            28.0             1.5 %
Handymax                         547.7            538.2             9.5             1.8 %
Handysize                      1,508.3          1,472.0            36.3             2.5 %

Total                          5,706.7          5,583.1           123.6             2.2 %

Operating days (3)
Capesize                       1,012.0            998.9            13.1             1.3 %
Panamax                          736.0            691.1            44.9             6.5 %
Supramax                       1,882.1          1,836.9            45.2             2.5 %
Handymax                         539.6            537.5             2.1             0.4 %
Handysize                      1,495.1          1,472.0            23.1             1.6 %

Total                          5,664.8          5,536.4           128.4             2.3 %

Fleet utilization (4)
Capesize                         100.0 %          100.0 %             -               -
Panamax                          100.0 %           98.9 %           1.1 %           1.1 %
Supramax                          98.9 %           98.0 %           0.9 %           0.9 %
Handymax                          98.5 %           99.9 %          (1.4 )%         (1.4 )%
Handysize                         99.1 %          100.0 %          (0.9 )%         (0.9 )%

Fleet average                     99.3 %           99.2 %           0.1 %           0.1 %



                                              For the Three Months Ended
                                                     September 30,                 Increase
                                               2013                2012           (Decrease)       % Change
                                                    (U.S. dollars)
Average Daily Results:
Time Charter Equivalent (5)
Capesize                                   $      18,178       $      12,261     $      5,917           48.3 %
Panamax                                            8,528               6,537            1,991           30.5 %
Supramax                                           8,196               8,906             (710 )         (8.0 )%
Handymax                                           7,811               8,554             (743 )         (8.7 )%
Handysize                                          7,855               8,689             (834 )         (9.6 )%

Fleet average                                      9,882               9,119              763            8.4 %

Daily vessel operating expenses (6)
Capesize                                   $       5,154       $       5,507     $       (353 )         (6.4 )%
Panamax                                            4,524               5,813           (1,289 )        (22.2 )%
Supramax                                           4,724               4,778              (54 )         (1.1 )%
Handymax                                           5,241               4,808              433            9.0 %
Handysize                                          4,565               4,440              125            2.8 %

Fleet average                                      4,782               4,956             (174 )         (3.5 )%


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                          For the Nine Months Ended
                                September 30,               Increase
                            2013               2012        (Decrease)        % Change
Fleet Data:
Ownership days (1)
Capesize                      3,003.0          3,014.0           (11.0 )          (0.4 )%
Panamax                       2,184.0          2,192.0            (8.0 )          (0.4 )%
Supramax                      5,733.0          5,754.0           (21.0 )          (0.4 )%
Handymax                      1,638.0          1,644.0            (6.0 )          (0.4 )%
Handysize                     4,418.1          4,384.0            34.1             0.8 %

Total                        16,976.1         16,988.0           (11.9 )          (0.1 )%

Available days (2)
Capesize                      2,986.6          2,983.9             2.7             0.1 %
Panamax                       2,184.0          2,064.4           119.6             5.8 %
Supramax                      5,649.6          5,610.1            39.5             0.7 %
Handymax                      1,614.0          1,560.5            53.5             3.4 %
Handysize                     4,378.2          4,384.0            (5.8 )          (0.1 )%

Total                        16,812.4         16,602.9           209.5             1.3 %

Operating days (3)
Capesize                      2,985.1          2,979.9             5.2             0.2 %
Panamax                       2,165.5          2,051.0           114.5             5.6 %
Supramax                      5,611.5          5,549.1            62.4             1.1 %
Handymax                      1,593.9          1,542.7            51.2             3.3 %
Handysize                     4,349.1          4,371.1           (22.0 )          (0.5 )%

Total                        16,705.1         16,493.8           211.3             1.3 %

Fleet utilization (4)
Capesize                         99.9 %           99.9 %             -               -
Panamax                          99.2 %           99.3 %          (0.1 )%         (0.1 )%
Supramax                         99.3 %           98.9 %           0.4 %           0.4 %
Handymax                         98.8 %           98.9 %          (0.1 )%         (0.1 )%
Handysize                        99.3 %           99.7 %          (0.4 )%         (0.4 )%

Fleet average                    99.4 %           99.3 %           0.1 %           0.1 %



                                               For the Nine Months Ended
                                                     September 30,                 Increase
                                               2013                2012           (Decrease)       % Change
                                                    (U.S. dollars)
Average Daily Results:
Time Charter Equivalent (5)
Capesize                                   $      10,081       $      14,239     $     (4,158 )        (29.2 )%
Panamax                                            7,396               9,894           (2,498 )        (25.2 )%
Supramax                                           8,119              10,002           (1,883 )        (18.8 )%
Handymax                                           7,137               8,367           (1,230 )        (14.7 )%
Handysize                                          7,588               8,567             (979 )        (11.4 )%

Fleet average                                      8,141              10,218           (2,077 )        (20.3 )%

Daily vessel operating expenses (6)
Capesize                                   $       5,341       $       5,403     $        (62 )         (1.1 )%
Panamax                                            4,824               5,480             (656 )        (12.0 )%
Supramax                                           4,711               4,835             (124 )         (2.6 )%
Handymax                                           4,841               5,626             (785 )        (14.0 )%
Handysize                                          4,502               4,621             (119 )         (2.6 )%

Fleet average                                      4,795               5,040             (245 )         (4.9 )%


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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,
                                                2013               2012            2013               2012

Voyage revenues (in thousands)             $       58,605       $   53,603     $     143,222       $  174,740
Voyage expenses (in thousands)                      2,212            2,693             6,352            5,099
                                           $       56,393       $   50,910           136,870       $  169,641
Total available days                              5,706.7          5,583.1          16,812.4         16,602.9
Total TCE rate                             $        9,882       $    9,119     $       8,141       $   10,218

(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.


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Operating Data
                                               For the Three Months Ended
                                                      September 30,
                                                2013                 2012              Change        % Change
                                             (U.S. dollars in thousands, except for per share
                                                                 amounts)
Revenue:
Voyage revenues                            $        58,605       $      53,603       $    5,002            9.3 %
Service revenues                                       828                 828                -              -

Total revenues                                      59,433              54,431            5,002            9.2 %

Operating Expenses:
Voyage expenses                                      2,212               2,693             (481 )        (17.9 )%
Vessel operating expenses                           27,515              28,272             (757 )         (2.7 )%
General, administrative, and management
fees                                                 7,871               8,622             (751 )         (8.7 )%
Depreciation and amortization                       35,222              35,038              184            0.5 %

Total operating expenses                            72,820              74,625           (1,805 )         (2.4 )%

Operating loss                                     (13,387 )           (20,194 )          6,807          (33.7 )%
Other expense                                      (23,110 )           (21,540 )         (1,570 )          7.3 %

Loss before income taxes                           (36,497 )           (41,734 )          5,237          (12.5 )%
Income tax expense                                    (479 )              (303 )           (176 )         58.1 %

Net loss                                           (36,976 )           (42,037 )          5,061          (12.0 )%
Less: Net loss attributable to
noncontrolling interest                             (1,942 )            (3,588 )          1,646          (45.9 )%
Net loss attributable to Genco Shipping
& Trading Limited                          $       (35,034 )     $     (38,449 )     $    3,415           (8.9 )%

Net loss per share - basic                 $         (0.81 )     $       (0.90 )     $     0.09          (10.0 )%
Net loss per share - diluted               $         (0.81 )     $       (0.90 )     $     0.09          (10.0 )%
Dividends declared and paid per share      $             -       $           -       $        -
Weighted average common shares
outstanding - basic                             43,231,510          42,885,810          345,700            0.8 %
Weighted average common shares
outstanding - diluted                           43,231,510          42,885,810          345,700            0.8 %

EBITDA (1)                                 $        23,732       $      18,389       $    5,343           29.1 %


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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)
Revenue:
. . .
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