Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BALT > SEC Filings for BALT > Form 10-K on 3-Mar-2014All Recent SEC Filings

Show all filings for BALTIC TRADING LTD

Form 10-K for BALTIC TRADING LTD


3-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, an international drybulk shipping company that also serves as our Manager. Our fleet currently consists of four Capesize vessels, four Supramax vessels and five Handysize vessels with an aggregate carrying capacity of approximately 1,095,000 dwt and the average age of our fleet is currently 3.9 years, as compared to the average age for the world fleet of approximately 9 years for the drybulk shipping segments in which we compete. After the expected delivery of the four Ultramax vessels that we have agreed to acquire, we will own 17 drybulk vessels, consisting of four Capesize vessels, four Ultramax vessels, four Supramax vessels and five Handysize vessels with a total carrying capacity of approximately 1,350,000 dwt. Our fleet contains five 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 two Handysize drybulk vessels from subsidiaries of Clipper Group for an aggregate purchase price of $41,000. The Baltic Hare, a 2009-built Handysize vessel, was delivered on September 5, 2013 and the Baltic Fox, a 2010-built Handysize vessel, was delivered on September 6, 2013. 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 $22 Million Term Loan Facility. Refer to Note 7 - Debt in our consolidated financial statements for further information regarding this credit facility.

On October 31, 2013, we entered into agreements to purchase two Capesize drybulk vessels from affiliates of SK Shipping Co. Ltd. for an aggregate purchase price of $103,000. The Baltic Lion, a 2012-built Capesize drybulk vessel, was delivered on December 27, 2013, and the Baltic Tiger, a 2011-built Capesize vessel, was delivered on November 26, 2013. We funded a portion of the purchase price of the vessels using proceeds from our registered follow-on common stock offering completed on September 25, 2013. For the remainder of the purchase price, we drew down $44,000 on our $44 Million Term Loan Facility. Refer to Note 7 - Debt in our consolidated financial statements for further information regarding this credit facility.

On November 13, 2013, we entered into agreements to purchase up to four 64,000 dwt Ultramax newbuilding drybulk vessels from Yangfan Group Co., Ltd. for a purchase price of $28,000 per vessel, or up to $112,000 in the aggregate. We agreed to purchase two such vessels, to be renamed the Baltic Hornet and Baltic Wasp, and had an option, which was exercisable until January 10, 2013, to purchase up to two additional vessels. On January 8, 2014, we exercised our option to purchase the two additional 64,000 dwt Ultramax drybulk vessels from Yangfan Group Co., Ltd. for an aggregate purchase price of $28,000 per vessel. These vessels are to be renamed the Baltic Mantis and the Baltic Scorpion. The purchases are subject to completion of customary additional documentation and closing conditions. The Baltic Hornet and Baltic Wasp are expected to be delivered to us during the third quarter and fourth quarter of 2014, respectively. The Baltic Scorpion and the Baltic Mantis are expected to be delivered to us during the


second and third quarters of 2015, respectively. We intend to use a combination of cash on hand, future cash flow from operations as well as commercial bank debt to fully finance the acquisition of these four Ultramax newbuilding drybulk vessels.

We seek to leverage the expertise and reputation of Genco 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 are on spot market-related time charters, short-term time charters or in vessel pools. We may also consider operating vessels in the spot market directly based on our view of market conditions. We have financed our fleet primarily with equity capital and have financed the remainder with our 2010 Credit Facility, $22 Million Term Loan Facility and $44 Million Term Loan 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 paid 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 5 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 15 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 $21.6 million 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 $59.5 million after deducting underwriters' fees and expenses. On November 18, 2013, we closed an equity offering of 12,650,000 shares of common stock at an offering price of $4.60 per share. We received net proceeds of $55.1 million 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, September 25, 2013 and November 18, 2013, Genco was issued 128,383, 276,000 and 253,000 shares, respectively, of Class B stock, which represents 2% of the number of common shares issued.

Year ended December 31, 2013 compared to the year ended December 31, 2012

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 years ended December 31, 2013 and 2012.

                                              For the Years Ended December 31,          Increase
                                                 2013                   2012           (Decrease)        % Change

Fleet Data:
Ownership days (1)
Capesize                                              770.6                  732.0            38.6             5.3 %
Supramax                                            1,460.0                1,464.0            (4.0 )          (0.3 )%
Handysize                                           1,329.1                1,098.0           231.1            21.0 %

Total                                               3,559.7                3,294.0           265.7             8.1 %

Available days (2)
Capesize                                              765.0                  732.0            33.0             4.5 %
Supramax                                            1,442.1                1,453.3           (11.2 )          (0.8 )%
Handysize                                           1,327.0                1,098.0           229.0            20.9 %

Total                                               3,534.1                3,283.3           250.8             7.6 %

Operating days (3)
Capesize                                              765.0                  729.9            35.1             4.8 %
Supramax                                            1,423.3                1,434.0           (10.7 )          (0.7 )%
Handysize                                           1,317.6                1,096.4           221.2            20.2 %

Total                                               3,505.9                3,260.3           245.6             7.5 %

Fleet utilization (4)
Capesize                                              100.0 %                 99.7 %           0.3 %           0.3 %
Supramax                                               98.7 %                 98.7 %             -               -
Handysize                                              99.3 %                 99.9 %          (0.6 )%         (0.6 )%

Fleet average                                          99.2 %                 99.3 %          (0.1 )%         (0.1 )%


                                               For the Years Ended December 31,           Increase
(U.S. dollars)                                   2013                     2012           (Decrease)       % Change

Average Daily Results:
Time Charter Equivalent (5)
Capesize                                   $          15,123         $         7,276     $     7,847          107.8 %
Supramax                                               8,031                   7,836             195            2.5 %
Handysize                                              8,448                   8,290             158            1.9 %

Fleet average                                          9,723                   7,863           1,860           23.7 %

Daily vessel operating expenses (6)
Capesize                                   $           5,591         $         5,302     $       289            5.5 %
Supramax                                               5,053                   5,280            (227 )         (4.3 )%
Handysize                                              4,442                   4,663            (221 )         (4.7 )%

Fleet average                                          4,941                   5,079            (138 )         (2.7 )%



(1) 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) We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be capable of generating revenues.

(3) 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) 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) 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 Years Ended December 31,
                                                   2013                   2012

  Voyage revenues (in thousands)             $         35,973       $         27,304
  Voyage expenses (in thousands)                        1,151                  1,142
  Voyage expenses to Parent (in thousands)                461                    346
                                                       34,361                 25,816
  Total available days                                3,534.1                3,283.3
  Total TCE rate                             $          9,723       $          7,863

(6) We define daily vessel operating expenses to include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance (excluding drydocking), the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period.

Operating Data

The following compares our operating (loss) income and net loss for the years
ended December 31, 2013 and 2012.

                                              For the Years Ended December 31,          Increase
                                                 2013                   2012           (Decrease)        % Change
Income Statement Data:
(U.S. dollars in thousands except for per share amounts)
Revenues                                   $          35,973       $        27,304     $     8,669              31.7 %

Operating Expenses:
Voyage expenses                                        1,151                 1,142               9               0.8 %
Voyage expenses to Parent                                461                   346             115              33.2 %
Vessel operating expenses                             17,590                16,730             860               5.1 %
General, administrative and
technical management fees                              5,445                 4,768             677              14.2 %
Management fees to Parent                              2,671                 2,471             200               8.1 %
Depreciation and amortization                         15,564                14,814             750               5.1 %

Total operating expenses                              42,882                40,271           2,611               6.5 %

Operating loss                                        (6,909 )             (12,967 )         6,058             (46.7 )%
Other expense                                         (4,449 )              (4,275 )          (174 )             4.1 %
Loss before income taxes                             (11,358 )             (17,242 )         5,884             (34.1 )%
Income tax expense                                       (34 )                 (28 )            (6 )            21.4 %
Net loss                                   $         (11,392 )     $       (17,270 )         5,878             (34.0 )%
Net loss per share of common and Class B
Stock:
Net loss per share - basic                 $           (0.36 )     $         (0.78 )   $      0.42             (53.8 )%
Net loss per share - diluted               $           (0.36 )     $         (0.78 )   $      0.42             (53.8 )%
Dividends declared and paid per share      $            0.05       $          0.24     $     (0.19 )           (79.2 )%

Balance Sheet Data:
(U.S. dollars in thousands, at end of period)
Cash and cash equivalents                  $          58,193       $         3,280          54,913           1,674.2 %
Total assets                                         557,367               364,370         192,997              53.0 %
Total debt                                           167,875               101,250          66,625              65.8 %
Total shareholders' equity                           385,103               260,662         124,441              47.7 %

Other Data:
(U.S. dollars in thousands)
Net cash provided by operating
activities                                 $           2,603       $           433     $     2,170             501.2 %
Net cash used in investing activities               (147,212 )                  (5 )      (147,207 )     2,944,140.0 %
Net cash provided by (used in) financing
activities                                           199,522                (5,448 )       204,970          (3,762.3 )%

EBITDA (1)                                 $           8,638       $         1,819     $     6,819             374.9 %



(1) EBITDA represents net (loss) income plus net interest expense, taxes and depreciation. Refer to page 42 included in Item 6 where the use of EBITDA is discussed and for a table demonstrating our calculation of EBITDA that provides a reconciliation of EBITDA to net (loss) income for each of the periods presented above.

Results of Operations

We began earning revenues during the three months ended June 30, 2010, since our first vessel was delivered in the second quarter of 2010. Beginning with the second quarter of 2010, our revenues following the delivery of our first vessel have consisted primarily of charterhire. Our ongoing cash expenses consist of fees and reimbursements under our Management Agreement and other expenses directly related to the operation of our vessels and certain administrative expenses. We do not expect to have any income tax liabilities in the Marshall Islands but may be subject to tax in the United States on revenues derived from voyages that either begin or end in the United States. We have accrued for estimated taxes from these voyages at December 31, 2013 and 2012.

We expect that our financial results will be largely driven by the following factors:

the number of vessels in our fleet and their charter rates;

the number of days that our vessels are utilized and not subject to drydocking, special surveys or otherwise off-hire; and

our ability to control our fixed and variable expenses, including our ship management fees, our operating costs and our general, administrative and other expenses, including insurance. Operating costs may vary from month to month depending on a number of factors, including the timing of purchases of lube oil, crew changes and delivery of spare parts.

Years ended December 31, 2013 and 2012

VOYAGE REVENUES-

Voyage revenues are driven primarily by the number of vessels that we have in our fleet, the number of calendar days during which our vessels will generate revenues and the amount of daily charter hire that our vessels earn under charters. These, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the drybulk carrier market and other factors affecting spot market charter rates for our vessels. Voyage revenues also include the sale of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

Vessels operating in the spot charter market generate revenues that are less predictable than those operating on time charters but may enable us to capture increased profit margins during periods of improvements in charter rates. Conversely, by operating in the spot charter market, we are exposed to the risk of declining charter rates, which may have a materially adverse impact on our financial performance.

For the years ended December 31, 2013 and 2012, voyage revenues were $35,973 and $27,304, respectively. The increase in voyage revenues was primarily due to higher spot market rates achieved by the majority of our vessels as well as the increase in the size of our fleet during the year ended December 31, 2013.


The average TCE rate of our fleet was $9,723 a day for the year ended December 31, 2013 as compared to $7,863 for the year ended December 31, 2012. The increase was due to higher spot market rates achieved by the Capesize vessels in our fleet during 2013 as compared to 2012.

During 2013, the Baltic Dry Index, or BDI (a drybulk index) recorded a low of 698 on January 1, 2013 and rebounded to yearly high of 2,337 on December 12, 2013. At December 24, 2013, the index was 2,277. In 2014, the index started off at 2,113 on January 2, 2014 and has since decreased to 1,258 on February 28, 2014.

The BDI displayed considerable weakness in the beginning of 2012 due to reduced iron ore cargoes recorded through the celebration of the Chinese New Year, as well as a high level of newbuilding vessel deliveries for the first two months of the year. A combination of factors, including excess vessel supply, weather disruptions in Brazil and Australia and strikes in Columbian coal mines resulted in the BDI remaining at relatively low levels through the first half of the year. As fleet growth moderated and Chinese steel production increased, the BDI traded up through the second half of 2013 and recorded its peak value of 2,337 on December 12, 2013. The year to date in 2014 has exhibited seasonal issues like those of the corresponding period in 2013, with seasonal factors contributing to the most recent downturn in rates, including: order timing issues for iron ore cargoes related to the celebration of the Chinese New Year; increased deliveries of newbuilding vessels for the month of January as compared to the previous three months; a ban of coal shipments out of Drummond's Columbian coal mines and short-term weather-related issues in Brazil and Australia, temporarily reducing iron ore output. Given the fact that a majority of our vessels are chartered at spot market-related rates, we expect that the recent downturn in rates will adversely impact our first quarter 2014 revenues and results of operations.

During 2013 and 2012, we had 3,559.7 and 3,294.0 ownership days, respectively. The increase in ownership days is due to the delivery of the Baltic Fox, Baltic Hare, Baltic Lion and Baltic Tiger during the third and fourth quarters of 2013 partially offset by a decrease in ownership days to an additional day during 2012 due to the leap year. Fleet utilization remained stable at 99.2% and 99.3% during 2013 and 2012, respectively.

VOYAGE EXPENSES-

To the extent we operate our vessels on voyage charters in the spot market, we are responsible for all voyage expenses. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. We expect that our voyage expenses will vary depending on the number of vessels in our fleet and the extent to which we enter into voyage charters in the spot market as opposed to spot market-related time charters, trip charters or vessel pools, in which we would not be responsible for voyage expenses. At the inception of a spot market-related time charter, we record the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses. Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

For 2013 and 2012, voyage expenses remained stable at $1,151 and $1,142, respectively.

VOYAGE EXPENSES TO PARENT-

Voyage expenses to Parent increased by $115 during 2013 as compared to 2012. This amount represents the commercial service fee equal to 1.25% of gross charter revenues generated by each vessel due to Genco pursuant to the Management Agreement. The increase is primarily a result of the increase in voyage revenue due to higher spot market rates achieved by our Capesize vessels during 2013 as compared to 2012.

VESSEL OPERATING EXPENSES-

Vessel operating expenses increased by $860 to $17,590 during 2013 as compared to $16,730 in 2012 primarily due to a larger fleet as a result of the delivery of four vessels during 2013 partially offset by a decrease in the purchase of stores and lower insurance and repair and maintenance related expenses.

Daily vessel operating expenses decreased to $4,941 per vessel per day during the year ended December 31, 2013 from $5,079 per vessel per day during the year ended December 31, 2012. The decrease in daily vessel operating expenses is primarily due to lower insurance and repair and maintenance related expenses, as well as the timing of purchase of stores and spare parts. We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Our actual daily vessel operating expenses per vessel for the year ended December 31, 2013 were $459 below the budgeted rate for the year ended December 31, 2013 of $5,400 per vessel per day.


Our vessel operating expenses, which generally represent fixed costs, will increase as a result of the expansion of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for crewing, lubes, and insurance, may also cause these expenses to increase.

Based on our management's estimates and budgets provided by our technical manager, we expect our vessels to have average daily vessel operating expenses during 2014 of:

                                         Average Daily
                         Vessel Type    Budgeted Amount
                         Capesize      $           6,000
. . .
  Add BALT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BALT - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.