Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2011

 

OR

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

Commission file number 000-51442

 


 

GENCO SHIPPING & TRADING LIMITED

(Exact name of registrant as specified in its charter)

 

Republic of the Marshall Islands
(State or other jurisdiction of
incorporation or organization)

 

98-043-9758
(I.R.S. Employer
Identification No.)

 

299 Park Avenue, 20th Floor, New York, New York 10171

(Address of principal executive offices) (Zip Code)

 

(646) 443-8550

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of May 10, 2011: Common stock, $0.01 per share — 35,951,198 shares.

 

 

 



Table of Contents

 

Genco Shipping & Trading Limited

 

 

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

a)

Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010

3

 

 

 

 

 

b)

Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2011 and 2010

4

 

 

 

 

 

c)

Condensed Consolidated Statements of Equity for the Three Months ended March 31, 2011 and 2010

5

 

 

 

 

 

d)

Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2011 and 2010

6

 

 

 

 

 

e)

Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2011 and 2010

7

 

 

 

 

 

f)

Notes to Condensed Consolidated Financial Statements

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

 

 

 

 

Item 4.

Controls and Procedures

47

 

 

 

 

PART II —OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

47

 

 

 

 

Item 1A.

Risk Factors

47

 

 

 

 

Item 6.

Exhibits

48

 

2



Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010

(U.S. Dollars in thousands, except for share and per share data)

(Unaudited)

 

 

 

March 31, 2011

 

December 31,
2010

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

275,466

 

$

270,877

 

Due from charterers, net of a reserve of $521 and $592, respectively

 

7,679

 

8,794

 

Prepaid expenses and other current assets

 

16,390

 

14,010

 

Total current assets

 

299,535

 

293,681

 

 

 

 

 

 

 

Noncurrent assets:

 

 

 

 

 

Vessels, net of accumulated depreciation of $365,926 and $334,502, respectively

 

2,789,423

 

2,783,810

 

Deposits on vessels

 

10,160

 

13,718

 

Deferred drydock, net of accumulated depreciation of $9,518 and $9,044, respectively

 

7,678

 

8,538

 

Other assets, net of accumulated amortization of $5,340 and $4,561, respectively

 

16,195

 

16,937

 

Fixed assets, net of accumulated depreciation and amortization of $2,161 and $2,041, respectively

 

2,308

 

2,310

 

Other noncurrent assets

 

514

 

 

Restricted cash

 

9,750

 

9,000

 

Investments

 

55,144

 

54,714

 

Total noncurrent assets

 

2,891,172

 

2,889,027

 

 

 

 

 

 

 

Total assets

 

$

3,190,707

 

$

3,182,708

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

26,986

 

$

31,790

 

Current portion of long-term debt

 

73,377

 

71,841

 

Deferred revenue

 

6,994

 

9,974

 

Fair value of derivative instruments

 

13,607

 

4,417

 

Total current liabilities

 

120,964

 

118,022

 

 

 

 

 

 

 

Noncurrent liabilities:

 

 

 

 

 

Deferred revenue

 

 

392

 

Deferred rent credit

 

644

 

657

 

Time charters acquired

 

1,724

 

2,197

 

Fair value of derivative instruments

 

22,472

 

38,880

 

Convertible senior note payable

 

103,276

 

102,309

 

Long-term debt

 

1,574,101

 

1,572,098

 

Total noncurrent liabilities

 

1,702,217

 

1,716,533

 

 

 

 

 

 

 

Total liabilities

 

1,823,181

 

1,834,555

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Genco Shipping & Trading Limited shareholders’ equity:

 

 

 

 

 

Common stock, par value $0.01; 100,000,000 shares authorized; issued and outstanding 35,951,198 shares at March 31, 2011 and December 31, 2010

 

359

 

359

 

Additional paid-in capital

 

805,309

 

803,778

 

Accumulated other comprehensive income (loss)

 

2,425

 

(5,210

)

Retained earnings

 

347,422

 

334,022

 

Total Genco Shipping & Trading Limited shareholders’ equity

 

1,155,515

 

1,132,949

 

Noncontrolling interest

 

212,011

 

215,204

 

Total equity

 

1,367,526

 

1,348,153

 

 

 

 

 

 

 

Total liabilities and equity

 

$

3,190,707

 

$

3,182,708

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010

(U.S. Dollars in Thousands, Except for Earnings per share and share data)

(Unaudited)

 

 

 

For the Three Months
Ended  March 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

Voyage revenues

 

$

100,619

 

$

94,681

 

Service revenues

 

810

 

 

 

 

 

 

 

 

Total revenues

 

101,429

 

94,681

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Voyage expenses

 

968

 

737

 

Vessel operating expenses

 

24,795

 

14,887

 

General, administrative, and management fees

 

8,851

 

5,797

 

Depreciation and amortization

 

33,081

 

24,834

 

 

 

 

 

 

 

Total operating expenses

 

67,695

 

46,255

 

 

 

 

 

 

 

Operating income

 

33,734

 

48,426

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

Other (expense) income

 

(55

)

29

 

Interest income

 

172

 

76

 

Interest expense

 

(21,321

)

(15,430

)

 

 

 

 

 

 

Other expense

 

(21,204

)

(15,325

)

 

 

 

 

 

 

Net income before income taxes

 

12,530

 

33,101

 

Income tax expense

 

(359

)

 

 

 

 

 

 

 

Net income

 

12,171

 

33,101

 

Less: Net loss attributable to noncontrolling interest

 

(1,255

)

(349

)

Net income attributable to Genco Shipping & Trading Limited

 

$

13,426

 

$

33,450

 

 

 

 

 

 

 

Earnings per share-basic

 

$

0.38

 

$

1.07

 

Earnings per share-diluted

 

$

0.38

 

$

1.06

 

Weighted average common shares outstanding-basic

 

35,142,110

 

31,405,798

 

Weighted average common shares outstanding-diluted

 

35,218,699

 

31,543,465

 

Dividends declared per share

 

$

 

$

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Equity

For the Three Months Ended March 31, 2011 and 2010

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
(Loss)
Income

 

Genco
Shipping &
Trading
Limited
Shareholders’
Equity

 

Noncontrolling
Interest

 

Total Equity

 

Balance — January 1, 2011

 

$

359

 

$

803,778

 

$

334,022

 

$

(5,210

)

$

1,132,949

 

$

215,204

 

$

1,348,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

13,426

 

 

 

13,426

 

(1,255

)

12,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on investments

 

 

 

 

 

 

 

430

 

430

 

 

430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on cash flow hedges, net

 

 

 

 

 

 

 

7,205

 

7,205

 

 

7,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

1,494

 

 

 

 

 

1,494

 

945

 

2,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid by Baltic Trading Limited

 

 

 

 

 

(26

)

 

 

(26

)

(2,846

)

(2,872

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted shares issued by Baltic Trading Limited

 

 

 

37

 

 

 

 

 

37

 

(37

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance —March 31, 2011

 

$

359

 

$

805,309

 

$

347,422

 

$

2,425

 

$

1,155,515

 

$

212,011

 

$

1,367,526

 

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income

 

Genco
Shipping &
Trading
Limited
Shareholders’
Equity

 

Noncontrolling
Interest

 

Total Equity

 

Balance — January 1, 2010

 

$

318

 

$

722,198

 

$

192,820

 

$

13,589

 

$

928,925

 

$

 

$

928,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

33,450

 

 

 

33,450

 

(349

)

33,101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on investments

 

 

 

 

 

 

 

4,243

 

4,243

 

 

 

4,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges, net

 

 

 

 

 

 

 

(3,701

)

(3,701

)

 

 

(3,701

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 75,000 shares of nonvested stock

 

1

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

1,111

 

 

 

 

 

1,111

 

144

 

1,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock of Baltic Trading Limited

 

 

 

(1,071

)

 

 

 

 

(1,071

)

211,405

 

210,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of issuance of Baltic Trading Limited stock-based compensation

 

 

 

(1,570

)

 

 

 

 

(1,570

)

1,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — March 31, 2010

 

$

319

 

$

720,667

 

$

226,270

 

$

14,131

 

$

961,387

 

$

212,770

 

$

1,174,157

 

 

See accompanying notes to condensed consolidated financial statements.

 

5



Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31, 2011 and 2010

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

For the Three Months Ended
March 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Net income

 

$

12,171

 

$

33,101

 

Change in unrealized gain on investments

 

430

 

4,243

 

Unrealized gain (loss) on cash flow hedges, net

 

7,205

 

(3,701

)

Comprehensive income

 

19,806

 

33,643

 

Less: Comprehensive loss attributable to noncontrolling interests

 

(1,255

)

(349

)

Comprehensive income attributable to Genco Shipping & Trading Limited

 

$

21,061

 

$

33,992

 

 

See accompanying notes to condensed consolidated financial statements.

 

6



Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

12,171

 

$

33,101

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

33,081

 

24,834

 

Amortization of deferred financing costs

 

778

 

264

 

Amortization of time charters acquired

 

(473

)

(1,333

)

Amortization of discount on Convertible Senior Notes

 

967

 

 

Unrealized gain on derivative instruments

 

(13

)

(21

)

Amortization of nonvested stock compensation expense

 

2,439

 

1,255

 

Change in assets and liabilities:

 

 

 

 

 

Decrease (increase) in due from charterers

 

1,115

 

(313

)

Increase in prepaid expenses and other current assets

 

(2,374

)

(1,458

)

Increase in other noncurrent assets

 

(514

)

 

(Decrease) increase in accounts payable and accrued expenses

 

(2,965

)

1,636

 

Decrease in deferred revenue

 

(3,372

)

(1,393

)

Decrease in deferred rent credit

 

(13

)

(5

)

Deferred drydock costs incurred

 

(675

)

(1,574

)

 

 

 

 

 

 

Net cash provided by operating activities

 

40,152

 

54,993

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of vessels

 

(35,130

)

(745

)

Deposits on vessels

 

(78

)

(35,578

)

Purchase of other fixed assets

 

(66

)

(96

)

Deposits of restricted cash

 

(750

)

 

 

 

 

 

 

 

Net cash used in investing activities

 

(36,024

)

(36,419

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Repayments on the 2007 Credit Facility

 

(12,500

)

(12,500

)

Repayments on the $100 Million Term Loan Facility

 

(770

)

 

Proceeds from the $253 Million Term Loan Facility

 

21,500

 

 

Repayments on the $253 Million Term Loan Facility

 

(4,691

)

 

 

Proceeds from issuance of common stock by subsidiary

 

 

214,508

 

Payments of subsidiary common stock issuance costs

 

 

(3,053

)

Payment of Convertible Senior Notes issuance costs

 

(51

)

 

 

Payment of dividend by subsidiary

 

(2,873

)

 

Payment of deferred financing costs

 

(154

)

(313

)

 

 

 

 

 

 

Net cash provided by financing activities

 

461

 

198,642

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

4,589

 

217,216

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

270,877

 

188,267

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

275,466

 

$

405,483

 

 

See accompanying notes to condensed consolidated financial statements.

 

7



Table of Contents

 

Genco Shipping & Trading Limited

(U.S. Dollars in Thousands Except Per Share and Share Data)

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

1 - GENERAL INFORMATION

 

The accompanying condensed consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”), its wholly owned subsidiaries, and its subsidiary, Baltic Trading Limited (collectively, the “Company”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T is incorporated under the laws of the Marshall Islands and as of March 31, 2011 is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco Management (USA) Limited; and the ship-owning subsidiaries as set forth below.

 

Below is the list of GS&T’s wholly owned ship-owning subsidiaries as of March 31, 2011:

 

Wholly Owned Subsidiaries

 

Vessels Acquired

 

Dwt

 

Delivery Date

 

Year Built

 

 

 

 

 

 

 

 

 

 

 

Genco Reliance Limited

 

Genco Reliance

 

29,952

 

12/6/04

 

1999

 

Genco Vigour Limited

 

Genco Vigour

 

73,941

 

12/15/04

 

1999

 

Genco Explorer Limited

 

Genco Explorer

 

29,952

 

12/17/04

 

1999

 

Genco Carrier Limited

 

Genco Carrier

 

47,180

 

12/28/04

 

1998

 

Genco Sugar Limited

 

Genco Sugar

 

29,952

 

12/30/04

 

1998

 

Genco Pioneer Limited

 

Genco Pioneer

 

29,952

 

1/4/05

 

1999

 

Genco Progress Limited

 

Genco Progress

 

29,952

 

1/12/05

 

1999

 

Genco Wisdom Limited

 

Genco Wisdom

 

47,180

 

1/13/05

 

1997

 

Genco Success Limited

 

Genco Success

 

47,186

 

1/31/05

 

1997

 

Genco Beauty Limited

 

Genco Beauty

 

73,941

 

2/7/05

 

1999

 

Genco Knight Limited

 

Genco Knight

 

73,941

 

2/16/05

 

1999

 

Genco Leader Limited

 

Genco Leader

 

73,941

 

2/16/05

 

1999

 

Genco Marine Limited

 

Genco Marine

 

45,222

 

3/29/05

 

1996

 

Genco Prosperity Limited

 

Genco Prosperity

 

47,180

 

4/4/05

 

1997

 

Genco Muse Limited

 

Genco Muse

 

48,913

 

10/14/05

 

2001

 

Genco Acheron Limited

 

Genco Acheron

 

72,495

 

11/7/06

 

1999

 

Genco Surprise Limited

 

Genco Surprise

 

72,495

 

11/17/06

 

1998

 

Genco Augustus Limited

 

Genco Augustus

 

180,151

 

8/17/07

 

2007

 

Genco Tiberius Limited

 

Genco Tiberius

 

175,874

 

8/28/07

 

2007

 

Genco London Limited

 

Genco London

 

177,833

 

9/28/07

 

2007

 

Genco Titus Limited

 

Genco Titus

 

177,729

 

11/15/07

 

2007

 

Genco Challenger Limited

 

Genco Challenger

 

28,428

 

12/14/07

 

2003

 

Genco Charger Limited

 

Genco Charger

 

28,398

 

12/14/07

 

2005

 

Genco Warrior Limited

 

Genco Warrior

 

55,435

 

12/17/07

 

2005

 

Genco Predator Limited

 

Genco Predator

 

55,407

 

12/20/07

 

2005

 

Genco Hunter Limited

 

Genco Hunter

 

58,729

 

12/20/07

 

2007

 

Genco Champion Limited

 

Genco Champion

 

28,445

 

1/2/08

 

2006

 

Genco Constantine Limited

 

Genco Constantine

 

180,183

 

2/21/08

 

2008

 

Genco Raptor LLC

 

Genco Raptor

 

76,499

 

6/23/08

 

2007

 

Genco Cavalier LLC

 

Genco Cavalier

 

53,617

 

7/17/08

 

2007

 

Genco Thunder LLC

 

Genco Thunder

 

76,588

 

9/25/08

 

2007

 

Genco Hadrian Limited

 

Genco Hadrian

 

169,694

 

12/29/08

 

2008

 

Genco Commodus Limited

 

Genco Commodus

 

169,025

 

7/22/09

 

2009

 

Genco Maximus Limited

 

Genco Maximus

 

169,025

 

9/18/09

 

2009

 

Genco Claudius Limited

 

Genco Claudius

 

169,025

 

12/30/09

 

2010 (1)

 

Genco Bay Limited

 

Genco Bay

 

34,296

 

8/24/10

 

2010

 

Genco Ocean Limited

 

Genco Ocean

 

34,409

 

7/26/10

 

2010

 

Genco Avra Limited

 

Genco Avra

 

35,000

 

Q2 2011 (2)

 

2011 (2)

 

Genco Mare Limited

 

Genco Mare

 

35,000

 

Q2 2011 (2)

 

2011 (2)

 

Genco Spirit Limited

 

Genco Spirit

 

35,000

 

Q4 2011 (2)

 

2011 (2)

 

Genco Aquitaine Limited

 

Genco Aquitaine

 

57,981

 

8/18/10

 

2009

 

Genco Ardennes Limited

 

Genco Ardennes

 

57,981

 

8/31/10

 

2009

 

Genco Auvergne Limited

 

Genco Auvergne

 

57,981

 

8/16/10

 

2009

 

Genco Bourgogne Limited

 

Genco Bourgogne

 

57,981

 

8/24/10

 

2010

 

Genco Brittany Limited

 

Genco Brittany

 

57,981

 

9/23/10

 

2010

 

Genco Languedoc Limited

 

Genco Languedoc

 

57,981

 

9/29/10

 

2010

 

Genco Loire Limited

 

Genco Loire

 

53,416

 

8/4/10

 

2009

 

Genco Lorraine Limited

 

Genco Lorraine

 

53,416

 

7/29/10

 

2009

 

Genco Normandy Limited

 

Genco Normandy

 

53,596

 

8/10/10

 

2007

 

Genco Picardy Limited

 

Genco Picardy

 

55,257

 

8/16/10

 

2005

 

Genco Provence Limited

 

Genco Provence

 

55,317

 

8/23/10

 

2004

 

Genco Pyrenees Limited

 

Genco Pyrenees

 

57,981

 

8/10/10

 

2010

 

Genco Rhone Limited

 

Genco Rhone

 

58,018

 

3/29/2011

 

2011

 

 

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(1) On December 30, 2009, the Company took delivery of the Genco Claudius. However, the vessel has been designated by Lloyd’s Register of Shipping as having been built in 2010.

(2) Delivery and built dates for vessels being delivered in the future are estimates based on guidance received from the sellers and the respective shipyards.

 

Baltic Trading Limited (“Baltic Trading”) was a wholly-owned indirect subsidiary of GS&T until Baltic Trading completed its initial public offering, or IPO, on March 15, 2010.  As of March 31, 2011, GS&T’s wholly-owned subsidiary Genco Investments LLC owned 5,699,088 shares of Baltic Trading’s Class B Stock, which represented a 25.24% ownership interest in Baltic Trading and 83.51% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock.  Additionally, pursuant to the subscription agreement between Genco Investments LLC and Baltic Trading, for so long as GS&T directly or indirectly holds at least 10% of the aggregate number of outstanding shares of Baltic Trading’s common stock and Class B stock, Genco Investments LLC will be entitled to receive an additional number of shares of Baltic Trading’s Class B stock equal to 2% of the number of common shares issued in the future, other than shares issued under Baltic Trading’s 2010 Equity Incentive Plan.

 

Below is the list of Baltic Trading’s wholly owned ship-owning subsidiaries as of March 31, 2011:

 

Baltic Trading’s Wholly Owned
Subsidiaries

 

Vessel

 

Dwt

 

Delivery Date

 

Year
Built

 

 

 

 

 

 

 

 

 

 

 

Baltic Leopard Limited

 

Baltic Leopard

 

53,447

 

4/8/10

 

2009

 

Baltic Panther Limited

 

Baltic Panther

 

53,351

 

4/29/10

 

2009

 

Baltic Cougar Limited

 

Baltic Cougar

 

53,432

 

5/28/10

 

2009

 

Baltic Jaguar Limited

 

Baltic Jaguar

 

53,474

 

5/14/10

 

2009

 

Baltic Bear Limited

 

Baltic Bear

 

177,717

 

5/14/10

 

2010

 

Baltic Wolf Limited

 

Baltic Wolf

 

177,752

 

10/14/10

 

2010

 

Baltic Wind Limited

 

Baltic Wind

 

34,409

 

8/4/10

 

2009

 

Baltic Cove Limited

 

Baltic Cove

 

34,403

 

8/23/10

 

2010

 

Baltic Breeze Limited

 

Baltic Breeze

 

34,386

 

10/12/10

 

2010

 

 

The Company provides technical services for drybulk vessels purchased by Maritime Equity Partners (“MEP”), which is managed by a company owned by Peter C. Georgiopoulos, Chairman of the Board of Directors.  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 in control of the Company.  The Company may terminate provision of the services at any time on 60 days’ notice.  Peter C. Georgiopoulos is a minority investor, and affiliates of Oaktree Capital Management, L.P., of which Stephen A. Kaplan, a director of the Company, is a principal, are majority investors in MEP.

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which include the accounts of Genco Shipping & Trading Limited, its wholly owned subsidiaries and Baltic Trading, a subsidiary in which the Company owns a majority of the voting interests and exercises control.  All intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 10-K”).

 

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Vessels, net

 

Vessels, net is stated at cost less accumulated depreciation.  Included in vessel costs are acquisition costs directly attributable to the acquisition of a vessel and expenditures made to prepare the vessel for its initial voyage.  The Company also capitalizes interest costs for a vessel under construction as a cost which is directly attributable to the acquisition of a vessel.  Vessels are depreciated on a straight-line basis over their estimated useful lives, determined to be 25 years from the date of initial delivery from the shipyard.  Depreciation expense for vessels for the three months ended March 31, 2011 and 2010 was $31,424 and $23,546, respectively.

 

Depreciation expense is calculated based on cost less the estimated residual scrap value.  The costs of significant replacements, renewals and betterments are capitalized and depreciated over the shorter of the vessel’s remaining estimated useful life or the estimated life of the renewal or betterment.  Undepreciated cost of any asset component being replaced that was acquired after the initial vessel purchase is written off as a component of vessel operating expense.  Expenditures for routine maintenance and repairs are expensed as incurred.  Scrap value is estimated by the Company by taking the cost of steel times the weight of the ship noted in lightweight tons (lwt).  Effective January 1, 2011, the Company increased the estimated scrap value of the vessels from $175/lwt to $245/lwt prospectively based on the 15-year average scrap value of steel.  The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of the vessel assets.  During the three months ended March 31, 2011, the increase in the estimated scrap value resulted in a decrease in depreciation expense of $611.

 

Deferred revenue

 

Deferred revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as income when earned.  Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues.  As of March 31, 2011 and December 31, 2010, the Company had an accrual of $671 and $689, respectively, related to these estimated customer claims.

 

Concentration of credit risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers, cash and cash equivalents, deposits on vessels and interest rate swap agreements. With respect to amounts due from charterers, the Company attempts to limit its credit risk by performing ongoing credit evaluations and, when deemed necessary, requires letters of credit, guarantees or collateral.  During the three months ended March 31, 2011 and 2010, the Company earned 100% of its revenues from twenty-nine and nineteen customers, respectively.  Management does not believe significant risk exists in connection with the Company’s concentrations of credit at March 31, 2011 and December 31, 2010.

 

For the three months ended March 31, 2011, there was one customer that individually accounted for more than 10% of revenues, Cargill International S.A., which represented 28.64% of revenues.  For the three months ended March 31, 2010, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 28.83% and 11.02% of revenues, respectively.

 

At March 31, 2011, the Company maintains all of its cash and cash equivalents with four financial institutions.  None of the Company’s cash and cash equivalent balances is covered by insurance in the event of default by these financial institutions.

 

Deposits on vessels are held in escrow accounts maintained by DnB NOR Bank ASA.  None of the deposits on vessel balances are covered by insurance in the event of default by this financial institution.

 

At March 31, 2011, the Company has nine interest rate swap agreements with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the 2007 Credit Facility.  None of the interest rate swap agreements are covered by insurance in the event of default by this financial institution.

 

Derivative financial instruments

 

Interest rate risk management

 

The Company is exposed to the impact of interest rate changes.  The Company’s objective is to manage the impact of interest rate changes on its earnings and cash flow in relation to borrowings primarily for the purpose of acquiring drybulk vessels.  These borrowings are subject to a variable borrowing rate.  The Company uses pay-fixed receive-variable interest rate swaps to manage future interest costs and the risk associated with changing interest rate obligations.  These swaps are designated as cash flow hedges of future variable rate interest payments and are tested for effectiveness on a quarterly basis.  Refer to Note 11 — Interest Rate Swap Agreements for further information regarding the interest rate swaps held by the Company.

 

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The differential to be paid or received for the effectively hedged portion of any swap agreement is recognized as an adjustment to interest expense as incurred.  Additionally, the changes in value for the portion of the swaps that are effectively hedging future interest payments are reflected as a component of accumulated other comprehensive (loss) income (“AOCI”).

 

For the interest rate swaps that are not designated as an effective hedge, the change in the value and the rate differential to be paid or received is recognized as other (expense) income in the Condensed Consolidated Statements of Operations.

 

Noncontrolling interests

 

Net loss attributable to noncontrolling interests during the three months ended March 31, 2011 and 2010 reflects the noncontrolling interest’s share of the net loss of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market or on spot market-related time charters.  The spot market represents immediate chartering of a vessel, usually for single voyages.  At March 31, 2011, the noncontrolling interest held a 74.76% economic interest in Baltic Trading while only holding 16.49% of voting power.

 

Income taxes

 

Pursuant to certain agreements, GS&T technically and commercially manages vessels for Baltic Trading, as well as provides technical management of vessels for MEP in exchange for specified fees for these services provided.  These services are performed by Genco Management (USA) Limited (“Genco (USA)”), which has elected to be taxed as a corporation for United States federal income tax purposes.  As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services.  Genco (USA) has entered into a cost-sharing agreement with the Company and Genco Ship Management LLC, collectively Manco, pursuant to which Genco (USA) agrees to reimburse Manco for the costs incurred by Genco (USA) for the use of Manco’s personnel and services in connection with the provision of the services for both Baltic Trading and MEP’s vessels.  Total revenue earned for these services during the three months ended March 31, 2011 was $1,539, of which $729 eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $719 associated with these activities for the three months ended March 31, 2011.  This resulted in estimated tax expense of $364 for the three months ended March 31, 2011.  There was no income tax expense incurred during the three months ended March 31, 2010 as the Company was not providing services to MEP during that time and Baltic Trading did not have any vessels that were delivered as of March 31, 2010.

 

Baltic Trading is subject to income tax on its United States source income.  During the three months ended March 31, 2011, Baltic Trading had United States operations which resulted in United States source income of $1,063.  Baltic Trading’s estimated United States income tax benefit for the three months ended March 31, 2011 was $5.

 

3 - SEGMENT INFORMATION

 

The Company determines its operating segments based on the information utilized by the chief operating decision maker to assess performance.  Based on this information, the Company has two operating segments, GS&T and Baltic Trading.  Both GS&T and Baltic Trading are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.  GS&T seeks to deploy its vessels on time charters, spot market-related time charters or in vessel pools trading in the spot market and Baltic Trading seeks to deploy its vessel charters in the spot market, which represents immediate chartering of a vessel, usually for single voyages, or employing vessels on spot market-related time charters.  Segment results are evaluated based on net income.  The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s condensed consolidated financial statements.

 

The following table presents a reconciliation of total revenue from external (third party) customers for the Company’s two operating segments to total consolidated revenue from external customers for the Company for the three months ended March 31, 2011 and 2010.

 

 

 

For the three months ended
March 31,

 

 

 

2011

 

2010

 

Revenue from External Customers

 

 

 

 

 

GS&T

 

$

91,076

 

$

94,681

 

Baltic Trading

 

9,543

 

 

Total operating segments

 

100,619

 

94,681

 

Eliminating revenue

 

 

 

Total consolidated revenue from external customers

 

$

100,619

 

$

94,681

 

 

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The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the three months ended March 31, 2011 and 2010.  The intersegment revenue noted in the following table represents revenue earned by GS&T pursuant to the management agreement entered into with Baltic Trading, which includes commercial service fees, technical service fees and sale and purchase fees, if any.

 

 

 

For the three months ended
March 31,

 

 

 

2011

 

2010

 

Intersegment revenue

 

 

 

 

 

GS&T

 

$

729

 

$

 

Baltic Trading

 

 

 

Total operating segments

 

729

 

 

Eliminating revenue

 

(729

)

 

Total consolidated intersegment revenue

 

$

 

$

 

 

The following table presents a reconciliation of total net income for the Company’s two operating segments to total consolidated net income for the three months ended March 31, 2011 and 2010.  The eliminating net income noted in the following table consists of the elimination of intercompany transactions between GS&T and Baltic Trading as well as dividends received by GS&T from Baltic Trading for its Class B shares of Baltic Trading.

 

 

 

For the three months ended
March 31,

 

 

 

2011

 

2010

 

Net income

 

 

 

 

 

GS&T

 

$

14,794

 

$

33,611

 

Baltic Trading

 

(1,693

)

(510

)

Total operating segments

 

13,101

 

33,101

 

Eliminating net income

 

(930

)

 

Total consolidated net income

 

$

12,171

 

$

33,101

 

 

The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated net assets as of March 31, 2011 and December 31, 2010.  The eliminating assets noted in the following table consists of the elimination of intercompany transactions resulting from the capitalization of fees paid to GS&T by Baltic Trading as vessel assets, including related accumulated depreciation, as well as the outstanding receivable balance due to GS&T from Baltic Trading as of March 31, 2011 and December 31, 2010.

 

 

 

March 31,
2011

 

December 31,
2010

 

Total assets

 

 

 

 

 

GS&T

 

$

2,805,214

 

$

2,792,056

 

Baltic Trading

 

389,987

 

396,154

 

Total operating segments

 

3,195,201

 

3,188,210

 

Eliminating assets

 

(4,494

)

(5,502

)

Total consolidated assets

 

$

3,190,707

 

$

3,182,708

 

 

4 - CASH FLOW INFORMATION

 

As of March 31, 2011 and December 31, 2010, the Company had nine and ten interest rate swaps, respectively, which are described and discussed in Note 11 — Interest Rate Swap Agreements. The fair value of all nine of the swaps is in a liability position of $36,079, $13,607 of which is a current liability, as of March 31, 2011.  At December 31, 2010, the ten swaps were in a liability position of $43,297, $4,417 of which was a current liability.

 

For the three months ended March 31, 2011, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $2,267 for the purchase of vessels, $28 associated with deposits on vessels and $113 for the purchase of other fixed assets.  Additionally, for the three months ended March 31, 2011, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $86 associated with deferred financing fees.  Also, for the three months ended March 31, 2011, the Company had non-cash investing activities not included in the

 

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Condensed Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of March 31, 2011 consisting of $23 interest receivable associated with deposits on vessels and $5 associated with the purchase of vessels.

 

For the three months ended March 31, 2010, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $105 for the purchase of vessels, $96 associated with deposits on vessels and $68 for the purchase of other fixed assets.  Additionally, for the three months ended March 31, 2010, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $64 associated with deferred financing fees and $763 associated with common stock issuance costs related to the initial public offering of Baltic Trading.

 

For the three months ended March 31, 2011, the Company made a reclassification of $3,625 from deposits on vessels to vessels, net of accumulated depreciation, due to the completion of the purchase of the Genco Rhone.

 

During the three months ended March 31, 2011 and 2010, cash paid for interest, net of amounts capitalized and including bond coupon interest paid, was $22,041 and $13,213, respectively.

 

During the three months ended March 31, 2011 and 2010, cash paid for estimated income taxes was $195 and $0, respectively.

 

On March 5, 2010, the Board of Directors approved a grant of 75,000 shares of nonvested common stock to Peter Georgiopoulos, Chairman of the Board.  The fair value of such nonvested stock was $1,718.

 

On March 10, 2010, 358,000 and 108,000 shares of Baltic Trading’s nonvested common stock were granted to Peter Georgiopoulos, Chairman of the Board, and John Wobensmith, Baltic Trading’s President and Chief Financial Officer, respectively, which were approved by Baltic Trading’s Board of Directors on such date.  The fair value of such nonvested stock was $6,524 based on the IPO price of $14.00 per share.  Both of these grants of nonvested common stock vest ratably in four annual installments commencing on the first anniversary of the closing of Baltic Trading’s IPO, March 15, 2010.  Additionally, on March 15, 2010, Baltic Trading made grants of nonvested common stock in the amount of 12,500 shares to directors of Baltic Trading.  The fair value of such nonvested stock was $175 based on the IPO price of $14.00 per share.  These grants vested on March 15, 2011, the first anniversary of the grant date.

 

5 - VESSEL ACQUISITIONS AND DISPOSITIONS

 

On June 24, 2010, GS&T executed a Master Agreement with Bourbon SA (“Bourbon”) under which GS&T purchased sixteen drybulk vessels, including two newbuildings, for an aggregate price of $545,000.  Total vessel deposits of $54,500 were made during the second quarter of 2010.  Upon the delivery of each vessel, GS&T recorded a commission due to its financial advisor equivalent to 1% of the purchase price of the vessel and which was included as a component of the vessel asset.  GS&T has retained thirteen of the sixteen vessels, twelve of which were delivered to GS&T in the third quarter of 2010 and one of which was delivered in the first quarter of 2011.  Refer to Note 1 — General Information for a listing of all vessels delivered.  GS&T determined not to retain three of the sixteen vessels, including one newbuilding.  Therefore, upon delivery of these vessels, one of which was delivered during the third quarter of 2010 and two of which were delivered during the fourth quarter of 2010, GS&T immediately resold them upon delivery based on GS&T’s aggregate purchase price of approximately $105,000 to MEP, a related party.  GS&T entered into definitive agreements with MEP for this purpose.  An independent committee of the Company’s Board of Directors reviewed and approved this transaction.   One of the vessels was sold to MEP during the third quarter of 2010 for $36,562, and two of the vessels were sold to MEP during the fourth quarter of 2010 for a total of $69,993, each of which included the 1% commission fee noted above.  GS&T has financed the acquisition of these vessels, excluding the MEP vessels, using bank debt for approximately 60% of the purchase price, cash on hand, and proceeds from its concurrent offerings of common stock and 5.00% Convertible Senior Notes due August 15, 2015, which were completed on July 27, 2010.  (Refer to Note 10 — Convertible Senior Notes for further details.)

 

On June 3, 2010, GS&T entered into an agreement to purchase five Handysize drybulk vessels, including four newbuildings, from companies within the Metrostar group of companies for an aggregate purchase price of $166,250.  Total vessel deposits of $16,625 were made during the second quarter of 2010.  The remaining purchases are subject to the completion of customary documentation and closing conditions.  Two of the vessels were delivered during the third quarter of 2010.  The Genco Ocean, a newbuilding Handysize vessel, was delivered on July 26, 2010 and the Genco Bay, a 2010 built Handysize vessel, was delivered on August 24, 2010.   The remaining three vessels are expected to be delivered to the Company between May 2011 and November 2011.  Four of the five vessels are secured on long term time charters, each of which includes a minimum and maximum base rate as well as profit-sharing components, with Cargill International S.A.  The remaining vessel is secured on a spot market-related time charter with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the Baltic Handysize Index (“BHSI”), an index published by The Baltic Exchange.  GS&T plans to finance the acquisition of the remaining vessels using operating cash as well as the

 

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$100,000 secured term loan facility which was entered into on August 12, 2010 and proceeds from its concurrent offerings of common stock and convertible notes in July 2010.  Refer to Note 10 — Convertible Senior Notes.

 

On June 3, 2010, Baltic Trading entered into an agreement to purchase three Handysize drybulk vessels, including one newbuilding, from companies within the Metrostar group of companies for an aggregate purchase price of $99,750.  Total vessel deposits of $9,975 were made during the second quarter of 2010. Two of the vessels were delivered during August 2010.  The Baltic Wind, a 2009 built Handysize vessel , was delivered on August 4, 2010 and the Baltic Cove, a 2010 built Handysize vessel, was delivered on August 23, 2010.  The remaining vessel, the Baltic Breeze, a newbuilding, was delivered during the fourth quarter of 2010 on October 12, 2010.  All three vessels are secured on spot market-related time charters with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the BHSI.

 

On February 19, 2010, Baltic Trading entered into agreements with subsidiaries of an unaffiliated third-party seller to purchase four 2009 built Supramax drybulk vessels for an aggregate price of $140,000.  Total vessel deposits of $14,000 were made during the first quarter of 2010 and the remaining payment of $126,000 was made upon delivery of the vessels during the second quarter of 2010.   These four vessels, the Baltic Leopard, Baltic Panther, Baltic Cougar, and Baltic Jaguar, were delivered during the second quarter of 2010.

 

On February 22, 2010, Baltic Trading also entered into agreements with subsidiaries of another unaffiliated third-party seller to purchase two Capesize drybulk vessels for an aggregate price of $144,200.  The Baltic Bear was delivered on May 14, 2010 and the Baltic Wolf was delivered on October 14, 2010.  Total vessel deposits of $21,540 were made during the first quarter of 2010, and the remaining payment for the Baltic Bear of $65,700 and the Baltic Wolf of $56,960 were made upon delivery of the vessels during the second quarter and fourth quarter of 2010, respectively.

 

Refer to Note 1 — General Information for a listing of the vessels for which GS&T and Baltic Trading have entered into agreements to purchase as noted herein.

 

Two of the Supramax vessels acquired from Bourbon and two of the Handysize vessels acquired from Metrostar during the third quarter of 2010 by GS&T had existing below market time charters at the time of the acquisition.  GS&T recorded a liability for time charter acquired of $2,146 during the third quarter of 2010.  The acquired time charters for the two Bourbon vessels were fully amortized as of December 31, 2010.  Below market time charters, including those acquired during previous periods, were amortized as an increase to voyage revenue in the amount of $473 and $1,333 for the three months ended March 31, 2011 and 2010, respectively.

 

Capitalized interest expense associated with newbuilding contracts for the three months ended March 31, 2011 and 2010 was $79 and $0, respectively.

 

6 - INVESTMENTS

 

The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”).  Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.  This investment is designated as Available For Sale (“AFS”) and is reported at fair value, with unrealized gains and losses recorded in shareholders’ equity as a component of AOCI.  At March 31, 2011 and December 31, 2010, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $55,144 and $54,714, respectively, based on the closing price on March 31, 2011 and December 30, 2010.

 

The Company reviews the investment in Jinhui for other than temporary impairment on a quarterly basis.  There were no impairment charges recognized for the three months ended March 31, 2011 and 2010.

 

The unrealized gain on the Jinhui capital stock remains a component of AOCI, since this investment is designated as an AFS security.

 

Refer to Note 12 — Accumulated Other Comprehensive (Loss) Income for a breakdown of the components of AOCI.

 

7 - EARNINGS PER COMMON SHARE

 

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the vesting of nonvested stock awards (refer to Note 21 — Nonvested Stock Awards), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive.  Of the 809,087 nonvested shares outstanding at March 31, 2011 (refer to Note 21 — Nonvested Stock Awards), 650,838 shares are anti-dilutive.  The Company’s

 

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diluted earnings per share will also reflect the assumed conversion under the Company’s convertible debt if the impact is dilutive under the “if converted” method. The impact of the convertible debt is excluded from the computation of diluted earnings per share when interest expense per common share obtainable upon conversion is greater than basic earnings per share.

 

The components of the denominator for the calculation of basic earnings per share and diluted earnings per share are as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Common shares outstanding, basic:

 

 

 

 

 

Weighted average common shares outstanding, basic

 

35,142,110

 

31,405,798

 

 

 

 

 

 

 

Common shares outstanding, diluted:

 

 

 

 

 

Weighted average common shares outstanding, basic

 

35,142,110

 

31,405,798

 

 

 

 

 

 

 

Dilutive effect of convertible notes

 

 

 

 

 

 

 

 

 

Dilutive effect of restricted stock awards

 

76,589

 

137,667

 

 

 

 

 

 

 

Weighted average common shares outstanding, diluted

 

35,218,699

 

31,543,465

 

 

8 - RELATED PARTY TRANSACTIONS

 

The following are related party transactions not disclosed elsewhere in these condensed consolidated financial statements:

 

The Company makes available employees performing internal audit services to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board.   For the three months ended March 31, 2011 and 2010, the Company invoiced $46 and $35, respectively, to GMC, which includes time associated with such internal audit services.  Additionally, during the three months ended March 31, 2011 and 2010, the Company incurred travel and other expenditures totaling $157 and $135, respectively, reimbursable to GMC or its service provider.   At March 31, 2011 the amount due to the Company from GMC was $34 and at December 31, 2010 the amount due to GMC from the Company was $74.

 

During the three months ended March 31, 2011 and 2010, the Company incurred legal services (primarily in connection with vessel acquisitions) aggregating $13 and $44, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board.  At March 31, 2011 and December 31, 2010, $246 and $234, respectively, were outstanding to Constantine Georgiopoulos.

 

During the three months ended March 31, 2011, the Company utilized the services of North Star Maritime, Inc. (“NSM”) which is owned and operated by one of GS&T’s directors, Rear Admiral Robert C. North, USCG (ret.).  NSM, a marine industry consulting firm, specializes in international and domestic maritime safety, security and environmental protection issues.  NSM billed $2 for services rendered during the three months ended March 31, 2011.  There were no services rendered from NSM during the three months ended March 31, 2010.  There are no amounts due to NSM at March 31, 2011 and December 31, 2010.

 

During 2009 and 2010, GS&T and Baltic Trading, respectively, entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in their fleets.  Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean.  During the three months ended March 31, 2011 and 2010, the Company incurred costs for lubricating oils supplied by Aegean to the Company’s vessels aggregating $463 and $208, respectively.  At March 31, 2011 and December 31, 2010, $332 and $302 remained outstanding, respectively.

 

During the three months ended March 31, 2011, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $839.  MEP is managed by a company owned by Peter C. Georgiopoulos, Chairman of the Board.  At March 31, 2011 and December 31, 2010, $22 and $57, respectively, was due to the Company from MEP.  Total service revenue earned by the Company for technical service provided to MEP for the three months ended March 31, 2011 was $810.

 

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9 - LONG-TERM DEBT

 

Long-term debt consists of the following:

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

 

 

 

 

2007 Credit Facility

 

$

1,264,500

 

$

1,277,000

 

$100 Million Term Loan Facility

 

38,110

 

38,880

 

$253 Million Term Loan Facility

 

243,618

 

226,809

 

2010 Baltic Trading Credit Facility

 

101,250

 

101,250

 

Less: Current portion

 

(73,377

)

(71,841

)

 

 

 

 

 

 

Long-term debt

 

$

1,574,101

 

$

1,572,098

 

 

2007 Credit Facility

 

On July 20, 2007, the Company entered into a credit facility with DnB Nor Bank ASA (as amended, the “2007 Credit Facility”) for the purpose of acquiring nine new Capesize vessels and refinancing the Company’s prior credit facility which it had entered into as of July 29, 2005 (the “2005 Credit Facility”) and short-term line of credit facility entered into as of May 3, 2007.  DnB Nor Bank ASA is also Mandated Lead Arranger, Bookrunner, and Administrative Agent. The Company has used borrowings under the 2007 Credit Facility to repay amounts outstanding under the Company’s previous credit facilities, which have been terminated.  The maximum amount that may be borrowed under the 2007 Credit Facility at March 31, 2011 is $1,264,500.  As of March 31, 2011, the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility.

 

The collateral maintenance financial covenant is currently waived and the Company’s cash dividends and share repurchases have been suspended until this covenant can be satisfied.  The Company’s borrowings bear interest at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 2.00% per annum.  A commitment fee of 0.70% per annum is payable on the unused daily portion of the 2007 Credit Facility.

 

The significant covenants in the 2007 Credit Facility have been disclosed in the 2010 10-K.  As of March 31, 2011, the Company believes it is in compliance with all of the financial covenants under its 2007 Credit Facility with the exception of the collateral maintenance financial covenant, which has been waived as discussed above.

 

At March 31, 2011, there were no letters of credit issued under the 2007 Credit Facility.

 

The following table sets forth the repayment of the outstanding debt of $1,264,500 at March 31, 2011 under the 2007 Credit Facility, as amended:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2011 (April 1, 2011 — December 31, 2011)

 

$

37,500

 

2012

 

157,085

 

2013

 

192,780

 

2014

 

192,780

 

2015

 

192,780

 

Thereafter

 

491,575

 

 

 

 

 

Total debt

 

$

1,264,500

 

 

$100 Million Term Loan Facility

 

On August 12, 2010, the Company entered into a $100,000 secured term loan facility (“$100 Million Term Loan Facility”).  Crédit Agricole Corporate and Investment Bank, which is also acting as Agent and Security Trustee; and Crédit Industriel et Commercial; and Skandinaviska Enskilda Banken AB (publ) are the lenders under the facility.  The Company has used or intends to use the $100 Million Term Loan Facility to fund or refund to the Company a portion of the purchase price of the acquisition of five vessels from companies within the Metrostar group of companies (Refer to Note 5 — Vessel Acquisitions and Dispositions).  Under the terms of the facility, the $100 Million Term Loan Facility will be drawn down in five equal tranches of $20,000 each, with one tranche per vessel.  The $100 Million Term Loan Facility has a final maturity date of seven years from the date of the first drawdown, or August 17, 2017, and borrowings under the facility bear interest at LIBOR for an interest period of one, three or six months (as elected by the Company), plus 3.00% per annum.  A commitment fee of 1.35% is payable on the undrawn committed amount of the $100 Million Term Loan Facility, which began accruing on August 12, 2010.  Borrowings are to be repaid quarterly, with the outstanding principal amortized on a 13-year profile, with any outstanding amount under the $100 Million Term Loan Facility to be paid in full on the final maturity date.  Repaid amounts are no longer available and cannot be reborrowed.  Borrowings under the $100

 

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Table of Contents

 

Million Term Loan Facility are secured by liens on the five Metrostar vessels purchased by GS&T and other related assets.  Certain of the Company’s wholly-owned ship-owning subsidiaries, each of which own or will own one of the five Metrostar vessels, will act as guarantors under the $100 Million Term Loan Facility.

 

As of March 31, 2011, two drawdowns of $20,000 each had been made for the deliveries of the Genco Ocean and Genco Bay.  These drawdowns were made on August 17, 2010 and August 23, 2010, respectively.  During the three months ended March 31, 2011, total required repayments of $769 were made.  As of March 31, 2011, total availability under the $100 Million Term Loan Facility was $60,000.

 

The $100 Million Term Loan Facility requires the Company to comply with a number of covenants, including financial covenants related to leverage, consolidated net worth, interest coverage and dividends; minimum working capital requirements; collateral maintenance requirements; and other covenants, most of which are in principle and calculation similar to the Company’s covenants under the existing 2007 Credit Facility, except for the minimum cash requirement, which is $750 per mortgaged vessel under this facility.  The $100 Million Term Loan Facility includes usual and customary events of default and remedies for facilities of this nature.  Availability of each tranche of the $100 Million Term Loan Facility is subject to our acquisition of each of the five vessels from Metrostar and other conditions and documentation relating to the collateral securing the credit facility.

 

The Company believes it is in compliance with all of the financial covenants under the $100 Million Term Loan Facility as of March 31, 2011.

 

The following table sets forth the repayment of the outstanding debt of $38,110 at March 31, 2011 under the $100 Million Term Loan Facility:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2011 (April 1, 2011 — December 31, 2011)

 

$

2,307

 

2012

 

3,077

 

2013

 

3,077

 

2014

 

3,077

 

2015

 

3,077

 

Thereafter

 

23,495

 

 

 

 

 

Total debt

 

$

38,110

 

 

$253 Million Term Loan Facility

 

On August 20, 2010, the Company entered into a $253,000 senior secured term loan facility (“$253 Million Term Loan Facility”).  BNP Paribas; Crédit Agricole Corporate and Investment Bank; DVB Bank SE; Deutsche Bank AG Filiale Deutschlandgeschäft, which is also acting as Security Agent and Bookrunner; and Skandinaviska Enskilda Banken AB (publ) are Lenders and Mandated Lead Arrangers under the facility.  Deutsche Bank Luxembourg S.A. is acting as Agent under the facility, and Deutsche Bank AG and all of the Lenders other than Deutsche Bank AG Filiale Deutschlandgeschäft are acting as Swap Providers under the facility.  The Company has used the $253 Million Term Loan Facility to fund a portion of the purchase price of the acquisition of thirteen vessels from affiliates of Bourbon.  Under the terms of the facility, the $253 Million Term Loan Facility is drawn down in thirteen tranches in amounts based on the particular vessel being acquired, with one tranche per vessel.  The $253 Million Term Loan Facility has a maturity date of August 14, 2015 and borrowings under the $253 Million Term Loan Facility bear interest, as elected by the Company, at LIBOR for an interest period of three or six months, plus 3.00% per annum.  A commitment fee of 1.25% is payable on the undrawn committed amount of the $253 Million Term Loan Facility, which began accruing on August 20, 2010.  Borrowings are to be repaid quarterly with outstanding principal amortized on a per vessel basis and any outstanding amount under the $253 Million Term Loan Facility to be paid in full on the maturity date.  Repaid amounts are no longer available and cannot be reborrowed.  Borrowings under the $253 Million Term Loan Facility are secured by liens on the Bourbon vessels and other related assets.  Certain of the Company’s wholly-owned ship-owning subsidiaries, each of which owns one of the Bourbon vessels, will act as guarantors under the credit facility.

 

As of March 31, 2011, total drawdowns of $253,000 have been made under the $253 Million Term Loan Facility to fund or refund to the Company a portion of the purchase price of the thirteen Bourbon vessels delivered during the third quarter of 2010 and first quarter of 2011.  Refer to Note 5 — Vessel Acquisitions and Dispositions for a listing of the vessels delivered.  As of March 31, 2011, there was no availability under the $253 Million Term Loan Facility.

 

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The $253 Million Term Loan Facility requires the Company to comply with a number of covenants, including financial covenants related to leverage, consolidated net worth, liquidity and interest coverage; dividends; collateral maintenance requirements; and other covenants, most of which are in principle and calculation similar to our covenants under the existing 2007 Credit Facility, except for the minimum cash requirement, which is $750 per mortgaged vessel under this facility.  As of March 31, 2011, the Company had deposited $9,750 that has been reflected as restricted cash at March 31, 2011.  Restricted cash will be released only if the underlying collateral is sold or disposed of.  The $253 Million Term Loan Facility includes usual and customary events of default and remedies for facilities of this nature.

 

The Company believes it is in compliance with all of the financial covenants under the $253 Million Term Loan Facility as of March 31, 2011.

 

The following table sets forth the repayment of the outstanding debt of $243,618 at March 31, 2011 under the $253 Million Term Loan Facility:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2011 (April 1, 2011 — December 31, 2011)

 

$

15,225

 

2012

 

20,300

 

2013

 

20,300

 

2014

 

20,300

 

2015

 

167,493

 

 

 

 

 

Total debt

 

$

243,618

 

 

2010 Baltic Trading Credit Facility

 

On April 16, 2010, Baltic Trading entered into a $100,000 senior secured revolving credit facility with Nordea Bank Finland plc, acting through its New York branch (as amended, the “2010 Baltic Trading Credit Facility”).  An amendment to the 2010 Baltic Trading Credit Facility was entered into by Baltic Trading effective November 30, 2010.  This amendment increased the commitment amount of the 2010 Baltic Trading Credit Facility from $100,000 to $150,000 and amounts borrowed will bear interest at LIBOR plus a margin of 3.00% as compared to 3.25% under the original facility.  The term of the 2010 Baltic Trading Credit Facility was extended to six years from the previous 3.5 years and will now mature on November 30, 2016 as compared to April 16, 2014 previously.  A commitment fee of 1.25% per annum is payable on the unused daily portion of the 2010 Baltic Trading Credit Facility, which began accruing on March 18, 2010 under the terms of the commitment letter entered into on February 25, 2010.  In connection with the commitment letter entered on February 25, 2010, Baltic Trading paid an upfront fee of $313.  Additionally, upon executing the original 2010 Baltic Trading Credit Facility, Baltic Trading paid the remaining upfront fee of $938, for total fees of $1,250.  In connection with the amendment to the 2010 Credit Facility effective November 30, 2010, Baltic Trading paid an upfront fee of $1,350.  Of the total facility amount of $150,000, $25,000 is available for working capital purposes.  As of March 31, 2011, total available working capital borrowings were $23,500 as $1,500 was drawn down during 2010 for working capital purposes.  As of March 31, 2011, $48,750 remained available under the 2010 Credit Facility as total drawdowns of $101,250 were made to fund the purchase of the Baltic Wind, Baltic Cove and Baltic Breeze and for working capital purposes.  Refer to Note 5 — Vessel Acquisitions and Dispositions for further information regarding these vessel deposits and acquisitions.

 

The significant covenants in the 2010 Baltic Trading Credit Facility have been disclosed in the 2010 10-K.  As of March 31, 2011, the Company believes it is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility, as amended.

 

The following table sets forth the repayment of the outstanding debt of $101,250 at March 31, 2011 under the 2010 Baltic Trading Credit Facility:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2011 (April 1, 2011 — December 31, 2011)

 

$

 

2012

 

 

2013

 

 

2014

 

 

2015

 

1,250

 

Thereafter

 

100,000

 

 

 

 

 

Total debt

 

$

101,250

 

 

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Table of Contents

 

Interest rates

 

The following tables sets forth the effective interest rate associated with the interest expense for the Company’s debt facilities noted above, including the rate differential between the pay fixed, receive variable rate on the interest rate swap agreements that were in effect (refer to Note 11 — Interest Rate Swap Agreements), combined, and the cost associated with unused commitment fees.  Additionally, it includes the range of interest rates on the debt, excluding the impact of swaps and unused commitment fees:

 

 

 

Three months ended March 31,

 

 

 

2011

 

2010

 

Effective Interest Rate

 

4.46

%

4.61

%

Range of Interest Rates (excluding impact of swaps and unused commitment fees)

 

2.31% to 3.31

%

2.25% to 2.31

%

 

10 — CONVERTIBLE SENIOR NOTES

 

The Company issued $125,000 of 5.0% Convertible Senior Notes on July 27, 2010 (the “2010 Notes”).  The Notes mature on August 15, 2015 and are convertible into shares of the Company’s common stock at a conversion rate of approximately 51.0204 shares of common stock per (in whole dollars) $1,000 principal amount of the Notes (equivalent to an initial conversion price of $19.60 per share, representing a 22.5% conversion premium over the concurrent offering price of $16.00 per share of the Company’s common stock on July 21, 2010), subject to adjustment, based on the occurrence of certain events, including, but not limited to, (i) the issuance of certain dividends on our common stock, (ii) the issuance of certain rights, options or warrants, (iii) the effectuation of share splits or combinations, (iv) certain distributions of property and (v) certain issuer tender or exchange offers as described in the Indenture, with the amount due on conversion payable in shares, cash, or a combination thereof at the Company’s discretion.   The total underlying shares of the Notes are 6,377,551 shares of common stock.  Since the Company can settle a conversion of the notes with shares, cash, or a combination thereof at its discretion, the Company allocated the convertible debt proceeds between the liability component and the embedded conversion option (i.e., the equity component). The liability component of the debt instrument is accreted to par value using the effective interest method over the remaining life of the debt. This amortization is reported as a component of interest expense. The equity component is not subsequently revalued as long as it continues to qualify for equity treatment.

 

Upon issuance, the Company estimated the fair value of the liability component of the 2010 Notes, assuming a 10% non-convertible borrowing rate, to be $100,625, excluding the fair value of the conversion option. The difference between the fair value and the principal amount of the 2010 Notes was $24,375. This amount was recorded as a debt discount and as an increase to additional paid-in capital as of the issuance date and the Company proportionately allocated approximately $918 of issuance costs against this equity component. The issuance cost allocated to the liability component of $3,637 along with the debt discount is being amortized to interest expense over the approximate 5 year period to the maturity of the 2010 Notes on August 15, 2015 resulting in additional interest expense in future periods.  The issuance cost allocated to the liability component has been recorded as deferred financing costs, refer to Note 15 — Other Assets, Net.

 

The 2010 Notes were issued pursuant to an indenture, dated as of July 27, 2010 (the “Base Indenture”), by and between the Company and The Bank of New York Mellon, as trustee (the “Trustee”), supplemented by the First Supplemental Indenture dated as of June 27, 2010, by and between the Company and the Trustee (the “Supplemental Indenture,” and together with the Base Indenture, the “Indenture”).  The 2010 Notes are represented by a global security, executed by the Company, in the form attached to the Supplemental Indenture.

 

Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2011. The Notes will mature on August 15, 2015, subject to earlier repurchase or conversion upon the occurrence of certain events. Holders may convert their 2010 Notes before February 15, 2015, only in certain circumstances determined by (i) the market price of the Company’s common stock, (ii) the trading price of the 2010 Notes, or (iii) the occurrence of specified corporate events.  The 2010 Notes are subject to repurchase by the Company at the option of the holders following a fundamental change, as defined in the Indenture, including, but not limited to, (i) certain ownership changes, (ii) certain recapitalizations, mergers and dispositions, (iii) approval of any plan or proposal for the liquidation, or dissolution of our company, and (iv) our common stock ceasing to be listed on any of the New York Stock Exchange or the Nasdaq Global Select Market, any of their respective successors or any other U.S. national securities exchange, at a price equal to 100% of the principal amount of the 2010 Notes plus accrued and unpaid interest up to the fundamental change repurchase date.  After February 15, 2015, holders may convert their 2010 Notes at any time thereafter until the second scheduled trading day preceding maturity.

 

The Indenture includes customary agreements and covenants by the Company, including with respect to events of default.

 

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Table of Contents

 

The following tables provide additional information about the Company’s 2010 Notes.

 

 

 

March 31, 2011

 

December 31,
2010

 

Carrying amount of the equity component (additional paid-in capital)

 

$

24,375

 

$

24,375

 

Principal amount of the 2010 Notes

 

125,000

 

125,000

 

Unamortized discount of the liability component

 

21,724

 

22,691

 

Net carrying amount of the liability component

 

103,276

 

102,309

 

 

 

 

For the three
months ended
March 31, 2011

 

Effective interest rate on liability component

 

10.0

%

Cash interest expense recognized

 

$

1,531

 

Non-cash interest expense recognized

 

967

 

Non-cash deferred financing costs recognized as interest expense

 

177

 

 

The remaining period over which the unamortized discount will be recognized is 4.4 years. As of March 31, 2011, the if-converted value of the 2010 Notes does not exceed their principal amount.

 

The 2010 Notes have been classified as a noncurrent liability on the consolidated balance sheet as of March 31, 2011 because the Company can settle the principal amount of the notes with shares, cash, or a combination thereof at its discretion.

 

11 - INTEREST RATE SWAP AGREEMENTS

 

At March 31, 2011 and December 31, 2010, the Company had nine and ten interest rate swap agreements outstanding, respectively, with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s 2007 Credit Facility. The total notional principal amount of the swaps at March 31, 2011 and December 31, 2010 was $706,233 and $756,233, respectively, and the swaps have specified rates and durations.

 

The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of March 31, 2011 and December 31, 2010:

 

Interest Rate Swap Detail

 

March 31, 2011

 

December 31,
2010

 

Trade
Date

 

Fixed
Rate

 

Start Date
of Swap

 

End date
of Swap

 

Notional
Amount
Outstanding

 

Notional
Amount
Outstanding

 

9/6/05

 

4.485

%

9/14/05

 

7/29/15

 

$

106,233

 

$

106,233

 

3/29/06

 

5.25

%

1/2/07

 

1/1/14

 

50,000

 

50,000

 

3/24/06

 

5.075

%

1/2/08

 

1/2/13

 

50,000

 

50,000

 

7/31/07

 

5.115

%

11/30/07

 

11/30/11

 

100,000

 

100,000

 

8/9/07

 

5.07

%

1/2/08

 

1/3/12

 

100,000

 

100,000

 

8/16/07

 

4.985

%

3/31/08

 

3/31/12

 

50,000

 

50,000

 

8/16/07

 

5.04

%

3/31/08

 

3/31/12

 

100,000

 

100,000

 

1/22/08

 

2.89

%

2/1/08

 

2/1/11

 

 

50,000

 

1/9/09

 

2.05

%

1/22/09

 

1/22/14

 

100,000

 

100,000

 

2/11/09

 

2.45

%

2/23/09

 

2/23/14

 

50,000

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

706,233

 

$

756,233

 

 

The following table summarizes the derivative asset and liability balances at March 31, 2011 and December 31, 2010:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

 

 

Sheet
Location

 

March 31, 2011

 

December
31, 2010

 

Sheet
Location

 

March 31, 2011

 

December
31, 2010

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Fair value of derivative instruments (Current Assets)

 

$

 

$

 

Fair value of derivative instruments (Current Liabilities)

 

$

13,607

 

$

4,417

 

Interest rate contracts

 

Fair value of derivative instruments (Noncurrent Assets)

 

 

 

Fair value of derivative instruments (Noncurrent Liabilities)

 

22,472

 

38,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

 

 

 

 

36,079

 

43,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Derivatives

 

 

 

$

 

$

 

 

 

$

36,079

 

$

43,297

 

 

20



Table of Contents

 

The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Operations:

 

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

For the Three Month Period Ended March 31, 2011

 

Derivatives in Cash
Flow Hedging

 

Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)

 

Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective

 

Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)

 

Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective

 

Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)

 

Relationships

 

2011

 

Portion)

 

2011

 

Portion)

 

2011

 

Interest rate contracts

 

$

(107

)

Interest Expense

 

$

(7,311

)

Other Income (Expense)

 

$

14

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

For the Three Month Period Ended March 31, 2010

 

Derivatives in Cash
Flow Hedging

 

Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)

 

Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective

 

Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)

 

Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective

 

Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)

 

Relationships

 

2010

 

Portion)

 

2010

 

Portion)

 

2010

 

Interest rate contracts

 

$

(11,311

)

Interest Expense

 

$

(7,610

)

Other Income (Expense)

 

$

21

 

 

At March 31, 2011, ($25,134) of AOCI is expected to be reclassified into interest expense over the next 12 months associated with interest rate derivatives.

 

The Company is required to provide collateral in the form of vessel assets to support the interest rate swap agreements, excluding vessel assets of Baltic Trading.  At March 31, 2011, the Company’s 35 vessels mortgaged under the 2007 Credit Facility served as collateral in the aggregate amount of $100,000.

 

12 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

 

The components of AOCI included in the accompanying condensed consolidated balance sheets consist of net unrealized gain (loss) on cash flow hedges and net unrealized gain (loss) from investments in Jinhui stock as of March 31, 2011 and December 31, 2010.

 

 

 

AOCI

 

Net Unrealized
Gain
(Loss) on Cash
Flow Hedges

 

Unrealized
Gain (Loss)
on
Investments

 

AOCI — January 1, 2011

 

$

(5,210

)

$

(43,152

)

$

37,942

 

Change in unrealized gain on investments

 

430

 

 

 

430

 

Unrealized gain on cash flow hedges

 

7,205

 

7,205

 

 

 

AOCI — March 31, 2011

 

$

2,425

 

$

(35,947

)

$

38,372

 

 

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13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The fair values of the Company’s financial instruments at March 31, 2011 and December 31, 2010 are noted below.  All carrying values approximate the instrument’s fair values with the exception of the 2010 Notes.

 

 

 

March 31, 2011

 

December 31,
2010

 

Cash and cash equivalents

 

$

275,466

 

$

270,877

 

Restricted cash

 

9,750

 

9,000

 

Investments

 

55,144

 

54,714

 

Floating rate debt

 

1,647,478

 

1,643,939

 

2010 Notes

 

117,500

 

129,531

 

Derivative instruments — liability position

 

36,079

 

43,297

 

 

The fair value of the investments is based on quoted market rates.  The fair value of the floating rate debt under the 2007 Credit Facility, $100 Million Term Loan Facility, $253 Million Term Loan Facility and the 2010 Baltic Trading Credit Facility are estimated based on current rates offered to the Company for similar debt of the same remaining maturities.  Additionally, the Company considers its creditworthiness in determining the fair value of floating rate debt under the credit facilities.  The carrying value approximates the fair market value for these floating rate loans.  The fair value of the convertible senior notes payable represents the market value of the 2010 Notes at March 31, 2011 without bifurcating the value of the conversion option.  The fair value of the interest rate swaps is the estimated amount the Company would receive to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of both the swap counterparty and the Company.

 

The Accounting Standards Codification subtopic 820-10, “Fair Value Measurements & Disclosures” (“ASC 820-10”), applies to all assets and liabilities that are being measured and reported on a fair value basis.  This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

 

The following table summarizes the valuation of the Company’s investments and financial instruments by the above pricing levels as of the valuation dates listed:

 

 

 

March 31, 2011

 

 

 

Total

 

Quoted
market
prices in
active
markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

55,144

 

$

55,144

 

$

 

2010 Notes

 

117,500

 

 

117,500

 

Derivative instruments — liability position

 

36,079

 

 

36,079

 

 

 

 

December 31, 2010

 

 

 

Total

 

Quoted
market
prices in
active
markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

54,714

 

$

54,714

 

$

 

2010 Notes

 

129,531

 

 

129,531

 

Derivative instruments — liability position

 

43,297

 

 

43,297

 

 

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The Company holds an investment in the capital stock of Jinhui, which is classified as a long-term investment.  The stock of Jinhui is publicly traded on the Oslo Stock Exchange and is considered a Level 1 item.  The 2010 Notes are publicly traded in the over-the-counter market; however, they are not considered to be actively traded.  As such, the 2010 Notes have been classified as a Level 2 Item.  The Company’s interest rate derivative instruments are pay-fixed, receive-variable interest rate swaps based on LIBOR.  The Company has elected to use the income approach to value the derivatives, using observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.  Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals).  Mid-market pricing is used as a practical expedient for fair value measurements.  Refer to Note 11 — Interest Rate Swap Agreements for further information regarding the Company’s interest rate swap agreements.  ASC 820-10 states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments in an asset or liability position and did not have a material impact on the fair value of these derivative instruments.  As of March 31, 2011, both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.

 

14 - PREPAID EXPENSES AND OTHER CURRENT AND NONCURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

 

 

March 31, 2011

 

December
31, 2010

 

Lubricant, fuel oil and diesel oil inventory and other stores

 

$

8,430

 

$

7,445

 

Prepaid items

 

6,011

 

4,693

 

Insurance receivable

 

1,277

 

1,257

 

Other

 

672

 

615

 

Total prepaid expenses and other current assets

 

$

16,390

 

$

14,010

 

 

Other noncurrent assets in the amount of $514 at March 31, 2011 represents the security deposit related to the operating lease entered into effective April 4, 2011.  Refer to Note 19 — Commitments and Contingencies for further information related to the lease agreement.

 

15 - OTHER ASSETS, NET

 

Other assets consist of deferred financing costs, which include fees, commissions and legal expenses associated with securing loan facilities and other debt offerings.  These costs are amortized over the life of the related debt and are included in interest expense.  As of March 31, 2011 and December 31, 2010, the Company has deferred financing fees associated with the 2007 Credit Facility, the $100 Million Term Loan Facility, the $253 Million Term Loan Facility, the debt portion of the 2010 Notes and the 2010 Baltic Trading Credit Facility.  (Refer to Note 9 — Long-Term Debt and Note 10 — Convertible Senior Notes).  Total net deferred financing costs consist of the following as of March 31, 2011 and December 31, 2010:

 

 

 

March 31, 2011

 

December
31, 2010

 

 

 

 

 

 

 

2007 Credit Facility

 

$

10,074

 

$

10,074

 

$100 Million Term Loan Facility

 

1,318

 

1,318

 

$253 Million Term Loan Facility

 

3,563

 

3,529

 

2010 Notes

 

3,637

 

3,637

 

2010 Baltic Trading Credit Facility

 

2,943

 

2,940

 

Total deferred financing costs

 

21,535

 

21,498

 

Less: accumulated amortization

 

5,340

 

4,561

 

Total

 

$

16,195

 

$

16,937

 

 

Amortization expense for deferred financing costs for the three months ended March 31, 2011 and 2010 was $778 and $264, respectively, and is recorded as a component of interest expense in the Condensed Consolidated Statements of Operations.

 

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16 - FIXED ASSETS

 

Fixed assets consist of the following:

 

 

 

March 31, 2011

 

December
31, 2010

 

Fixed assets:

 

 

 

 

 

Vessel equipment

 

$

2,504

 

$

2,386

 

Leasehold improvements

 

1,146

 

1,146

 

Furniture and fixtures

 

347

 

347

 

Computer equipment

 

472

 

472

 

Total cost

 

4,469

 

4,351

 

Less: accumulated depreciation and amortization

 

2,161

 

2,041

 

Total

 

$

2,308

 

$

2,310

 

 

Depreciation and amortization expense for fixed assets for the three months ended March 31, 2011 and 2010 was $121 and $118, respectively.

 

17 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following:

 

 

 

March 31, 2011

 

December
31, 2010

 

Accounts payable

 

$

5,491

 

$

6,454

 

Accrued general and administrative expenses

 

11,294

 

14,166

 

Accrued vessel operating expenses

 

10,201

 

11,170

 

 

 

 

 

 

 

Total

 

$

26,986

 

$

31,790

 

 

18 - REVENUE FROM TIME CHARTERS

 

Total voyage revenue earned on time charters, including revenue earned in vessel pools and spot market-related time charters, for the three months ended March 31, 2011 and 2010 was $100,619 and $94,681, respectively.  Included in revenues for the three months ended March 31, 2011 and 2010 was profit sharing revenue of $93 and $0, respectively.  Future minimum time charter revenue, based on vessels committed to noncancelable time charter contracts as of May 2, 2011 is expected to be $109,959 for the remainder of 2011, $49,881 during 2012 and $1,674 during 2013, assuming off-hire due to any scheduled drydocking and that no additional off-hire time is incurred.  For most drydockings, the Company assumes twenty days of offhire.  Future minimum revenue excludes revenue earned for the five vessels currently in pool arrangements, namely the Genco Explorer, Genco Pion