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 June 30, 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

 

98-043-9758

(State or other jurisdiction of
incorporation or organization)

 

(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 July 26, 2011: Common stock, $0.01 per share — 35,966,198 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 June 30, 2011 and December 31, 2010

3

 

 

 

 

b)

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2011 and 2010

4

 

 

 

 

c)

Condensed Consolidated Statements of Equity for the Six Months ended June 30, 2011 and 2010

5

 

 

 

 

d)

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months ended June 30, 2011 and 2010

6

 

 

 

 

e)

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 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

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

 

 

 

Item 4.

Controls and Procedures

46

 

 

 

PART II —OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

47

 

 

 

Item 6.

Exhibits

48

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Genco Shipping & Trading Limited

Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010

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

(Unaudited)

 

 

 

June 30, 2011

 

December 31,
2010

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

286,230

 

$

270,877

 

Due from charterers, net of a reserve of $996 and $592, respectively

 

8,860

 

8,794

 

Prepaid expenses and other current assets

 

16,179

 

14,010

 

Total current assets

 

311,269

 

293,681

 

 

 

 

 

 

 

Noncurrent assets:

 

 

 

 

 

Vessels, net of accumulated depreciation of $398,190 and $334,502, respectively

 

2,792,033

 

2,783,810

 

Deposits on vessels

 

6,885

 

13,718

 

Deferred drydock, net of accumulated amortization of $9,850 and $9,044, respectively

 

7,199

 

8,538

 

Other assets, net of accumulated amortization of $6,133 and $4,561, respectively

 

15,490

 

16,937

 

Fixed assets, net of accumulated depreciation and amortization of $2,163 and $2,041, respectively

 

2,330

 

2,310

 

Other noncurrent assets

 

514

 

 

Restricted cash

 

9,750

 

9,000

 

Investments

 

42,450

 

54,714

 

Total noncurrent assets

 

2,876,651

 

2,889,027

 

 

 

 

 

 

 

Total assets

 

$

3,187,920

 

$

3,182,708

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

26,152

 

$

31,790

 

Current portion of long-term debt

 

110,610

 

71,841

 

Deferred revenue

 

3,959

 

9,974

 

Fair value of derivative instruments

 

9,770

 

4,417

 

Total current liabilities

 

150,491

 

118,022

 

Noncurrent liabilities:

 

 

 

 

 

Deferred revenue

 

 

392

 

Deferred rent credit

 

1,233

 

657

 

Time charters acquired

 

1,601

 

2,197

 

Fair value of derivative instruments

 

25,592

 

38,880

 

Convertible senior note payable

 

104,262

 

102,309

 

Long-term debt

 

1,538,300

 

1,572,098

 

Total noncurrent liabilities

 

1,670,988

 

1,716,533

 

 

 

 

 

 

 

Total liabilities

 

1,821,479

 

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 35,966,198 and 35,951,198 shares at June 30, 2011 and December 31, 2010, respectively

 

359

 

359

 

Additional paid-in capital

 

806,787

 

803,778

 

Accumulated other comprehensive loss

 

(9,558

)

(5,210

)

Retained earnings

 

357,505

 

334,022

 

Total Genco Shipping & Trading Limited shareholders’ equity

 

1,155,093

 

1,132,949

 

Noncontrolling interest

 

211,348

 

215,204

 

Total equity

 

1,366,441

 

1,348,153

 

 

 

 

 

 

 

Total liabilities and equity

 

$

3,187,920

 

$

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 and Six Months Ended June 30, 2011 and 2010

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

(Unaudited)

 

 

 

For the Three Months
Ended June 30,

 

For the Six Months
Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues:

 

 

 

 

 

 

 

 

 

Voyage revenues

 

$

98,511

 

$

105,337

 

199,130

 

$

200,018

 

Service revenues

 

819

 

 

1,629

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

99,330

 

105,337

 

$

200,759

 

$

200,018

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Voyage expenses

 

(74

)

1,018

 

894

 

1,755

 

Vessel operating expenses

 

25,465

 

16,160

 

50,260

 

31,047

 

General, administrative, and management fees

 

8,298

 

7,164

 

17,149

 

12,960

 

Depreciation and amortization

 

34,025

 

26,259

 

67,106

 

51,094

 

Other operating income

 

 

(206

)

 

(206

)

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

67,714

 

50,395

 

135,409

 

96,650

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

31,616

 

54,942

 

65,350

 

103,368

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(56

)

(3

)

(111

)

25

 

Interest income

 

163

 

248

 

335

 

324

 

Interest expense

 

(21,540

)

(15,810

)

(42,861

)

(31,241

)

 

 

 

 

 

 

 

 

 

 

Other expense

 

(21,433

)

(15,565

)

(42,637

)

(30,892

)

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

10,183

 

39,377

 

22,713

 

72,476

 

Income tax expense

 

(355

)

(719

)

(714

)

(719

)

 

 

 

 

 

 

 

 

 

 

Net income

 

9,828

 

38,658

 

21,999

 

71,757

 

Less: Net (loss) income attributable to noncontrolling interest

 

(262

)

1,899

 

(1,517

)

1,550

 

Net income attributable to Genco Shipping & Trading Limited

 

$

10,090

 

$

36,759

 

$

23,516

 

$

70,207

 

 

 

 

 

 

 

 

 

 

 

Earnings per share-basic

 

$

0.29

 

$

1.17

 

$

0.67

 

$

2.24

 

Earnings per share-diluted

 

$

0.29

 

$

1.16

 

$

0.67

 

$

2.23

 

Weighted average common shares outstanding-basic

 

35,150,352

 

31,413,874

 

35,146,254

 

31,409,858

 

Weighted average common shares outstanding-diluted

 

35,204,649

 

31,562,879

 

35,211,636

 

31,553,226

 

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 Six Months Ended June 30, 2011 and 2010

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Accumulated
Other
Comprehensive
(Loss)
Income

 

Retained
Earnings

 

Genco
Shipping &
Trading
Limited
Shareholders’
Equity

 

Noncontrolling
Interest

 

Total Equity

 

Balance — January 1, 2011

 

$

359

 

$

803,778

 

$

(5,210

)

$

334,022

 

$

1,132,949

 

$

215,204

 

$

1,348,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

23,516

 

23,516

 

(1,517

)

21,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on investments

 

 

 

 

 

(12,264

)

 

 

(12,264

)

 

(12,264

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on cash flow hedges, net

 

 

 

 

 

7,916

 

 

 

7,916

 

 

7,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 15,000 shares of nonvested stock, less forfeitures of 1,100 shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

2,972

 

 

 

 

 

2,972

 

1,551

 

4,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid by Baltic Trading Limited

 

 

 

 

 

 

 

(33

)

(33

)

(3,853

)

(3,886

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted shares issued by Baltic Trading Limited

 

 

 

37

 

 

 

 

 

37

 

(37

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance —June 30, 2011

 

$

359

 

$

806,787

 

$

(9,558

)

$

357,505

 

$

1,155,093

 

$

211,348

 

$

1,366,441

 

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Accumulated
Other
Comprehensive
(Loss)
Income

 

Retained
Earnings

 

Genco
Shipping &
Trading
Limited
Shareholders’
Equity

 

Noncontrolling
Interest

 

Total Equity

 

Balance — January 1, 2010

 

$

318

 

$

722,198

 

$

13,589

 

$

192,820

 

$

928,925

 

$

 

$

928,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

70,207

 

70,207

 

1,550

 

71,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on investments

 

 

 

 

 

(18,901

)

 

 

(18,901

)

 

(18,901

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges, net

 

 

 

 

 

(8,789

)

 

 

(8,789

)

 

(8,789

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 90,000 shares of nonvested stock

 

1

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

2,190

 

 

 

 

 

2,190

 

1,093

 

3,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock of Baltic Trading Limited

 

 

 

(1,054

)

 

 

 

 

(1,054

)

211,449

 

210,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — June 30, 2010

 

$

319

 

$

723,333

 

$

(14,101

)

$

263,027

 

$

972,578

 

$

214,092

 

$

1,186,670

 

 

See accompanying notes to condensed consolidated financial statements.

 

5



Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the Three and Six Months Ended June 30, 2011 and 2010

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

For the Three Months Ended
June 30,

 

For the Six Months
Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,828

 

$

38,658

 

$

21,999

 

$

71,757

 

Change in unrealized gain on investments

 

(12,694

)

(23,144

)

(12,264

)

(18,901

)

Unrealized gain (loss) on cash flow hedges, net

 

712

 

(5,088

)

7,916

 

(8,789

)

Comprehensive (loss) income

 

(2,154

)

10,426

 

17,651

 

44,067

 

Less: Comprehensive (loss) income attributable to noncontrolling interest

 

(262

)

1,899

 

(1,517

)

1,550

 

Comprehensive (loss) income attributable to Genco Shipping & Trading Limited

 

$

(1,892

)

$

8,527

 

$

19,168

 

$

42,517

 

 

See accompanying notes to condensed consolidated financial statements.

 

6



Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

For the Six Months
Ended June 30,

 

 

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

21,999

 

$

71,757

 

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

 

 

 

 

 

Depreciation and amortization

 

67,106

 

51,094

 

Amortization of deferred financing costs

 

1,572

 

602

 

Amortization of time charters acquired

 

(969

)

(2,435

)

Amortization of discount on Convertible Senior Notes

 

1,952

 

 

Unrealized gain on derivative instruments

 

(19

)

(35

)

Amortization of nonvested stock compensation expense

 

4,523

 

3,283

 

Change in assets and liabilities:

 

 

 

 

 

Increase in due from charterers

 

(66

)

(959

)

Increase in prepaid expenses and other current assets

 

(2,169

)

(1,902

)

Increase in other noncurrent assets

 

(514

)

 

(Decrease) increase in accounts payable and accrued expenses

 

(2,818

)

2,113

 

Decrease in deferred revenue

 

(6,407

)

(2,903

)

Increase (decrease) in deferred rent credit

 

576

 

(10

)

Deferred drydock costs incurred

 

(1,801

)

(2,590

)

 

 

 

 

 

 

Net cash provided by operating activities

 

82,965

 

118,015

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of vessels

 

(67,174

)

(214,389

)

Deposits on vessels

 

(117

)

(84,899

)

Deposits on vessels to be sold

 

 

(10,550

)

Purchase of other fixed assets

 

(277

)

(251

)

Changes in deposits of restricted cash

 

(750

)

5,500

 

 

 

 

 

 

 

Net cash used in investing activities

 

(68,318

)

(304,589

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Repayments on the 2007 Credit Facility

 

(25,000

)

(25,000

)

Proceeds from the $100 Million Term Loan Facility

 

20,000

 

 

 

Repayments on the $100 Million Term Loan Facility

 

(1,763

)

 

Proceeds from the $253 Million Term Loan Facility

 

21,500

 

 

Repayments on the $253 Million Term Loan Facility

 

(9,766

)

 

Proceeds from the Baltic Trading 2010 Credit Facility

 

 

9,975

 

Proceeds from issuance of common stock by subsidiary

 

 

214,508

 

Payments of subsidiary common stock issuance costs

 

 

(3,721

)

Payment of Convertible Senior Notes issuance costs

 

(51

)

 

Payment of dividend by subsidiary

 

(3,886

)

 

Payment of deferred financing costs

 

(328

)

(1,316

)

 

 

 

 

 

 

Net cash provided by financing activities

 

706

 

194,446

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

15,353

 

7,872

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

270,877

 

188,267

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

286,230

 

$

196,139

 

 

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 June 30, 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 June 30, 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

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

 

34,391

 

5/12/2011

 

2011

Genco Mare Limited

 

Genco Mare

 

34,428

 

7/20/2011

 

2011

Genco Spirit Limited

 

Genco Spirit

 

35,000

 

Q4 2011 (1)

 

2011 (1)

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) Delivery and built date for vessel being delivered in the future is an estimate based on guidance received from the seller and the shipyard.

 

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 June 30, 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 25.22% ownership interest in Baltic Trading and 83.50% 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 June 30, 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 of GS&T.  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, the Company’s Chairman of the Board, is a minority investor in MEP, 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2010 (the “2010 10-K”).  The results of operations for the periods ended June 30, 2011 are not necessarily indicative of the operating results for the full year.

 

Vessels, net

 

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

 

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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 and six months ended June 30, 2011, the increase in the estimated scrap value resulted in a decrease in depreciation expense of $618 and $1,229, respectively.

 

Noncontrolling interest

 

Net loss (income) attributable to noncontrolling interest during the three and six months ended June 30, 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 June 30, 2011, the noncontrolling interest held a 74.78% economic interest in Baltic Trading while only holding 16.50% 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 June 30, 2011 and 2010 was $1,562 and $2,429, respectively, of which $743 and $2,429, respectively, eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $749 associated with these activities for the three months ended June 30, 2011.  This resulted in estimated tax expense of $327 for the three months ended June 30, 2011.  After allocation of certain expenses, there was taxable income of $1,598 associated with these activities for the three months ended June 30, 2010.  This resulted in income tax expense of $719 for the three months ended June 30, 2010.

 

Total revenue earned for these services during the six months ended June 30, 2011 and 2010 was $3,101 and $2,429, respectively, of which $1,472 and $2,429, respectively, eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $1,446 associated with these activities for the six months ended June 30, 2011.  This resulted in estimated tax expense of $691 for the six months ended June 30, 2011.  After allocation of certain expenses, there was taxable income of $1,598 associated with these activities for the six months ended June 30, 2010.  This resulted in income tax expense of $719 for the six months ended June 30, 2010.

 

Baltic Trading is subject to income tax on its United States source income.  During the three months ended June 30, 2011 and 2010, Baltic Trading had United States operations which resulted in United States source income of $1,394 and $0, respectively.  Baltic Trading’s United States income tax expense for the three months ended June 30, 2011 and 2010 was $28 and $0, respectively.

 

During the six months ended June 30, 2011 and 2010, Baltic Trading had United States operations which resulted in United States source income of $2,457 and $0, respectively.  Baltic Trading’s United States income tax expense for the six months ended June 30, 2011 and 2010 was $23 and $0, respectively.

 

Voyage expense recognition

 

In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer.  There are certain other non-specified voyage expenses such as commissions which are typically borne by the Company.  At the inception of a time charter, the Company records 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.  These differences in bunkers resulted in net gains of $1,294 and $459 during the three months ended June 30, 2011 and 2010, respectively, and $1,653 and $1,016 during the six months ended June 30, 2011 and 2010, respectively.

 

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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 and six months ended June 30, 2011 and 2010.

 

 

 

For the three months ended
June 30,

 

For the six months ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenue from External Customers

 

 

 

 

 

 

 

 

 

GS&T

 

$

88,597

 

$

98,346

 

$

179,672

 

$

193,027

 

Baltic Trading

 

9,914

 

6,991

 

19,458

 

6,991

 

Total operating segments

 

98,511

 

105,337

 

199,130

 

200,018

 

Eliminating revenue

 

 

 

 

 

Total consolidated revenue from external customers

 

$

98,511

 

$

105,337

 

$

199,130

 

$

200,018

 

 

The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the three and six months ended June 30, 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
June 30,

 

For the six months ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Intersegment revenue

 

 

 

 

 

 

 

 

 

GS&T

 

$

743

 

$

2,429

 

$

1,472

 

$

2,429

 

Baltic Trading

 

 

 

 

 

Total operating segments

 

743

 

2,429

 

1,472

 

2,429

 

Eliminating revenue

 

(743

)

(2,429

)

(1,472

)

(2,429

)

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 and six months ended June 30, 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
June 30,

 

For the six months ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net income

 

 

 

 

 

 

 

 

 

GS&T

 

$

10,484

 

$

38,172

 

$

25,278

 

$

71,781

 

Baltic Trading

 

(353

)

2,602

 

(2,046

)

2,092

 

Total operating segments

 

10,131

 

40,774

 

23,232

 

73,873

 

Eliminating net income

 

(303

)

(2,116

)

(1,233

)

(2,116

)

Total consolidated net income

 

$

9,828

 

$

38,658

 

$

21,999

 

$

71,757

 

 

The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated net assets as of June 30, 2011 and December 31, 2010.  The eliminating assets noted in the following table consist 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 June 30, 2011 and December 31, 2010.

 

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Table of Contents

 

 

 

June 30,
2011

 

December 31,
2010

 

Total assets

 

 

 

 

 

GS&T

 

$

2,803,943

 

$

2,792,056

 

Baltic Trading

 

387,918

 

396,154

 

Total operating segments

 

3,191,861

 

3,188,210

 

Eliminating assets

 

(3,941

)

(5,502

)

Total consolidated assets

 

$

3,187,920

 

$

3,182,708

 

 

4 - CASH FLOW INFORMATION

 

As of June 30, 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 $35,362, $9,770 of which was classified within current liabilities, as of June 30, 2011.  At December 31, 2010, the ten swaps were in a liability position of $43,297, $4,417 of which was classified within current liabilities.

 

For the six months ended June 30, 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 $1,386 for the purchase of vessels, $77 associated with deposits on vessels and $51 for the purchase of other fixed assets.  Additionally, for the six months ended June 30, 2011 the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of June 30, 2011 consisting of $22 interest receivable associated with deposits on vessels.

 

For the six months ended June 30, 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 $692 for the purchase of vessels, $289 associated with deposits on vessels, $48 associated with deposits on vessels to be sold and $69 for the purchase of other fixed assets.  Additionally, for the six months ended June 30, 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 $434 associated with deferred financing fees and $35 associated with common stock issuance costs related to the initial public offering of Baltic Trading.  Also, for the six months ended June 30, 2010, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of June 30, 2010 consisting of $17 associated with deposits on vessels.

 

For the six months ended June 30, 2011, the Company made a reclassification of $6,989 from deposits on vessels to vessels, net of accumulated depreciation, due to the completion of the purchase of the Genco Rhone and Genco Avra.

 

During the six months ended June 30, 2011 and 2010, cash paid for interest, net of amounts capitalized and including bond coupon interest paid, was $40,225 and $30,897, respectively.

 

During the six months ended June 30, 2011 and 2010, cash paid for estimated income taxes was $695 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.  Additionally, on May 13, 2010, the Company made grants of nonvested common stock under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan in the amount of 15,000 shares in the aggregate to directors of the Company.  The fair value of such nonvested stock was $331.

 

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 in the aggregate 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.

 

On May 12, 2011, the Company made grants of nonvested common stock under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan in the amount of 15,000 shares in the aggregate to directors of the Company.  The fair value of such nonvested stock was $120.

 

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Table of Contents

 

On May 12, 2011, 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 $87.

 

5 - VESSEL ACQUISITIONS AND DISPOSITIONS

 

On March 29, 2011, GS&T took delivery of the Genco Rhone, a 58,000 dwt Supramax vessel, which was purchased from Bourbon S.A. (“Bourbon”) pursuant to the Master Agreement dated June 24, 2010 between GS&T and Bourbon.  The Genco Rhone is the last of 13 vessels to be acquired and retained by GS&T under such agreements.  GS&T paid a total purchase price of approximately $35.7 million for the Genco Rhone which was financed with available cash, including 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.   The Company drew down from the $253 million term loan facility to refund $21.5 million associated with the purchase of the Genco Rhone on March 30, 2011.

 

On May 12, 2011, GS&T took delivery of the Genco Avra, a 35,000 dwt Handysize newbuilding, which was purchased from companies within the Metrostar group of companies pursuant to the agreement dated June 3, 2010 to acquire five Handysize vessels.  Genco Avra is the third of five vessels to be delivered pursuant to the aforementioned agreement.  GS&T utilized available cash of $9.9 million, as well as $20.0 million under its $100 million term loan facility, to pay the remaining balance of $29.9 million.

 

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.

 

The Genco Avra, the Handysize vessel acquired from Metrostar during the second quarter of 2011, had an existing below market time charter at the time of acquisition.  GS&T recorded a liability for time charter acquired of $372 during the second quarter of 2011.  Below market time charters, including those acquired during previous periods, were amortized as an increase to voyage revenue in the amount of $496 and $1,103 for the three months ended June 30, 2011 and 2010, respectively, and $969 and $2,435  for the six months ended June 30, 2011 and 2010, respectively.

 

Capitalized interest expense associated with newbuilding contracts for the three months ended June 30, 2011 and 2010 was $48 and $145, respectively.  Capitalized interest expense associated with newbuilding contracts for the six months ended June 30, 2011 and 2010 was $127 and $145, 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 accumulated other comprehensive loss (“AOCI”).  At June 30, 2011 and December 31, 2010, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $42,450 and $54,714, respectively, based on the closing price on June 30, 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 and six months ended June 30, 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 17 — 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 807,987 nonvested shares outstanding at June 30, 2011 (refer to Note 17 — Nonvested Stock Awards), 664,738 shares are anti-dilutive.  The Company’s 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 shares convertible under the Company’s convertible notes 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.

 

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Table of Contents

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding, basic:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

35,150,352

 

31,413,874

 

35,146,254

 

31,409,858

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding, diluted:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

35,150,352

 

31,413,874

 

35,146,254

 

31,409,858

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of convertible notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of restricted stock awards

 

54,297

 

149,005

 

65,382

 

143,368

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, diluted

 

35,204,649

 

31,562,879

 

35,211,636

 

31,553,226

 

 

8 - RELATED PARTY TRANSACTIONS

 

The following represent the only related party transactions disclosed 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 six months ended June 30, 2011 and 2010, the Company invoiced $91 and $66, respectively, to GMC, which includes time associated with such internal audit services.  Additionally, during the six months ended June 30, 2011 and 2010, the Company incurred travel and other expenditures totaling $164 and $148, respectively, reimbursable to GMC or its service provider.   At June 30, 2011 the amount due to the Company from GMC was $33 and at December 31, 2010 the amount due to GMC from the Company was $74.

 

During the six months ended June 30, 2011 and 2010, the Company incurred legal services (primarily in connection with vessel acquisitions) aggregating $13 and $206, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board.  At June 30, 2011 and December 31, 2010, $0 and $234, respectively, were outstanding to Constantine Georgiopoulos.

 

During the six months ended June 30, 2011 and 2010, 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 and $8 for services rendered during the six months ended June 30, 2011 and 2010.  There are no amounts due to NSM at June 30, 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 six months ended June 30, 2011 and 2010, the Company incurred costs for lubricating oils supplied by Aegean to the Company’s vessels aggregating $854 and $621, respectively.  At June 30, 2011 and December 31, 2010, $44 and $302 remained outstanding, respectively.

 

During the six months ended June 30, 2011 and 2010, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $1,665 and $26, respectively.  MEP is managed by a company owned by Peter C. Georgiopoulos, Chairman of the Board.  At June 30, 2011 and December 31, 2010, $4 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 six months ended June 30, 2011 and 2010 was $1,629 and $0, respectively.

 

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Table of Contents

 

9 - LONG-TERM DEBT

 

Long-term debt consists of the following:

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

 

 

 

 

2007 Credit Facility

 

$

1,252,000

 

$

1,277,000

 

$100 Million Term Loan Facility

 

57,117

 

38,880

 

$253 Million Term Loan Facility

 

238,543

 

226,809

 

2010 Baltic Trading Credit Facility

 

101,250

 

101,250

 

Less: Current portion

 

(110,610

)

(71,841

)

 

 

 

 

 

 

Long-term debt

 

$

1,538,300

 

$

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”). The maximum amount that may be borrowed under the 2007 Credit Facility at June 30, 2011 is $1,252,000.  As of June 30, 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 significant covenants in the 2007 Credit Facility have been disclosed in the 2010 10-K.  As of June 30, 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 June 30, 2011, there were no letters of credit issued under the 2007 Credit Facility.

 

$100 Million Term Loan Facility

 

On August 12, 2010, the Company entered into the $100,000 secured term loan facility (“$100 Million Term Loan Facility”). As of June 30, 2011, three drawdowns of $20,000 each had been made for the deliveries of the Genco Ocean, Genco Bay and Genco Avra.  These drawdowns were made on August 17, 2010, August 23, 2010 and May 9, 2011, respectively.  During the six months ended June 30, 2011, total required repayments of $1,763 were made.  As of June 30, 2011, total availability under the $100 Million Term Loan Facility was $40,000. The Company has used or intends to use the $100 Million Term Loan Facility to fund or refund 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).

 

The Company believes it is in compliance with all of the financial covenants under the $100 Million Term Loan Facility as of June 30, 2011.

 

$253 Million Term Loan Facility

 

On August 20, 2010, the Company entered into the $253,000 senior secured term loan facility (“$253 Million Term Loan Facility”).  As of June 30, 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 13 Bourbon vessels delivered during the third quarter of 2010 and first quarter of 2011.  As of June 30, 2011, there was no availability under the $253 Million Term Loan Facility.

 

The Company believes it is in compliance with all of the financial covenants under the $253 Million Term Loan Facility as of June 30, 2011.

 

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.  Among other things, this amendment increased the commitment amount of the 2010 Baltic Trading Credit Facility from $100,000 to $150,000.  As of June 30, 2011, total available working capital borrowings were $23,500 as $1,500 was drawn down during 2010 for working capital purposes.  As of June 30, 2011, $43,750 remained available under the 2010 Credit Facility as the total commitment under this facility decreased by $5,000 from $150,000 to $145,000 on May 31, 2011.

 

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Table of Contents

 

As of June 30, 2011, the Company believes Baltic Trading is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility.

 

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 June 30,

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Effective Interest Rate

 

4.40

%

4.76

%

4.43

%

4.70

%

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

 

2.19% to 3.31

%

2.25% to 3.60

%

2.19% to 3.31

%

2.25% to 3.60

%

 

10 — CONVERTIBLE SENIOR NOTES

 

The Company issued $125,000 of 5.0% Convertible Senior Notes on July 27, 2010 (the “2010 Notes”).  The Indenture includes customary agreements and covenants by the Company, including with respect to events of default.

 

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

 

 

 

June 30, 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

 

20,739

 

22,691

 

Net carrying amount of the liability component

 

104,262

 

102,309

 

 

 

 

For the three
months ended
June 30, 2011

 

For the six
months ended
June 30, 2011

 

Effective interest rate on liability component

 

10.01

%

10.01

%

Cash interest expense recognized

 

$

1,563

 

$

3,093

 

Non-cash interest expense recognized

 

986

 

1,952

 

Non-cash deferred financing costs included in interest expense

 

179

 

357

 

 

The remaining period over which the unamortized discount will be recognized is 4.1 years. As of June 30, 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 June 30, 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

 

As of June 30, 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 June 30, 2011 and December 31, 2010 was $706,233 and $756,233, respectively, and the swaps have specified rates and durations.

 

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Table of Contents

 

The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of June 30, 2011 and December 31, 2010:

 

Interest Rate Swap Detail

 

June 30, 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 June 30, 2011 and December 31, 2010:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

 

 

Sheet
Location

 

June 30, 2011

 

December
31, 2010

 

Sheet
Location

 

June 30, 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)

 

$

9,770

 

$

4,417

 

Interest rate contracts

 

Fair value of derivative instruments (Noncurrent Assets)

 

 

 

Fair value of derivative instruments (Noncurrent Liabilities)

 

25,592

 

38,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

 

 

 

 

35,362

 

43,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Derivatives

 

 

 

$

 

$

 

 

 

$

35,362

 

$

43,297

 

 

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

 

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

For the Three Month Period Ended June 30, 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

 

$

(6,578

)

Interest Expense

 

$

(7,289

)

Other Income (Expense)

 

$

7

 

 

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Table of Contents

 

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

For the Three Month Period Ended June 30, 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

 

$

(12,682

)

Interest Expense

 

$

(7,594

)

Other Income (Expense)

 

$

12

 

 

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

For the Six Month Period Ended June 30, 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

 

$

(6,685

)

Interest Expense

 

$

(14,600

)

Other Income (Expense)

 

$

19

 

 

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

For the Six Month Period Ended June 30, 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

 

$

(23,993

)

Interest Expense

 

$

(15,204

)

Other Income (Expense)

 

$

35

 

 

At June 30, 2011, ($21,528) 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 June 30, 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

 

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 June 30, 2011 and December 31, 2010.

 

 

 

AOCI

 

Net Unrealized
Gain
(Loss) on Cash
Flow Hedges

 

Unrealized
Gain (Loss)
on
Investments

 

AOCI — December 31, 2010

 

$

(5,210

)

$

(43,152

)

$

37,942

 

Change in unrealized gain on investments

 

(12,264

)

 

 

(12,264

)

Unrealized gain on cash flow hedges

 

7,916

 

7,916

 

 

 

AOCI — June 30, 2011

 

$

(9,558

)

$

(35,236

)

$

25,678

 

 

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Table of Contents

 

13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The fair values of the Company’s financial instruments at June 30, 2011 and December 31, 2010 are noted below.  All carrying values approximate the instrument’s fair values with the exception of the 2010 Notes.

 

 

 

June 30, 2011

 

December 31,
2010

 

Cash and cash equivalents

 

$

286,230

 

$

270,877

 

Restricted cash

 

9,750

 

9,000

 

Investments

 

42,450

 

54,714

 

Floating rate debt

 

1,648,910

 

1,643,939

 

2010 Notes

 

106,789

 

129,531

 

Derivative instruments — liability position

 

35,362

 

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 June 30, 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:

 

 

 

June 30, 2011

 

 

 

Total

 

Quoted
market
prices in
active
markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

42,450

 

$

42,450

 

$

 

Derivative instruments — liability position

 

35,362

 

 

35,362

 

 

 

 

December 31, 2010

 

 

 

Total

 

Quoted
market
prices in
active
markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

54,714

 

$

54,714

 

$

 

Derivative instruments — liability position

 

43,297

 

 

43,297

 

 

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.

 

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Table of Contents

 

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 June 30, 2011, both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.

 

14 - 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.  Total net deferred financing costs consist of the following as of June 30, 2011 and December 31, 2010:

 

 

 

June 30, 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

 

3,567

 

3,529

 

2010 Notes

 

3,637

 

3,637

 

2010 Baltic Trading Credit Facility

 

3,027

 

2,940

 

Total deferred financing costs

 

21,623

 

21,498

 

Less: accumulated amortization

 

6,133

 

4,561

 

Total

 

$

15,490

 

$

16,937

 

 

Amortization expense for deferred financing costs for the three months ended June 30, 2011 and 2010 was $793 and $338, respectively.  Amortization expense for deferred financing costs for the six months ended June 30, 2011 and 2010 was $1,572 and $602, respectively.  This amortization expense is recorded as a component of interest expense in the Condensed Consolidated Statements of Operations.

 

15 - 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 June 30, 2011 and 2010 was $98,511 and $105,337, respectively, and for the six months ended June 30, 2011 and 2010 was $199,130 and $200,018, respectively.  Included in revenues for the three months ended June 30, 2011 and 2010 was profit sharing revenue of $29 and $65, respectively.  Additionally, included in revenues for the six months ended June 30, 2011 and 2010 was profit sharing revenue of $122 and $65, respectively.  Future minimum time charter revenue, based on vessels committed to noncancelable time charter contracts as of July 20, 2011 is expected to be $63,036 for the remainder of 2011, $53,005 during 2012, $4,790 during 2013 and $748 during 2014, 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 and vessels that are currently on or will be on spot market-related time charters as spot rates cannot be estimated.

 

16 - COMMITMENTS AND CONTINGENCIES

 

In September 2005, the Company entered into a 15-year lease for office space in New York, New York for which there was a free rental period from September 1, 2005 to July 31, 2006.  The monthly straight-line rental expense from September 1, 2005 to August 31, 2020 is $39.  As a result of the straight-line rent calculation generated by the free rent period and the tenant work credit, the Company had a deferred rent credit at June 30, 2011 and December 31, 2010 of $632 and $657, respectively.  Rent expense under this lease for the three months ended June 30, 2011 and 2010 was $117 for each respective period.  Rent expense under this lease for the six months ended June 30, 2011 and 2010 was $233 for each respective period.

 

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Table of Contents

 

Future minimum rental payments on the above lease for the next five years and thereafter are as follows: $259 for the remainder of 2011, $518 annually for 2012 through 2014, $529 for 2015 and a total of $2,568 for the remaining term of the lease.

 

Effective April 4, 2011, the Company entered into a seven-year sub-sublease agreement for additional office space in New York, New York.  The term of the sub-sublease commenced June 1, 2011, with a free base rental period until October 31, 2011.  Following the expiration of the free base rental period, the monthly base rental payments will be $82 per month until May 31, 2015 and thereafter will be $90 per month until the end of the seven-year term.  Pursuant to the sub-sublease agreement, the sublessor is obligated to contribute $472 toward the cost of the Company’s alterations to the sub-subleased office space.  The Company has also entered into a direct lease with the over-landlord of such office space that will commence immediately upon the expiration of such sub-sublease agreement, for a term covering the period from May 1, 2018 to September 30, 2025; the direct lease provides for a free base rental period from May 1, 2018 to September 30, 2018.  Following the expiration of the free base rental period, the monthly base rental payments will be $186 per month from October 1, 2018 to April 30, 2023 and $204 per month from May 1, 2023 to September 30, 2025.  For accounting purposes, the sub-sublease agreement and direct lease agreement with the landlord will constitute one lease agreement.  As a result of the straight-line rent calculation generated by the free rent period and the tenant work credit, the monthly straight-line rental expense for the term of the entire lease from June 1, 2011 to September 30, 2025 will be $130.  The Company had a deferred rent credit at June 30, 2011 of $602.  Rent expense pertaining to this new lease for the three and six months ended June 30, 2011 was $130.

 

Future minimum rental payments on the above lease for the next five years and thereafter are as follows: $164 for the remainder of 2011, $982 annually for 2012 through 2014, $1,037 for 2015 and a total of $18,658 for the remaining term of the lease.

 

The remaining vessel that the Company has agreed to purchase from Metrostar, the Genco Spirit, is expected to be delivered during the fourth quarter of 2011 for a remaining purchase price of $29,925.  The Genco Mare was delivered to the Company on July 20, 2011 refer to Note 20 — Subsequent Events for further information.

 

17 - NONVESTED STOCK AWARDS

 

The table below summarizes the Company’s nonvested stock awards for the six months ended June 30, 2011 under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan (the “GS&T Plan”):

 

 

 

Number of
Shares

 

Weighted
Average Grant
Date Price

 

Outstanding at January 1, 2011

 

809,087

 

$