gnk_Current folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period  ended June 30, 2016

 

OR

 

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 001-33393

 


 

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, 12th 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  No 

 

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  No 

 

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 

 

Accelerated filer 

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

(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  No

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of August 9, 2016: Common stock, $0.01 per share— 7,354,449 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, 2016 and December 31, 2015

 

 

 

 

 

b)

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2016 and 2015

 

 

 

 

 

c)

Condensed Consolidated Statements of Comprehensive Loss for the Three  and Six Months ended June 30, 2016 and 2015

 

 

 

 

 

d)

Condensed Consolidated Statements of Equity for the Six Months ended June 30, 2016 and 2015

 

 

 

 

 

e)

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2016 and 2015

 

 

 

 

 

f)

Notes to Condensed Consolidated Financial Statements

 

 

 

Item 2. 

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

45 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

75 

 

 

 

Item 4. 

Controls and Procedures

76 

 

 

 

 

PART II —OTHER INFORMATION

 

 

 

 

Item 1A. 

Risk Factors

77 

 

 

 

Item 5. 

Other Information

78 

 

 

 

Item 6. 

Exhibits

78 

 

 

2


 

Table of Contents

Website Information

 

We intend to use our website, www.GencoShipping.com, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in our website’s Investor section. Accordingly, investors should monitor the Investor portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. To subscribe to our e-mail alert service, please submit your e-mail address at the Investor Relations Home page of the Investor section of our website. The information contained in, or that may be accessed through, our website is not incorporated by reference into or a part of this document or any other report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.

3


 

Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Genco Shipping & Trading Limited

Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

    

 

    

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,662

 

$

121,074

 

Restricted cash

 

 

19,500

 

 

19,500

 

Due from charterers, net of a reserve of $167 and $429, respectively

 

 

8,249

 

 

10,586

 

Prepaid expenses and other current assets

 

 

19,145

 

 

21,369

 

Total current assets

 

 

103,556

 

 

172,529

 

 

 

 

 

 

 

 

 

Noncurrent assets:

 

 

 

 

 

 

 

Vessels, net of accumulated depreciation of $128,899 and $107,998, respectively

 

 

1,401,162

 

 

1,508,221

 

Deferred drydock, net of accumulated amortization of $4,385 and $3,207 respectively

 

 

13,515

 

 

16,177

 

Deferred financing costs, net of accumulated amortization of $1,136 and $734, respectively

 

 

2,892

 

 

3,294

 

Fixed assets, net of accumulated depreciation and amortization of $563 and $404, respectively

 

 

1,154

 

 

1,286

 

Other noncurrent assets

 

 

514

 

 

514

 

Restricted cash

 

 

315

 

 

315

 

Investments

 

 

7,280

 

 

12,327

 

Total noncurrent assets

 

 

1,426,832

 

 

1,542,134

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,530,388

 

$

1,714,663

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

22,832

 

$

27,467

 

Current portion of long-term debt, net of deferred financing costs of $8,355 and $9,411, respectively

 

 

553,301

 

 

579,023

 

Deferred revenue

 

 

995

 

 

1,058

 

Total current liabilities:

 

 

577,128

 

 

607,548

 

 

 

 

 

 

 

 

 

Noncurrent liabilities:

 

 

 

 

 

 

 

Long-term lease obligations

 

 

1,509

 

 

1,149

 

Total noncurrent liabilities

 

 

1,509

 

 

1,149

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

578,637

 

 

608,697

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Common stock, par value $0.01; 500,000,000 shares authorized; issued and outstanding 7,354,449 and 7,289,823 shares at June 30, 2016 and December 31, 2015, respectively

 

 

74

 

 

73

 

Additional paid-in capital

 

 

1,494,032

 

 

1,483,105

 

Accumulated other comprehensive loss

 

 

(26)

 

 

(21)

 

Retained deficit

 

 

(542,329)

 

 

(377,191)

 

Total equity

 

 

951,751

 

 

1,105,966

 

Total liabilities and equity

 

$

1,530,388

 

$

1,714,663

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

Table of Contents

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

   

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Voyage revenues

 

$

31,460

 

$

33,772

 

$

51,590

 

$

67,381

 

Service revenues

 

 

414

 

 

819

 

 

1,225

 

 

1,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

31,874

 

 

34,591

 

 

52,815

 

 

69,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Voyage expenses

 

 

3,074

 

 

3,757

 

 

6,970

 

 

8,137

 

Vessel operating expenses

 

 

28,538

 

 

29,928

 

 

57,665

 

 

58,599

 

General, administrative and management fees

 

 

13,853

 

 

26,491

 

 

26,708

 

 

46,815

 

Depreciation and amortization

 

 

19,686

 

 

19,399

 

 

40,025

 

 

38,809

 

Other operating income

 

 

(182)

 

 

 —

 

 

(182)

 

 

 —

 

Impairment of vessel assets

 

 

67,594

 

 

 —

 

 

69,278

 

 

35,396

 

Loss on sale of vessels

 

 

77

 

 

1,210

 

 

77

 

 

1,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

132,640

 

 

80,785

 

 

200,541

 

 

188,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(100,766)

 

 

(46,194)

 

 

(147,726)

 

 

(119,956)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment of investment

 

 

(2,696)

 

 

 —

 

 

(2,696)

 

 

 —

 

Other expense

 

 

(50)

 

 

(65)

 

 

(174)

 

 

(54)

 

Interest income

 

 

33

 

 

25

 

 

95

 

 

49

 

Interest expense

 

 

(7,013)

 

 

(4,687)

 

 

(14,127)

 

 

(9,012)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

 

(9,726)

 

 

(4,727)

 

 

(16,902)

 

 

(9,017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before reorganization items, net

 

 

(110,492)

 

 

(50,921)

 

 

(164,628)

 

 

(128,973)

 

Reorganization items, net

 

 

(65)

 

 

(313)

 

 

(160)

 

 

(833)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(110,557)

 

 

(51,234)

 

 

(164,788)

 

 

(129,806)

 

Income tax expense

 

 

(96)

 

 

(718)

 

 

(350)

 

 

(1,260)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(110,653)

 

 

(51,952)

 

 

(165,138)

 

 

(131,066)

 

Less: Net loss attributable to noncontrolling interest

 

 

 —

 

 

(11,620)

 

 

 —

 

 

(52,293)

 

Net loss attributable to Genco Shipping & Trading Limited

 

$

(110,653)

 

$

(40,332)

 

$

(165,138)

 

$

(78,773)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share-basic

 

$

(15.32)

 

$

(6.67)

 

$

(22.87)

 

$

(13.03)

 

Net loss per share-diluted

 

$

(15.32)

 

$

(6.67)

 

$

(22.87)

 

$

(13.03)

 

Weighted average common shares outstanding-basic

 

 

7,221,735

 

 

6,048,719

 

 

7,220,265

 

 

6,045,915

 

Weighted average common shares outstanding-diluted

 

 

7,221,735

 

 

6,048,719

 

 

7,220,265

 

 

6,045,915

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

Table of Contents

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Comprehensive Loss

For the Three and Six Months Ended June 30, 2016 and 2015

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(110,653)

 

$

(51,952)

 

$

(165,138)

 

$

(131,066)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

(864)

 

 

(3,402)

 

 

(5)

 

 

(1,043)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

(111,517)

 

 

(55,354)

 

 

(165,143)

 

 

(132,109)

 

Less: Comprehensive loss attributable to noncontrolling interest

 

 

 —

 

 

(11,620)

 

 

 —

 

 

(52,293)

 

Comprehensive loss attributable to Genco Shipping & Trading Limited

 

$

(111,517)

 

$

(43,734)

 

$

(165,143)

 

$

(79,816)

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

Table of Contents

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Equity

For the Six Months Ended June 30, 2016 and 2015

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Genco

  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shipping &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Trading

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Limited

 

 

 

 

 

 

 

 

 

Common

 

Paid-in

 

Comprehensive

 

Retained

 

Shareholders’

 

Noncontrolling

 

 

 

 

 

 

Stock

 

Capital

 

Loss

 

Deficit

 

Equity

 

Interest

 

Total Equity

 

Balance — January 1,2016

 

$

73

 

$

1,483,105

 

$

(21)

 

$

(377,191)

 

$

1,105,966

 

$

 —

 

$

1,105,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(165,138)

 

 

(165,138)

 

 

 —

 

 

(165,138)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

(5)

 

 

 —

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 61,244 shares of nonvested stock

 

 

1

 

 

(1)

 

 

 

 

 

 

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 3,138 shares of vested RSUs

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

 

 

10,928

 

 

 

 

 

 

 

 

10,928

 

 

 —

 

 

10,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — June 30, 2016

 

$

74

 

$

1,494,032

 

$

(26)

 

$

(542,329)

 

$

951,751

 

$

 —

 

$

951,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Genco

  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shipping &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Trading

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Limited

 

 

 

 

 

 

 

 

 

Common

 

Paid-in

 

Comprehensive

 

Retained

 

Shareholders’

 

Noncontrolling

 

 

 

 

 

 

Stock

 

Capital

 

Loss

 

Deficit

 

Equity

 

Interest

 

Total Equity

 

Balance — January 1, 2015

 

$

62

 

$

1,251,750

 

$

(25,317)

 

$

(182,294)

 

$

1,044,201

 

$

248,573

 

$

1,292,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(78,773)

 

 

(78,773)

 

 

(52,293)

 

 

(131,066)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

(1,043)

 

 

 

 

 

(1,043)

 

 

 —

 

 

(1,043)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement of non-accredited Note holders

 

 

 

 

 

(414)

 

 

 

 

 

 

 

 

(414)

 

 

 —

 

 

(414)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity effect of purchase of entities under common control

 

 

 

 

 

590

 

 

 

 

 

 

 

 

590

 

 

 —

 

 

590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

 

 

23,215

 

 

 

 

 

 

 

 

23,215

 

 

1,608

 

 

24,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - June 30, 2015

 

$

62

 

$

1,275,141

 

$

(26,360)

 

$

(261,067)

 

$

987,776

 

$

197,888

 

$

1,185,664

 

 

See accompanying notes to condensed consolidated financial statements.

7


 

Table of Contents

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

June 30, 

 

 

    

2016

    

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(165,138)

 

$

(131,066)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

40,025

 

 

38,809

 

Amortization of deferred financing costs

 

 

1,458

 

 

1,051

 

Amortization of nonvested stock compensation expense

 

 

10,928

 

 

24,823

 

Impairment of vessel assets

 

 

69,278

 

 

35,396

 

Loss on sale of vessel assets

 

 

77

 

 

900

 

Impairment of investment

 

 

2,696

 

 

 —

 

Realized loss on sale of investment

 

 

92

 

 

 —

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Decrease in due from charterers

 

 

2,337

 

 

283

 

Decrease (increase) in prepaid expenses and other current assets

 

 

2,131

 

 

(200)

 

(Decrease) increase in accounts payable and accrued expenses

 

 

(4,338)

 

 

7,075

 

(Decrease) increase in deferred revenue

 

 

(63)

 

 

1

 

Increase in lease obligations

 

 

360

 

 

399

 

Deferred drydock costs incurred

 

 

(1,073)

 

 

(7,301)

 

Net cash used in operating activities

 

 

(41,230)

 

 

(29,830)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of vessels, including deposits

 

 

(380)

 

 

(24,719)

 

Purchase of other fixed assets

 

 

(207)

 

 

(353)

 

Net proceeds from sale of vessel assets

 

 

1,923

 

 

 —

 

Sale of AFS securities

 

 

2,361

 

 

 —

 

Changes in deposits of restricted cash

 

 

 —

 

 

19,645

 

Net cash provided by (used in) investing activities

 

 

3,697

 

 

(5,427)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Repayments on the $100 Million Term Loan Facility

 

 

(3,846)

 

 

(3,846)

 

Repayments on the $253 Million Term Loan Facility

 

 

(10,150)

 

 

(10,150)

 

Proceeds from the 2015 Revolving Credit Facility

 

 

 —

 

 

25,000

 

Repayments on the 2015 Revolving Credit Facility

 

 

(3,282)

 

 

 —

 

Repayments on the $44 Million Term Loan Facility

 

 

(1,375)

 

 

(1,375)

 

Proceeds from the $148 Million Credit Facility

 

 

 —

 

 

115,000

 

Repayments on the $148 Million Credit Facility

 

 

(5,994)

 

 

(2,447)

 

Repayments on the 2010 Credit Facility

 

 

 —

 

 

(102,250)

 

Repayments on the $22 Million Term Loan Facility

 

 

(750)

 

 

(750)

 

Repayments on the 2014 Term Loan Facilities

 

 

(1,381)

 

 

(700)

 

Cash settlement of non-accredited Note holders

 

 

(101)

 

 

(720)

 

Payment of deferred financing costs

 

 

 —

 

 

(4,271)

 

Net cash (used in) provided by financing activities

 

 

(26,879)

 

 

13,491

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(64,412)

 

 

(21,766)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

121,074

 

 

83,414

 

Cash and cash equivalents at end of period

 

$

56,662

 

$

61,648

 

 

See accompanying notes to condensed consolidated financial statements.

8


 

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”) and its direct and indirect wholly-owned subsidiaries including 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, 2016, is the sole owner of all of the outstanding shares or limited liability company interests of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco RE Investments LLC; and the ship-owning subsidiaries as set forth below under “Other General Information.”  As of June 30, 2016, Genco Ship Management LLC is the sole owner of all of the outstanding limited liability company interests of Genco Management (USA) LLC.

 

On April 15, 2016, the shareholders of the Company approved, at a Special Meeting of Shareholders (the “Special Meeting”), proposals to amend the Second Amended and Restated Articles of Incorporation of the Company to (i) increase the number of authorized shares of common stock of the Company from 250,000,000 to 500,000,000 and (ii) authorize the issuance of up to 100,000,000 shares of preferred stock, in one or more classes or series as determined by the Board of Directors of the Company. The authorized shares did not change as a result of the reverse stock split. Following the Special Meeting on such date, the Company filed Articles of Amendment of its Second Amended and Restated Articlesof Incorporation with the Registrar of Corporations of the Republic of the Marshall Islands to implement to the foregoing amendments. Additionally, at the Special Meeting, the shareholders of the Company approved a proposal to amend the Second Amended and Restated Articles of Incorporation of the Company to effect a reverse stock split of the issued and outstanding shares of Common Stock at a ratio between 1-for-2 and 1-for-25 with such reverse stock split to be effective at such time and date, if at all, as determined by the Board of Directors of the Company, but no later than one year after shareholder approval thereof.  

 

On July 7, 2016, the Company completed a one-for-ten reverse stock split of its common stock.  As a result, all share and per share information included for all periods presented in these Condensed Consolidated Financial Statements, with the exception of any share information for Baltic Trading, reflect the reverse stock split.  Refer to Note 6 — Net Loss per Common Share and Note 18 — Stock-Based Compensation. 

 

Liquidity, Going Concern, and Reclassification of Debt to Current

 

For purposes of preparing financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the Company is required to disclose if it is in compliance with covenants under all of its nine credit facilities on a quarterly basis.  Pursuant to the Amended Commitment Letter, the $98 Million Credit Facility Commitment Letter and the waiver entered into for the 2014 Term Loan Facilities (refer to Note 8 — Debt for defined terms), the collateral maintenance and maximum leverage requirements under all nine of the Company’s credit facilities have been waived through September 30, 2016, with the exception of the $98 Million Credit Facility Commitment Letter, which reduced the collateral maintenance requirement from 140% to 120% and the 2014 Term Loan Facilities, for which the waivers were extended through October 15, 2016, except that such extended waivers under the 2014 Term Loan Facilities will be void if Sinosure does not approve such waivers by August 19, 2016 or if Sinosure gives written notice to the agent bank that it does not approve the waivers.  Each of the Company’s credit facilities contain cross default provisions that could be triggered by the Company’s failure to satisfy or waive its collateral maintenance and maximum leverage covenants once the waivers expire.  Given the existence of the cross default provisions and the absence of any current solution which would cure the noncompliance for at least the next twelve months, the Company has determined that it should classify its outstanding indebtedness as a current liability as of June 30, 2016 and December 31, 2015.

 

9


 

Table of Contents

Persistent weak drybulk industry conditions and historically low charter rates have negatively impacted the Company’s results of operations, cash flows, and liquidity and may continue to do so in the future. The negative impact on the Company’s liquidity, together with a continued decline in vessel values, presents difficulties for remaining in compliance with its credit facility covenants relating to minimum cash, leverage ratios, and collateral maintenance (refer to Note 8 — Debt), which could potentially result in defaults and acceleration of the repayment of its outstanding indebtedness.  These factors, as well as recurring losses from operations and negative working capital, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern, which contemplates the realization of assets and extinguishment of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon, among other things, its ability to: (i) develop and successfully implement a plan to address these factors, which may include refinancing the Company’s existing credit agreements, or obtaining further waivers or modifications to its credit agreements from its lenders, or raising additional capital through selling assets (including vessels), reducing or delaying capital expenditures, or pursuing other options that may be available to the Company which may include pursuing strategic opportunities and equity or debt offerings or potentially seeking protection in a Chapter 11 proceeding; (ii) return to profitability, (iii) generate sufficient cash flow from operations, (iv) remain in compliance with its credit facility covenants, as the same may be modified, and (v) obtain financing sources to meet the Company’s future obligations. The realization of the Company’s assets and the satisfaction of its liabilities are subject to uncertainty.  The accompanying condensed consolidated financial statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern, except in regards to the classification of outstanding indebtedness as described above.

 

Merger Agreement with Baltic Trading

 

On April 7, 2015, the Company entered into a definitive merger agreement with Baltic Trading Limited (“Baltic Trading”) under which the Company acquired Baltic Trading in a stock-for-stock transaction (the “Merger”).  Under the terms of the agreement, Baltic Trading became an indirect wholly-owned subsidiary of the Company, and Baltic Trading shareholders (other than the Company and its subsidiaries) received 0.216 shares of the Company’s common stock for each share of Baltic Trading’s common stock they owned at closing, with fractional shares to be settled in cash.  Upon consummation of the transaction on July 17, 2015, the Company’s shareholders owned approximately 84.5% of the combined company, and Baltic Trading’s shareholders (other than the Company and its subsidiaries) owned approximately 15.5% of the combined company.  Shares of Baltic Trading’s Class B stock (all of which are owned by the Company) were canceled in the Merger.  The Company’s common stock began trading on the New York Stock Exchange after consummation of the transaction on July 20, 2015. The Boards of Directors of both the Company and Baltic Trading established independent special committees to review the transaction and negotiate the terms on behalf of their respective companies.  Both independent special committees unanimously approved the transaction.  The Boards of Directors of both companies approved the Merger by a unanimous vote of directors present and voting, with Peter C. Georgiopoulos, Chairman of the Board of each company, recused for the vote.  The Merger was approved on July 17, 2015 at the 2015 Annual Meeting of Shareholders (the “Annual Meeting”).

 

Prior to the completion of the Merger, the Company prepared its condensed consolidated financial statements in accordance with U.S. GAAP and consolidated the operations of Baltic Trading. The Baltic Trading common shares that the Company acquired in the Merger were previously recognized as a noncontrolling interest in the consolidated financial statements of the Company. Under U.S. GAAP, changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are considered equity transactions (i.e. transactions with owners in their capacity as owners) with any difference between the amount by which the noncontrolling interest is adjusted and the fair value of the consideration paid attributed to the equity of the parent. Accordingly, any difference between the fair value of the Company’s common shares issued in exchange for Baltic Trading common shares pursuant to the Merger was reflected as an adjustment to the equity in the Company. No gain or loss has been recognized in the Company’s Condensed Consolidated Statement of Comprehensive Loss upon completion of the transaction.

 

10


 

Table of Contents

Acquisition of Baltic Lion and Baltic Tiger

 

Additionally, on April 7, 2015, the Company entered into an agreement under which the Company acquired all of the shares of two single-purpose vessel owning entities that were wholly owned by Baltic Trading, each of which owned one Capesize drybulk vessel, specifically the Baltic Lion and Baltic Tiger, for an aggregate purchase price of $68,500, subject to reduction for $40,563 of outstanding first-mortgage debt of such single-purpose entities that was guaranteed by the Company.  For further details, refer to the “Impairment of vessel assets” Section in Note 2 — Summary of Significant Accounting Policies.  These transactions, which closed on April 8, 2015, were accounted for pursuant to accounting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), for transactions among entities under common control.  Accordingly, the difference between the cash paid to Baltic Trading and the Company’s carrying value of the Baltic Lion and Baltic Tiger as of the closing date of $590 was reflected as an adjustment to Additional paid-in capital in the Condensed Consolidated Statement of Equity when the sale was completed on April 7, 2015.  The independent special committees of both companies’ Boards of Directors reviewed and approved these transactions.

 

11


 

Table of Contents

Other General Information

 

Below is the list of the Company’s wholly owned ship-owning subsidiaries as of June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

Wholly Owned Subsidiaries

    

Vessel 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

(3)

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