Form 10-Q Quarterly Report

 
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 September 30, 2006
 
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 000-51442
 
                           
GENCO SHIPPING & TRADING LIMITED
(Exact name of registrant as specified in its charter)
 
Republic of the Marshall Islands
(State or other jurisdiction
incorporation or organization)
 
98-043-9758
(I.R.S. Employer
Identification No.)
     
299 Park Avenue (20th Floor), New York, New York 10171
(Address of principal executive offices)            (Zip Code)
 
(646) 443-8550
(Registrant’s telephone number, including area code)
                           
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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         
 
Indicate by checkmark whether registrant is a large accelerated filer, an accelerated file, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer ____  Accelerated Filer ____ Non-Accelerated Filer X    
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes           No X   
 
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 13, 2006:
Common stock, $0.01 per share 25,434,212 shares.






Genco Shipping & Trading Limited
Form 10-Q for the three and nine months ended September 30, 2006 and 2005  
 
PART I FINANCIAL INFORMATION

 Item 1. Financial Statements                                                                      Page
 
    a)       Consolidated Balance Sheets -
      September 30, 2006 and December 31, 2005                                                          3
 
    b)   Consolidated Statements of Operations
       For the three and nine months ended September 30, 2006 and 2005                                           4
 
    c)   Consolidated Statements of Shareholders’ Equity and Comprehensive Income
          For the nine months ended September 30, 2006 and 2005                                                  5
 
    d)   Consolidated Statements of Cash Flows
      For the nine months ended September 30, 2006 and 2005                                                  6
 
    e)       Notes to Consolidated Financial Statements
   
Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations                            22
 
Item 3.       Quantitative and Qualitative Disclosures about Market Risk                                              40
 
Item 4.       Control and Procedures                                                                      42
 
PART II  OTHER INFORMATION
 
Item 1.       Legal Proceedings                                                                       42
 
Item 1A.    Risk Factors                                                                         42
 
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds                                             42
 
Item 5.       Other Information                                                                        42
 
Item 6.       Exhibits                                                                              44
 
 

2

 


 
PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Genco Shipping & Trading Limited 
Consolidated Balance Sheets as of September 30, 2006
And December 31, 2005
(U.S. Dollars in thousands)
   
September 30,
2006
 
December 31, 2005
 
   
(unaudited)
     
Assets
         
Current assets:
         
Cash and cash equivalents
 
$
65,599
 
$
46,912
 
Due from charterers, net
   
217
   
219
 
Prepaid expenses and other current assets
   
4,287
   
2,574
 
               
Total current assets
   
70,103
   
49,705
 
               
Noncurrent assets:
             
Vessels, net of accumulated depreciation of $41,884 and $22,659, respectively
   
411,139
   
430,287
 
Deferred drydock, net of accumulated amortization of $233 and $35, respectively
   
1,853
   
152
 
Other assets, net of accumulated amortization of $369 and $126, respectively
   
5,066
   
5,967
 
Fixed assets, net of accumulated depreciation and amortization of $265 and $49, respectively
   
1,933
   
1,522
 
Deposits on vessels
   
8,125
   
-
 
Fair value of derivative instruments
   
4,158
   
2,325
 
Total noncurrent assets
   
432,274
   
440,253
 
               
Total assets
 
$
502,377
 
$
489,958
 
               
Liabilities and Shareholders’ Equity
             
Current liabilities:
             
Accounts payable and accrued expenses
 
$
6,709
 
$
5,978
 
               
Total current liabilities
   
6,709
   
5,978
 
               
Noncurrent liabilities:
             
Deferred revenue
   
3,483
   
4,576
 
Deferred rent credit
   
748
   
479
 
Fair value of derivative instruments
   
1,202
   
-
 
Long term debt
   
138,808
   
130,683
 
Total noncurrent liabilities
   
144,241
   
135,738
 
               
Total liabilities
   
150,950
   
141,716
 
               
Commitments and contingencies
             
               
Shareholders’ equity:
             
Common stock, par value $0.01; 100,000,000 shares authorized; issued and
             
outstanding 25,434,212 shares at September 30, 2006 and December 31, 2005
   
254
   
254
 
Paid in capital
   
306,834
   
305,500
 
Accumulated other comprehensive income
   
2,954
   
2,325
 
Retained earnings
   
41,385
   
40,163
 
               
Total shareholders’ equity
   
351,427
   
348,242
 
               
Total liabilities and shareholders’ equity
 
$
502,377
 
$
489,958
 
               
See accompanying notes to consolidated financial statements.

 
 
3

 
Genco Shipping & Trading Limited
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005
(U.S. Dollars in Thousands, Except Earnings per Share)
(Unaudited)

   
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
   
2006
 
2005
 
2006
 
2005
 
                   
Revenues
 
$
32,642
 
$
31,172
 
$
97,516
 
$
83,521
 
                           
Operating expenses:
                         
Voyage expenses
   
1,056
   
1,134
   
3,220
   
3,044
 
Vessel operating expenses
   
5,757
   
3,818
   
15,022
   
9,250
 
General and administrative expenses
   
2,055
   
1,222
   
6,808
   
2,415
 
Management fees
   
353
   
326
   
1,047
   
1,135
 
Depreciation and amortization
   
6,681
   
6,116
   
19,638
   
15,767
 
                           
Total operating expenses
   
15,902
   
12,616
   
45,735
   
31,611
 
                           
Operating income
   
16,740
   
18,556
   
51,781
   
51,910
 
                           
Other (expense) income:
                         
(Expense) income from derivative instruments
   
(2,195
)
 
-
   
2
   
-
 
Interest income
   
827
   
329
   
2,080
   
595
 
Interest expense
   
(2,468
)
 
(6,545
)
 
(6,859
)
 
(13,163
)
                           
Other (expense) income
   
(3,836
)
 
(6,216
)
 
(4,777
)
 
(12,568
)
                           
Net income
 
$
12,904
 
$
12,340
 
$
47,004
 
$
39,342
 
                           
Earnings per share-basic
 
$
0.51
 
$
0.55
 
$
1.86
 
$
2.38
 
Earnings per share-diluted
 
$
0.51
 
$
0.55
 
$
1.86
 
$
2.38
 
Weighted average common shares outstanding-basic
   
25,288,695
   
22,575,652
   
25,270,831
   
16,558,462
 
Weighted average common shares outstanding-diluted
   
25,371,882
   
22,575,652
   
25,338,031
   
16,558,462
 
                           
See accompanying notes to consolidated financial statements.



4

 


Genco Shipping & Trading Limited
Consolidated Statement of Shareholders’ Equity and Comprehensive Income (Unaudited)
For the Nine Months Ended September 30, 2006
(U.S. Dollars in Thousands)

   
Common
Stock
 
Paid in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income
 
Comprehensive Income
 
Total
 
Balance - January 1, 2006
 
$
254
 
$
305,500
 
$
40,163
 
$
2,325
       
$
348,242
 
                                       
Net income
               
47,004
       
$
47,004
   
47,004
 
                                       
Unrealized derivative gains from cash flow hedge
                     
629
   
629
   
629
 
                                       
Comprehensive income
                         
$
47,633
       
                                       
Cash dividends paid
               
(45,782
)
             
(45,782
)
                                       
Restricted stock amortization
         
1,334
                     
1,334
 
                                       
Balance - September 30, 2006
 
$
254
 
$
306,834
 
$
41,385
 
$
2,954
       
$
351,427
 
                                       



See accompanying notes to consolidated financial statements.




5

 


Genco Shipping & Trading Limited
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2006 and 2005
(U.S. Dollars in Thousands)
(Unaudited)

   
For the Nine Months
Ended September 30,
 
   
2006
 
2005
 
           
Cash flows from operating activities:
         
Net income
 
$
47,004
 
$
39,342
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation and amortization
   
19,638
   
15,767
 
Amortization of deferred financing costs
   
243
   
4,536
 
Amortization of value of time charter acquired
   
1,383
   
-
 
Unrealized gain on derivative instruments
   
(2
)
 
-
 
Amortization of restricted stock compensation expense
   
1,334
   
-
 
Change in assets and liabilities:
             
Decrease in due from charterers, net
   
2
   
288
 
Increase in prepaid expenses and other current assets
   
(1,713
)
 
(2,246
)
Increase in accounts payable and accrued expenses
   
589
   
2,277
 
(Decrease) increase in deferred revenue
   
(1,093
)
 
2,912
 
Increase in deferred rent credit
   
269
   
41
 
Deferred drydock costs incurred
   
(1,333
)
 
(187
)
               
Net cash provided by operating activities
   
66,321
   
62,730
 
               
Cash flows from investing activities:
             
Purchase of vessels
   
(76
)
 
(235,982
)
Purchase of other fixed assets
   
(1,050
)
 
(296
)
Deposits on vessels to be acquired
   
(8,125
)
 
-
 
               
Net cash used in investing activities
   
(9,251
)
 
(236,278
)
               
Cash flows from financing activities:
             
Cash dividends paid
   
(45,782
)
 
-
 
Proceeds from credit facilities
   
8,125
   
340,912
 
Repayments on credit facilities
   
-
   
(357,000
)
Net proceeds from issuance of common stock
   
-
   
230,143
 
Capital contributions from shareholder
   
-
   
2,705
 
Payment of deferred financing costs
   
(726
)
 
(3,370
)
               
Net cash (used in) provided by financing activities
   
(38,383
)
 
213,390
 
               
Net increase in cash
   
18,687
   
39,842
 
               
Cash at beginning of period
   
46,912
   
7,431
 
               
Cash at end of period
 
$
65,599
 
$
47,273
 
               
Supplemental disclosure of cash flow information:
             
Cash paid during the period for interest
 
$
6,491
 
$
8,147
 
               
See accompanying notes to consolidated financial statements.
     


6

 



Genco Shipping & Trading Limited
(U.S. Dollars in Thousands Except Per Share Data)
 
Notes to Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2006 and 2005 (unaudited)
 
1 - GENERAL INFORMATION
 
The accompanying consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”) and its wholly owned subsidiaries (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 was incorporated on September 27, 2004 under the laws of the Marshall Islands and is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC, and the 20 ship-owning subsidiaries as set forth below.
 
The Company began operations on December 6, 2004 with the delivery of its first vessel. The Company agreed to acquire a fleet of 16 drybulk carriers from an unaffiliated third party on November 19, 2004. As of June 7, 2005, the Company had taken delivery of all of these vessels. The purchase price of the initial 16 vessels aggregated to approximately $421,900, which was funded from initial capital contributions of $75,172 in conjunction with GS&T’s issuance of common stock to Fleet Acquisition LLC, from borrowings under the Company’s original credit facility entered into on December 3, 2004 (the “Original Credit Facility”), and from the Company’s cash flows from operations.
 
Additionally, on October 14, 2005 the Company acquired the Genco Muse with an existing time charter for $34,450, which was funded entirely by the Company’s new credit facility entered into in July 2005 (the “New Credit Facility”). The portion of the purchase price attributable to the vessel was $30,958 (see Note 4). Lastly, the Company has agreed to acquire vessels to be renamed the Genco Acheron, the Genco Commander, and the Genco Surprise. The Genco Acheron and Genco Commander were delivered in November 2006, and the Genco Surprise is expected to be delivered on or about November 16 2006. Below is the list of the Company’s wholly owned subsidiaries as of September 30, 2006:
 
         
Wholly Owned
Subsidiaries
Vessels
dwt
Date
Delivered
Year
Built
         
Genco Reliance Limited
Genco Reliance
29,952
12/6/04
1999
Genco Glory Limited
Genco Glory
41,061
12/8/04
1984
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 Trader Limited
Genco Trader
69,338
6/7/05
1990
Genco Muse Limited
Genco Muse
48,913
10/14/05
2001
Genco Commander Limited
Genco Commander
45,518
11/2/06
1994
Genco Acheron Limited
Genco Acheron
72,495
11/7/06
1999
Genco Surprise Limited
Genco Surprise
72,495
11/16/06 (1)
1998

 

7

 

(1) Represents the estimated delivery date subject to the customary closing conditions associated with this acquisition.
 
On July 22, 2005, the Company completed its initial public offering of 11,760,000 shares at $21 per share resulting in gross proceeds of $246,960. After underwriting commissions and other offering expenses, net proceeds to the Company were $230,305 as reflected in equity for the year ended December 31, 2005.
 
Prior to its initial public offering, the Company was 100% owned by Fleet Acquisition LLC, a limited liability company organized on November 3, 2004 under the laws of the Marshall Islands. Fleet Acquisition LLC was owned 66.53% by OCM Principal Opportunities III Fund, L.P. and OCM Principal Opportunities Fund IIIA, L.P., collectively, (“Oaktree”) of which Oaktree Management LLC is the General Partner, 26.63% by Peter Georgiopoulos, and 6.84% by others. As of December 31, 2005, Fleet Acquisition LLC maintained a 53.08% ownership in the Company. On April 14, 2006, Fleet Acquisition LLC distributed 1,050,210 shares to certain of its members, all of whom except Peter Georgiopoulos ceased to be members upon such distribution. The remaining 12,449,790 shares of the Company stock owned by Fleet Acquisition LLC continue to be held by Oaktree and by Peter Georgiopoulos, our chairman. Of Fleet Acquisition LLC’s remaining equity holders, Oaktree owns approximately 71.4% of its equity and Mr. Georgiopoulos owns approximately 28.6% of its equity. As a result of this share distribution, Oaktree and Peter Georgiopoulos own approximately 48.96% of the Company through Fleet Acquisition, LLC at September 30, 2006.
 
On July 18, 2005, prior to the closing of the public offering of GS&T’s common stock, GS&T’s Board of Directors and stockholder approved a split (in the form of a stock dividend, giving effect to a 27,000:1 common stock split) of the Company’s common stock. All share and per share amounts relating to common stock, included in the accompanying consolidated financial statements and footnotes, have been restated to reflect the stock split for all periods presented.

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of consolidation
 
The accompanying 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 and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
 
Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of financial position and operating results have been included in the statements. Interim results are not necessarily indicative of results for a full year. Reference is made to the December 31, 2005 consolidated financial statements of Genco Shipping & Trading Ltd. contained in its Annual Report on Form 10-K for the year ended December 31, 2005.

Business geographics
 
The Company’s vessels regularly move between countries in international waters, over hundreds of trade routes and, as a result, the disclosure of geographic information is impractical.
 
Vessel acquisitions
 
When the Company enters into an acquisition transaction, it determines whether the acquisition transaction was the purchase of an asset or a business based on the facts and circumstances of the transaction. As is customary
 

8

 

in the shipping industry the purchase of a vessel is normally treated as a purchase of an asset as the historical operating data for the vessel is not reviewed nor is material to our decision to make such acquisition.
 
When a vessel is acquired with an existing time charter, the Company allocates the purchase price of the vessel and the time charter, based on, among other things, vessel market valuations and the present value (using an interest rate which reflects the risks associated with the acquired charters) of the difference between (i) the contractual amounts to be paid pursuant to the charter terms and (ii) management's estimate of the fair market charter rate, measured over a period equal to the remaining term of the charter. The capitalized above-market (assets) and below-market (liabilities) charters are amortized as a reduction or increase, respectively, to voyage revenues over the remaining term of the charter.

Segment reporting
 
The Company reports financial information and evaluates its operations by charter revenues and not by the length of ship employment for its customers, i.e., spot or time charters. The Company does not use discrete financial information to evaluate the operating results for different types of charters. Although revenue can be identified for these types of charters, management cannot and does not separately identify expenses, profitability or other financial information for these charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus, the Company has determined that it operates under one reportable segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable.
 
Revenue and voyage expense recognition
 
Since the Company’s inception, revenues have been generated from time charter agreements and pool agreements. A time charter involves placing a vessel at the charterer’s disposal for a set period of time during which the charterer may use the vessel in return for the payment by the charterer of a specified daily hire rate. In time charters, 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 borne by the Company. Time charter revenues are recorded over the term of the charter as service is provided. Revenues are recognized on a straight line basis as the average revenue over the term of the respective time charter agreement.
 
In December 2005 and February 2006, the Genco Trader and Genco Leader, respectively, entered into the Baumarine Panamax Pool. Vessel pools, such as the Baumarine Panamax Pool, provide cost effective commercial management activities for a group of similar class vessels. The pool arrangement provides the benefits of a large-scale operation, and chartering efficiencies that might not be available to smaller fleets. Under the pool arrangement, the vessels operate under a time charter agreement whereby the cost of bunkers and port expenses are borne by the charterer and operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel. Since the members of the pool share in the revenue generated by the entire group of vessels in the pool, and the pool operates in the spot market, the revenue earned by these two vessels is subject to the fluctuations of the spot market.
 
Included in the standard time charter contracts with our customers, are certain performance parameters, which if not met can result in customer claims. As of September 30, 2006, the Company had a reserve of $197 against due from charterers balance and an additional reserve of $399, each of which is associated with estimated customer claims against the Company for time charter performance issues. As of December 31, 2005, the Company had a reserve of $316 associated with estimated customer claims against the Company for time charter performance issues.
 
Vessel operating expenses
 
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, and other miscellaneous expenses. Vessel operating expenses are recognized when incurred.
 

9

 

Vessels, net
 
Vessels, net are stated at cost less accumulated depreciation. Included in vessel costs are acquisition costs directly attributable to the acquisition of a vessel and expenditures made to prepare the vessel for its initial voyage. Vessels are depreciated on a straight-line basis over their estimated useful lives, determined to be 25 years from the date of initial delivery from the shipyard.
 
Depreciation expense is calculated based on cost less the estimated residual scrap value. The costs of significant replacements, renewals and betterments are capitalized and depreciated over the shorter of the vessel’s remaining estimated useful life or the estimated life of the renewal or betterment. Undepreciated cost of any asset component being replaced that was acquired after the initial vessel purchase is written off as a component of vessel operating expense. Expenditures for routine maintenance and repairs are expensed as incurred. Scrap value is estimated by the Company by taking the cost of steel times the weight of the ship noted in lightweight ton (lwt). At September 30, 2006 and December 31, 2005, the Company estimated the residual value of vessels to be $175/lwt.
 
Fixed assets, net
 
Fixed assets, net are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are based on a straight line basis over the estimated useful life of the specific asset placed in service. The following table is used in determining the estimated useful lives:
 
Description                           Useful lives
 
Leasehold improvements                    15 years
Furniture, fixtures & other equipment             5 years
Vessel equipment                        2-5 years
Computer equipment                          3 years

Deferred drydocking costs
 
The Company’s vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. The Company capitalizes the costs associated with the drydockings as they occur and amortizes these costs on a straight-line basis over the period between drydockings. Costs capitalized as part of a vessel’s drydocking include actual costs incurred at the drydocking yard; cost of parts that are reasonably made in anticipation of reducing the duration or cost of the drydocking; cost of travel, lodging and subsistence of personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee the drydocking.
 
Inventory
 
Inventory, a component of prepaid expenses and other current assets, consists of lubricants and stores which are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
 
Impairment of long-lived assets
 
The Company follows Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various factors including anticipated future charter rates, estimated scrap values, future drydocking costs and estimated vessel operating costs, are included in this analysis.
 
For three and nine months ended September 30, 2006 and 2005, no impairment charges were recorded, based on the analysis described above.
 

10

 

Deferred financing costs
 
Deferred financing costs, included in other assets, consist of fees, commissions and legal expenses associated with securing loan facilities. These costs are amortized over the life of the related debt, which is included in interest expense.
 
Cash and cash equivalents
 
The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents.
 
Income taxes
 
Pursuant to Section 883 of the U.S. Internal Revenue Code of 1986 as amended (the “Code”), qualified income derived from the international operations of ships is excluded from gross income and exempt from U.S. federal income tax if a company engaged in the international operation of ships, meets certain requirements. Among other things, in order to qualify, the company must be incorporated in a country which grants an equivalent exemption to U.S. corporations and must satisfy certain qualified ownership requirements.
 
The Company is incorporated in the Marshall Islands. Pursuant to the income tax laws of the Marshall Islands, the Company is not subject to Marshall Islands income tax. The Marshall Islands has been officially recognized by the Internal Revenue Service as a qualified foreign country that currently grants the requisite equivalent exemption from tax.
 
Based on the ownership of our common stock prior to our initial public offering on July 22, 2005 as discussed in note 1, we qualified for exemption from income tax for 2005 under Section 883, since for more than half of 2005, we were a Controlled Foreign Corporation (“CFC”) and satisfied certain other criteria in the Section 883 regulations. We were a CFC, as defined in the Code, since until the initial public offering on July 22, 2005, over 50% of our stock was owned by United States holders each of whom owned ten percent or more of our voting stock, or US 10% Owners. During that time, approximately 93% of our common stock was held by US 10% Owners.
 
Immediately following the initial public offering, the US 10% Owners beneficially owned less than 50% of our stock. If such owners were to continue to own less than 50% of our stock and there were no additional US 10% Owners during 2006, we would no longer be eligible to qualify for exemption from tax under Section 883 based on being a CFC. Instead, we could only qualify for exemption if we satisfy the publicly traded requirement of the Section 883 regulations. In order to meet the publicly traded requirements for 2006 and future years, our stock must be treated as being primarily and regularly traded on Nasdaq for more than half the days of any such year. Under the Section 883 regulations, our qualification for the publicly traded requirement may be jeopardized if shareholders of our common stock that own five percent or more of our stock own, in the aggregate, 50% or more of our common stock. As of September 30, 2006, we believe that such five percent or more shareholders are limited to Oaktree and Peter Georgiopoulos, our Chairman which own approximately 48.96% of our common stock through Fleet Acquisition, LLC. However if such shareholders were to increase their ownership in excess of 50% of our common stock for more than half the days of 2006, we would not be eligible to claim exemption from tax under Section 883. We can therefore give no assurance that changes and shifts in the ownership of our stock by five percent or more shareholders will permit us to qualify for exemption from tax in 2006 or in future years.

If the Company does not qualify for the exemption from tax under Section 883, it likely would be subject to a 4% tax on the gross “shipping income” (without the allowance for any deductions) that is treated as derived from sources within the United States or “United States source shipping income.” For these purposes, “shipping income” means any income that is derived from the use of vessels, from the hiring or leasing of vessels for use, or from the performance of services directly related to those uses; and “United States source shipping income” includes 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
 

11

 

Deferred revenue
 
Deferred revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as income when earned.
 
Comprehensive income
 
The Company follows Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive Income,” which establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is comprised of net income and amounts related to the adoption of SFAS No. 133.
 
Restricted stock awards
 
In 2006 the Company has adopted the Financial Accounting Standards Board issued SFAS No. 123R, Share-Based Payment, for restricted stock issued under its equity incentive plan. Adoption of this new accounting policy did not change the method of accounting for restricted stock awards. However deferred compensation costs from restricted stock have been classified as a component of paid in capital as required by SFAS No. 123R.
 
Accounting estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include vessel and drydock valuations and the valuation of amounts due from charterers. Actual results could differ from those estimates.
 
Concentration of credit risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers. With respect to amounts due from charterers, the Company attempts to limit its credit risk by performing ongoing credit evaluations and, when deemed necessary, requiring letters of credit, guarantees or collateral. Although the Company earned 100% of revenues from eleven and thirteen customers, for the three months ended September 30, 2006 and 2005, respectively, and 100% of revenues from eleven and fifteen customers, for the nine months ended September 30, 2006 and 2005, respectively, management does not believe significant risk exists in connection with the Company’s concentrations of credit at September 30, 2006 and December 31, 2005.
 
For the three months ended September 30, 2006 and 2005, there are three customers in each period, which individually account for more than 10% of revenue for the respective period. For the nine months ended September 30, 2006 and 2005, there are two and three customers respectively, which individually account for more than 10% of revenue for the respective period.
 
Fair value of financial instruments
 
The estimated fair values of the Company’s financial instruments such as amounts due from charterers, accounts payable and long term debt approximate their individual carrying amounts as of September 30, 2006 and December 31, 2005 due to their short-term maturity or the variable-rate nature of the respective borrowings.
 
The fair value of the interest rate swaps (used for purposes other than trading) is the estimated amount the Company would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of the swaps’ counterparty.
 

 

12

 

Interest rate risk management
 
The Company is exposed to the impact of interest rate changes. The Company’s objective is to manage the impact of interest rate changes on its earnings and cash flow in relation to its borrowings. The Company held three interest rate risk management instruments at September 30, 2006 and one at December 31, 2005, in order to manage future interest costs and the risk associated with changing interest rates.
 
 The differential to be paid or received for the effectively hedged portion of any swap agreement is recognized as an adjustment to interest expense as incurred. Additionally, the change in value for the portion of the swaps that are effectively hedged is reflected as a component of other comprehensive income (“OCI”).

For the portion of the forward interest rate swaps that are not effectively hedged, the change in the value and the rate differential to be paid or received is recognized as (expense) income from derivative instruments and is listed as a component of other (expense) income until such time the Company has obligations against which the swap is designated and is an effective hedge.

Derivative financial instruments
 
To manage its exposure to fluctuating interest rates, the Company uses interest rate swap agreements. Interest rate differentials to be paid or received under these agreements for any portion of designated debt that is effectively hedged is accrued and recognized as an adjustment of interest expense. The interest rate differential on the swaps that do not have designated debt or is not effectively hedged will be reflected as (expense) income from derivative instruments and is listed as a component of other (expense) income. The fair value of the interest rate swap agreements is recognized in the financial statements as a non-current asset or liability.
 
Amounts receivable or payable arising at the settlement of hedged interest rate swaps are deferred and amortized as an adjustment to interest expense over the period of interest rate exposure provided the designated liability continues to exist. Amounts receivable or payable arising at the settlement of unhedged interest rate swaps are reflected as (expense) income from derivative instruments and is listed as a component of other (expense) income.
 
New accounting pronouncements
 
SFAS 157 - Fair Value Measurements: The FASB issued Statement No. 157 ("SFAS 57") on September 15, 2006. SFAS 57 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the Statement's issuance, guidance for applying fair value was incorporated in several accounting pronouncements. The new statement provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. While the statement does not add any new fair value measurements, it does change current practice. On such change is a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of this Statement on January 1, 2007, is not expected to have a material impact on the financial statements of the Company.

3 - CASH FLOW INFORMATION
 
The Company entered into the 4.485% Swap during 2005 and the 5.075% Swap and 5.25% Swap during March 2006, collectively (the “Swaps”). The Swaps are described and discussed in Note 7. The fair value of the 4.485% Swap is in an asset position of $4,158 and $2,325 as of September 30, 2006 and December 31, 2005, respectively. The fair values of the 5.075% Swap and 5.25% Swap are in a liability position of $1,202 and $0 as of September 30, 2006 and December 31, 2005, respectively.

The Company had non-cash operating items for dry docking costs not included in the Consolidated Statement of Cash Flows in the amount of $565 and $0, respectively, for items included in deferred dry docking and accounts payable and accrued expenses for the nine months ended September 30, 2006 and 2005.
 

13

 

The Company granted restricted stock to its employees and directors in 2005. The fair value of such restricted stock was $2,940 on the grant dates and was recorded in equity as part of paid in capital.

Cash paid during the period for interest on the Consolidated Statement of Cash Flows includes the rate differential associated with any hedged interest rate swap.
 
4 - VESSEL ACQUISITION
 
On October 14, 2005, the Company took delivery of the Genco Muse, a 48,913 dwt Handymax drybulk carrier and the results of its operations is included in the consolidated results of the Company after that date. The vessel is a 2001 Japanese-built vessel. The total purchase price of the vessel was $34,450. The purchase price included the assumption of an existing time charter with Qatar Navigation QSC at a rate of $26.5 per day. Due to the above market rate of the existing time charter, the Company has capitalized $3,492 of the purchase price as an asset which is being amortized as a reduction of voyage revenues through September 2007 (the remaining term of the charter). For the three months ended September, 2006 and 2005, $466 and $0, respectively was amortized, and for the nine months ended September, 2006 and 2005, $1,383 and $0 was amortized. At September 30, 2006 and December 31, 2005 $1,710 and $3,094, respectively, remains unamortized.

The purchase of the Genco Muse is consistent with the Company's strategy of selectively expanding the number of high-quality vessels in the fleet.

On July 10, 2006, the Company entered into an agreement with affiliates of Franco Compania Naviera S.A. under which the Company is to purchase three drybulk vessels for an aggregate price of $81,250, two of which were delivered in November 2006 and the third of which is expected to be delivered on or about November 16, 2006. The acquisition is subject to customary closing conditions. The Company expects to finance the purchase from its credit facility. The acquisition consists of a 1999 Japanese-built Panamax vessel to be named the Genco Acheron, a 1998 Japanese-built Panamax vessel to be named the Genco Surprise, and a 1994 Japanese-built Handymax vessel to be named the Genco Commander. With the addition of these vessels, Genco's fleet will consist of seven Panamax, eight Handymax, and five Handysize drybulk carriers, with a total carrying capacity of approximately 1,029,000 dwt and an average fleet age of nine years. See Subsequent Events - Note 18 for delivery of vessels subsequent to September 30, 2006.
 
5 - EARNINGS PER COMMON SHARE
 
The computation of basic earnings (loss) per share is based on the weighted average number of common shares outstanding during the year. The computation of diluted earnings (loss) per share assumes the vesting of granted restricted stock awards (see Note 16), for which the assumed proceeds upon grant are deemed to be the amount of compensation cost attributable to future services and not yet recognized using the treasury stock method, to the extent dilutive. For the three and nine months ended September 30, 2006, the restricted stock grants are dilutive. For the three and nine months ended September 30, 2005 there were no restricted shares granted.
 
The components of the denominator for the calculation of basic earnings per share and diluted earnings per share are as follows:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2006
 
2005
 
2006
 
2005
 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding, basic:
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding, basic
   
25,288,695
   
22,575,652
   
25,270,831
   
16,558,462
 
 
                 
Common shares outstanding, diluted:
                 
Weighted average common shares outstanding, basic
   
25,288,695
   
22,575,652
   
25,270,831
   
16,558,462
 
                           
Weighted average restricted stock awards
   
83,187
   
-
   
67,200
   
-
 
 
                 
Weighted average common shares outstanding, diluted
   
25,371,882
   
22,575,652
   
25,338,031
   
16,558,462
 
 
 
14

 
 
6 - RELATED PARTY TRANSACTIONS
 
The following are related party transactions not disclosed elsewhere in these financial statements:
 
In June 2006, the Company made an employee performing internal audit services available to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board, Chief Executive Officer and President, and Stephen A. Kaplan also serves as a director. For the nine months ended September 30, 2006, the Company invoiced $17 to GMC for the time associated with such internal audit services. In 2005, no such arrangement was in place. In April 2005, the Company began renting office space in a building leased by GenMar Realty LLC, a company wholly owned by Peter C. Georgiopoulos, the Chairman of the Board. There was no lease agreement between the Company and GenMar Realty LLC. The Company paid an occupancy fee on a month-to-month basis in the amount of $55. For the nine months ended September 30, 2005, the Company incurred $275. This lease was terminated at December 31, 2005, and there is no such arrangement in place for 2006. At September 30, 2006, the amount due the Company from GMC is $9. No amounts were owed on December 31, 2005.
 
During the nine months ended September 30, 2006 and 2005, the Company incurred travel-related and miscellaneous expenditures totaling $186 and $113, respectively. These travel-related expenditures are reimbursable to GMC or its service provider. For the nine months ended September 30, 2006 and 2005, approximately $49 and $113, respectively of these travel expenditures were paid from the gross proceeds received from the initial public offering and as such were included in the determination of net proceeds. Prior to the initial public offering, and for the nine months ended September 30, 2005, the Company purchased $25 of computers and incurred $17 of expense for consultative services provided by GMC.
 
During the nine months ended September 30, 2006 and 2005, the Company incurred legal services (primarily in connection with vessel acquisitions) aggregating $64 and $174, respectively, from Constantine Georgiopoulos, father of Peter C. Georgiopoulos, Chairman of the Board. At September 30, 2006 and December 31, 2005, $36 and $27, respectively was outstanding to Constantine Georgiopoulos.
 
7 - LONG-TERM DEBT
 
Long-term debt consists of the following:
 
   
September 30, 2006
 
December 31, 2005
 
           
Revolver, New Credit Facility
 
$
138,808
 
$
130,683
 
Less: Current portion of revolver
   
-
   
-
 
               
Long-term debt
 
$
138,808
 
$
130,683
 
 
New credit facility
 
The Company entered into the New Credit Facility as of July 29, 2005. The New Credit Facility is with a syndicate of commercial lenders consisting of Nordea Bank Finland Plc, New York Branch, DnB NOR Bank ASA, New York Branch and Citigroup Global Markets Limited. The New Credit Facility has been used to refinance our indebtedness under the Company's Original Credit Facility, and may be used in the future to acquire additional vessels and for working capital requirements. Under the terms of the New Credit Facility, borrowings in the amount of $106,233 were used to repay indebtedness under the Original Credit Facility, and additional net borrowings of $24,450 were obtained to fund the acquisition of the Genco Muse. In July 2006, the Company increased the line of credit by $100,000 and in July 2006 borrowed $8,125 for deposits on the new vessels to be acquired. As of September 30, 2006, the amount available on the credit facility to fund future vessel acquisitions is $411,192. The Company may borrow up to $20,000 of the available credit facility for working capital purposes.
 

15

 

The New Credit Facility has a term of ten years maturing on July 29, 2015. The facility permits borrowings up to 65% of the fair value of the vessels that secure the obligations under the New Credit Facility up to the facility limit, provided that conditions to drawdown are satisfied. Certain of these conditions require the Company, among other things, to provide to the lenders acceptable valuations of the vessels in our fleet confirming that the aggregate amount outstanding under the facility (determined on a pro forma basis giving effect to the amount proposed to be drawn down) will not exceed 65% of the value of the vessels pledged as collateral. At September 30, 2006, the New Credit Facility limit is $550,000 for the balance of the initial period of six years. Thereafter, the facility limit is reduced by an amount equal to 8.125% of the total $550,000 commitment, semi-annually over a period of four years and is reduced to $0 on the tenth anniversary.
 
The obligations under the New Credit Facility are secured by a first priority mortgage on each of the vessels in our fleet as well as any future vessel acquisitions pledged as collateral and funded by this facility. The New Credit Facility is also secured by a first priority security interest in our earnings and insurance proceeds related to the collateral vessels. The Company may grant additional security interest in vessels acquired that are not mortgaged.
 
All of our vessel-owning subsidiaries are full and unconditional joint and several guarantors of our New Credit Facility. Each of these subsidiaries is wholly owned by GS&T. GS&T has no independent assets or operations.
 
Interest on the amounts drawn is payable at the rate of 0.95% per annum over LIBOR until the fifth anniversary of the closing of the New Credit Facility and 1.00% per annum over LIBOR thereafter. The Company is also obligated to pay a commitment fee equal to 0.375% per annum on any undrawn amounts available under the facility. On July 29, 2005, the Company paid an arrangement fee to the lenders of $2,700 on the original commitment of $450,000 and an additional $600 for the $100,000 commitment increase which equates to 0.6% of the total commitment of $550,000 as of July 12, 2006. These arrangement fees along with other costs have been capitalized as deferred financing costs.
 
Under the terms of the New Credit Facility, the Company is permitted to pay or declare dividends in accordance with its dividend policy so long as no default or event of default has occurred and is continuing or would result from such declaration or payment.
 
The New Credit Facility has certain financial covenants that require among other things to ensure that the fair market value of the collateral vessels maintains a certain multiple as compared to the outstanding indebtedness; maintain a certain ratio of total indebtedness to total capitalization; maintain a certain ratio of earnings before interest, taxes, depreciation and amortization to interest expense; maintain a net worth of approximately $263 million; and maintain working capital liquidity in an amount of not less than $500 per vessel securing the borrowings. Additionally there are certain non-financial covenants that require among other things to provide the lender with certain legal documentation such as the mortgage on a newly acquired vessel using funds from the New Credit Facility, and other periodic communications with the lender that include certain compliance certificates at the time of borrowing and on a quarterly basis. For the period since facility inception through September 30, 2006, the Company has been in compliance with these covenants, except for an age covenant in conjunction with the acquisition of the Genco Commander, a 1994 vessel, for which the Company obtained a waiver.
 
The New Credit Facility permits the issuance of letters of credit up to a maximum amount of $50,000. The conditions under which the letter of credit amounts can be issued are substantially the same as the conditions for borrowing funds under the facility. Each letter of credit must terminate within twelve months, but can be extended for successive periods also not exceeding twelve months. The Company pays a fee of 1/8 of 1% per annum on the amount of letters of credit outstanding. At September 30, 2006 and December 31, 2005, there were no letters of credit issued under the New Credit Facility.

 
 

16

 

The following table sets forth our maturity dates of the revolver as of September 30, 2006:
 
       
Period Ending December 31,
 
Total
 
       
2006 (October 1, 2006 - December 31, 2006)
 
$
-
 
2007
   
-
 
2008
   
-
 
2009
   
-
 
2010
   
-
 
Thereafter
   
138,808
 
         
   
$
138,808
 
 
Letter of credit
 
In conjunction with the Company entering into a new long-term office space lease (See Note 14 - Lease Payments), the Company was required to provide a letter of credit to the landlord in lieu of a security deposit. As of September 21, 2005, the Company obtained an annually renewable unsecured letter of credit with DnB NOR Bank in the amount of $650 at a fee of 1% per annum. The letter of credit is reduced to $520 on August 1, 2007 and is cancelable on each renewal date provided the landlord is given 150 days minimum notice.
 
Original Credit Facility
 
The Original Credit Facility, entered into on December 3, 2004, has been refinanced by the New Credit Facility. The Original Credit Facility had a five year maturity at a rate of LIBOR plus 1.375% per year until $100 million had been repaid and thereafter at LIBOR plus 1.250%. This facility was retired with proceeds from the initial public offering and proceeds from our New Credit Facility.
 
The Company's entry into the New Credit Facility in July 2005 resulted in a write-off to interest expense of $4,103 of unamortized deferred financing costs associated with the Original Credit Facility, in the third quarter of 2005.
 
Interest rate swap agreements
 
 Effective September 14, 2005, the Company entered into an interest rate swap agreement with DnB NOR Bank to manage interest costs and the risk associated with changing interest rates. The notional principal amount of the swap is $106,233 and has a fixed interest rate on the notional amount of 4.485% through July 29, 2015 (the “4.485% Swap”). The swap's expiration date coincides with the expiration of the New Credit Facility on July 29, 2015. The differential to be paid or received for this swap agreement is recognized as an adjustment to interest expense as incurred. The 4.485% Swap is effectively hedged against our current debt and therefore the change in value on this swap is reflected as a component of other comprehensive income (“OCI”).
 
Interest income (expense) pertaining to this interest rate swap for the three months ended September 30, 2006 and 2005 was $240 and $(36), respectively. Interest income (expense) pertaining to this interest rate swap for the nine months ended September 30, 2006 and 2005 was $385 and $(36), respectively.
 
The Company, on March 24, 2006, entered into a forward interest rate swap agreement with a notional amount of $50,000, and has a fixed interest rate on the notional amount of 5.075% from January 2, 2008 through January 2, 2013 (the “5.075% Swap”). The change in the value of this swap and the rate differential to be paid or received for this swap agreement is recognized as (expense) income from derivative instruments and is listed as a component of other (expense) income until such time the Company has obligations against which the swap is designated and is an effective hedge.

The Company, on March 29, 2006, entered into a forward interest rate swap agreement with a notional amount of $50,000 and has a fixed interest rate on the notional amount of 5.25% from January 2, 2007 through January 2, 2014 (the“5.25% Swap”). The change in the value of this swap and the rate differential to be paid or
 

 
17

 

received for this swap agreement is recognized as (expense) income from derivative instruments and is listed as a component of other (expense) income until such time the Company has obligations against which the swap is designated and is an effective hedge. Effective July 2006, the Company has designated $32,575 of the swap’s notional amount against the Company’s debt and has utilized hedge accounting whereby the change in value for the portion of the swap that is effectively hedged is recorded as a component of OCI.

For the portion of the Company debt which has been hedged and the rate differential on the swap is in effect, the total interest rate is fixed at the fixed interest rate of swap plus the applicable margin on the debt of 0.95% in the first 5 years of the New Credit Facility and 1.0% in the last five years.
 
The 5.075% Swap and the 5.25% Swap do not have any interest income or expense as the swaps are not effective until January 2, 2008 and January 2, 2007, respectively. The rate differential on the portion of the swap that has not been designated against the Company’s debt and any portion of the swap that is ineffectively hedged for these two instruments will be reflected as (expense) income from derivative instruments and is listed as a component of other (expense) income once effective. The rate differential on any portion of the swaps that effectively hedges our debt will be recognized as an adjustment to interest expense as incurred.

The asset associated with the 4.485% Swap at September 30, 2006 and December 31, 2005 is $4,158 and $2,325, respectively, and is presented as the fair value of derivatives on the balance sheet. The liability associated with the 5.075% Swap and the 5.25% Swap at September 30, 2006 and December 31, 2005 is $1,202 and $0, respectively, and is presented as the fair value of derivatives on the balance sheet. As of September 30, 2006 and December 31, 2005, the Company has accumulated OCI of $2,954 and $2,325, respectively, related to the 4.485% Swap and a portion of the 5.25% Swap that is effectively hedged. The 5.075% Swap and portion of the 5.25% Swap that has not been designated against the Company’s debt plus any portion not effectively hedged, combined, resulted in (expense) income from derivative instruments of $(2,195) and $2, respectively for the three and nine months ended September 30, 2006, due to the change in the value of these instruments.

Interest rates

The effective interest rates, including the cost associated with unused commitment fees, and the rate differential on the 4.485% Swap, for the three months ended September 30, 2006 and 2005, were 6.74% and 5.26%, respectively. The interest rates on the debt, excluding the unused commitment fess ranged from 6.14% to 6.45% and from 4.45% to 4.76% for the three months ended September 30, 2006 and 2005, respectively.

The effective interest rates, including the cost associated with unused commitment fees, and the rate differential on the 4.485% Swap, for the nine months ended September 30, 2006 and 2005, were 6.56% and 4.60%, respectively. The interest rates on the debt, excluding the unused commitment fees ranged from 5.20% to 6.45% and from 3.69% to 4.76% for the nine months ended September 30, 2006 and 2005, respectively.

8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The estimated fair values of the Company’s financial instruments are as follows:
 
   
September 30, 2006
 
December 31, 2005
 
   
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Cash
 
$
65,599
 
$
65,599
 
$
46,912
 
$
46,912
 
Floating rate debt
   
138,808
   
138,808
   
130,683
   
130,683
 
Derivative instruments - asset position
   
4,158
   
4,158
   
2,325
   
2,325
 
Derivative instruments - liability position
   
1,202
   
1,202
   
-
   
-
 
                           
 
The fair value of the revolving credit facilities are estimated based on current rates offered to the Company for similar debt of the same remaining maturities. The carrying value approximates the fair market value for the variable rate loans. The fair value of the interest rate swap (used for purposes other than trading) is the estimated
 

18

 

amount the Company would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of the swap counterparty.
 
9 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
Prepaid expenses and other current assets consist of the following:
 
   
September
30, 2006
 
December 31, 2005
 
Lubricant inventory and other stores
 
$
1,393
 
$
1,019
 
Prepaid items
   
1,556
   
809
 
Other
   
1,338
   
746
 
Total
 
$
4,287
 
$
2,574
 
 
 
10 - OTHER ASSETS, NET
 
Other assets consist of the following:
 
(i) Deferred financing costs which include fees, commissions and legal expenses associated with securing loan facilities. These costs are amortized over the life of the related debt, which is included in interest expense. In July 2005, the Company entered into the New Credit Facility, which resulted in a write-off of $4,103, in the third quarter of 2005, of unamortized deferred financing costs associated with the Original Credit Facility. The Company has incurred deferred financing costs of $3,725 on the New Credit Facility. Accumulated amortization of deferred financing costs as of September 30, 2006 and December 31, 2005 was $369 and $126, respectively.
 
(ii) Value of time charter acquired which represents the value assigned to the time charter acquired with the Genco Muse in October 2005. The value assigned to the time charter was $3,492. This intangible asset is amortized as a component of revenue over the minimum life of the time charter. The amount amortized for this intangible asset was $466 and $0, respectively for the three months ended September 30, 2006 and 2005, and $1,383 and $0, respectively for the nine months ended September 30, 2006 and 2005. At September 30, 2006 and December 31, 2005, $1,710 and $3,094, respectively, remains unamortized.
 
11 - FIXED ASSETS
 
Fixed assets consist of the following:

   
September
30, 2006
 
December 31, 2005
 
Fixed assets:
         
Vessel equipment
 
$
508
 
$
69
 
Leasehold improvements
   
1,142
   
1,146
 
Furniture and fixtures
   
210
   
96
 
Computer equipment
   
338
   
260
 
Total cost
   
2,198
   
1,571
 
Less: accumulated depreciation and amortization
   
265
   
49
 
Total
 
$
1,933
 
$
1,522
 
               

 

19

 

12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
Accounts payable and accrued expenses consist of the following:
 
   
September 30, 2006
 
December 31, 2005
 
Accounts payable
 
$
1,351
 
$
1,018
 
Accrued general and administrative
   
3,145
   
2,701
 
Accrued vessel operating expenses
   
2,213
   
2,259
 
               
Total
 
$
6,709
 
$
5,978
 
 
13 - REVENUE FROM TIME CHARTERS
 
Total revenue earned on time charters for the three months ended September 30, 2006 and 2005 was $32,642 and $31,172, respectively, and for the nine months ended September 30, 2006 and 2005 was $97,516 and $83,521, respectively. Future minimum time charter revenue, based on vessels committed to noncancelable time charter contracts as of September 30, 2006 is expected to be $30,335 for the balance of 2006 and $47,061 during 2007, assuming no off-hire time is incurred and the Genco Surprise is delivered on November 16, 2006.
 
14 - LEASE PAYMENTS
 
In September 2005, the Company entered into a 15-year lease for office space in New York, New York. The monthly rental is as follows: Free rent from September 1, 2005 to July 31, 2006, $40 per month from August 1, 2006 to August 31, 2010, $43 per month from September 1, 2010 to August 31, 2015, and $46 per month from September 1, 2015 to August 31, 2020. The Company obtained a tenant work credit of $324. 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 has a deferred rent credit at September 30, 2006 and December 31, 2005 $748 and $479, respectively. The Company has the option to extend the lease for a period of 5 years from September 1, 2020 to August 31, 2025. The rent for the renewal period will be based on prevailing market rate for the six months prior to the commencement date of the extension term.
 
Future minimum rental payments on the above lease for the next five years and thereafter are as follows: $121 for the remainder of 2006, $486 per year for 2007 through 2009, $496 for 2010 and $5,168 thereafter.
 
15 - SAVINGS PLAN
 
In August 2005, the Company established a 401(k) Plan (the “Plan”) which is available to full-time employees who meet the Plan’s eligibility requirements. This Plan is a defined contribution plan, which permits employees to make contributions up to maximum percentage and dollar limits allowable by IRS Code Sections 401(k), 402(g), 404 and 415 with the Company matching up to the first six percent of each employee’s salary on a dollar-for-dollar basis. The matching contribution vests immediately. For three months ended September 30, 2006 and 2005, the Company’s matching contribution to the Plan was $19 and $10, respectively, and for the nine months ended September 30, 2006 and 2005, the Company’s matching contribution to the Plan was $70 and $10, respectively.
 
16- STOCK AWARDS
 
On July 12, 2005, the Company’s Board of Directors approved the Genco Shipping and Trading Limited 2005 Equity Incentive Plan (the “Plan”). Under this plan the Company’s compensation committee, another designated committee of the board of directors or the board of directors, may grant a variety of stock-based incentive awards to employees, directors and consultants whom the compensation committee (or other committee or the board of directors) believes are key to the Company’s success. The compensation committee may award incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, unrestricted stock and performance shares. The aggregate number of shares of common stock available for award under the Plan is 2,000,000 shares.
 

20

 

On October 31, 2005, the Company made grants of restricted common stock under its equity incentive plan in the amount of 111,412 shares to the executive officers and employees and 7,200 shares to directors of the Company. The executive and employee grants vest ratably on each of the four anniversaries of the date of the Company’s initial public offering (July 22, 2005). On July 22, 2006, 27,853 shares of the employees’ restricted stock vested. Grants to the directors vested in full on May 18, 2006, the date of the Company’s annual shareholders’ meeting. Upon grant of the restricted stock, an amount of unearned compensation equivalent to the market value at the date of the grant, or $1,949, was recorded as a component of paid in capital in shareholders’ equity. The unamortized portion of this award at September 30, 2006 and December 31, 2005 was $782 and $1,689, respectively. Amortization of this charge, which is included in general and administrative expenses was $174 and $0, for the three months ended September 30, 2006 and 2005, respectively, and $906 and $0, for the nine months ended September 30, 2006 and 2005, respectively. The remaining expense for the years ended 2006, 2007, 2008 and 2009 will be $125, $394, $200, and $64, respectively.
 
On December 21, 2005, the Company made grants of restricted common stock under its equity incentive plan in the amount of 55,600 shares to the executive officers and employees of the Company. These grants vest ratably on each of the four anniversaries of the determined vesting date beginning with November 15, 2006. Upon grant of the restricted stock, an amount of unearned compensation equivalent to the market value at the date of the grant, or $991, was recorded as a component of paid in capital in shareholders’ equity. The unamortized portion of this award at September 30, 2006 and December 31, 2005 was $547 and $974, respectively. Amortization of this charge, which is included in general and administrative expenses was $144 and $0, for the three months ended September 30, 2006 and 2005, respectively, and $427 and $0, for the nine months ended September 30, 2006 and 2005, respectively. The remaining expense for the years ended 2006, 2007, 2008 and 2009 will be $106, $253, $134, and $54, respectively.
 
17 - LEGAL PROCEEDINGS
 
From time to time the Company may be subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the Company, its financial condition, results of operations or cash flows.
 
18 - SUBSEQUENT EVENTS
 
On October 26, 2006, the Board of Directors declared a dividend of $0.60 per share to be paid on or about November 30, 2006 to shareholders of record as of November 16, 2006.  The aggregate amount of the dividend is expected to be $15,261, which the Company anticipates will be funded from cash on hand at the time payment is to be made.

The Company took delivery of the Genco Commander, a 45,518 dwt Handysize drybulk carrier, on November 2, 2006 pursuant to the agreement with Franco Compania Naviera S.A. The total purchase price was $21,000 which a $2,100 deposit was paid in July 2006. The balance of $18,900 was funded by utilizing the New Credit Facility.

Additionally, the Company also took delivery of the Genco Acheron, a 72,495 dwt Panamax drybulk carrier, on November 7, 2006 pursuant to the aforementioned agreement with Franco Compania Naviera S.A. The total purchase price was $30,750 which a $3,075 deposit was paid in July 2006. The balance of $27,675 was also funded by utilizing the New Credit Facility.

These vessels acquisitions are consistent with the Company’s strategy of selectively expanding the number of high-quality vessels in the fleet.

 

 

21

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on management’s current expectations and observations. Included among the factors that, in our view, could cause actual results to differ materially from the forward looking statements contained in this report are the following: (i) changes in demand or rates in the drybulk shipping industry; (ii) changes in the supply of or demand for drybulk products, generally or in particular regions; (iii) changes in the supply of drybulk carriers including new building of vessels or lower than anticipated scrapping of older vessels; (iv) changes in rules and regulations applicable to the cargo industry, including, without limitation, legislation adopted by international organizations or by individual countries and actions taken by regulatory authorities; (v) increases in costs and expenses including but not limited to: crew wages, insurance, provisions, repairs, maintenance and general and administrative expenses; (vi) the adequacy of our insurance arrangements; (vii) changes in general domestic and international political conditions; (viii) changes in the condition of the Company’s vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs) and unanticipated drydock expenditures; (ix) the Company’s acquisition or disposition of vessels; (x) the fulfillment of the closing conditions under the Company’s agreement to acquire the remaining drybulk vessel; and other factors listed from time to time in our public filings with the Securities and Exchange Commission including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2005 and subsequent reports on Form 10-Q and Form 8-K. Our ability to pay dividends in any period will depend upon factors including the limitations under our loan agreements, applicable provisions of Marshall Islands law and the final determination by the Board of Directors each quarter after its review of our financial performance. The timing and amount of dividends, if any, could also be affected by factors affecting cash flows, results of operations, required capital expenditures, or reserves. As a result, the amount of dividends actually paid may vary.
 
The following management’s discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included in this 10-Q.
 
General
 
We are a Marshall Islands company incorporated in September 2004 to transport iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes through the ownership and operation of drybulk carrier vessels. As of September 30, 2006, our fleet consisted of five Panamax, seven Handymax and five Handysize drybulk carriers, with an aggregate carrying capacity of approximately 839,000 dwt. The average age of our fleet was approximately 9 years as of September 30, 2006 as compared to the average age for the world fleet of approximately 15 years for the drybulk shipping segments in which we compete. All of the vessels in our fleet are on time charters to reputable charterers, including Lauritzen Bulkers, Cargill, HMMC, BHP, DS Norden, EDF Man Shipping, and NYK Europe or operate in the Baumarine Panamax pool. With the exception of the Genco Leader and the Genco Trader, our vessels are fixed on long-term time charters with original terms greater than one year that expire (assuming the option periods in the time charters are not exercised and the Genco Surprise is delivered in November 2006) between December 2006 and November 2007.
 
 

 

 

22

 

Each vessel in our fleet was delivered to us on the date specified in the following chart:
 
       
Vessel Acquired
Date Delivered
Class
Year Built
       
Genco Reliance
12/6/04
Handysize
1999
Genco Glory
12/8/04
Handymax
1984
Genco Vigour
12/15/04
Panamax
1999
Genco Explorer
12/17/04
Handysize
1999
Genco Carrier
12/28/04
Handymax
1998
Genco Sugar
12/30/04
Handysize
1998
Genco Pioneer
1/4/05
Handysize
1999
Genco Progress
1/12/05
Handysize
1999
Genco Wisdom
1/13/05
Handymax
1997
Genco Success
1/31/05
Handymax
1997
Genco Beauty
2/7/05
Panamax
1999
Genco Knight
2/16/05
Panamax
1999
Genco Leader
2/16/05
Panamax
1999
Genco Marine
3/29/05
Handymax
1996
Genco Prosperity
4/4/05
Handymax
1997
Genco Trader
6/7/05
Panamax
1990
Genco Muse
10/14/05
Handymax
2001
Genco Commander
11/2/06
Handymax
1994
Genco Acheron
11/7/06
Panamax
1999
       

On July 10, 2006, the Company entered into an agreement with affiliates of Franco Compania Naviera S.A. under which the Company is to purchase three drybulk vessels, two of which were delivered in November 2006 and the third of which is expected to be delivered on or about November 16, 2006. The acquisition is subject to customary closing conditions. The acquisition consists of a 1999 Japanese-built Panamax vessel to be named the Genco Acheron, a 1998 Japanese-built Panamax vessel to be named the Genco Surprise, and a 1994 Japanese-built Handymax vessel to be named the Genco Commander. With the addition of these vessels, Genco's fleet will consist of seven Panamax, eight Handymax, and five Handysize drybulk carriers, with a total carrying capacity of approximately 1,029,000 dwt and an average fleet age of nine years.
 
We intend to grow our fleet through timely and selective acquisitions of vessels in a manner that is accretive to our cash flow. In connection with this growth strategy, we negotiated an increase in the New Credit Facility to $550 million.
 
Our management team and our other employees are responsible for the commercial and strategic management of our fleet. Commercial management includes the negotiation of charters for vessels, managing the mix of various types of charters, such as time charters and voyage charters, and monitoring the performance of our vessels under their charters. Strategic management includes locating, purchasing, financing and selling vessels. As of September 30, 2006, we contract with Wallem Shipmanagement, Anglo-Eastern Group and Barber International Ltd., which are independent technical managers that provide technical management of our fleet at a lower cost than we believe would be possible in-house. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. Members of our New York City-based management team oversee the activities of our independent technical managers.
 
Factors Affecting Our Results of Operations
 
We believe that the following table reflects important measures for analyzing trends in our results of operations. The table reflects our ownership days, available days, operating days, fleet utilization, TCE rates and daily vessel operating expenses for the three and nine months ended September 30, 2006 and 2005. Because
 

23

 

predominately all of our vessels have operated on time charters, our TCE rates equal our time charter rates less voyage expenses consisting primarily of brokerage commissions paid by us to parties.
 

   
For the three months ended September 30,
 
Increase
     
   
2006
 
2005
 
(Decrease)
 
% Change
 
  Fleet Data:
                 
  Ownership days (1)
                 
Panamax
   
460.0
   
460.0
   
0.0
   
0.0
%
Handymax
   
644.0
   
552.0
   
92.0
   
16.7
%
Handysize
   
460.0
   
460.0
   
0.0
   
0.0
%
Total
   
1,564.0
   
1,472.0
   
92.0
   
6.3
%
                           
Available days (2)
                         
Panamax
   
459.7
   
460.0
   
(0.3
)
 
(0.1
%)
Handymax
   
629.6
   
552.0
   
77.6
   
14.1
%
Handysize
   
460.0
   
460.0
   
0.0
   
0.0
%
Total
   
1,549.3
   
1,472.0
   
77.3
   
5.3
%
                           
Operating days (3)
                         
Panamax
   
452.7
   
457.7
   
(5.0
)
 
(1.1
%)
Handymax
   
623.5
   
551.3
   
72.2
   
13.1
%
Handysize
   
458.7
   
451.2
   
7.5
   
1.7
%
Total
   
1,534.9
   
1,460.2
   
74.7
   
5.1
%
                           
Fleet utilization (4)
                         
Panamax
   
98.5
%
 
99.5
%
 
(1.0
%)
 
(1.0
%)
Handymax
   
99.0
%
 
99.9
%
 
(0.9
%)
 
(0.9
%)
Handysize
   
99.7
%
 
98.1
%
 
1.6
%
 
1.6
%
Fleet average
   
99.1
%
 
99.2
%
 
(0.1
%)
 
(0.1
%)
                           

   
For the three months ended September 30,
 
Increase
     
   
2006
 
2005
 
(Decrease)
 
% Change
 
   
(U.S. dollars)
         
  Average Daily Results:
                 
  Time Charter Equivalent (5)
                 
Panamax
 
$
24,111
 
$
22,937
 
$
1,174
   
5.1
%
Handymax
   
20,951
   
21,301
   
(350
)
 
(1.6
%)
Handysize
   
15,893
   
16,803
   
(910
)
 
(5.4
%)
    Fleet average
   
20,387
   
20,407
   
(20
)
 
(0.1
%)
                           
  Daily vessel operating expenses (6)
                         
Panamax
 
$
3,820
 
$
2,779
 
$
1,041
   
37.5
%
Handymax
   
3,770
   
2,603
   
1,167
   
44.8
%
Handysize
   
3,418
   
2,398
   
1,020
   
42.5
%
Fleet average
   
3,681
   
2,594
   
1,087
   
41.9
%

 
24

 
 

   
For the nine months ended September 30,
 
Increase
     
   
2006
 
2005
 
(Decrease)
 
% Change
 
  Fleet Data:
                 
  Ownership days (1)
                 
Panamax
   
1,365.0
   
1,078.6
   
286.4
   
26.6
%
Handymax
   
1,911.0
   
1,415.7
   
495.3
   
35.0
%
Handysize
   
1,365.0
   
1,350.9
   
14.1
   
1.0
%
Total
   
4,641.0
   
3,845.2
   
795.8
   
20.7
%
                           
  Available days (2)
                         
Panamax
   
1,355.8
   
1,073.2
   
282.6
   
26.3
%
Handymax
   
1,887.6
   
1,412.4
   
475.2
   
33.6
%
Handysize
   
1,365.0
   
1,350.0
   
15.0
   
1.1
%
Total
   
4,608.4
   
3,835.7
   
772.7
   
20.1
%
                           
  Operating days (3)
                         
Panamax
   
1,344.0
   
1,063.8
   
280.2
   
26.3
%
Handymax
   
1,864.5
   
1,401.9
   
462.6
   
33.0
%
Handysize
   
1,363.0
   
1,338.6
   
24.4
   
1.8
%
Total
   
4,571.4
   
3,804.3
   
767.1
   
20.2
%
                           
  Fleet utilization (4)
                         
Panamax
   
99.1
%
 
99.1
%
 
0.0
%
 
0.0
%
Handymax
   
98.8
%
 
99.3
%
 
(0.5
%)
 
(0.5
%)
Handysize
   
99.9
%
 
99.2
%
 
0.7
%
 
0.7
%
Fleet average
   
99.2
%
 
99.2
%
 
0.0
%
 
0.0
%
                           

   
For the nine months ended September 30,
 
Increase
     
   
2006
 
2005
 
(Decrease)
 
% Change
 
   
(U.S. dollars)
         
  Average Daily Results:
                 
  Time Charter Equivalent (5)
                 
Panamax
 
$
23,492
 
$
25,684
   
($2,192
)
 
(8.5
%)
Handymax
   
21,050
   
21,261
   
(211
)
 
(1.0
%)
Handysize
   
16,639
   
16,951
   
(312
)
 
(1.8
%)
    Fleet average
   
20,462
   
20,981
   
(519
)
 
(2.5
%)
                           
  Daily vessel operating expenses (6)
                         
Panamax
 
$
3,437
 
$
2,643
 
$
794
   
30.0
%
Handymax
   
3,243
   
2,409
   
834
   
34.6
%
Handysize
   
3,028
   
2,213
   
815
   
36.8
%
Fleet average
   
3,237
   
2,406
   
831
   
34.5
%


25

 
Definitions
 
In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that influence our results of operations.
 
(1) Ownership days. We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
 
(2) Available days. We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be capable of generating revenues.
 
(3) Operating days. We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.
 
(4) Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning.
 
(5) TCE rates. We define TCE rates as our revenues (net of voyage expenses) divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not expressed in per-day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
 
   
For the three months ended
September 30,
 
For the nine months ended
September 30,
 
   
2006
 
2005
 
2006
 
2005
 
   
(U.S. dollars in thousands)
 
Voyage revenues
 
$
32,642
 
$
31,172
 
$
97,516
 
$
83,521
 
Voyage expenses
   
1,056
   
1,134
   
3,220
   
3,044
 
Net voyage revenue
 
$
31,586
 
$
30,038
 
$
94,296
 
$
80,477
 
                           

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

26

 

 
Operating Data
 
   
For the three months ended September 30,
 
Increase
     
   
2006
 
2005
 
(Decrease)
 
% Change
 
   
(U.S. dollars in thousands, except for per share amounts)
     
                   
Revenues
 
$
32,642
 
$
31,172
 
$
1,470
   
4.7
%
                           
Operating Expenses:
                         
Voyage expenses
   
1,056
   
1,134
   
(78
)
 
(6.9
%)
Vessel operating expenses
   
5,757
   
3,818
   
1,939
   
50.8
%
General and administrative expenses
   
2,055
   
1,222
   
833
   
68.2
%
Management fees
   
353
   
326
   
27
   
8.3
%
Depreciation and amortization
   
6,681
   
6,116
   
565
   
9.2
%
                           
Total operating expenses
   
15,902
   
12,616
   
3,286
   
26.0
%
                           
Operating income
   
16,740
   
18,556
   
(1,816
)
 
(9.8
%)
Other (expense) income
   
(3,836
)
 
(6,216
)
 
2,380
   
38.3
%
                           
Net income
 
$
12,904
 
$
12,340
   
564
   
4.6
%
                           
Earnings per share - Basic
 
$
0.51
 
$
0.55
   
($0.04
)
 
(7.3
%)
Earnings per share - Diluted
 
$
0.51
 
$
0.55
   
($0.04
)
 
(7.3
%)
Dividends declared per share 
 
$
0.60
 
$
0.60
   
-
   
-
 
Dividends paid per share 
 
$
0.60
   
-
 
$
0.60
   
N/A
 
Weighted average common shares outstanding - Basic
   
25,288,695
   
22,575,652
   
2,713,043
   
12.0
%
Weighted average common shares outstanding - Diluted
   
25,371,882
   
22,575,652
   
2,796,230
   
12.4
%
                           
EBITDA (1)
 
$
22,010
 
$
24,672
 
$
(2,662
)
 
(10.8
%)
                           
 



27

 
 

   
For the nine months ended September 30,
 
Increase
     
   
2006
 
2005
 
(Decrease)
 
% Change
 
   
(U.S. dollars in thousands, except for per share amounts)
     
                   
Revenues
 
$
97,516
 
$
83,521
 
$
13,995
   
16.8
%
                           
Operating Expenses:
                         
Voyage expenses
   
3,220
   
3,044
   
176
   
5.8
%
Vessel operating expenses
   
15,022
   
9,250
   
5,772
   
62.4
%
General and administrative expenses
   
6,808
   
2,415
   
4,393
   
181.9
%
Management fees
   
1,047
   
1,135
   
(88
)
 
(7.8
%)
Depreciation and amortization
   
19,638
   
15,767
   
3,871
   
24.6
%
                           
Total operating expenses
   
45,735
   
31,611
   
14,124
   
44.7
%
                           
Operating income
   
51,781
   
51,910
   
(129
)
 
(0.2
%)
Other (expense) income
   
(4,777
)
 
(12,568
)
 
7,791
   
(62.0
%)
                           
Net income
 
$
47,004
 
$
39,342
   
7,662
   
19.5
%
                           
Earnings per share - Basic
 
$
1.86
 
$
2.38
   
($0.52
)
 
(21.8
%)
Earnings per share - Diluted
 
$
1.86
 
$
2.38
   
($0.52
)
 
(21.8
%)
Dividends declared per share 
 
$
1.80
 
$
0.60
 
$
1.20
   
N/A
 
Dividends paid per share 
 
$
1.80
   
-
 
$
1.80
   
N/A
 
Weighted average common shares outstanding - Basic
   
25,270,831
   
16,558,462
   
8,712,369
   
52.6
%
Weighted average common shares outstanding - Diluted
   
25,338,031
   
16,558,462
   
8,779,569
   
53.0
%
                           
EBITDA (1)
 
$
74,138
 
$
67,677
 
$
6,461
   
9.5
%
                           


 
(1)
EBITDA represents net income plus net interest expense, income tax expense, depreciation and amortization, plus amortization of restricted stock compensation, and amortization of the value of time charter acquired, which is included as a component of other long-term assets. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common performance measure to compare results across peers. Our management uses EBITDA as a performance measure in consolidating internal financial statements and it is presented for review at our board meetings. For these reasons, we believe that EBITDA is a useful measure to present to our investors. EBITDA is not an item recognized by U.S. GAAP and should not be considered as an alternative to net income, operating income or any other indicator of a company’s operating performance required by U.S. GAAP. EBITDA is not a source of liquidity or cash flows as shown in our consolidated statement of cash flows. The definition of EBITDA used here may not be comparable to that used by other companies.
 

28

 
 
 
   
For the three months ended September 30,
 
For the nine months ended September 30,
 
 
 
2006
 
2005
 
2006
 
2005
 
   
(U.S. dollars in thousands except for per share amounts)
 
                   
Net income
 
 
$  12,904
 
 
$  12,340
 
 
$  47,004
 
 
$  39,342
 
Net interest expense
   
1,641
   
6,216
   
4,779
   
12,568
 
Income tax expense
   
   
   
   
 
Amortization of value of time charter acquired (1)
   
4