Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2010

 

OR

 

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

 

For the transition period from                                       to

 

Commission file number 000-51442

 

 

GENCO SHIPPING & TRADING LIMITED

(Exact name of registrant as specified in its charter)

 

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

 

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

 

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

(Address of principal executive offices) (Zip Code)

 

(646) 443-8550

(Registrant’s telephone number, including area code)

 

 

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

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 9, 2010: Common stock, $0.01 per share — 35,526,548 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 September 30, 2010 and December 31, 2009

3

 

 

 

 

 

b)

Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2010 and 2009

4

 

 

 

 

 

c)

Condensed Consolidated Statements of Equity for the Nine Months ended September 30, 2010 and 2009

5

 

 

 

 

 

d)

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months ended September 30, 2010 and 2009

6

 

 

 

 

 

e)

Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2010 and 2009

7

 

 

 

 

 

f)

Notes to Condensed Consolidated Financial Statements for the Three and Nine Months ended September 30, 2010 and 2009

8

 

 

 

Item 2.

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

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

 

 

 

Item 4.

Controls and Procedures

51

 

 

 

PART II —OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

51

 

 

 

Item 6.

Exhibits

52

 

2


Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009

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

(Unaudited)

 

 

 

September 30,
2010

 

December 31,
2009

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

264,867

 

$

188,267

 

Restricted cash

 

12,000

 

17,500

 

Due from charterers, net of a reserve of $319 and $171, respectively

 

5,595

 

2,117

 

Prepaid expenses and other current assets

 

15,174

 

10,184

 

Deposits on vessels to be sold

 

6,930

 

—

 

Total current assets

 

304,566

 

218,068

 

 

 

 

 

 

 

Noncurrent assets:

 

 

 

 

 

Vessels, net of accumulated depreciation of $301,931 and $224,706, respectively

 

2,706,281

 

2,023,506

 

Deposits on vessels

 

31,576

 

—

 

Deferred drydock, net of accumulated depreciation of $7,173 and $4,384, respectively

 

9,921

 

10,153

 

Other assets, net of accumulated amortization of $3,776 and $2,585, respectively

 

16,176

 

8,328

 

Fixed assets, net of accumulated depreciation and amortization of $1,911 and $1,554, respectively

 

2,381

 

2,458

 

Restricted cash

 

9,000

 

—

 

Fair value of derivative instruments

 

—

 

2,108

 

Investments

 

63,653

 

72,181

 

Total noncurrent assets

 

2,838,988

 

2,118,734

 

 

 

 

 

 

 

Total assets

 

$

3,143,554

 

$

2,336,802

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

32,271

 

$

18,609

 

Current portion of long-term debt

 

79,322

 

50,000

 

Fair value of derivative instruments

 

432

 

—

 

Deferred revenue

 

11,309

 

10,404

 

Total current liabilities

 

123,334

 

79,013

 

 

 

 

 

 

 

Noncurrent liabilities:

 

 

 

 

 

Deferred revenue

 

1,004

 

2,427

 

Deferred rent credit

 

670

 

687

 

Time charters acquired

 

2,864

 

4,611

 

Fair value of derivative instruments

 

53,931

 

44,139

 

Convertible senior note payable

 

101,395

 

—

 

Long-term debt

 

1,551,152

 

1,277,000

 

Total noncurrent liabilities

 

1,711,016

 

1,328,864

 

 

 

 

 

 

 

Total liabilities

 

1,834,350

 

1,407,877

 

 

 

 

 

 

 

Commitments and contingencies

 

—

 

—

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Genco Shipping & Trading Limited shareholders’ equity:

 

 

 

 

 

Common stock, par value $0.01; 100,000,000 shares authorized; issued and outstanding 35,526,548 and 31,842,798 shares at September 30, 2010 and December 31, 2009, respectively

 

355

 

318

 

Additional Paid-in capital

 

802,729

 

722,198

 

Accumulated other comprehensive (deficit) income

 

(7,312

)

13,589

 

Retained earnings

 

299,234

 

192,820

 

Total Genco Shipping & Trading Limited shareholders’ equity

 

1,095,006

 

928,925

 

Noncontrolling interest

 

214,198

 

—

 

Total equity

 

1,309,204

 

928,925

 

 

 

 

 

 

 

Total liabilities and equity

 

$

3,143,554

 

$

2,336,802

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009

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

(Unaudited)

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Voyage revenues

 

$

117,558

 

$

92,949

 

$

317,576

 

$

283,301

 

Service revenues

 

462

 

—

 

462

 

—

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

118,020

 

92,949

 

318,038

 

283,301

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Voyage expenses

 

1,447

 

1,002

 

3,202

 

3,866

 

Vessel operating expenses

 

21,425

 

14,766

 

52,472

 

42,235

 

General, administrative, and management fees

 

7,316

 

4,660

 

20,276

 

14,395

 

Depreciation and amortization

 

29,998

 

22,297

 

81,091

 

64,179

 

Other operating income

 

—

 

—

 

(206

)

—

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

60,186

 

42,725

 

156,835

 

124,675

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

57,834

 

50,224

 

161,203

 

158,626

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

Other expense

 

(79

)

(15

)

(54

)

(298

)

Interest income

 

189

 

104

 

513

 

169

 

Interest expense

 

(19,372

)

(16,042

)

(50,613

)

(45,366

)

 

 

 

 

 

 

 

 

 

 

Other expense, net

 

(19,262

)

(15,953

)

(50,154

)

(45,495

)

 

 

 

 

 

 

 

 

 

 

Net income before income taxes

 

38,572

 

34,271

 

111,049

 

113,131

 

Income tax expense

 

(467

)

—

 

(1,186

)

—

 

 

 

 

 

 

 

 

 

 

 

Net income

 

38,105

 

34,271

 

109,863

 

113,131

 

Less: Net income attributable to noncontrolling interest

 

1,878

 

—

 

3,428

 

—

 

Net income attributable to Genco Shipping & Trading Limited

 

$

36,227

 

$

34,271

 

$

106,435

 

$

113,131

 

 

 

 

 

 

 

 

 

 

 

Earnings per share-basic

 

$

1.07

 

$

1.10

 

$

3.30

 

$

3.62

 

Earnings per share-diluted

 

$

0.99

 

$

1.09

 

$

3.19

 

$

3.60

 

Weighted average common shares outstanding-basic

 

33,998,923

 

31,295,916

 

32,279,671

 

31,275,061

 

Weighted average common shares outstanding-diluted

 

38,718,886

 

31,473,369

 

33,965,335

 

31,420,304

 

Dividends declared per share

 

$

—

 

$

—

 

$

—

 

$

—

 

 

See accompanying notes to condensed consolidated financial statements

 

4


Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Equity

For the Nine Months Ended September 30, 2010 and 2009

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
(Deficit)
Income

 

Genco
Shipping &
Trading
Limited
Shareholders’
Equity

 

Noncontrolling
Interest

 

Total Equity

 

Balance — January 1, 2010

 

$

318

 

$

722,198

 

$

192,820

 

$

13,589

 

$

928,925

 

$

—

 

$

928,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

106,435

 

 

 

106,435

 

3,428

 

109,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on investments

 

 

 

 

 

 

 

(6,342

)

(6,342

)

—

 

(6,342

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in currency translation gain on investments

 

 

 

 

 

 

 

(2,185

)

(2,185

)

—

 

(2,185

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges, net

 

 

 

 

 

 

 

(12,374

)

(12,374

)

—

 

(12,374

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 90,000 shares of nonvested stock

 

1

 

(1

)

 

 

 

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 3,593,750 shares of common stock

 

36

 

54,846

 

 

 

 

 

54,882

 

—

 

54,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of convertible senior notes

 

 

 

23,409

 

 

 

 

 

23,409

 

—

 

23,409

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

3,331

 

 

 

 

 

3,331

 

1,986

 

5,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid by Baltic Trading Limited

 

 

 

 

 

(21

)

 

 

(21

)

(2,665

)

(2,686

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock of Baltic Trading Limited

 

 

 

(1,054

)

 

 

 

 

(1,054

)

211,449

 

210,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — September 30, 2010

 

$

355

 

$

802,729

 

$

299,234

 

$

(7,312

)

$

1,095,006

 

$

214,198

 

$

1,309,204

 

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Deficit

 

Genco
Shipping &
Trading
Limited
Shareholders’
Equity

 

Noncontrolling
Interest

 

Total Equity

 

Balance — January 1, 2009

 

$

317

 

$

717,979

 

$

44,196

 

$

(66,014

)

$

696,478

 

$

—

 

$

696,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

113,131

 

 

 

113,131

 

 

 

113,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on investments

 

 

 

 

 

 

 

24,102

 

24,102

 

 

 

24,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in currency translation gain on investments

 

 

 

 

 

 

 

8,364

 

8,364

 

 

 

8,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on cash flow hedges, net

 

 

 

 

 

 

 

16,630

 

16,630

 

 

 

16,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 15,000 shares of nonvested stock

 

—

 

—

 

 

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested stock amortization

 

 

 

3,355

 

 

 

 

 

3,355

 

 

 

3,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — September 30, 2009

 

$

317

 

$

721,334

 

$

157,327

 

$

(16,918

)

$

862,060

 

$

—

 

$

862,060

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended September 30, 2010 and 2009

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

38,105

 

$

34,271

 

$

109,863

 

$

113,131

 

Change in unrealized gain on investments

 

3,994

 

8,105

 

(6,342

)

24,102

 

Change in currency translation gain on investments

 

6,380

 

5,701

 

(2,185

)

8,364

 

Unrealized (loss) gain on cash flow hedges, net

 

(3,585

)

(5,274

)

(12,374

)

16,630

 

Comprehensive income

 

44,894

 

42,803

 

88,962

 

162,227

 

Less: Comprehensive income attributable to noncontrolling interests

 

1,878

 

—

 

3,428

 

—

 

Comprehensive income attributable to Genco Shipping & Trading Limited

 

$

43,016

 

$

42,803

 

$

85,534

 

$

162,227

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


Table of Contents

 

Genco Shipping & Trading Limited

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009

(U.S. Dollars in Thousands)

(Unaudited)

 

 

 

For the Nine Months
Ended September 30,

 

 

 

2010

 

2009

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

109,863

 

$

113,131

 

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

 

 

 

 

 

Depreciation and amortization

 

81,091

 

64,179

 

Amortization of deferred financing costs

 

1,191

 

767

 

Amortization of time charterers acquired

 

(3,893

)

(14,282

)

Amortization of discount on Convertible Senior Notes

 

671

 

—

 

Unrealized (gain) loss on derivative instruments

 

(41

)

275

 

Amortization of nonvested stock compensation expense

 

5,317

 

3,355

 

Change in assets and liabilities:

 

 

 

 

 

(Increase) decrease in due from charterers

 

(3,478

)

884

 

Increase in prepaid expenses and other current assets

 

(4,980

)

(1,683

)

Increase in accounts payable and accrued expenses

 

7,742

 

3,760

 

Decrease in deferred revenue

 

(518

)

(154

)

Decrease in deferred rent credit

 

(17

)

(14

)

Deferred drydock costs incurred

 

(3,220

)

(3,938

)

 

 

 

 

 

 

Net cash provided by operating activities

 

189,728

 

166,280

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of vessels

 

(789,535

)

(191,541

)

Deposits on vessels

 

(31,492

)

(908

)

Deposits on vessels to be sold

 

(6,930

)

—

 

Proceeds from sale of vessel

 

36,562

 

—

 

Changes in deposits of restricted cash

 

(3,500

)

(17,000

)

Purchase of other fixed assets

 

(353

)

(678

)

 

 

 

 

 

 

Net cash used in investing activities

 

(795,248

)

(210,127

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the 2007 Credit Facility

 

—

 

166,200

 

Repayments on the 2007 Credit Facility

 

(37,500

)

—

 

Proceeds from the $100 Million Term Loan Facility

 

40,000

 

—

 

Repayments on the $100 Million Term Loan Facility

 

(351

)

—

 

Proceeds from the $253 Million Term Loan Facility

 

231,500

 

—

 

Proceeds from the 2010 Baltic Trading Credit Facility

 

69,825

 

—

 

Proceeds from issuance of common stock

 

55,200

 

—

 

Payment of common stock issuance costs

 

(91

)

—

 

Proceeds from issuance of Convertible Senior Notes

 

125,000

 

—

 

Payment of Convertible Senior Notes issuance costs

 

(771

)

—

 

Proceeds from issuance of common stock by subsidiary

 

214,508

 

—

 

Payments of subsidiary common stock issuance costs

 

(3,722

)

—

 

Payment of dividend by subsidiary

 

(2,686

)

—

 

Payment of deferred financing costs

 

(8,792

)

(3,552

)

 

 

 

 

 

 

Net cash provided by financing activities

 

682,120

 

162,648

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

76,600

 

118,801

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

188,267

 

124,956

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

264,867

 

$

243,757

 

 

See accompanying notes to condensed consolidated financial statements.

 

7


Table of Contents

 

Genco Shipping & Trading Limited

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

 

Notes to Condensed Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)

 

1 - GENERAL INFORMATION

 

The accompanying condensed consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”), its wholly owned subsidiaries, and its subsidiary, Baltic Trading Limited (collectively, the “Company”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T was incorporated on September 27, 2004 under the laws of the Marshall Islands and as of September 30, 2010 is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco Management (USA) Limited; and the ship-owning subsidiaries as set forth below.

 

Below is the list of GS&T’s wholly owned ship-owning subsidiaries as of September 30, 2010:

 

Wholly Owned Subsidiaries

 

Vessels Acquired

 

Dwt

 

Date Delivered

 

Year Built

 

 

 

 

 

 

 

 

 

Genco Reliance Limited

 

Genco Reliance

 

29,952

 

12/6/04

 

1999

Genco Vigour Limited

 

Genco Vigour

 

73,941

 

12/15/04

 

1999

Genco Explorer Limited

 

Genco Explorer

 

29,952

 

12/17/04

 

1999

Genco Carrier Limited

 

Genco Carrier

 

47,180

 

12/28/04

 

1998

Genco Sugar Limited

 

Genco Sugar

 

29,952

 

12/30/04

 

1998

Genco Pioneer Limited

 

Genco Pioneer

 

29,952

 

1/4/05

 

1999

Genco Progress Limited

 

Genco Progress

 

29,952

 

1/12/05

 

1999

Genco Wisdom Limited

 

Genco Wisdom

 

47,180

 

1/13/05

 

1997

Genco Success Limited

 

Genco Success

 

47,186

 

1/31/05

 

1997

Genco Beauty Limited

 

Genco Beauty

 

73,941

 

2/7/05

 

1999

Genco Knight Limited

 

Genco Knight

 

73,941

 

2/16/05

 

1999

Genco Leader Limited

 

Genco Leader

 

73,941

 

2/16/05

 

1999

Genco Marine Limited

 

Genco Marine

 

45,222

 

3/29/05

 

1996

Genco Prosperity Limited

 

Genco Prosperity

 

47,180

 

4/4/05

 

1997

Genco Muse Limited

 

Genco Muse

 

48,913

 

10/14/05

 

2001

Genco Acheron Limited

 

Genco Acheron

 

72,495

 

11/7/06

 

1999

Genco Surprise Limited

 

Genco Surprise

 

72,495

 

11/17/06

 

1998

Genco Augustus Limited

 

Genco Augustus

 

180,151

 

8/17/07

 

2007

Genco Tiberius Limited

 

Genco Tiberius

 

175,874

 

8/28/07

 

2007

Genco London Limited

 

Genco London

 

177,833

 

9/28/07

 

2007

Genco Titus Limited

 

Genco Titus

 

177,729

 

11/15/07

 

2007

Genco Challenger Limited

 

Genco Challenger

 

28,428

 

12/14/07

 

2003

Genco Charger Limited

 

Genco Charger

 

28,398

 

12/14/07

 

2005

Genco Warrior Limited

 

Genco Warrior

 

55,435

 

12/17/07

 

2005

Genco Predator Limited

 

Genco Predator

 

55,407

 

12/20/07

 

2005

Genco Hunter Limited

 

Genco Hunter

 

58,729

 

12/20/07

 

2007

Genco Champion Limited

 

Genco Champion

 

28,445

 

1/2/08

 

2006

Genco Constantine Limited

 

Genco Constantine

 

180,183

 

2/21/08

 

2008

Genco Raptor LLC

 

Genco Raptor

 

76,499

 

6/23/08

 

2007

Genco Cavalier LLC

 

Genco Cavalier

 

53,617

 

7/17/08

 

2007

Genco Thunder LLC

 

Genco Thunder

 

76,588

 

9/25/08

 

2007

Genco Hadrian Limited

 

Genco Hadrian

 

169,694

 

12/29/08

 

2008

Genco Commodus Limited

 

Genco Commodus

 

169,025

 

7/22/09

 

2009

Genco Maximus Limited

 

Genco Maximus

 

169,025

 

9/18/09

 

2009

Genco Claudius Limited

 

Genco Claudius

 

169,025

 

12/30/09

 

2010 (1)

Genco Bay Limited

 

Genco Bay

 

34,296

 

8/24/10

 

2010

Genco Ocean Limited

 

Genco Ocean

 

34,409

 

7/26/10

 

2010

Genco Avra Limited

 

Genco Avra

 

35,000

 

Q1 2011 (2)

 

2011 (3)

Genco Mare Limited

 

Genco Mare

 

35,000

 

Q2 2011 (2)

 

2011 (3)

Genco Spirit Limited

 

Genco Spirit

 

35,000

 

Q3 2011 (2)

 

2011 (3)

Genco Aquitaine Limited

 

Genco Aquitaine

 

57,981

 

8/18/10

 

2009

Genco Ardennes Limited

 

Genco Ardennes

 

57,981

 

8/31/10

 

2009

Genco Auvergne Limited

 

Genco Auvergne

 

57,981

 

8/16/10

 

2009

Genco Bourgogne Limited

 

Genco Bourgogne

 

57,981

 

8/24/10

 

2010

Genco Brittany Limited

 

Genco Brittany

 

57,981

 

9/23/10

 

2010

Genco Languedoc Limited

 

Genco Languedoc

 

57,981

 

9/29/10

 

2010

Genco Loire Limited

 

Genco Loire

 

53,416

 

8/4/10

 

2009

Genco Lorraine Limited

 

Genco Lorraine

 

53,416

 

7/29/10

 

2009

Genco Normandy Limited

 

Genco Normandy

 

53,596

 

8/10/10

 

2007

Genco Picardy Limited

 

Genco Picardy

 

55,257

 

8/16/10

 

2005

Genco Provence Limited

 

Genco Provence

 

55,317

 

8/23/10

 

2004

Genco Pyrenees Limited

 

Genco Pyrenees

 

57,981

 

8/10/10

 

2010

Genco Rhone Limited

 

Genco Rhone

 

57,981

 

Q1 2011 (2)

 

2011 (3)

 

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Table of Contents

 

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

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

(3) Built dates for vessels delivering in the future are estimates based on guidance received from the sellers and respective shipyards.

 

Baltic Trading Limited (“Baltic Trading”), formerly a wholly-owned indirect subsidiary of GS&T at December 31, 2009, completed its initial public offering, or IPO, on March 15, 2010.  As of September 30, 2010, GS&T’s wholly-owned subsidiary Genco Investments LLC owned 5,699,088 shares of Baltic Trading’s Class B Stock, which represented a 25.35% ownership interest in Baltic Trading and 83.59% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock.  Additionally, pursuant to the subscription agreement between Genco Investments LLC and Baltic Trading, for so long as GS&T directly or indirectly holds at least 10% of the aggregate number of outstanding shares of Baltic Trading’s common stock and Class B stock, Genco Investments LLC will be entitled to receive an additional number of shares of Baltic Trading’s Class B stock equal to 2% of the number of common shares issued in the future, other than shares issued under Baltic Trading’s 2010 Equity Incentive Plan.

 

Below is the list of Baltic Trading’s wholly owned ship-owning subsidiaries as of September 30, 2010:

 

Baltic Trading’s Wholly Owned
Subsidiaries

 

Vessel

 

Dwt

 

Date Delivered

 

Year
Built

 

 

 

 

 

 

 

 

 

Baltic Leopard Limited

 

Baltic Leopard

 

53,447

 

4/8/10

 

2009

Baltic Panther Limited

 

Baltic Panther

 

53,351

 

4/29/10

 

2009

Baltic Cougar Limited

 

Baltic Cougar

 

53,432

 

5/28/10

 

2009

Baltic Jaguar Limited

 

Baltic Jaguar

 

53,474

 

5/14/10

 

2009

Baltic Bear Limited

 

Baltic Bear

 

177,717

 

5/14/10

 

2010

Baltic Wolf Limited

 

Baltic Wolf

 

177,752

 

10/14/10

 

2010

Baltic Wind Limited

 

Baltic Wind

 

34,409

 

8/4/10

 

2009

Baltic Cove Limited

 

Baltic Cove

 

34,403

 

8/23/10

 

2010

Baltic Breeze Limited

 

Baltic Breeze

 

34,386

 

10/12/10

 

2010

 

The Company provides technical services for drybulk vessels purchased by Maritime Equity Partners (“MEP”), which is managed by an affiliate of Peter C. Georgiopoulos, Chairman of the Board of Directors.  These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation.  They do not include chartering services.  The services are provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs and will be provided for an initial term of one year.  MEP has the right to cancel provision of services on 60 days’ notice with payment of a one-year termination fee upon a change in control of the Company.  The Company may terminate provision of the services at any time on 60 days’ notice.  Peter C. Georgiopoulos is a minority investor, and affiliates of Oaktree Capital Management, L.P., of which Stephen A. Kaplan, a director of the Company, is a principal, are majority investors in MEP.  This arrangement was approved by an independent committee of the Company’s Board of Directors.

 

On July 27, 2010, the Company closed on an equity offering of 3,593,750 shares of common stock (with the exercise of the underwriters’ over-allotment option) at an offering price of $16.00 per share.  The Company received net proceeds of $54,882 after deducting underwriters’ fees and expenses.  This offering was done concurrently with the issuance of $125,000 aggregate principal

 

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Table of Contents

 

amount (with the exercise of the underwriters’ over-allotment option) of the 5.00% Convertible Senior Notes due August 15, 2015. Refer to Note 10 — Convertible Senior Notes for further information.

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

 

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

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 10-K”).

 

Deferred revenue

 

Deferred revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as income when earned.  Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues.  As of September 30, 2010 and December 31, 2009, the Company had an accrual of $1,605 and $959, respectively, related to these estimated customer claims.

 

Concentration of credit risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers, cash and cash equivalents, deposits on vessels and interest rate swap agreements. With respect to amounts due from charterers, the Company attempts to limit its credit risk by performing ongoing credit evaluations and, when deemed necessary, requires letters of credit, guarantees or collateral.  During the three months ended September 30, 2010 and 2009, the Company earned 100% of its revenues from twenty-four and eighteen customers, respectively.  Additionally, the Company earned 100% of its revenues from twenty-seven and twenty-two customers for the nine months ended September 30, 2010 and 2009, respectively.  Management does not believe significant risk exists in connection with the Company’s concentrations of credit at September 30, 2010 and December 31, 2009.

 

For the three months ended September 30, 2010, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 28.53% and 13.18% of revenues, respectively.  For the three months ended September 30, 2009, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 30.43% and 12.40% of revenues, respectively.

 

For the nine months ended September 30, 2010, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 28.32% and 12.15% of revenues, respectively.  For the nine months ended September 30, 2009, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 30.41% and 14.33% of revenue, respectively.

 

At September 30, 2010, the Company maintains all of its cash and cash equivalents with four financial institutions.  None of the Company’s cash and cash equivalent balances are covered by insurance in the event of default by these financial institutions.

 

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

 

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Table of Contents

 

At September 30, 2010, the Company has ten interest rate swap agreements with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s credit facility with DnB NOR Bank ASA.  None of the interest rate swap agreements are covered by insurance in the event of default by this financial institution.

 

Derivative financial instruments

 

Interest rate risk management

 

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

 

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

 

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

 

Noncontrolling interests

 

Net income attributable to noncontrolling interests during the three and nine months ended September 30, 2010 reflects noncontrolling interest’s share of the income of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market or on spot market-related time charters.  The spot market represents immediate chartering of a vessel, usually for single voyages.  At September 30, 2010, the noncontrolling interest held a 74.65% economic interest in Baltic Trading while only holding 16.41% of voting power.

 

Income taxes

 

Pursuant to certain agreements, the Company technically and commercially manages vessels for Baltic Trading, as well as provides technical management of vessels for MEP in exchange for specified fees for these services provided.  These services are performed by Genco Management (USA) Limited (“Genco (USA)”), which has elected to be taxed as a corporation for United States federal income tax purposes.  As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services.  Genco (USA) has entered into a cost-sharing agreement with the Company and Genco Ship Management LLC, collectively Manco, pursuant to which Genco (USA) agrees to reimburse Manco for the costs incurred by Genco (USA) for the use of Manco’s personnel and services in connection with the provision of the services for both Baltic Trading and MEP’s vessels.  The Company has reflected the tax liability in accounts payable and accrued expenses.

 

Baltic Trading is subject to income tax on its United States source income.  During the three and nine months ended September 30 2010, Baltic Trading had United States operations which resulted in United States source income of $1,439 during the three and nine months ended September 30, 2010.  As such, Baltic Trading’s estimated United States income tax liability is $29 at September 30, 2010 and has been reflected in accounts payable and accrued expenses.

 

3 - SEGMENT INFORMATION

 

The Company determines its operating segments based on the information utilized by the chief operating decision maker to assess performance.  Based on this information, the Company has two operating segments, GS&T and Baltic Trading.  Both GS&T and Baltic Trading are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.  GS&T seeks to deploy its vessels on time charters or in vessel pools trading in the spot market and Baltic Trading seeks to deploy its vessel charters in the spot market, which represents immediate chartering of a vessel, usually for single voyages, or employing vessels on spot market-related time charters.  Segment results are evaluated based on net income.  The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements.  Information about the Company’s reportable segments for the three and nine months ended September 30, 2010 and 2009 are as follows:

 

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Table of Contents

 

The following table presents a reconciliation of total revenue from external customers for the Company’s two operating segments to total consolidated revenue from external customers for the Company for the three and nine months ended September 30, 2010 and 2009.

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Revenue from External Customers

 

 

 

 

 

 

 

 

 

GS&T

 

$

107,613

 

$

92,949

 

$

300,641

 

$

283,301

 

Baltic Trading

 

10,407

 

—

 

17,397

 

—

 

Total operating segments

 

118,020

 

92,949

 

318,038

 

283,301

 

Eliminating revenue

 

—

 

—

 

—

 

—

 

Total consolidated revenue from external customers

 

$

118,020

 

$

92,949

 

$

318,038

 

$

283,301

 

 

The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the three and nine months ended September 30, 2010 and 2009.  The intersegment revenue noted in the following table represents revenue earned by GS&T pursuant to the management agreement entered into with Baltic Trading, which includes commercial service fees, technical service fees and sale and purchase fees.

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Intersegment revenue

 

 

 

 

 

 

 

 

 

GS&T

 

$

1,221

 

$

—

 

$

3,650

 

$

—

 

Baltic Trading

 

—

 

—

 

—

 

—

 

Total operating segments

 

1,221

 

—

 

3,650

 

—

 

Eliminating revenue

 

(1,221

)

—

 

(3,650

)

—

 

Total consolidated intersegment revenue

 

$

—

 

$

—

 

$

—

 

$

—

 

 

The following table presents a reconciliation of total net income for the Company’s two operating segments to total consolidated net income for the three and nine months ended September 30, 2010 and 2009.  The eliminating net income noted in the following table consists of the elimination of intercompany transactions resulting from revenue earned by GS&T and expenses incurred by Baltic Trading pursuant to the management agreement between the two companies as well as dividends received by GS&T from Baltic Trading for its Class B shares of Baltic Trading.

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net income

 

 

 

 

 

 

 

 

 

GS&T

 

$

37,122

 

$

34,271

 

$

108,904

 

$

113,131

 

Baltic Trading

 

2,535

 

—

 

4,627

 

—

 

Total operating segments

 

39,657

 

34,271

 

113,531

 

113,131

 

Eliminating net income

 

(1,552

)

—

 

(3,668

)

—

 

Total consolidated net income

 

$

38,105

 

$

34,271

 

$

109,863

 

$

113,131

 

 

The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated net assets as of September 30, 2010 and December 31, 2009.  The eliminating assets noted in the following table consists of the elimination of intercompany transactions resulting from the capitalization of fees paid to GS&T by Baltic Trading as vessel assets as well as the outstanding receivable balance due to GS&T from Baltic Trading as of September 30, 2010.

 

 

 

September 30,
2010

 

December 31,
2009

 

Total assets

 

 

 

 

 

GS&T

 

$

2,785,146

 

$

2,336,802

 

Baltic Trading

 

362,958

 

—

 

Total operating segments

 

3,148,104

 

2,336,802

 

Eliminating assets

 

(4,550

)

—

 

Total consolidated assets

 

$

3,143,554

 

$

2,336,802

 

 

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Table of Contents

 

4 - CASH FLOW INFORMATION

 

As of September 30, 2010, the Company had ten interest rate swaps, which are described and discussed in Note 11 — Interest Rate Swap Agreements. The fair value of all ten of the swaps is in a liability position of $54,363, $432 of which is a current liability, as of September 30, 2010.  At December 31, 2009, eight swaps were in a liability position of $44,139 and two swaps were in an asset position of $2,108.

 

For the nine months ended September 30, 2010, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $5,526 for the purchase of vessels, $121 associated with deposits on vessels and $29 for the purchase of other fixed assets.  Additionally, for the nine months ended September 30, 2010, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $1,087 associated with deferred financing fees, $35 associated with common stock issuance costs related to the initial public offering of Baltic Trading and $322 associated with issuance costs related to the concurrent stock offering and issuance of Convertible Senior Notes completed on July 27, 2010.  Also, for the nine months ended September 30, 2010, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of September 30, 2010 consisting of $37 interest receivable associated with deposits on vessels and ($27) associated with the purchase of vessels.  For the nine months ended September 30, 2009, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $513 for the purchase of vessels, $70 associated with deposits on vessels and $297 for the purchase of other fixed assets.  Additionally, for the nine months ended September 30, 2009, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets consisting of $130 associated with deposits on vessels.

 

For the nine months ended September 30, 2009, the Company made a reclassification of $60,454 from deposits on vessels to vessels, net of accumulated depreciation, due to the completion of the purchase of the Genco Commodus and Genco Maximus.

 

During the nine months ended September 30, 2010 and 2009, cash paid for interest, net of amounts capitalized, was $45,639 and $42,101, respectively.

 

On March 5, 2010, the Board of Directors approved a grant of 75,000 shares of nonvested common stock to Peter Georgiopoulos, Chairman of the Board.  The fair value of such nonvested stock was $1,718.  Additionally, on May 13, 2010, the Company made grants of nonvested common stock under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan in the amount of 15,000 shares to directors of the Company.  The fair value of such nonvested stock was $331.

 

On July 24, 2009, the Company made grants of nonvested common stock under the Genco Shipping and Trading Limited 2005 Equity Incentive Plan in the amount of 15,000 shares to directors of the Company.  The fair value of such nonvested stock was $374.

 

5 - VESSEL ACQUISITIONS AND DISPOSITIONS

 

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

 

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Table of Contents

 

On June 3, 2010, GS&T entered into an agreement to purchase five Handysize drybulk vessels, including four newbuildings, from companies within the Metrostar group of companies for an aggregate purchase price of $166,250.  Total vessel deposits of $16,625 were made during the second quarter of 2010.  The remaining purchases are subject to the completion of customary documentation and closing conditions.  Two of the vessels were delivered during the third quarter of 2010.  The Genco Ocean, a newbuilding Handysize vessel, was delivered on July 26, 2010 and the Genco Bay, a 2010 built Handysize vessel, was delivered on August 24, 2010.   The remaining three vessels are expected to be delivered to the Company between March 2011 and September 2011.  Four of the five vessels are secured on long term time charters, each of which includes a minimum and maximum base rate as well as profit-sharing components, with Cargill International S.A.  The remaining vessel is secured on a spot market-related time charter with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the Baltic Handysize Index (“BHSI”), an index published by The Baltic Exchange.  GS&T plans to finance the acquisition of these vessels using operating cash as well as the $100,000 secured term loan facility which was entered into on August 12, 2010 and proceeds from its recent concurrent offerings of common stock and convertible notes.  Refer to Note 10 — Convertible Senior Notes.

 

On June 3, 2010, Baltic Trading entered into an agreement to purchase three Handysize drybulk vessels, including one newbuilding, from companies within the Metrostar group of companies for an aggregate purchase price of $99,750.  Total vessel deposits of $9,975 were made during the second quarter of 2010. Two of the vessels were delivered during August 2010.  The Baltic Wind, a 2009 built Handysize vessel , was delivered on August 4, 2010 and the Baltic Cove, a 2010 built Handysize vessel, was delivered on August 23, 2010.  The remaining vessel, the Baltic Breeze, a newbuilding, was delivered during the fourth quarter of 2010 on October 12, 2010.  All three vessels are secured on spot market-related time charters with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the BHSI.  Refer to Note 24 — Subsequent Events.

 

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

 

On February 22, 2010, Baltic Trading also entered into agreements with subsidiaries of another unaffiliated third-party seller to purchase two Capesize drybulk vessels for an aggregate price of $144,200.  The Baltic Wolf was delivered on October 14, 2010 and the Baltic Bear was delivered on May 14, 2010.  Total vessel deposits of $21,540 were made during the first quarter of 2010 and the remaining payment for the Baltic Bear of $65,700 and the Baltic Wolf of $56,960 were made upon delivery of the vessels during the second quarter and fourth quarter of 2010, respectively.  Refer to Note 24 — Subsequent Events.

 

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

 

Two of the Supramax vessels acquired from Bourbon and two of the Handysize vessels acquired from Metrostar during the third quarter of 2010 by GS&T had existing below market time charters at the time of the acquisition.  GS&T recorded a liability for time charter acquired of $2,146 which is being amortized as an increase to voyage revenues during the remaining term of each respective time charter.  Below market time charters, including those acquired during previous periods, were amortized as an increase to revenue in the amount of $1,457 and $4,813 for the three months ended September 30, 2010 and 2009, respectively.  Below market time charters acquired were amortized as an increase to revenue in the amounts of $3,893 and $14,282, respectively, for the nine months ended September 30, 2010 and 2009.

 

Capitalized interest expense associated with newbuilding contracts for the three months ended September 30, 2010 and 2009 was $204 and $331, respectively.  Capitalized interest expense associated with newbuilding contracts for the nine months ended September 30, 2010 and 2009 was $349 and $1,317, respectively.

 

6 - INVESTMENTS

 

The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”).  Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.  This investment is designated as Available For Sale (“AFS”) and is reported at fair value, with unrealized gains and losses recorded in shareholders’ equity as a component of AOCI.  At September 30, 2010 and December 31, 2009, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $63,653 and $72,181, respectively, based on the closing price on September 30, 2010 and December 30, 2009 (the last trading date on the Oslo exchange in 2009) of 22.90 NOK and 25.60 NOK, respectively.

 

The Company reviews the investment in Jinhui for other than temporary impairment on a quarterly basis.  There were no impairment charges recognized for the three and nine months ended September 30, 2010 and 2009.

 

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

 

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

 

7 - EARNINGS PER COMMON SHARE

 

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the vesting of nonvested stock awards (refer to Note 21 — Nonvested Stock Awards), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive.  Of the 512,000 nonvested shares outstanding at September 30, 2010 (refer to Note 21 — Nonvested Stock Awards), 170,000 shares are anti-dilutive.  The Company’s diluted earnings per share will also reflect the assumed conversion under the Company’s convertible debt if the impact is dilutive under the “if converted” method. The impact of the convertible debt is excluded from the computation of diluted earnings per share when interest expense per common share obtainable upon conversion is greater than basic earnings per share.

 

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

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding, basic:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

33,998,923

 

31,295,916

 

32,279,671

 

31,275,061

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding, diluted:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

33,998,923

 

31,295,916

 

32,279,671

 

31,275,061

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of convertible notes

 

4,575,200

 

—

 

1,541,826

 

—

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of restricted stock awards

 

144,763

 

177,453

 

143,838

 

145,243

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, diluted

 

38,718,886

 

31,473,369

 

33,965,335

 

31,420,304

 

 

The following table sets forth a reconciliation of the net income attributable to GS&T and the net income attributable to GS&T for diluted earnings per share under the “if-converted” method:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to GS&T

 

$

36,227

 

$

34,271

 

$

106,435

 

$

113,131

 

 

 

 

 

 

 

 

 

 

 

Interest expense related to convertible notes

 

1,945

 

—

 

1,945

 

—

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to GS&T for the computation of diluted earnings per share

 

$

38,172

 

$

34,271

 

$

108,380

 

$

113,131

 

 

8 - RELATED PARTY TRANSACTIONS

 

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

 

The Company makes available employees performing internal audit services to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board.   For the nine months ended

 

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September 30, 2010 and 2009, the Company invoiced $106 and $98, respectively, to GMC, which includes time associated with such internal audit services as well as office expenses during the nine months ended September 30, 2009.  Additionally, during the nine months ended September 30, 2010 and 2009, the Company incurred travel and other related expenditures totaling $170 and $124, respectively, reimbursable to GMC or its service provider.   At September 30, 2010 and December 31, 2009, the amount due to the Company from GMC was $17 and $41, respectively.

 

During the nine months ended September 30, 2010 and 2009, the Company incurred legal services aggregating $326 and $37, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board.  At September 30, 2010 and December 31, 2009, $282 and $3, respectively, were outstanding to Constantine Georgiopoulos.

 

During the nine months ended September 30, 2010, the Company utilized the services of North Star Maritime, Inc. (“NSM”) which is owned and operated by one of GS&T’s directors, Rear Admiral Robert C. North, USCG (ret.).  NSM, a marine industry consulting firm, specializes in international and domestic maritime safety, security and environmental protection issues.  NSM billed $8 for services rendered during the nine months ended September 30, 2010.  There are no amounts due to NSM at September 30, 2010 and December 31, 2009.

 

During 2009 and 2010, GS&T and Baltic Trading entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in their fleets.  Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean.  During the nine months ended September 30, 2010 and 2009, Aegean supplied lubricating oils to the Company’s vessels aggregating $852 and $0, respectively.  At September 30, 2010 and December 31, 2009, $83 and $226 remained outstanding, respectively.

 

During the nine months ended September 30, 2010, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $37,354. This amount included the purchase of a Bourbon vessel on MEP’s behalf.   MEP is managed by an affiliate of Peter C. Georgiopoulos, Chairman of the Board.  At September 30, 2010 and December 31, 2009, $38 and $0, respectively was due to the Company from MEP.

 

9 - LONG-TERM DEBT

 

Long-term debt consists of the following:

 

 

 

September 30, 2010

 

December 31, 2009

 

 

 

 

 

 

 

2007 Credit Facility

 

$

1,289,500

 

$

1,327,000

 

$100 Million Term Loan Facility

 

39,649

 

—

 

$253 Million Term Loan Facility

 

231,500

 

—

 

2010 Baltic Trading Credit Facility

 

69,825

 

—

 

Less: Current portion

 

(79,322

)

(50,000

)

 

 

 

 

 

 

Long-term debt

 

$

1,551,152

 

$

1,277,000

 

 

2007 Credit Facility

 

On July 20, 2007, the Company entered into a credit facility with DnB Nor Bank ASA (the “2007 Credit Facility”) for the purpose of acquiring nine new Capesize vessels and refinancing the Company’s prior credit facility which it had entered into as of July 29, 2005 (the “2005 Credit Facility”) and short-term line of credit facility entered into as of May 3, 2007 (the “Short-Term Line”).  DnB Nor Bank ASA is also Mandated Lead Arranger, Bookrunner, and Administrative Agent. The Company has used borrowings under the 2007 Credit Facility to repay amounts outstanding under the Company’s previous credit facilities, which have been terminated.  The maximum amount that may be borrowed under the 2007 Credit Facility at September 30, 2010 is $1,289,500.  As of September 30, 2010, the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility.

 

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

 

The significant covenants in the 2007 Credit Facility have been disclosed in the 2009 10-K.  As of September 30, 2010, the Company believes it is in compliance with all of the financial covenants under its 2007 Credit Facility, as amended, with the exception of the collateral maintenance financial covenant, which has been waived as discussed above.

 

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At September 30, 2010, there were no letters of credit issued under the 2007 Credit Facility.

 

The following table sets forth the repayment of the outstanding debt of $1,289,500 at September 30, 2010 under the 2007 Credit Facility, as amended:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2010 (October 1, 2010 — December 31, 2010)

 

$

12,500

 

2011

 

50,000

 

2012

 

108,890

 

2013

 

192,780

 

2014

 

192,780

 

Thereafter

 

732,550

 

 

 

 

 

Total debt

 

$

1,289,500

 

 

$100 Million Term Loan Facility

 

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

 

As of September 30, 2010, two drawdowns of $20,000 each had been made for the deliveries of the Genco Ocean and Genco Bay.  These drawdowns were made on August 17, 2010 and August 23, 2010, respectively.  During the three and nine months ended September 30, 2010, total required repayments of $351 were made.  As of September 30, 2010, total availability under the $100 Million Term Loan Facility was $60,000.

 

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

 

The Company believes it is in compliance with all of the financial covenants under the $100 Million Term Loan Facility as of September 30, 2010.

 

The following table sets forth the repayment of the outstanding debt of $39,649 at September 30, 2010 under the $100 Million Term Loan Facility:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2010 (October 1, 2010 — December 31, 2010)

 

$

769

 

2011

 

3,077

 

2012

 

3,077

 

2013

 

3,077

 

2014

 

3,077

 

Thereafter

 

26,572

 

 

 

 

 

Total debt

 

$

39,649

 

 

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$253 Million Term Loan Facility

 

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

 

As of September 30, 2010, total drawdowns of $231,500 have been made under the $253 Million Term Loan Facility to fund or refund to the Company a portion of the purchase price of the twelve Bourbon vessels delivered during the third quarter of 2010.  Refer to Note 5 — Vessel Acquisitions and Dispositions for a listing of the vessels delivered.  As of September 30, 2010, total availability under the $253 Million Term Loan Facility was $21,500.

 

The $253 Million Term Loan Facility requires the Company to comply with a number of covenants, including financial covenants related to leverage, consolidated net worth, liquidity and interest coverage; dividends; collateral maintenance requirements; and other covenants, most of which are in principle and calculation similar to our covenants under the existing 2007 Credit Facility, except for the minimum cash requirement, which is $750 per mortgaged vessel under this facility.  As of September 30, 2010, the Company had deposited $9,000 that has been reflected as restricted cash at September 30, 2010.  Restricted cash will be released only if the underlying collateral is sold or disposed of.  The $253 Million Term Loan Facility includes usual and customary events of default and remedies for facilities of this nature.  Availability of each tranche of the $253 Million Term Loan Facility will be subject to the delivery of each vessel from Bourbon and other conditions and documentation relating to the collateral securing the $253 Million Term Loan Facility.

 

The Company believes it is in compliance with all of the financial covenants under the $253 Million Term Loan Facility as of September 30, 2010.

 

The following table sets forth the repayment of the outstanding debt of $231,500 at September 30, 2010 under the $253 Million Term Loan Facility:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2010 (October 1, 2010 — December 31, 2010)

 

$

4,691

 

2011

 

18,764

 

2012

 

18,764

 

2013

 

18,764

 

2014

 

18,764

 

2015

 

151,753

 

 

 

 

 

Total long-term debt

 

$

231,500

 

 

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2010 Baltic Trading Credit Facility

 

On April 16, 2010, Baltic Trading entered into a $100,000 senior secured revolving credit facility with Nordea Bank Finland plc, acting through its New York branch (the “2010 Baltic Trading Credit Facility”).  The 2010 Baltic Trading Credit Facility matures on April 16, 2014, and borrowings under the facility bear interest at LIBOR plus an applicable margin of 3.25% per annum.  A commitment fee of 1.25% per annum is payable on the unused daily portion of the 2010 Baltic Trading Credit Facility, which began accruing on March 18, 2010 under the terms of the commitment letter entered into on February 25, 2010.  In connection with the commitment letter, Baltic Trading paid an upfront fee of $313.  Additionally, upon executing the 2010 Baltic Trading Credit Facility, Baltic Trading paid the remaining upfront fee of $938, for total fees of $1,250.  Of the total facility amount of $100,000, $25,000 is available for working capital purposes.  As of September 30, 2010, total available working capital borrowings were $15,025 as $9,975 was drawn down during the nine months ended September 30, 2010.  As of September 30, 2010, $30,175 remained available under the 2010 Credit Facility as two draw downs of $29,925 each were made during the third quarter of 2010 to fund the purchase of the Baltic Wind and Baltic Cove.  Refer to Note 5 — Vessel Acquisitions and Dispositions for further information regarding these vessel deposits and acquisitions.

 

Baltic Trading intends to use the 2010 Baltic Trading Credit Facility primarily for bridge financing for future vessel acquisitions.  Borrowings, except those for working capital purposes, are to be repaid with proceeds from Baltic Trading’s follow-on equity offerings or otherwise within twelve months from drawdown.  Borrowings not repaid within such twelve months will be converted into term loans and repaid in equal monthly installments over the subsequent twelve-month period.  All amounts outstanding, including borrowings for working capital, must be repaid in full on the 2010 Baltic Trading Credit Facility’s maturity date.

 

Borrowings under the 2010 Baltic Trading Credit Facility are secured by liens on Baltic Trading’s initial vessels and other related assets.   Borrowings under the facility are subject to the delivery of security documents with respect to Baltic Trading’s initial vessels.  Alternatively, Baltic Trading could provide cash collateral equal to $225,000 minus the aggregate purchase price of Baltic Trading’s first five vessels delivered if Baltic Trading wishes to draw down on the 2010 Baltic Trading Credit Facility while awaiting delivery of the Capesize vessel expected to be delivered during the fourth quarter of 2010.  As of September 30, 2010, the Company had provided cash collateral in the amount of $12,000 in order to invoke this option.  This amount has been reflected as restricted cash at September 30, 2010.  This cash collateral was released to the seller of the Baltic Wolf once it was delivered on October 14, 2010. and the Baltic Wolf was concurrently made subject to a lien under the 2010 Baltic Trading Credit Facility.  Refer to Note 24 — Subsequent Events for further information.  Baltic Trading’s subsidiaries owning the initial vessels act as guarantors under the 2010 Baltic Trading Credit Facility.

 

All amounts owing under the 2010 Baltic Trading Credit Facility are also secured by the following:

 

·                        cross-collateralized first priority mortgages of each of Baltic Trading’s initial vessels;

 

·                        an assignment of any and all earnings of Baltic Trading’s initial vessels; and

 

·                        an assignment of all insurance on the mortgaged vessels.

 

The 2010 Baltic Trading Credit Facility requires Baltic Trading to comply with a number of covenants, including financial covenants related to liquidity, consolidated net worth, and collateral maintenance; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of Baltic Trading’s initial vessels; restrictions on consolidations, mergers or sales of assets; restrictions on changes in the Manager of Baltic Trading’s initial vessels (or acceptable replacement vessels); limitations on changes to the Management Agreement between Baltic Trading and GS&T; limitations on liens; limitations on additional indebtedness; restrictions on paying dividends; restrictions on transactions with affiliates; and other customary covenants.

 

The 2010 Baltic Trading Credit Facility includes the following financial covenants which apply to Baltic Trading and its subsidiaries on a consolidated basis and are measured at the end of each fiscal quarter beginning with March 31, 2010, except for the minimum cash covenant, which began being measured at June 30, 2010:

 

·                        Cash and cash equivalents plus the undrawn amount available for working capital under the facility must not be less than $750 per vessel for all vessels in Baltic Trading’s fleet.

 

·                        Consolidated net worth must be greater than (i) 75% of the net proceeds of the IPO of Baltic Trading’s stock, plus (ii) the $75,000 equity contribution from GS&T plus (iii) 50% of the value of any subsequent primary equity offerings of Baltic Trading.

 

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·                        The aggregate fair market value of the mortgaged vessels must at all times be at least 160% of the aggregate outstanding principal amount under the 2010 Baltic Trading Credit Facility.  However, if any borrowings, other than working capital borrowings, are not repaid with 12 months of the drawdown thereof, then the aggregate fair market value of the mortgaged vessels must at all times be at least 200% of the aggregate outstanding principal amount under the 2010 Baltic Trading Credit Facility.

 

Under the 2010 Baltic Trading Credit Facility, Baltic Trading is not permitted to make loans to GS&T or Genco Investments LLC if an event of default existed at the time of the loan or could be reasonably expected to result therefrom.  In addition, Baltic Trading would not be permitted under the facility to declare or pay dividends to its shareholders (including Genco Investments LLC) if an event of default existed at the time of payment or would be caused thereby.  As of September 30, 2010, to remain in compliance with a net worth covenant in the facility, Baltic Trading needs to maintain a net worth of $232,796 after the payment of any dividends.

 

The Company believes it is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility as of September 30, 2010.

 

The following table sets forth the repayment of the outstanding debt of $69,825 at September 30, 2010 under the 2010 Baltic Trading Credit Facility:

 

Period Ending December 31,

 

Total

 

 

 

 

 

2010 (October 1, 2010 — December 31, 2010)

 

$

—

 

2011

 

22,444

 

2012

 

37,406

 

2013

 

—

 

2014

 

9,975

 

 

 

 

 

Total long-term debt

 

$

69,825

 

 

Interest rates

 

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

 

 

 

Three months ended September 30,

 

Nine Months Ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Effective Interest Rate

 

4.70

%

5.13

%

4.70

%

5.23

%

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

 

2.31% to 3.60

%

2.25% to 3.25

%

2.25% to 3.60

%

1.23% to 5.56

%

 

10 — CONVERTIBLE SENIOR NOTES

 

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

 

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Upon issuance, the Company estimated the fair value of the liability component of the Notes, assuming a 10% non-convertible borrowing rate, to be $100,724 and the fair value of the conversion option. The difference between the fair value and the principal amount of the Notes was $24,276. This amount was recorded as a debt discount and as an increase to additional paid-in capital as of the issuance date and the Company proportionately allocated approximately $867 of issuance costs against this equity component. The issuance cost allocated to the liability component of $3,574 along with the debt discount is being amortized to interest expense over the approximate 5 year period to the maturity of the Notes on August 15, 2015 resulting in additional interest expense in future periods.  The issuance cost allocated to the liability component has been recorded as deferred financing costs, refer to Note 15 — Other Assets, net.

 

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

 

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

 

The Indenture includes customary agreements and covenants by the Company, including with respect to events of default.  The Company believes it is in compliance with all of the financial covenants under the Indenture as of September 30, 2010.

 

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

 

 

 

September 30, 2010

 

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

 

$

24,276

 

Principal amount of the Notes

 

125,000

 

Unamortized discount of the liability component

 

23,605

 

Net carrying amount of the liability component

 

101,395

 

 

 

 

For the three and
nine months ended
September 30, 2010

 

Effective interest rate on liability component

 

9.9

%

Cash interest expense recognized

 

$

1,146

 

Non-cash interest expense recognized

 

671

 

Non-cash deferred financing costs recognized as interest expense

 

127

 

 

The remaining period over which the unamortized discount will be recognized is 4.9 years. As of September 30, 2010, the if-converted value of the Notes does not exceed their principal amount.

 

The Notes have been classified as a noncurrent liability on the consolidated balance sheet as of September 30, 2010 because the Company can settle the principal amount of the notes with shares, cash, or a combination thereof at its discretion.

 

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11 - INTEREST RATE SWAP AGREEMENTS

 

The Company has ten interest rate swap agreements with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s 2007 Credit Facility, which were outstanding at September 30, 2010 and December 31, 2009. The total notional principal amount of the swaps at September 30, 2010 was $756,233 and the swaps have specified rates and durations.

 

The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of September 30, 2010 and December 31, 2009:

 

Interest Rate Swap Detail

 

September 30,
2010

 

December 31,
2009

 

Trade
Date

 

Fixed
Rate

 

Start Date
of Swap

 

End date
of Swap

 

Notional
Amount
Outstanding

 

Notional
Amount
Outstanding

 

9/6/05

 

4.485

%

9/14/05

 

7/29/15

 

$

106,233

 

$

106,233

 

3/29/06

 

5.25

%

1/2/07

 

1/1/14

 

50,000

 

50,000

 

3/24/06

 

5.075

%

1/2/08

 

1/2/13

 

50,000

 

50,000

 

7/31/07

 

5.115

%

11/30/07

 

11/30/11

 

100,000

 

100,000

 

8/9/07

 

5.07

%

1/2/08

 

1/3/12

 

100,000

 

100,000

 

8/16/07

 

4.985

%

3/31/08

 

3/31/12

 

50,000

 

50,000

 

8/16/07

 

5.04

%

3/31/08

 

3/31/12

 

100,000

 

100,000

 

1/22/08

 

2.89

%

2/1/08

 

2/1/11

 

50,000

 

50,000

 

1/9/09

 

2.05

%

1/22/09

 

1/22/14

 

100,000

 

100,000

 

2/11/09

 

2.45

%

2/23/09

 

2/23/14

 

50,000

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

756,233

 

$

756,233

 

 

The following table summarizes the derivative asset and liability balances at September 30, 2010 and December 31, 2009:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

 

 

Sheet
Location

 

September 30,
2010

 

December
31, 2009

 

Sheet
Location

 

September 30,
2010

 

December
31, 2009

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Fair value of derivative instruments (Current Assets)

 

$

—

 

$

—

 

Fair value of derivative instruments (Current Liabilities)

 

$

432

 

$

—

 

Interest rate contracts

 

Fair value of derivative instruments (Noncurrent Assets)

 

—

 

2,108

 

Fair value of derivative instruments (Noncurrent Liabilities)