UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of June, 2018
Commission File Number 001-31236
TSAKOS ENERGY NAVIGATION LIMITED
(Translation of registrants name into English)
367 Syngrou Avenue, 175 64 P. Faliro, Athens, Greece
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
TSAKOS ENERGY NAVIGATION LIMITED
FORM 6-K
This report on Form 6-K is hereby incorporated by reference into the following Registration Statements of the Company:
| Registration Statement on Form F-3 (No. 333-219569) initially filed with the SEC on July 28, 2017; |
| Registration Statement on Form F-3 (No. 333-206852) initially filed with the SEC on September 9, 2015; |
| Registration Statement on Form F-3 (No. 333-111615) filed with the SEC on December 30, 2003; |
| Registration Statement on Form S-8 (No. 333-183007) initially filed with the SEC on August 2, 2012, as amended; |
| Registration Statement on Form S-8 (No. 333-134306) initially filed with the SEC on May 19, 2006, as amended; |
| Registration Statement on Form S-8 (No. 333-104062) filed with the SEC on March 27, 2003; and |
| Registration Statement on Form S-8 (No. 333-102860) filed with the SEC on January 31, 2003. |
EXHIBIT INDEX
99.1 | Consolidated Financial Statements (Unaudited), March 31, 2018 | |
99.2 | Managements Discussion and Analysis of Financial Condition and Results of Operations | |
99.3 | Capitalization at March 31, 2018 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 18, 2018
TSAKOS ENERGY NAVIGATION LIMITED | ||
By: | /s/ Paul Durham | |
Paul Durham | ||
Chief Financial Officer |
Exhibit 99.1
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2018 (UNAUDITED) AND DECEMBER 31, 2017
(Expressed in thousands of U.S. Dollars - except share and per share data)
March 31, 2018 |
December 31, 2017 |
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ASSETS | ||||||||
CURRENT ASSETS: |
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Cash and cash equivalents. |
$ | 158,177 | $ | 189,763 | ||||
Restricted cash |
20,099 | 12,910 | ||||||
Accounts receivable, net |
18,176 | 27,364 | ||||||
Capitalized voyage expenses (Note 1) |
533 | | ||||||
Due from related companies (Note 2) |
14,883 | 14,210 | ||||||
Advances and other |
20,097 | 19,061 | ||||||
Vessels held for sale (Note 3) |
17,500 | 17,500 | ||||||
Inventories |
18,622 | 16,293 | ||||||
Prepaid insurance and other |
1,427 | 1,577 | ||||||
Current portion of financial instruments-Fair value (Notes 6, 11) |
4,533 | 5,715 | ||||||
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Total current assets |
274,047 | 304,393 | ||||||
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INVESTMENTS |
1,000 | 1,000 | ||||||
FINANCIAL INSTRUMENTS - FAIR VALUE, net of current portion (Note 6, 11) |
1,055 | 1,430 | ||||||
LONG TERM RECEIVABLE (Note 3) |
13,000 | 13,000 | ||||||
FIXED ASSETS (Note 3) |
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Advances for vessels under construction |
1,650 | 1,650 | ||||||
Vessels |
3,954,039 | 3,953,599 | ||||||
Accumulated depreciation |
(958,927 | ) | (925,195 | ) | ||||
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Vessels Net Book Value |
2,995,112 | 3,028,404 | ||||||
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Total fixed assets |
2,996,762 | 3,030,054 | ||||||
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DEFERRED CHARGES, net (Note 4) |
30,330 | 23,759 | ||||||
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Total assets |
$ | 3,316,194 | $ | 3,373,636 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
CURRENT LIABILITIES: |
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Current portion of long-term debt (Note 5) |
$ | 303,745 | $ | 225,883 | ||||
Payables |
50,848 | 46,916 | ||||||
Due to related companies (Note 2) |
8,032 | 7,442 | ||||||
Dividends payable |
4,337 | | ||||||
Accrued liabilities |
50,008 | 43,693 | ||||||
Unearned revenue |
6,458 | 13,611 | ||||||
Current portion of financial instruments - Fair value (Note 6, 11) |
853 | 1,378 | ||||||
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Total current liabilities |
424,281 | 338,923 | ||||||
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LONG-TERM DEBT, net of current portion (Note 5) |
1,406,803 | 1,525,986 | ||||||
FINANCIAL INSTRUMENTS - FAIR VALUE, net of current portion (Note 6, 11) |
2,411 | 589 | ||||||
STOCKHOLDERS EQUITY: |
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Preferred shares, $ 1.00 par value; 25,000,000 shares authorized and 2,000,000 Series B Preferred Shares, 2,000,000 Series C Preferred Shares and 3,424,803 Series D Preferred Shares issued, and 4,600,000 Series E Preferred Shares issued and outstanding at March 31, 2018 and December 31, 2017. |
12,025 | 12,025 | ||||||
Common shares, $ 1.00 par value; 175,000,000 shares authorized at March 31, 2018 and December 31, 2017; 87,338,652 shares issued at March 31, 2018 and December 31, 2017 and 86,401,434 and 86,319,583 shares outstanding at March 31, 2018 and December 31, 2017, respectively. |
87,339 | 87,339 | ||||||
Additional paid-in capital |
857,954 | 857,998 | ||||||
Cost of treasury stock |
(5,279 | ) | (5,736 | ) | ||||
Accumulated other comprehensive loss |
(6,327 | ) | (5,305 | ) | ||||
Retained earnings |
523,557 | 547,937 | ||||||
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Total Tsakos Energy Navigation Limited stockholders equity |
1,469,269 | 1,494,258 | ||||||
Noncontrolling Interest |
13,430 | 13,880 | ||||||
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Total stockholders equity |
1,482,699 | 1,508,138 | ||||||
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Total liabilities and stockholders equity |
$ | 3,316,194 | $ | 3,373,636 |
The accompanying notes are an integral part of these consolidated financial statements
1
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(Expressed in thousands of U.S. Dollars - except share and per share data)
Three months ended March 31, |
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2018 | 2017 | |||||||
VOYAGE REVENUES: |
$ | 125,725 | $ | 138,242 | ||||
EXPENSES: |
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Voyage expenses |
27,276 | 30,083 | ||||||
Charter hire expense |
2,678 | | ||||||
Vessel operating expenses |
47,535 | 40,011 | ||||||
Depreciation and amortization of deferred dry-docking costs |
35,811 | 32,291 | ||||||
General and administrative expenses |
6,831 | 6,110 | ||||||
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Total expenses |
120,131 | 108,495 | ||||||
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Operating income |
5,594 | 29,747 | ||||||
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OTHER INCOME (EXPENSES): |
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Interest and finance costs, net (Note 6) |
(17,945 | ) | (11,864 | ) | ||||
Interest income |
321 | 118 | ||||||
Other, net |
(335 | ) | (145 | ) | ||||
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Total other expenses, net |
(17,959 | ) | (11,891 | ) | ||||
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Net (loss) income |
(12,365 | ) | 17,856 | |||||
Less: Net loss (income) attributable to the noncontrolling interest |
450 | (377 | ) | |||||
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Net (loss) income attributable to Tsakos Energy Navigation Limited |
$ | (11,915 | ) | $ | 17,479 | |||
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Effect of preferred dividends |
(6,642 | ) | (3,969 | ) | ||||
Net (loss) income attributable to common stockholders of Tsakos Energy Navigation Limited |
(18,557 | ) | 13,510 | |||||
(Loss) Earnings per share, basic and diluted attributable to Tsakos Energy Navigation Limited common stockholders |
$ | (0.21 | ) | $ | 0.16 | |||
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Weighted average number of shares, basic and diluted |
86,324,241 | 83,966,533 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements
2
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OTHER COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(Expressed in thousands of U.S. Dollars)
Three months ended March 31, |
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2018 | 2017 | |||||||
Net (loss) income |
$ | (12,365 | ) | $ | 17,856 | |||
Other comprehensive (loss) income |
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Unrealized losses from hedging financial instruments |
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Unrealized loss on interest rate swaps, net (Note 8) |
(1,022 | ) | (3,071 | ) | ||||
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Comprehensive (loss) income |
(13,387 | ) | 14,785 | |||||
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Less: comprehensive loss (income) attributable to the noncontrolling interest |
450 | (377 | ) | |||||
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Comprehensive (loss) income attributable to Tsakos Energy Navigation Limited |
$ | (12,937 | ) | $ | 14,408 | |||
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The accompanying notes are an integral part of these consolidated financial statements
3
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(Expressed in thousands of U.S. Dollars - except share and per share data)
Preferred Shares |
Common Shares |
Additional Paid-in Capital |
Treasury stock |
Retained Earnings |
Accumulated Other Comprehensive Loss |
Tsakos Energy Navigation Limited |
Noncontrolling Interest |
Total Stockholders Equity |
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Shares | Amount | |||||||||||||||||||||||||||||||||||||||
BALANCE, January 1, 2017 |
$ | 7,400 | $ | 87,339 | $ | 752,001 | 3,617,786 | $ | (20,173 | ) | $ | 582,889 | $ | (4,313 | ) | $ | 1,405,143 | $ | 12,307 | $ | 1,417,450 | |||||||||||||||||||
Net income |
17,479 | 17,479 | 377 | 17,856 | ||||||||||||||||||||||||||||||||||||
- Sale of Series D preferred shares |
25 | 508 | 533 | 533 | ||||||||||||||||||||||||||||||||||||
-Sale of common shares |
(296 | ) | (550,000 | ) | 3,060 | (527 | ) | 2,237 | 2,237 | |||||||||||||||||||||||||||||||
- Common dividends declared ($0.05 per share) |
(4,214 | ) | (4,214 | ) | (4,214 | ) | ||||||||||||||||||||||||||||||||||
- Dividends paid on Series B preferred shares |
(1,000 | ) | (1,000 | ) | (1,000 | ) | ||||||||||||||||||||||||||||||||||
- Dividends paid on Series C preferred shares |
(1,109 | ) | (1,109 | ) | (1,109 | ) | ||||||||||||||||||||||||||||||||||
- Dividends paid on Series D preferred shares |
(1,866 | ) | (1,866 | ) | (1,866 | ) | ||||||||||||||||||||||||||||||||||
- Other comprehensive loss |
(3,071 | ) | (3,071 | ) | (3,071 | ) | ||||||||||||||||||||||||||||||||||
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BALANCE, March 31, 2017 |
$ | 7,425 | $ | 87,339 | $ | 752,213 | 3,067,786 | $ | (17,113 | ) | $ | 591,652 | $ | (7,384 | ) | $ | 1,414,132 | $ | 12,684 | $ | 1,426,816 | |||||||||||||||||||
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4
BALANCE, January 1, 2018 |
$ | 12,025 | $ | 87,339 | $ | 857,998 | 1,019,069 | $ | (5,736 | ) | $ | 547,937 | $ | (5,305 | ) | $ | 1,494,258 | $ | 13,880 | $ | 1,508,138 | |||||||||||||||||||
Adoption of new accounting standard |
(1,311 | ) | (1,311 | ) | (1,311 | ) | ||||||||||||||||||||||||||||||||||
Net loss |
(11,915 | ) | (11,915 | ) | (450 | ) | (12,365 | ) | ||||||||||||||||||||||||||||||||
-Sale of common shares |
(44 | ) | (81,851 | ) | 457 | (176 | ) | 237 | 237 | |||||||||||||||||||||||||||||||
- Common dividends declared ($0.05 per share) |
(4,337 | ) | (4,337 | ) | (4,337 | ) | ||||||||||||||||||||||||||||||||||
- Dividends paid on Series B preferred shares |
(1,000 | ) | (1,000 | ) | (1,000 | ) | ||||||||||||||||||||||||||||||||||
- Dividends paid on Series C preferred shares |
(1,109 | ) | (1,109 | ) | (1,109 | ) | ||||||||||||||||||||||||||||||||||
- Dividends paid on Series D preferred shares |
(1,873 | ) | (1,873 | ) | (1,873 | ) | ||||||||||||||||||||||||||||||||||
- Dividends paid on Series E preferred shares |
(2,659 | ) | (2,659 | ) | (2,659 | ) | ||||||||||||||||||||||||||||||||||
- Other comprehensive loss |
(1,022 | ) | (1,022 | ) | (1,022 | ) | ||||||||||||||||||||||||||||||||||
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BALANCE March 31, 2018 |
$ | 12,025 | $ | 87,339 | $ | 857,954 | 937,218 | $ | (5,279 | ) | $ | 523,557 | $ | (6,327 | ) | $ | 1,469,269 | $ | 13,430 | $ | 1,482,699 | |||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements
5
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(Expressed in thousands of U.S. Dollars)
Three months ended March 31, |
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2018 | 2017 | |||||||
Cash Flows from Operating Activities: |
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Net (loss) income |
$ | (12,365 | ) | $ | 17,856 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation |
33,779 | 30,634 | ||||||
Amortization of deferred dry-docking costs |
2,032 | 1,657 | ||||||
Amortization of loan fees |
813 | 710 | ||||||
Change in fair value of derivative instruments |
1,787 | 1,294 | ||||||
Payments for dry-docking |
(8,604 | ) | (2,047 | ) | ||||
(Increase) Decrease in: |
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Receivables, net |
5,530 | (6,188 | ) | |||||
Inventories |
(2,329 | ) | (679 | ) | ||||
Prepaid insurance and other |
150 | 104 | ||||||
Capitalized voyage expenses |
(533 | ) | | |||||
Increase (Decrease) in: |
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Payables |
5,160 | 2,391 | ||||||
Accrued liabilities |
6,315 | 5,816 | ||||||
Unearned revenue |
(7,153 | ) | 2,906 | |||||
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Net Cash provided by Operating Activities |
24,582 | 54,454 | ||||||
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Cash Flows from Investing Activities: |
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Advances for vessels under construction and acquisitions |
| (2,588 | ) | |||||
Vessel acquisitions and/or improvements |
(441 | ) | (144,049 | ) | ||||
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Net Cash used in Investing Activities |
(441 | ) | (146,637 | ) | ||||
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Cash Flows from Financing Activities: |
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Proceeds from long-term debt |
| 100,204 | ||||||
Financing costs |
(261 | ) | (407 | ) | ||||
Payments of long-term debt |
(41,873 | ) | (44,042 | ) | ||||
Sale of treasury stock, net |
237 | 2,237 | ||||||
Proceeds from preferred stock issuance, net |
| 533 | ||||||
Cash dividends |
(6,641 | ) | (3,975 | ) | ||||
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Net Cash (used in) provided by Financing Activities |
(48,538 | ) | 54,550 | |||||
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Net decrease in cash and cash equivalents and restricted cash |
(24,397 | ) | (37,633 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period |
202,673 | 197,773 | ||||||
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Cash and cash equivalents and restricted cash at end of period |
$ | 178,276 | $ | 160,140 | ||||
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Reconciliation of cash, cash equivalents and restricted cash: |
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Current Assets: |
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Cash and cash equivalents |
158,177 | 146,211 | ||||||
Restricted Cash |
20,099 | 13,929 | ||||||
Total Cash and cash equivalents and restricted cash |
178,276 | 160,140 |
The accompanying notes are an integral part of these consolidated financial statements
6
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) MARCH 31, 2018 AND 2017
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
1. | Basis of Presentation |
The accompanying unaudited interim consolidated financial statements of Tsakos Energy Navigation Limited (the Holding Company) and subsidiaries (collectively, the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 6-K and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
The consolidated balance sheet as of December 31, 2017 has been derived from the audited financial statements included in the companys annual report on Form 20-F filed with the Securities and Exchange Commission on April 27, 2018 (Annual Report), but does not include all of the footnotes required by generally accepted accounting principles for complete financial statements.
A discussion of the Companys significant accounting policies can be found in Note 1 of the Companys consolidated financial statements included in the Annual Report, on Form 20-F for the year ended December 31, 2017. There have been no material changes to these policies in the three-month period ended March 31, 2018, except for as discussed below:
Statement of Cash Flows: In November 2016, the FASB issued ASU No. 2016-18Statement of Cash Flows (Topic 230) - Restricted Cash, which addresses the requirement that a statement of cash flows explain the change during the period in the total of cash and cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. On January 1, 2018, the Company adopted the aforementioned ASU. The only effect the adoption of ASU No. 2016-18 had is the presentation of the restricted cash on the statement of cash flows. More precisely, the line item Increase in restricted cash was removed from the financing activities section of the statement of cash flows and the beginning period and ending period cash balances now include restricted cash. Comparative period of the statement of cash flow has been retrospectively adjusted to reflect the adoption of ASU No. 2016-18. In August 2016, the FASB issued ASU No. 2016-15- Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments which addresses certain cash flow issues with the objective of reducing the existing diversity in practice: ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. The Company adopted the aforementioned ASU with no impact on its condensed consolidated financial statements and notes disclosures.
Treasury stock: Treasury stock is stock that is repurchased by the issuing entity, reducing the amount of outstanding shares in the open market. When shares are repurchased, they may either be cancelled or held for reissue. If not cancelled, such shares are referred to as treasury stock. Treasury stock is essentially the same as unissued capital and reduce ordinary share capital. The cost of the acquired shares should generally be shown as a deduction from stockholders equity. Dividends on such shares held in the entitys treasury should not be reflected as income and not shown as a reduction in equity. Gains and losses on sales of treasury stock should be accounted for as adjustments to stockholders equity and not as part of income. Depending on whether the shares are acquired for reissuance or retirement, treasury stock is accounted for under the cost method or the constructive retirement method. The cost method is also used, when reporting entity management has not made decisions as to whether the reacquired shares will be retired, held indefinitely or reissued. The Company elected for the repurchase of its common shares to be accounted for under the cost method. Under this method, the treasury stock account is charged for the aggregate cost of shares reacquired.
Revenue from Contracts with Customers: In May 2016, the FASB issued their final standard on revenue from contracts with customers. The standard, which was issued as ASU 2014-09 (Topic 606) by the FASB, and as amended, outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers and supersedes most legacy revenue recognition guidance. The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services by applying the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in each contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in each contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The standard is effective for public business entities from annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The new revenue standard may be applied using either of the following transition methods: (1) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (2) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which includes additional footnote disclosures).
7
Regarding the incremental costs of obtaining a contract with a customer and contracts fulfilling costs, they should be capitalized and been amortized over the voyage duration, if certain criteria are met for incremental costs if only they are chargeable to the customer and for contracts fulfilling costs if each of the following criteria is met: (i) they relate directly to the contract, (ii) they generate or enhance entitys resources that shall be used in performance obligation satisfaction and (iii) are expected to be recovered. Further, in case of incremental costs, entities may elect, in accordance with the practical expedient of ASC 340 Other assets and deferred costs, not to capitalize them in cases of amortization period (voyage period) is less than one year.
On January 1, 2018, the Company adopted the aforementioned ASU using the modified retrospective method. Its adoption mainly changed the method of recognizing revenue over time for voyage charters from the discharge-to-discharge method to the loading-to-discharge method. Under the loading-to-discharge method the commencement date of each voyage charter shall be deemed to be upon the loading of the current cargo, decreasing the period of time for recognizing revenue for voyages. With respect to the recognition of voyage charters related costs, taking into consideration the aforementioned practical expedient, the related incremental costs (i.e. commissions) continue to be expensed as incurred but over the new duration of each voyage, on the basis that the Companys voyage charters do not exceed one year. Additionally, the Company has identified that the contract fulfillment costs of spot market voyage charters consist primarily of the fuel consumption that is incurred by the Company from the latter of the end of the previous vessel employment and the contract date until the arrival at the loading port. The fuel consumption during this period meet the capitalization criteria and are deferred and amortized ratably over the total transit time of the voyage from arrival at the loading port until the vessel departs from the discharge port and expensed as part of Voyage Expenses. Capitalized voyage costs are included in the consolidated balance sheet under Current Assets. Regarding time charter and profit sharing contracts, no material changes related to Companys accounting policies were identified. The Company adopted ASU 2014-09 during the first quarter of 2018 using the modified retrospective transition method applied to those spot market voyage charter contracts which were not completed as of January 1, 2018. Upon adoption, the Company recognized the cumulative effect of adopting this guidance as an adjustment to its opening balance of retained earnings as of January 1, 2018. Prior periods were not adjusted retrospectively.
The following table illustrates the impact of the adoption of the new revenue recognition guidance on the Consolidated Statement of Comprehensive Loss:
For the Three Months ended March 31, 2018 |
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As reported $ |
Balance without adoption of New Revenue Standard $ |
Effect of Change $ |
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Voyage Revenues |
125,725 | 125,133 | 592 | |||||||||
Voyage expenses |
27,276 | 27,171 | 105 | |||||||||
Net loss |
(18,557 | ) | (19,044 | ) | 487 | |||||||
Net loss per share, basic and diluted |
(0.21 | ) | (0.22 | ) | 0.01 |
The following table illustrates the impact of the adoption of the new revenue recognition guidance on the Consolidated Statement of Cash Flows:
For the Three Months ended March 31, 2018 |
||||||||||||
As reported $ |
Balance without adoption of New Revenue Standard $ |
Effect of Change $ |
||||||||||
Cash Flows from Operating Activities: |
24,582 | 24,095 | 487 | |||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||||
Decrease in Receivables, net |
5,530 | 6,122 | (592 | ) | ||||||||
Increase in Capitalized voyage expenses |
(533 | ) | | (533 | ) |
8
The following table illustrates the cumulative effect of the adoption of the new revenue recognition guidance on the opening Consolidated Balance Sheet:
Balance as at December 31, 2017 $ |
New Revenue Standard Adjustment $ |
Balance as at January 1, 2018 $ |
||||||||||
Assets: |
||||||||||||
Current Assets: |
||||||||||||
Accounts receivable, net |
27,364 | (1,949 | ) | 25,415 | ||||||||
Capitalized voyage expenses |
| 638 | 638 | |||||||||
Liabilities and Stockholders Equity: |
||||||||||||
Current Liabilities: |
||||||||||||
Stockholders Equity: |
||||||||||||
Retained earnings |
547,937 | (1,311 | ) | 546,626 |
Business combinations Definition of a business: In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805) Clarifying the Definition of a Business which addresses business combination issues with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. The Company adopted the aforementioned ASU with no impact on its condensed consolidated financial statements and notes disclosures.
Leases: In February 2016, FASB issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For lessees, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type leases or direct financing leases are operating leases. ASU 2016-02 is effective January 1, 2019, with early adoption permitted. FASB issued an exposure draft in early 2018 that made further amendments to accounting for leases. The Company currently intends to adopt ASU 2016-02 on January 1, 2019, when a final ASU is issued related to this exposure draft using a transition approach whereby a cumulative effect adjustment will be made as of the effective date, with no retrospective effect. The quarter in which the Company adopts ASU 2016-02 and the estimated impact from adoption contained below are based upon the expectation that FASB will issue an additional ASU that will allow adoption of ASU 2016-02, with retrospective effect to January 1, 2018. The adoption of ASU 2016-02 will result in a change in accounting method for the lease portion of the daily charter hire for the Companys chartered-in vessels accounted for as operating leases with firm periods of greater than one year. The Company is currently evaluating the effect of the standard on its condensed consolidated financial statements and related disclosures.
9
2. | Transactions with Related Parties |
The following amounts were charged by related parties for services rendered:
Three months ended March 31, |
||||||||
2018 | 2017 | |||||||
Tsakos Shipping and Trading S.A. (commissions) |
1,542 | 1,730 | ||||||
Tsakos Energy Management Limited (management fees) |
5,064 | 4,635 | ||||||
Tsakos Columbia Shipmanagement S.A. (special charges) |
439 | 460 | ||||||
Argosy Insurance Company Limited (insurance premiums) |
2,584 | 2,378 | ||||||
AirMania Travel S.A. (travel services) |
1,581 | 1,224 | ||||||
|
|
|
|
|||||
Total expenses with related parties |
11,210 | 10,427 | ||||||
|
|
|
|
10
Balances due from and to related parties are as follows:
March 31, 2018 |
December 31, 2017 |
|||||||
Due from related parties |
||||||||
Tsakos Columbia Shipmanagement S.A. |
14,883 | 14,210 | ||||||
|
|
|
|
|||||
Total due from related parties |
14,883 | 14,210 | ||||||
|
|
|
|
|||||
Due to related parties |
||||||||
Tsakos Energy Management Limited |
368 | 728 | ||||||
Tsakos Shipping and Trading S.A. |
427 | 313 | ||||||
Argosy Insurance Company Limited |
6,522 | 5,947 | ||||||
AirMania Travel S.A. |
715 | 454 | ||||||
|
|
|
|
|||||
Total due to related parties |
8,032 | 7,442 | ||||||
|
|
|
|
There is also at March 31, 2018 an amount of $96 ($125 at December 31, 2017) due to Tsakos Shipping and Trading S.A. and $75 ($68 at December 31, 2017) due to Argosy Insurance Limited, included in accrued liabilities which relates to services rendered by related parties not yet invoiced.
(a) | Tsakos Energy Management Limited (the Management Company): The Holding Company has a Management Agreement (Management Agreement) with the Management Company, a Liberian corporation, to provide overall executive and commercial management of its affairs for a monthly fee, which may be adjusted per the Management Agreement of March 8, 2007, effective from January 1, 2008, at the beginning of each year, in accordance with the terms of the Management Agreement, if both parties agree. Fees are also payable to a third-party manager for the LNG carriers and for the VLCCs Ulysses, Hercules I, Millennium, the aframax tankers Sapporo Princess and Maria Princess and the suezmax tanker Eurochampion 2004. |
In addition to the Management fee, the Management agreement provides for an incentive award to the Management Company, which is at the absolute discretion of the Holding Companys Board of Directors. No such award was granted in the first quarter of 2018.
The Holding Company and the Management Company have certain officers and directors in common. The President, who is also the Chief Executive Officer and a Director of the Holding Company, is also the sole stockholder of the Management Company. The Management Company may unilaterally terminate its Management Agreement with the Holding Company at any time upon one years notice. In addition, if even a director is elected to the Holding Company without the recommendation of the existing Board of Directors, the Holding Company would be obligated to pay the Management Company an amount calculated in accordance with the terms of the Management Agreement. Under the terms of the Management Agreement between the Holding Company and the Management Company, the Holding Company may terminate the Management Agreement only under specific circumstances, without the prior approval of the Holding Companys Board of Directors.
Estimated future management fees payable over the next ten years under the Management Agreement, exclusive of any incentive awards and based on existing vessels and known vessels scheduled for future delivery, as at March 31, 2018, are:
Year |
Amount | |||
April to December 2018 |
15,088 | |||
2019 |
20,100 | |||
2020 |
20,100 | |||
2021 |
20,100 | |||
2022 |
20,100 | |||
2023 to 2028 |
107,876 | |||
|
|
|||
$ | 203,364 | |||
|
|
Management fees for vessels are included in General and Administrative expenses in the accompanying Consolidated Statements of Comprehensive (Loss) Income. Also, under the terms of the Management Agreement, the Management Company provides supervisory services for the construction of new vessels for a monthly fee of $20.4. There were no such fees during the first quarter of 2018, while fees amounting to $339 were charged during the three months ended March 31, 2017 and accounted for as part of construction costs for delivered vessels or included in Advances for vessels under construction.
11
(b) | Tsakos Columbia Shipmanagement S.A. (TCM): The Management Company appointed TCM to provide technical management to the Companys vessels from July 1, 2010. TCM is owned jointly and in equal part by related party interests and by a private German group. TCM, at the consent of the Holding Company, may subcontract all or part of the technical management of any vessel to an alternative unrelated technical manager. |
Effective July 1, 2010, the Management Company, at its own expense, pays technical management fees to TCM, and the Company bears and pays directly to TCM most of its operating expenses, including repairs and maintenance, provisioning and crewing of the Companys vessels, as well as certain charges which are capitalized or deferred, including reimbursement of the costs of TCM personnel sent overseas to supervise repairs and perform inspections on Company vessels. The Company also pays to TCM certain fees to cover expenses relating to internal control procedures and information technology services which are borne by TCM on behalf of the Company.
(c) | Tsakos Shipping and Trading S.A. (Tsakos Shipping): Tsakos Shipping provides chartering services for the Companys vessels by communicating with third party brokers to solicit research and propose charters. For this service, the Company pays to Tsakos Shipping a chartering commission of approximately 1.25% on all freights, hires and demurrages. Such commissions are included in Voyage expenses in the accompanying Consolidated Statements of Comprehensive (Loss) Income. Tsakos Shipping also provides sale and purchase of vessels brokerage service. For this service, Tsakos Shipping may charge brokerage commissions. In the first quarter of 2017 and 2016 there were no such changes. Tsakos Shipping may also charge a fee of $200 (or such other sum as may be agreed) on delivery of each new-building vessel in payment for the cost of design and supervision of the new-building by Tsakos Shipping. In the first quarter of 2018 no such fee was charged. |
Certain members of the Tsakos family are involved in the decision-making processes of Tsakos Shipping and of the Management Company and are also stockholders and directors of the Holding Company.
(d) | Argosy Insurance Company Limited (Argosy): The Company places its hull and machinery insurance, increased value insurance and war risk and certain other insurance through Argosy, a captive insurance company affiliated with Tsakos Shipping. |
(e) | AirMania Travel S.A. (AirMania): Apart from third-party agents, the Company also uses an affiliated company, AirMania, for travel services. |
3. | Vessels |
Sale and Leaseback
On December 21, 2017, the Company entered into a five-year sale and leaseback agreement for each of the two suezmaxes, Eurochampion 2004 and Euronike. Under these leaseback agreements, there was a sellers credit of $6,500 each on the sales price that becomes immediately payable to the Company by the owners at the end of the five-year charter or upon sale of the vessels during the charter period. The Company analyzed the classification of the leaseback agreements based on the primary lease classification criteria and the supplemental indicators in ASC 840, and determined that these agreements qualified as operating leases.
Charter hire expense
As at March 31, 2018, minimum commitments to be incurred by the Company under vessel operating leases by which the Company charters-in vessels were approximately $51,176, comprised of $8,154 (2018), $10,822 (2019), $10,852 (2020), $10,822 (2021), and $10,526 (2022). The Company recognizes the expense from these charters, which is included in time-charter hire expense, on a straight-line basis over the term of the charters.
Held for sale
At March 31, 2018, and December 31, 2017, the VLCC Millennium was classified as held for sale.
4. | Deferred Charges |
Deferred charges, consisting of dry-docking and special survey costs, net of accumulated amortization, amounted to $30,330 and $23,759, at March 31, 2018 and December 31, 2017, respectively. Amortization of deferred dry-docking costs was $2,032 during the first quarter of 2018 and $1,657 during the first quarter of 2017 and is included in the depreciation and amortization of deferred dry-docking costs in the accompanying Consolidated Statements of Comprehensive (loss) income.
12
5. | Long Term Debt |
March 31, 2018 |
December 31, 2017 |
|||||||
Facility |
||||||||
(a) Credit Facilities |
246,168 | 250,104 | ||||||
(b) Term Bank Loans |
1,475,041 | 1,512,978 | ||||||
|
|
|
|
|||||
Total |
1,721,209 | 1,763,082 | ||||||
Less: Deferred finance costs, net |
(10,661 | ) | (11,213 | ) | ||||
Total long-term debt |
1,710,548 | 1,751,869 | ||||||
Less: Current portion of debt |
(306,682 | ) | (228,967 | ) | ||||
Add: Deferred finance costs, current portion |
2,937 | 3,084 | ||||||
|
|
|
|
|||||
Total long-term portion, net of current portion and deferred finance costs |
1,406,803 | 1,525,986 | ||||||
|
|
|
|
(a) | Credit facilities |
As at March 31, 2018, the Company had two open revolving credit facilities, both of which are reduced in semi-annual installments, and one open facility which has a reducing revolving credit component and a term bank loan component, with balloon payments due at maturity between October 2018 and April 2019. At March 31, 2018, there was no available unused amount.
Interest is payable at a rate based on LIBOR plus a spread. At March 31, 2018, interest on these facilities ranged from 2.44% to 5.19%.
(b) | Term bank loans |
Term loan balances outstanding at March 31, 2018 amounted to $1,475,041. These bank loans are payable in U.S. Dollars in quarterly or semi-annual installments, with balloon payments due at maturity between September 2018 and January 2027. Interest rates on the outstanding loans as at March 31, 2018 are based on LIBOR plus a spread. At March 31, 2018, interest on these term bank loans ranged from 3.03% to 5.07%.
On February 15, 2018, the Company signed a new five-year loan relating to the refinancing of eleven vessels with matured debts between October 2018 and April 2019. The total amount of the loan amounts to $162,575 and was drawn on April 3, 2018. The new loan is repayable in ten semi-annual installments of $11,561, commencing six months after the drawdown date, plus a balloon of $46,965 payable together with the last installment. On April 4, 2018, the Company prepaid $181,168 relating to the outstanding debt on the above eleven vessels.
On April 27, 2018, the Company signed a supplemental agreement on the loan agreement dated January 31, 2012 for $12,475 top-up tranche to the existing loan for the early refinancing of the shuttle tanker Rio 2016.The top-up was drawn down on April 30, 2018 and is repayable in twelve equal semi-annual installments of $3,203, plus a balloon payment of $38,438 payable together with the last installment.
The weighted-average interest rates on the above executed loans for the applicable periods were:
Three months ended March 31, 2018 |
3.76 | % | ||
Three months ended March 31, 2017 |
3.20 | % |
The above revolving credit facilities and term bank loans are secured by first priority mortgages on all vessels, by assignments of earnings and insurances of the respectively mortgaged vessels, and by corporate guarantees of the relevant vessel-owning subsidiaries.
Certain loan agreements include undertakings requiring the Company to obtain the lenders prior consent in order to incur or issue any financial indebtedness, additional borrowings, pay dividends in an amount more than 50% of cumulative net income (as defined in the related agreements), sell vessels and assets, and change the beneficial ownership or management of the vessels. Also, covenants require the Company to maintain a minimum liquidity, not legally restricted, of $111,651 at March 31, 2018 and $113,427 at December 31, 2017, a minimum hull value in connection with the vessels outstanding loans and insurance coverage of the vessels against all customary risks. Four loan agreements require the Company to maintain throughout the security period an aggregate credit balance in a deposit account of $4,250. Four loan agreements require a monthly pro rata transfer to retention account of any principal due, but unpaid.
13
As at March 31, 2018, the Company and its wholly owned subsidiaries had thirty-two loan agreements, totaling $1,721,209. The Company fulfilled its requirements in respect of the financial covenants of all the agreements in relation to the leverage ratio and all other terms and covenants, apart from the value-to-loan requirement in certain of its loan agreements in respect of which an amount of $2,135 has been reclassified within current liabilities at March 31, 2018.
The Companys liquidity requirements relate primarily to servicing its debt, funding the equity portion of investments in vessels and funding expected capital expenditure on dry-dockings and working capital. As of March 31, 2018, the Companys working capital (non-restricted net current assets), amounted to a deficit of $173,270 and $50,524 at December 31, 2017.
The annual principal payments required to be made after March 31, 2018, are as follows:
Period/Year |
Amount | |||
April to December 2018 |
186,621 | |||
2019 |
257,596 | |||
2020 |
258,678 | |||
2021 |
276,239 | |||
2022 |
215,070 | |||
2023 and thereafter |
527,005 | |||
|
|
|||
1,721,209 | ||||
|
|
6. | Interest and Finance Costs, net |
Three months ended March 31, 2018 |
Three months ended March 31, 2017 |
|||||||
Interest expense |
16,721 | 14,103 | ||||||
Less: Interest capitalized |
| (264 | ) | |||||
|
|
|
|
|||||
Interest expense, net |
16,721 | 13,839 | ||||||
Swaps termination cash settlements |
| (3,685 | ) | |||||
Bunkers swap cash settlements |
(1,411 | ) | (360 | ) | ||||
Amortization of loan fees |
813 | 710 | ||||||
Bank charges |
| 24 | ||||||
Change in fair value of non-hedging financial instruments |
1,822 | 1,336 | ||||||
|
|
|
|
|||||
Net total |
17,945 | 11,864 | ||||||
|
|
|
|
At March 31, 2018, the Company was committed to nine floating-to-fixed interest rate swaps with major financial institutions covering notional amounts aggregating to $436,007 maturing from May 2018 through October 2027, on which it pays fixed rates averaging 2.87% and receives floating rates based on the six-month London interbank offered rate (LIBOR) (Note 11).
At March 31, 2018, all interest rate swap agreements were designated and qualified as cash flow hedges, in order to hedge the Companys exposure to interest rate fluctuations. The fair value of such financial instruments as at March 31, 2018 and December 31, 2017 in aggregate amounted to $2,999 (negative) and $1,967 (negative), respectively. The estimated net amount of cash flow hedge losses at March 31, 2018 that is estimated to be reclassified into earnings within the next twelve months is $343.
At March 31, 2018 and December 31, 2017, the Company held one call option agreement to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by its vessels. The fair value of the financial instrument as at March 31, 2018 and December 31, 2017 was $118 (positive) and $149 (positive), respectively. The changes in the fair value amounting to $31 (positive) has been included in Change in fair value of non-hedging financial instruments in the table above, as such agreements do not meet the hedging criteria. In the first quarter of 2017, the Company entered into the call option agreement and paid a premium of $118.
At March 31, 2018 and December 31, 2017, the Company held seven bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated with the consumptions of bunkers by its vessels. The fair value of these financial instruments as at March 31, 2018 and December 31, 2017 was $2,620 (positive) and $3,763 (positive), respectively. The changes in their fair values amounting to $1,143 (negative) have been included in Change in fair value of non-hedging financial instruments in the table above, as such agreements do not meet the hedging criteria.
At March 31, 2018 and December 31, 2017, the Company held three bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by the vessel Ulysses. The fair values of these financial
14
instruments as of March 31, 2018 and December 31, 2017 were $2,554 (positive) and $3,264 (positive), respectively. The changes in their fair values amounting to $710 (negative) have been included in Change in fair value of non-hedging financial instruments in the table above, as such agreements do not meet the hedging criteria.
7. | Stockholders Equity |
On March 12, 2018, the Company declared a dividend of $0.05 per common share payable on May 10, 2018 to stockholders of record as of May 3, 2018. On March 17, 2017, the Companys Board of Directors declared a quarterly dividend of $0.05 per share of common stock outstanding to be paid on April 28, 2017 to stockholders of record as of April 25, 2017.
During the quarter-ended March 31, 2018, the Company sold 81,851 common shares from its treasury stock for net proceeds of $237. During the quarter-ended March 31, 2017, the Company sold 550,000 common shares from its treasury stock for net proceeds of $2,237 and further 24,803 of its 8.75% Series D Preferred Shares for net proceeds of $533.
On January 30, 2018, the Company paid dividends of $0.50 per share, $1,000 in total, for its 8.00% Series B Preferred Shares and $0.55469 per share, $1,109 in total, on its 8.875% Series C Preferred Shares. On January 30, 2017, the Company paid dividends of $0.50 per share, $1,000 in total, for its 8.00% Series B Preferred Shares and $0.55469 per share, $1,109 in total, on its 8.875% Series C Preferred Shares.
On February 28, 2018, the Company paid dividends of $0.54687 per share, $1,873 in total, for its 8.75% Series D Preferred Shares. On February 28, 2017, the Company paid dividends of $0.54687 per share, $1,866 in total, for its 8.75% Series D Preferred Shares.
On April 5, 2017, the Company completed an offering of 4,600,000 of its Series E Cumulative Perpetual Preferred Shares, par value $1.00 per share, liquidation preference $25.00 per share, raising $110,496, net of underwriters discount and other expenses. Dividends on the Series E Preferred Shares are cumulative from the date of original issue and will be payable quarterly in arrears on the 28th day of February, May, August and November of each year, commencing May 28, 2017, when, as and if declared by our board of directors. Dividends will be payable from cash available for dividends at a rate equal to 9.25% per annum of the stated liquidation preference prior to May 28, 2027 and from and including May 28, 2027, at a floating rate equal to three-month LIBOR plus a spread of 6.881% per annum of the stated liquidation preference. On February 28, 2018, the Company paid dividends of $0.57812 per share each or $2,659 in total, on its Series E Preferred Shares.
8. | Accumulated other comprehensive (loss) income |
In the first quarter of 2018 and 2017, accumulated other comprehensive (loss) income increased with unrealized losses of $1,022 and $3,071 respectively, which resulted from changes in the fair value of financial instruments.
9. | Earnings per Common Share |
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period.
Three months ended March 31, 2018 |
Three months ended March 31, 2017 |
|||||||
Numerator: |
||||||||
Net (loss) income attributable to Tsakos Energy Navigation Limited |
(11,915 | ) | 17,479 | |||||
Preferred share dividends Series B |
(1,000 | ) | (1,000 | ) | ||||
Preferred share dividends Series C |
(1,109 | ) | (1,109 | ) | ||||
Preferred share dividends Series D |
(1,873 | ) | (1,859 | ) | ||||
Preferred share dividends Series E |
(2,659 | ) | | |||||
|
|
|
|
|||||
Net (loss) income attributable to common stockholders |
(18,557 | ) | 13,510 | |||||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average common shares outstanding |
86,324,241 | 83,966,533 | ||||||
|
|
|
|
|||||
Basic and diluted (loss) earnings per common share |
$ | (0.21 | ) | $ | 0.16 |
15
10. | Commitments and Contingencies |
At March 31, 2018, there is a prepaid amount of $1,650 under an old shipbuilding contract which was terminated in 2014, which will be used against the contract price of future new buildings currently being discussed between the Company and the shipyard.
In the ordinary course of the shipping business, various claims and losses may arise from disputes with charterers, agents and other suppliers relating to the operations of the Companys vessels. Management believes that all such matters are either adequately covered by insurance or are not expected to have a material adverse effect on the Companys results from operations or financial condition.
16
Charters-out
The future minimum revenues of vessels in operation at March 31, 2018, before reduction for brokerage commissions, expected to be recognized on non-cancelable time charters are as follows:
Year | Amount | |||
April 1 to December 31, 2018 |
214,029 | |||
2019 |
221,450 | |||
2020 |
189,122 | |||
2021 |
153,378 | |||
2022 to 2028 |
354,466 | |||
|
|
|||
Minimum future time-charter revenue |
1,132,445 | |||
|
|
These amounts do not assume any off-hire.
11. | Financial Instruments |
(a) | Interest rate risk: The Company is subject to interest rate risk associated with changing interest rates with respect to its variable interest rate term loans and credit facilities as described in Notes 5 and 6. |
(b) | Concentration of credit risk: Financial Instruments that are subject to credit risk consist principally of cash, trade accounts receivable, investments and derivatives. The Company places its temporary cash investments, consisting mostly of deposits, primarily with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Companys investment strategy. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers financial condition and generally does not require collateral for its accounts receivable and does not have any agreements to mitigate credit risk. The Company limits the exposure of non-performance by counterparties to derivative instruments by diversifying among counterparties with high credit ratings and performing periodic evaluations of the relative credit standing of the counterparties. |
(c) | Fair value: The carrying amounts reflected in the accompanying Consolidated Balance Sheet of cash and cash equivalents, restricted cash, trade receivables and accounts payable approximate their respective fair values due to the short maturity of these instruments. The fair value of long-term bank loans with variable interest rates approximate the recorded values, generally due to their variable interest rates. The present value of the future cash flows of the portion of one long-term bank loan with a fixed interest rate is estimated to be almost the same as compared to its carrying amount of $1,721. The Company performs relevant enquiries on a periodic basis to assess the recoverability of the long-term investment and estimates that the amount presented on the accompanying Balance Sheet approximates the amount that is expected to be received by the Company in the event of sale of that investment. |
The fair values of the one long-term bank loan with a fixed interest rate, the interest rate swap agreements, bunker swap agreements, put option agreements and call option agreements discussed in Note 6 above are determined through Level 2 of the fair value hierarchy as defined in FASB guidance for Fair Value Measurements and are derived principally from or corroborated by observable market data, interest rates, yield curves and other items that allow value to be determined.
The estimated fair values of the Companys financial instruments, other than derivatives at March 31, 2018 and December 31, 2017 are as follows:
Carrying Amount March 31, 2018 |
Fair Value March 31, 2018 |
Carrying Amount December 31, 2017 |
Fair Value December 31, 2017 |
|||||||||||||
Financial assets/(liabilities) |
||||||||||||||||
Cash and cash equivalents |
158,177 | 158,177 | 189,763 | 189,763 | ||||||||||||
Restricted cash |
20,099 | 20,099 | 12,910 | 12,910 | ||||||||||||
Investments |
1,000 | 1,000 | 1,000 | 1,000 | ||||||||||||
Debt |
(1,721,209 | ) | (1,721,051 | ) | (1,763,082 | ) | (1,762,938 | ) |
17
Tabular Disclosure of Derivatives Location
Derivatives are recorded in the balance sheet on a net basis by counterparty when a legal right of setoff exists. The following tables present information with respect to the fair values of derivatives reflected in the balance sheet on a gross basis by transaction. The tables also present information with respect to gains and losses on derivative positions reflected in the Statement of Comprehensive (loss) income or in the Balance Sheet, as a component of Accumulated other comprehensive loss.
Fair Value of Derivative Instruments
Asset Derivatives | Liability Derivatives | |||||||||||||||||
March 31, 2018 |
December 31, 2017 |
March 31, 2018 |
December 31, 2017 |
|||||||||||||||
Derivative |
Balance Sheet Location |
Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||
Derivatives designated as hedging instruments |
||||||||||||||||||
Interest rate swaps |
Current portion of financial instruments - Fair value |
74 | | 853 | 1,378 | |||||||||||||
Financial instruments Fair value, net of current portion |
191 | | 2,411 | 589 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Subtotal |
265 | | 3,264 | 1,967 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||||
March 31, 2018 |
December 31, 2017 |
March 31, 2018 |
December 31, 2017 |
|||||||||||||||
Derivative |
Balance Sheet Location |
Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||
Derivatives not designated as hedging instruments |
||||||||||||||||||
Bunker swaps |
Current portion of financial instruments - Fair value |
4,459 | 5,715 | | | |||||||||||||
Financial instruments Fair value, net of current portion |
715 | 1,312 | | | ||||||||||||||
Bunker call options |
Current portion of financial instruments- Fair value |
| | | ||||||||||||||
Financial instruments Fair value, net of current portion |
149 | 118 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Subtotal |
5,323 | 7,145 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives |
5,588 | 7,145 | 3,264 | 1,967 | ||||||||||||||
|
|
|
|
|
|
|
|
18
Derivatives designated as Hedging Instruments-Net effect on the Statements of Comprehensive (Loss) Income
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion) |
||||||||||
Amount Three months ended March 31, |
||||||||||
Derivative | 2018 | 2017 | ||||||||
Interest rate swaps |
(1,521 | ) | (3,796 | ) | ||||||
|
|
|
|
|||||||
Total |
(1,521 | ) | (3,796 | ) | ||||||
|
|
|
|
|||||||
Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
||||||||||
Amount Three months ended March 31, |
||||||||||
Derivative | Location | 2018 | 2017 | |||||||
Interest rate swaps |
Depreciation expense | (47 | ) | (38 | ) | |||||
Interest rate swaps |
Interest and finance costs, net | (452 | ) | (687 | ) | |||||
|
|
|
|
|||||||
Total |
(499 | ) | (725 | ) |
The accumulated loss from Derivatives designated as Hedging instruments recognized in Accumulated Other Comprehensive Loss as of March 31, 2018 and December 31, 2017 was $6,327 and $5,305 respectively.
Derivatives Not Designated as Hedging Instruments-Net effect on the Statement of Comprehensive (Loss) Income
Net Realized and Unrealized Gain (Loss) Recognized on Statement of Comprehensive (Loss) Income |
||||||||||
Amount Three months ended |
||||||||||
Derivative | Location | 2018 | 2017 | |||||||
Bunker swaps |
Interest and finance costs, net | (442 | ) | (542 | ) | |||||
Bunker call options |
Interest and finance costs, net | 31 | (433 | ) | ||||||
|
|
|
|
|||||||
Total |
(411 | ) | (975 | ) | ||||||
|
|
|
|
The following tables summarize the fair values for assets and liabilities measured on a recurring basis as of March 31, 2018 and December 31, 2017 using Level 2 inputs (significant other observable inputs):
Recurring measurements: |
March 31, 2018 |
December 31, 2017 |
||||||
Interest rate swaps |
(2,999 | ) | (1,967 | ) | ||||
Bunker swaps |
5,174 | 7,027 | ||||||
Bunker call option |
149 | 118 | ||||||
|
|
|
|
|||||
2,324 | 5,178 | |||||||
|
|
|
|
12. | Subsequent Events |
(a) | On April 11, 2018, the Company sold its VLCC Millennium previously classified as Held for Sale and on the same date prepaid its loan amount of $10,158. Net proceeds from the sale were $17,520, leaving a free cash of $7,362. |
(b) | On April 30, 2018, the Company paid a dividend of $0.50 per share and $0.55469 per share for its 8.00% Series B and its 8.875% Series C Preferred Shares, respectively. |
(c) | On May 2, 2018, the Company signed new building contracts with Daehan Shipbuilding Co for the construction of two aframax crude carriers. The first installment for both vessels amounted to $10,344 and was paid on June 15, 2018. |
19
(d) | On May 10, 2018, the Company paid a dividend of $0.05 per common share outstanding which was declared on March 12, 2018. |
(e) | On May 29, 2018, the Company paid dividends of $0.54687 per share and $0.57812 per share for its 8.75% Series D and its 9.25% Series E Preferred Shares, respectively. |
(f) | In the period of March 31 to June 15, 2018, the Company has sold 935,019 common shares from its treasury stock in the second quarter of 2018 for net proceeds of $3,332. |
(g) | On June 7, 2018, the Company signed a new loan for $80,000 relating to the refinancing of the shuttle tanker Brasil 2014. |
(h) | On June 15, 2018, the Company declared a dividend of $0.05 per common share payable on August 8, 2018 to stockholders of record as of August 2, 2018. |
20
Exhibit 99.2
TSAKOS ENERGY NAVIGATION LIMITED
THREE MONTHS ENDED MARCH 31, 2018
Results of operations Managements Discussion & Analysis
Three months ended March 31, 2018 versus three months ended March 31, 2017
(Percentage changes are based on the actual amounts shown in the accompanying consolidated financial statements)
Voyage revenues
Voyage revenues earned in the first quarter of 2018 and 2017 per charter category were as follows:
Three months ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
$ million | % of total | $ million | % of total | |||||||||||||
Time charter-bareboat |
| | 1.4 | 1 | % | |||||||||||
Time charter-fixed rate |
59.8 | 48 | % | 48.9 | 36 | % | ||||||||||
Time charter-variable rate (profit share) |
25.9 | 21 | % | 22.4 | 16 | % | ||||||||||
Contract of affreightment |
11.6 | 9 | % | 11.6 | 8 | % | ||||||||||
Voyage charter-spot market |
28.4 | 22 | % | 53.9 | 39 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total voyage revenue |
125.7 | 100 | % | 138.2 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
Voyage revenues from vessels were $125.7 million during the quarter ended March 31, 2018, compared to $138.2 million during the quarter ended March 31, 2017, a decrease of $12.5 million, or 9.1%. The decrease was mostly due to the softening of the market, caused by the oil supply constraint from Middle East OPEC countries and the overcapacity in the global tanker fleet. Having not applied the newly adopted ASC 606 accounting standard, the Companys voyage revenues would have been $125.1 million for the three-month period ended March 31, 2018.
During the first quarter of 2018, the Company operated on average of 65.0 vessels, while during the first quarter of 2017, the Company operated an average of 59.6 vessels. Total utilization (total days that the vessels were actually employed as a percentage of total days in the period that we owned or controlled the vessels) achieved by the fleet in the first quarter of 2018 was 96.1% compared to 97.2% in the first quarter of 2017. The days lost in the first quarter of 2018 relate mostly to the dry-dockings of the suezmax tanker Eurovision, the panamax tankers Maya, Selecao, Socrates and the DP shuttle tanker Brasil 2014. The remaining lost days refer to various repositioning voyages. Lost days in the prior year first quarter were mainly due to scheduled dry-dockings of one aframax, one suezmax and one handysize tanker.
Due to managements decision to increase the number of vessels operating days on secured employment, with a larger part of income based on fixed rates, operating days on pure time-charter without profit-share arrangements increased by 352 days to 2,407 days from 2,055 days, or 17.1% between the first quarter of 2018 and 2017 and the amount of revenue earned increased to $59.8 million in the first quarter of 2018 from $48.9 million in the first quarter of 2017, a 22.2% increase. There was a 29.3% increase in the number of days utilized in time-charter with profit-share arrangements, which totaled 1,732 compared to 1,340 in the first quarter of 2017, contributing to a 15.9% increase in revenue earned in profit-share arrangements, although no profit-share was actually earned in the first quarter of 2018. Securing employment through time charter arrangements, resulted to a decrease in the number of days for vessels employed under spot and contract of affreightments by 18.4% to 1,485 from 1,819 days, contributing to a decrease in revenue to $40 million during the quarter ended March 31, 2018 from $65.5 million during the quarter ended March 31, 2017.
Average daily TCE rates earned for the three-month periods ended March 31, 2018 and March 31, 2017 were as follows:
Q1 2018 | Q1 2017 | |||||||
$ | $ | |||||||
LNG carrier |
23,618 | 23,666 | ||||||
VLCC |
23,306 | 27,549 | ||||||
Suezmax |
14,339 | 26,700 | ||||||
DP2 shuttle |
49,565 | 50,383 | ||||||
Aframax |
18,555 | 20,177 | ||||||
Panamax |
15,134 | 15,931 | ||||||
Handymax |
12,063 | 15,050 | ||||||
Handysize |
12,909 | 12,617 |
1
TCE is calculated by taking voyage revenue less voyage costs divided by the number of revenue days less 84 days lost as a result of calculating revenue on a loading to discharge basis for the first quarter of 2018.
Time charter equivalent revenue and TCE rate are not measures of financial performance under U.S. GAAP and may not be comparable to similarly titled measures of other companies. However, TCE is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping industry performance despite changes in the mix of charter types (i.e. spot voyage charters, time charters and bare-boat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rate for the period presented (amount in thousands of U.S. dollars, except for TCE rate, which is expressed in U.S. dollars and available days):
Three months ended March 31, | ||||||||
2018 | 2017 | |||||||
$000 | $000 | |||||||
Voyage revenues |
125,725 | 138,242 | ||||||
Less: Voyage Expenses |
(27,276 | ) | (30,083 | ) | ||||
Add: Representative operating expenses for bareboat charter ($10,000 daily) |
| 900 | ||||||
|
|
|
|
|||||
Time charter equivalent revenues |
98,449 | 109,059 | ||||||
|
|
|
|
|||||
Divided by: net earnings (operating) days |
5,540 | 5,214 | ||||||
Average TCE per vessel per day |
17,771 | 20,917 |
Voyage expenses
Total voyage expenses per category |
Average daily voyage expenses per vessel |
|||||||||||||||||||||||
Three months ended March 31, |
% increase/ (decrease) |
Three months ended March 31, |
% increase/ (decrease) |
|||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||
$ million | $ million | $ | $ | |||||||||||||||||||||
Bunkering expenses |
14.5 | 16.2 | (10.2 | )% | 9,772 | 8,881 | 10.0 | % | ||||||||||||||||
Port and other expenses |
8.4 | 8.5 | (1.3 | )% | 5,659 | 4,682 | 20.9 | % | ||||||||||||||||
Commissions |
4.4 | 5.4 | (19.4 | )% | 2,936 | 2,975 | (1.3 | )% | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total voyage expenses |
27.3 | 30.1 | (9.3 | )% | 18,367 | 16,538 | 11.1 | % | ||||||||||||||||
Days on Spot and Contract of Affreightment (COA) employment |
1,485 | 1,819 |
Voyage expenses include costs that are directly related to a voyage, such as port charges, agency fees, canal dues and bunker (fuel) costs. These voyage expenses are borne by the Company unless the vessel is on time-charter, in which case they are borne by the charterer. Commissions on revenue are included in voyage expenses and they are borne by the Company for all types of charter. Voyage expenses were $27.3 million during the quarter ended March 31, 2018, compared to $30.1 million during the prior years first quarter, a 9.3% decrease. The decrease in voyage expenses in the first quarter of 2018 compared to the first quarter of 2017 is mainly due to the increased number of vessels employed under time charter with fixed or profit share arrangements, resulting to a decrease in volume consumed by 33.6%, partially offset by the increase in the bunker prices by 16.1%. The daily bunkering expenses increased in line with bunker prices by 10.0%, partially counterbalanced by slow steaming voyages and optimized route selection. Port and other expenses decreased by 1.3% between the three-month periods, partly as a result of more vessels entering time-charters. However, daily average port expenses per relevant vessel increased by $977 due to a high number of port calls.
Commissions amounted to $4.4 million, or 3.5% of revenue from vessels, during the quarter ended March 31, 2018, compared to $5.4 million or 3.9% of revenue from vessels, for the quarter ended March 31, 2017. The decrease was due to lower voyage charter revenues, with commission rates remaining at similar levels on average as the prior equivalent period.
Having not applied the ASC 606, the Companys voyage expenses would have been $27.2 million for the three-month period ended March 31, 2018.
2
Vessel operating expenses
Operating expenses per category |
Average daily operating expenses per vessel |
|||||||||||||||||||||||
Q1 2018 | Q1 2017 | % increase/ (decrease) |
Q1 2018 | Q1 2017 | % increase/ (decrease) |
|||||||||||||||||||
U.S.$ million |
U.S.$ million |
U.S.$ | U.S.$ | |||||||||||||||||||||
Crew expenses |
27.9 | 24.5 | 13.6 | % | 4,765 | 4,654 | 2.4 | % | ||||||||||||||||
Insurances |
4.1 | 3.9 | 6.1 | % | 706 | 738 | (4.3 | )% | ||||||||||||||||
Repairs and maintenance, and spares |
6.6 | 4.6 | 42.9 | % | 1,122 | 871 | 28.8 | % | ||||||||||||||||
Stores |
3.4 | 2.4 | 39.5 | % | 581 | 462 | 25.7 | % | ||||||||||||||||
Lubricants |
1.9 | 1.7 | 11.4 | % | 325 | 324 | 0.5 | % | ||||||||||||||||
Other (quality and safety, taxes, registration fees, communications) |
3.0 | 3.0 | 1.9 | % | 513 | 555 | (8.1 | )% | ||||||||||||||||
Foreign currency losses/(gains) |
0.6 | (0.1 | ) | (736.0 | )% | 114 | (20 | ) | (673.4 | )% | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total operating expenses |
47.5 | 40.0 | 18.8 | % | 8,126 | 7,584 | 7.1 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Earnings capacity days excluding vessel on bareboat charter |
5,850 | 5,274 |
Vessel operating expenses include crew costs, insurances, repairs and maintenance, spares, stores, lubricants, quality and safety costs and other expenses such as tonnage tax, registration fees, communication costs and foreign currency gains or losses.
Total operating costs were $47.5 million during the quarter ended March 31, 2018 as compared to $40.0 million during quarter ended March 31, 2017, an increase of 18.8%, whereas earnings capacity days increased by 10.9% as a result of the operation of additional four new vessels in this years quarter compared to the prior year quarter, which affected the major operating expense categories.
Average operating expenses per ship per day increased to $8,126 for the quarter ended March 31, 2018 from $7,584 for the quarter ended March 31, 2017, a 7.1% increase. The full operation of shuttle tanker Lisboa, the dry-docking of five vessels compared to three during the prior years first quarter and the depreciation of the US dollar against the Euro by 15.4%, contributed to the overall increase of the average daily operating expenses by $542 for the first quarter ended March 31, 2018 as compared to the prior years first quarter.
Depreciation and amortization of deferred charges
Depreciation and amortization of deferred charges was $35.8 million and $32.3 million during the quarter ended March 31, 2018 and 2017, respectively. The increase of $3.5 million was primarily due to the increase of the size of the fleet.
Depreciation increased by $3.1 million to $33.8 million due to the addition of four vessels to the fleet, partially offset by the vessel Millennium, which was classified as Held for Sale and did not incur depreciation expense since December 31, 2017. Two vessels which remained as held for sale during the first quarter of 2017 were sold through a sale and leaseback transaction during the fourth quarter of 2017 and bore no depreciation in those quarters and in the intervening period.
During the quarter ended March 31, 2018, amortization of deferred dry-docking charges was $2.0 million compared to $1.7 million in the prior years first quarter. As deferred dry-docking charges are amortized on a straight-line basis, generally over a five-year period to the next dry-docking, for the most part the total amortization for the respective quarters relates to the same quarterly amortization charges for the same vessels. The increase in the first quarter of 2018 relates primarily to the amortization of deferred charges arising from the increased number and cost of vessels that underwent dry-docking in recent years.
Impairment
In the first quarter of 2018, vessel values continued to decline as world vessel capacity grew and freight rates softened, resulting in a large part of the fleet having carrying values in excess of market values. However, the fleet is relatively young, with an average age of 8.0 years as of March 31, 2018 and every vessel in the fleet is expected to generate considerably more cash during their remaining expected lives than their carrying values as at March 31, 2018. The Companys cash flow tests per vessel for assessing whether an impairment charge was required did not indicate that such an impairment charge was required for any vessel of the fleet at March 31, 2018 and 2017.
General and administrative expenses
General and administrative (G&A) expenses include vessel management fees, office administrative expenses, stock compensation expense and management incentive awards. G&A amounted to $6.8 million in the first quarter of 2018, compared to $6.1 million in the prior year first quarter, an increase of 11.8%, primarily due to the increase in the size of the fleet which resulted in an increase in total management fees.
3
The Company pays to Tsakos Energy Management fixed fees per vessel under a management agreement. The fee includes compensation for services that cover both the management of the individual vessels, as described below, and of the enterprise as a whole. Management fees, including those paid to third-party ship management companies, totaled $5.5 million during the quarter ended March 31, 2018, a 9.8% increase over the quarter ended March 31, 2017, which is in line with the addition of the four vessels to the fleet, as mentioned above. The management fee per vessel may be increased annually if certain criteria defined in the management agreement are met. The management fee to Tsakos Energy Management has not been increased since the beginning of 2012.
In the first quarter of 2018, all the vessels in the fleet were technically managed by TCM, apart from the LNG carriers Neo Energy and Maria Energy, the VLCCs Ulysses, Millennium and Hercules I, the suezmax Eurochampion 2004 and the aframaxes Maria Princess and Sapporo Princess, which have been managed by a third-party manager. Monthly management fees for operating conventional vessels are $27,500 per month. The monthly fee relating to vessels chartered-in or chartered-out on a bare-boat basis or for vessels under construction is $20,400. Management fees for the LNG carriers are $36,877, of which $10,000 are payable to the management company and $26,877 to the third-party manager. Management fees for Eurochampion 2004, Maria Princess, Sapporo Princess, Millennium, Hercules I and Ulysses are $27,500 per month, of which $14,503 are payable to a third-party manager. Management fees for the DP2 shuttle tankers are $35,000 per month.
Office administrative expenses consist primarily of professional fees, office supplies, investor relations, advertising costs, directors liability insurance, directors fees and travel-related expenses. Administrative expenses totaled $1.3 million during the quarter ended March 31, 2018 compared to $1.1 million during the previous years first quarter.
No incentive award was made to the management in the first quarters of 2018 and 2017, nor was there any stock compensation expense during these two quarters.
Office administrative expenses plus the management fees and any management incentive award and stock compensation expense, represent the overhead of the Company. On a per vessel basis, the daily overhead was $1,168 for the first quarter of 2018, compared to $1,139 in the first quarter of 2017.
Operating income
Income from vessel operations was $5.6 million during the first quarter of 2018 compared to $29.7 million during the first quarter of 2017, the fall being mainly due lower freight rates as a result of a softer spot market.
Interest and finance costs
Interest and finance cost analysis in the table below is not presented according to U.S. GAAP guidelines. However, management believes that this analysis may provide its users a better understanding of the Companys finance cost. Management also uses this analysis in making financial and planning decisions.
Three months ended March 31, | ||||||||
2018 | 2017 | |||||||
$ million | $ million | |||||||
Interest on loans |
16.3 | 13.4 | ||||||
Interest rate swaps cash settlements |
0.5 | 0.7 | ||||||
|
|
|
|
|||||
Total interest |
16.8 | 14.1 | ||||||
Less: Interest capitalized |
| (0.2 | ) | |||||
|
|
|
|
|||||
Interest expense, net |
16.8 | 13.9 | ||||||
Receipts from swaps termination |
| (3.7 | ) | |||||
Bunker hedging instruments cash settlements |
(1.4 | ) | (0.4 | ) | ||||
Change in fair value of non-hedging bunker instruments |
1.8 | 1.3 | ||||||
Other finance costs |
0.7 | 0.8 | ||||||
|
|
|
|
|||||
Net total |
17.9 | 11.9 | ||||||
|
|
|
|
4
Interest and finance costs, net, were $17.9 million for the first quarter of 2018 compared to $11.9 million for the quarter ended March 31, 2017, an increase of 51.2%. Loan interest, excluding payment of swap interest, increased by 21.4%, to $16.3 million from $13.4 million in the first quarter of 2017 due to the increase in the average loan interest rate from 2.99% to 3.76%, a 25.6% increase.
Interest paid on swaps amounted to $0.5 million compared to $0.7 million in the first quarter of 2017, due to increased LIBOR. The average all-in loan finance cost in the first quarter of 2018, taking account of net swap interest paid, increased to 3.9% from 3.3% in the previous years first quarter.
Capitalized interest is based on expenditure incurred to date on vessels under construction. In the first quarter of 2018, the Company incurred no capitalized interest since its newbuilding program completed in the fourth quarter of 2017, compared to $0.2 million based on installments made on four vessels under construction during the first quarter of 2017.
During the first quarter of 2017, the Company entered into an early termination of four of its hedging interest rate swap agreements. Total cash received from those terminations amounted to $3.7 million.
During the first quarter of 2018, the Company held one call option agreement. During the first quarter of 2017, the Company held six bunker call option agreements and earned a net premium of $0.1 million.
The change in fair value of the bunker call option during the first quarter of 2018 amounted to $0.03 million positive compared to $0.6 million negative in the respective prior year quarter for the six bunker call options.
During 2016, the Company entered into three bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by the vessel Ulysses. In the first quarter of 2018 and 2017, the changes in fair values amounted to $0.7 million negative and $1.0 million negative, respectively and have been included in Change in fair value of non-hedging bunker instruments in the above table.
In the first quarter of 2018, the Company had seven bunker swap agreements. The change in their fair values amounted to $1.1 million (negative) and have been included in Change in fair value of non-hedging bunker instruments in the above table. During the first quarter of 2017, the Company entered into three bunker swap agreements and the change in fair value of $0.2 million (positive) has been included in fair value of non-hedging bunker instruments in the table above.
Amortization of loan expenses was $0.7 million in the first quarter of 2018 compared to $0.8 million in the first quarter of 2017.
Interest income
Total income derived from bank deposits was $0.3 million during the first quarter of 2018 compared to $0.1 million for the quarter ended March 31, 2017, mostly due to higher interest rates.
Non-controlling interest
There is a non-controlling interest of 49% in the subsidiary Mare Success S.A., which owns 100% of each of the companies that own the panamax vessels Maya and Inca. There was a loss attributable to the non-controlling interest of $0.5 million during the quarter ended March 31, 2018 compared to an income of $0.4 million for prior years first quarter, mainly due to the scheduled special survey of Maya within the first quarter of 2018.
Net Income
As a result of the foregoing, the net loss attributable to Tsakos Energy Navigation Limited for the quarter ended March 31, 2018 was $11.9 million, or $0.21 loss per share basic and diluted, taking into account the cumulative dividend of $6.6 million on our Series B , Series C , Series D and Series E preferred shares, versus a net income of $17.5 million, or $0.16 earnings per share basic and diluted, for the quarter ended March 31, 2017, taking into account the cumulative dividend of $4.0 million on our Series B, Series C and Series D preferred shares. The weighted average number of common shares (basic and diluted) during the first quarter of 2018 was 86,324,241 compared to 83,966,533 during the first quarter of 2017.
5
Liquidity and capital resources
Our liquidity requirements relate to servicing our debt, funding the equity portion of investments in vessels, funding working capital and controlling fluctuations in cash flow. In addition, our newbuilding commitments, other expected capital expenditures on dry-dockings and vessel acquisitions will require us to expend cash in the rest of 2018 and in future years. Net cash flow generated by operations is the main source of liquidity. Apart from the possibility of raising further funds through the capital markets, additional sources of cash include proceeds from asset sales and borrowings, although all borrowing arrangements to date have related to the acquisition of specific vessels.
We believe, given our current cash holdings and the number of vessels we have on time charter, that if market conditions remain relatively stable throughout 2018, our financial resources, including the cash expected to be generated within the year, will be sufficient to meet our liquidity and working capital needs through March 31, 2018, taking into account our existing capital commitments and debt service requirements. If market conditions worsen significantly, then our cash resources may decline to a level that may put at risk our ability to service timely our debt and capital expenditure commitments. To avoid such an eventuality, management would expect to be able to raise extra capital through the alternative sources described above.
Working capital (non-restricted net current assets) at March 31, 2018 and December 31, 2017 amounted to $173.3 million and $50.5 million negative, respectively. The deficit is mainly attributed to lower cash balances, loan facilities which are reaching maturity from April 2018 through February 2019 amounting to $126.3 million and the loan prepayment of $10.2 million of the Millennium, sold in April 2018.
Current assets decreased to $274.0 million at March 31, 2018 from $304.4 million at December 31, 2017, mainly due to decreased cash and cash equivalents during the quarter. Current liabilities increased to $424.3 million at March 31, 2018 from $338.9 million at December 31, 2017, mainly due to increased current portion of debt.
Net cash provided by operating activities was $24.6 million in the quarter ended March 31, 2018 compared to $54.5 million in the previous years first quarter.
Net cash used in investing activities was $0.4 million for the quarter ended March 31, 2018, compared to $146.6 million for the quarter ended March 31, 2017. In October 2017, the Company took delivery of the aframax newbuilding Bergen TS, bringing to completion the newbuilding program of 15 vessels.
Net cash used in financing activities was $48.5 million in the quarter ended March 31, 2018, compared to $54.5 million provided by financing activities during the first quarter of 2017. In the first quarter of 2018, debt repayments amounted to $41.9 million compared to $44.0 million in the prior year quarter. In the first quarter of 2017, we drew down $100.2 million for the financing of the aframax tanker Marathon TS, the VLCC tanker Hercules I and the DP2 shuttle tanker Lisboa.
Total debt outstanding decreased to $1,721.2 million as of March 31, 2018 from $1,763.1 million at the beginning of the quarter. The debt to capital (equity plus debt) ratio was 53.7% at March 31, 2018 (or 51.0% on a net of cash basis). In the first quarter of 2018, the Company entered into four new swap agreements to hedge its exposure to the interest rate fluctuations associated with its debt. Interest rate swaps coverage, plus fixed interest loans coverage, on outstanding loans was approximately 25% at the end of the first quarter of 2018.
During the quarter ended March 31, 2018, a total of $0.2 million has been raised, with the sale of 81,851 common shares, compared to $2.2 million with the sale of 550,000 common shares in the prior year quarter.
On January 30, 2018, the Company paid dividends of $0.50 per share or $1.0 million on its 8.00% Series B Preferred Shares and on the same date, the Company paid dividends of $0.5547 per share each or $1.1 million on its 8.875% Series C Preferred Shares. A dividend of $0.50 per share for the 8.00% Series B Preferred Shares, and a dividend of $0.5547 per share for the 8.875% Series C Preferred Shares, totaling $2.1 million in aggregate, were paid on January 30, 2017.
On February 28, 2018, the Company paid dividends of $0.5469 per share or $1.9 million on its 8.75% Series D Preferred Shares and on the same date, the Company paid dividends of $0.5781 per share each or $2.7 million on its 9.25% Series E Preferred Shares. On February 28, 2017 the Company paid dividends of $0.5469 per share or $1.9 million in total, for its 8.75% Series D Preferred Shares.
On March 12, 2018, the Company declared a dividend of $0.05 per common share payable on May 10, 2018 to stockholders of record as of May 3, 2018. On March 17, 2017, the Company declared a dividend of $0.05 per common share payable April 28, 2017 to stockholders of record as of April 25, 2017. The payment and the amount of dividends are subject to the discretion of our board of directors and depend, among other things, on available cash balances, anticipated cash needs, our results of operations, our financial condition, and any loan agreement restrictions binding us or our subsidiaries, as well as other relevant factors.
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The Company continues to be fully compliant with its scheduled debt service requirements, repaying capital and paying interest promptly in accordance with respective bank agreements without fail. As a percentage of total liabilities against total assets at fair value, our consolidated leverage (a non-GAAP measure) as computed in accordance with our loan agreements at March 31, 2018 was below the loan covenant maximum of 70%, which is applicable to all the above loans on a fleet and total liabilities basis.
As at March 31, 2018, the Company and its wholly and majority owned subsidiaries were compliant with the financial covenants in its thirty-two loan agreements totaling $1.72 billion, apart from the value-to-loan requirement in eight of its loan agreements, due to a fall in vessel values arising from world fleet overcapacity and a soft tanker market. One of these loans has been refinanced on February 15, 2018 and met the requirements on that date. Two more are expected to comply before the end of 2018, after scheduled repayments, and one loan will mature in early 2019. The total shortfall on the other four loans is relatively small. An amount of $2.1 million has been reclassified from long-term debt to current liabilities as at March 31, 2018, in relation to these loans. We do not expect to pay down the Companys loans in 2018 beyond the amounts that we have already classified as current liabilities.
Interest is usually payable at a variable rate, based on six-month LIBOR plus a margin. Interest rate swap instruments currently cover approximately 25% of the outstanding debt as of March 31, 2018. We review our hedging position relating to interest on a continuous basis and have regular discussions with banks with regards to terms for potential new instruments to hedge our interest.
Board of Directors
On May 25, 2018, Mr. Denis Petropoulos, executive director and president of Braemar Shipping Services, was appointed to the Companys Board of Directors, increasing the size of the Board of Directors to nine members.
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Exhibit 99.3
CAPITALIZATION
The following table sets forth our (i) cash and cash equivalents, (ii) restricted cash and (iii) consolidated capitalization as of March 31, 2018 on:
| an actual basis; and |
| as adjusted basis giving effect to (i) scheduled debt repayments of $35.0 million, (ii) prepayment of $181.2 million and drawdown of $162.6 million for the refinancing of eleven vessels, (iii) the payment of $6.6 million preferred share dividends, (iv) the payment of $4.3 million common share dividends, (v) the declaration of $4.4 million common share dividends, (vi) net proceeds of $17.5 million and $10.2 million loan prepayment from the sale of the VLCC Millennium, (vii) the prepayment of $63.2 million and the drawdown of $80.0 million for the refinancing of shuttle tanker Brasil 2014, (viii) the drawdown of the top-up tranche $12.5 million for the shuttle tanker Rio 2016, (ix) the payment of $10.3 million to the shipbuilding yard for the construction of two aframax crude carriers and (x) the sale of 935,019 common shares for net proceeds of $3.3 million. |
Other than these adjustments, there has been no material change in our capitalization from debt or equity issuances, re-capitalization or special dividends between March 31, 2018 and June 18, 2018.
This table should be read in conjunction with our consolidated financial statements and the notes thereto, Results of operations-Managements Discussion and Analysis above, and Item 5. Operating and Financial Review and Prospects, included in our Annual Report on Form 20-F for the year ended December 31, 2017.
As of March 31, 2018 | ||||||||
Actual | Adjusted | |||||||
In thousands of U.S. Dollars |
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Cash |
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Cash and cash equivalents |
$ | 158,177 | $ | 123,264 | ||||
Restricted cash |
20,099 | 18,305 | ||||||
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Total cash |
$ | 178,276 | $ | 141,569 | ||||
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Capitalization |
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Debt: |
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Long-term secured debt obligations (including current portion) |
$ | 1,721,209 | $ | 1,686,767 | ||||
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Stockholders equity: |
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Preferred shares, $1.00 par value; 25,000,000 shares authorized and 2,000,000 Series B Preferred Shares and 2,000,000 Series C Preferred Shares and 3,424,803 Series D Preferred Shares issued and 4,600,000 Series E Preferred Shares issued and outstanding at March 31, 2018 on an actual and as adjusted basis |
12,025 | 12,025 | ||||||
Common shares, $1.00 par value; 175,000,000 shares authorized; 87,338,652 shares issued and 86,401,434 shares outstanding at March 31, 2018 and 87,336,453 shares outstanding on an adjusted basis |
87,339 | 87,339 | ||||||
Additional paid-in capital |
857,954 | 857,954 | ||||||
Cost of treasury stock |
(5,279 | ) | (76 | ) | ||||
Accumulated other comprehensive loss |
(6,327 | ) | (6,327 | ) | ||||
Retained earnings |
523,557 | 510,677 | ||||||
Non-controlling interest |
13,430 | 13,430 | ||||||
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|
|
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Total stockholders equity |
1,482,699 | 1,475,022 | ||||||
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Total capitalization |
$ | 3,203,908 | $ | 3,161,789 | ||||
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