10-Q 1 a11-9502_110q.htm 10-Q

Table of Contents

 

 

 

FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

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

 

For the quarterly period ended March 31, 2011

 

OR

 

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

 

For the transition period from                      to                     

 

COMMISSION FILE NUMBER

001-34228

 

GENERAL MARITIME CORPORATION

(Exact name of registrant as specified in its charter)

 

Republic of the Marshall Islands

 

06-159-7083

(State or other jurisdiction

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

299 Park Avenue, 2nd Floor, New York, NY

 

10171

(Address of principal

 

(Zip Code)

executive offices)

 

 

 

Registrant’s telephone number, including area code (212) 763-5600

 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF MAY 5, 2011:

 

Common Stock, par value $0.01 per share 116,039,252 shares

 

 

 



Table of Contents

 

GENERAL MARITIME CORPORATION AND SUBSIDIARIES

 

INDEX

 

PART I:

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2011 and December 31, 2010

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2011 and 2010

 

4

 

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity (unaudited) for the three months ended March 31, 2011

 

5

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended March 31, 2011 and 2010

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2011 and 2010

 

7

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

27

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

60

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

 

60

 

 

 

 

PART II:

OTHER INFORMATION

 

61

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

 

61

 

 

 

 

ITEM 1A.

RISK FACTORS

 

 

 

 

 

 

ITEM 6.

EXHIBITS

 

62

 

 

 

 

SIGNATURES

 

64

 

2



Table of Contents

 

GENERAL MARITIME CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except per share data)

(unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash

 

$

62,765

 

$

16,858

 

Due from charterers, net

 

26,007

 

30,442

 

Prepaid expenses and other current assets

 

41,935

 

41,019

 

Vessels held for sale

 

7,206

 

80,219

 

Total current assets

 

137,913

 

168,538

 

 

 

 

 

 

 

NONCURRENT ASSETS:

 

 

 

 

 

Vessels, net of accumulated depreciation of $328,717 and $345,071, respectively

 

1,513,731

 

1,547,527

 

Vessel deposits

 

7,618

 

7,612

 

Other fixed assets, net

 

14,569

 

11,806

 

Deferred drydock costs, net

 

22,440

 

20,258

 

Deferred financing costs, net

 

19,898

 

19,178

 

Other assets

 

5,655

 

5,048

 

Goodwill

 

 

1,818

 

Total noncurrent assets

 

1,583,911

 

1,613,247

 

TOTAL ASSETS

 

$

1,721,824

 

$

1,781,785

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

82,199

 

$

57,864

 

Current portion of long-term debt

 

133,699

 

1,353,243

 

Borrowings from bridge loan credit facility

 

 

22,800

 

Deferred voyage revenue

 

5,032

 

1,554

 

Derivative liability

 

7,103

 

7,132

 

Total current liabilities

 

228,033

 

1,442,593

 

NONCURRENT LIABILITIES:

 

 

 

 

 

Long-term debt

 

1,183,571

 

 

Other noncurrent liabilities

 

2,615

 

2,217

 

Derivative liability

 

3,350

 

4,929

 

Total noncurrent liabilities

 

1,189,536

 

7,146

 

TOTAL LIABILITIES

 

1,417,569

 

1,449,739

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

Common stock, $0.01 par value per share; authorized 140,000,000 shares; issued and outstanding 89,589,252 and 89,593,272 shares at March 31, 2011 and December 31, 2010, respectively

 

896

 

896

 

Paid-in capital

 

573,755

 

571,742

 

Accumulated deficit

 

(260,197

)

(228,657

)

Accumulated other comprehensive loss

 

(10,199

)

(11,935

)

Total shareholders’ equity

 

304,255

 

332,046

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,721,824

 

$

1,781,785

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

 

GENERAL MARITIME CORPORATION AND SUBSIDIARIES

CONDENESED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 

 

FOR THE THREE MONTHS

 

 

 

ENDED MARCH 31,

 

 

 

2011

 

2010

 

VOYAGE REVENUES:

 

 

 

 

 

Voyage revenues

 

$

102,933

 

$

97,556

 

OPERATING EXPENSES:

 

 

 

 

 

Voyage expenses

 

43,951

 

31,670

 

Direct vessel expenses

 

29,840

 

24,261

 

Bareboat lease expense

 

1,584

 

 

General and administrative

 

8,787

 

9,727

 

Depreciation and amortization

 

22,434

 

22,307

 

Goodwill impairment

 

1,818

 

 

Loss (gain) on disposal of vessels and vessel equipment

 

3,285

 

(13

)

Total operating expenses

 

111,699

 

87,952

 

OPERATING (LOSS) INCOME

 

(8,766

)

9,604

 

OTHER EXPENSE:

 

 

 

 

 

Interest expense- net

 

(22,858

)

(18,855

)

Other income

 

84

 

172

 

Total other expense

 

(22,774

)

(18,683

)

Net loss

 

$

(31,540

)

$

(9,079

)

 

 

 

 

 

 

Basic loss per common share

 

$

(0.36

)

$

(0.16

)

Diluted loss earnings per common share

 

$

(0.36

)

$

(0.16

)

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

86,622,806

 

55,660,876

 

Diluted

 

86,622,806

 

55,660,876

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

 

GENERAL MARITIME CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(IN THOUSANDS)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Common

 

Paid-in

 

Accumulated

 

Comprehensive

 

 

 

 

 

Stock

 

Capital

 

Deficit

 

Loss

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2011

 

$

896

 

$

571,742

 

$

(228,657

)

$

(11,935

)

$

332,046

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

(31,540

)

 

 

(31,540

)

Unrealized derivative gain on cash flow hedge, net of reclassifications

 

 

 

 

 

 

 

1,673

 

1,673

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

63

 

63

 

Restricted stock amortization, net of forfeitures

 

 

 

2,013

 

 

 

 

 

2,013

 

Balance at March 31, 2011 (unaudited)

 

$

896

 

$

573,755

 

$

(260,197

)

$

(10,199

)

$

304,255

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

 

GENERAL MARITIME CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

 

 

 

FOR THE THREE MONTHS

 

 

 

ENDED MARCH 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Net loss

 

$

(31,540

)

$

(9,079

)

Unrealized derivative gain (loss) on cash flow hedge, net of reclassifications

 

1,673

 

(1,065

)

Foreign currency translation adjustments

 

63

 

(796

)

Comprehensive loss

 

$

(29,804

)

$

(10,940

)

 

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Table of Contents

 

GENERAL MARITIME CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

 

 

FOR THE THREE MONTHS

 

 

 

ENDED MARCH 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(31,540

)

$

(9,079

)

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

 

 

 

 

 

Loss (gain) on disposal of vessels and vessel equipment

 

3,285

 

(13

)

Goodwill impairment

 

1,818

 

 

 

Depreciation and amortization

 

22,434

 

22,307

 

Amortization of deferred financing costs

 

1,413

 

636

 

Amortization of discount on Senior Notes

 

159

 

141

 

Restricted stock compensation expense

 

2,013

 

2,182

 

Net unrealized gain on derivative financial instruments

 

 

(62

)

Provision for bad debts

 

139

 

541

 

Changes in assets and liabilities:

 

 

 

 

 

Decrease (increase) in due from charterers

 

4,296

 

(5,508

)

(Increase) decrease in prepaid expenses and other assets

 

(1,523

)

5,109

 

Increase in accounts payable, accrued expenses and other liabilities

 

22,929

 

6,571

 

Increase (decrease) in deferred voyage revenue

 

3,478

 

(1,651

)

Deferred drydock costs incurred

 

(4,402

)

(1,203

)

 

 

 

 

 

 

Net cash provided by operating activities

 

24,499

 

19,971

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of vessels

 

85,301

 

 

Purchase of other fixed assets

 

(2,738

)

(1,197

)

Decrease in deposit with counterparty for interest rate swap

 

 

2,711

 

 

 

 

 

 

 

Net cash provided by investing activites

 

82,563

 

1,514

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Repayments of credit facilities

 

(36,132

)

 

Repayment of Bridge Loan Credit Facility

 

(22,800

)

 

Deferred financing costs paid

 

(2,133

)

(128

)

Cash dividends paid

 

 

(7,281

)

 

 

 

 

 

 

Net cash used by financing activities

 

(61,065

)

(7,409

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(90

)

(780

)

 

 

 

 

 

 

Net increase in cash

 

45,907

 

13,296

 

Cash, beginning of the year

 

16,858

 

52,651

 

 

 

 

 

 

 

Cash, end of period

 

$

62,765

 

$

65,947

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

14,323

 

$

9,178

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

 

GENERAL MARITIME CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(DOLLARS IN THOUSANDS EXCEPT PER DAY AND SHARE DATA)

 

1.             BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF BUSINESS - General Maritime Corporation (the “Company”), through its subsidiaries, provides international transportation services of seaborne crude oil and petroleum products.  The Company’s fleet is comprised of VLCC, Suezmax, Aframax, Panamax and Handymax vessels. The Company operates its business in one operating segment, which is the transportation of international seaborne crude oil and petroleum products.

 

The Company’s vessels are primarily available for charter on a spot voyage or time charter basis. Under a spot voyage charter, which generally lasts from several days to several weeks, the owner of a vessel agrees to provide the vessel for the transport of specific goods between specific ports in return for the payment of an agreed upon freight per ton of cargo or, alternatively, for a specified total amount. All operating and specified voyage costs are paid by the owner of the vessel.

 

A time charter involves placing a vessel at the charterer’s disposal for a set period of time, generally one to three years, during which the charterer may use the vessel in return for the payment by the charterer of a specified daily or monthly hire rate. In time charters, operating costs such as for crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel, canal and port charges are paid by the charterer.

 

BASIS OF PRESENTATION - The financial statements of the Company have been prepared utilizing accounting principles generally accepted in the United States of America (“US GAAP”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP for interim financial reporting. In the opinion of the management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and operating results have been included in the statements. Interim results are not necessarily indicative of results for a full year. Reference is made to the December 31, 2010 condensed consolidated financial statements of General Maritime Corporation contained in its Annual Report on Form 10-K.

 

LIQUIDITY - The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.

 

On April 26, 2011, the Company breached the $50,000 minimum cash balance covenant under the 2011 Credit Facility (prior to giving effect to the Oaktree Transaction) and the 2010 Amended Credit Facility (prior to giving effect to the Oaktree Transaction) following a scheduled payment of $47,631 under the 2011 Credit Facility (prior to giving effect to the Oaktree Transaction). The Company obtained waivers of the minimum cash covenant through May 6, 2011 in connection with the closing of the 2011 Credit Facility and the 2010 Amended Credit Facility. The Company remains subject to the minimum cash covenant after giving effect to the closing of the 2011 Credit Facility and the 2010 Amended Credit Facility, and if current weak market conditions persist may breach this covenant at some point during 2011. In the event of any breach or potential breach of its minimum cash covenant, the Company intends to pursue alternatives including discussions with lenders to seek waivers or modifications allowing the Company to remain in compliance, potential financings, or other possible actions.

 

BUSINESS GEOGRAPHICS - Non-U.S. operations accounted for 100% of revenues and results of operations. Vessels regularly move between countries in international waters, over hundreds of trade routes. It is therefore impractical to assign revenues or earnings from the transportation of international seaborne crude oil and petroleum products by geographical area.

 

SEGMENT REPORTING -  Each of the Company’s vessels serve the same type of customer, have similar operations and maintenance requirements, operate in the same regulatory environment, and are subject to similar economic characteristics. Based on this, the Company has determined that it operates in one reportable segment, the transportation of crude oil and petroleum products with its fleet of vessels.

 

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Table of Contents

 

PRINCIPLES OF CONSOLIDATION - The accompanying condensed consolidated financial statements include the accounts of General Maritime Corporation and its wholly owned subsidiaries.  All intercompany accounts and transactions have been eliminated in consolidation.

 

REVENUE AND EXPENSE RECOGNITION - Revenue and expense recognition policies for spot market voyage and time charter agreements are as follows:

 

SPOT MARKET VOYAGE CHARTERS. Spot market voyage revenues are recognized on a pro rata basis based on the relative transit time in each period.  The period over which voyage revenues are recognized commences at the time the vessel departs from its last discharge port and ends at the time the discharge of cargo at the next discharge port is completed. The Company does not begin recognizing revenue until a charter has been agreed to by the customer and the Company, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.  The Company does not recognize revenue when a vessel is off hire.  Estimated losses on voyages are provided for in full at the time such losses become evident.  Voyage expenses primarily include only those specific costs which are borne by the Company in connection with voyage charters which would otherwise have been borne by the charterer under time charter agreements. These expenses principally consist of fuel, canal and port charges which are generally recognized as incurred. Demurrage income represents payments by the charterer to the vessel owner when loading and discharging time exceed the stipulated time in the spot market voyage charter. Demurrage income is measured in accordance with the provisions of the respective charter agreements and the circumstances under which demurrage claims arise and is recognized on a pro rata basis over the length of the voyage to which it pertains. At March 31, 2011 and December 31, 2010, the Company has a reserve of approximately $1,072 and $933, respectively, against its due from charterers balance associated with demurrage revenues and certain other receivables.

 

TIME CHARTERS. Revenue from time charters is recognized on a straight line basis over the term of the respective time charter agreement. Direct vessel expenses are recognized when incurred. Time charter agreements require that the vessels meet specified speed and bunker consumption standards.  The Company believes that there may be unasserted claims relating to its time charters of $448 and $240 as of March 31, 2011 and December 31, 2010, respectively, for which the Company has accrued.

 

VESSELS, NET -  Effective January 1, 2011, the Company increased its estimated residual scrap value of its vessels from $175 per (lightweight ton (LWT) to $265 per LWT, which management believes better represents the estimated prices of scrap steel and reflects the 15-year historic average.  The impact of this change is to reduce depreciation expense by approximately $1,100 for the three months ended March 31, 2011.

 

GOODWILL - The Company follows the provisions of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 350-20-35, Intangibles - Goodwill and Other (formerly Statement of Financial Accounting Standards (“SFAS”) No. 142).  This statement requires that goodwill and intangible assets with indefinite lives be tested for impairment at least annually and written down with a charge to operations when the carrying amount of the reporting unit that includes goodwill exceeds the estimated fair value of the reporting unit. If the carrying value of the goodwill exceeds the reporting unit’s implied goodwill, such excess must be written off. Goodwill as of March 31, 2011 and December 31, 2010 was $0 and $1,818, respectively.  Based on annual tests performed, the Company determined that there was an impairment of goodwill as of December 31, 2010 of $28,036.  Pursuant to vessel valuations received in March 2011, the Company noted further declines in the fair values of the vessels owned by the vessel reporting units to which goodwill was allocated and determined that goodwill was fully impaired.  During the three months ended March 31, 2011, the Company recorded goodwill impairment of $1,818.

 

IMPAIRMENT OF LONG-LIVED ASSETS - The Company follows FASB ASC 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets (formerly SFAS No.144), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the asset’s carrying amount. In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various factors, including the use of trailing 10-year industry average for each vessel class to forecast future charter rates and vessel operating costs are included in this analysis.

 

EARNINGS PER SHARE - Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the applicable periods.  Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised, utilizing the treasury stock method.

 

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COMPREHENSIVE INCOME (LOSS) - The Company follows FASB ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in the financial statements. Comprehensive income (loss) is comprised of net income (loss), foreign currency translation adjustments, and unrealized gains and losses related to the Company’s interest rate swaps, net of reclassifications to earnings.

 

DERIVATIVE FINANCIAL INSTRUMENTS - In addition to the interest rate swaps described below, which guard against the risk of rising interest rates which would increase interest expense on the Company’s outstanding borrowings, the Company has been party to other derivative financial instruments (none of which were outstanding as of March 31, 2011) to guard against the risks of (a) a weakening U.S. Dollar that would make future Euro-based expenditures more costly, (b) rising fuel costs which would increase future voyage expenses and (c) declines in future spot market rates which would reduce revenues on future voyages of vessels trading on the spot market. Except for its interest rate swaps described below, the Company’s derivative financial instruments did not qualify for hedge accounting for accounting purposes, although the Company considered certain of these derivative financial instruments to be economic hedges against these risks. The Company recorded the fair value of its derivative financial instruments on its balance sheets as Derivative liabilities or assets, as applicable. Changes in fair value in the derivative financial instruments that did not qualify for hedge accounting, as well as payments made to, or received from, counterparties to periodically settle the derivative transactions were recorded as Other income (expense) on the statements of operations as applicable.  See Notes 8, 9 and 10 for additional disclosures on the Company’s financial instruments.

 

INTEREST RATE RISK MANAGEMENT - The Company is exposed to interest rate risk through its variable rate credit facility.  Pay fixed, receive variable interest rate swaps are used to achieve a fixed rate of interest on the hedged portion of debt in order to increase the ability of the Company to forecast interest expense.  The objective of these swaps is to protect the Company from changes in borrowing rates on the current and any replacement floating rate credit facility where LIBOR is consistently applied.  Upon execution, the Company designates the hedges as cash flow hedges of benchmark interest rate risk under FASB ASC 815, Derivatives and Hedging (formerly SFAS No. 133), and establishes effectiveness testing and measurement processes.  Changes in the fair value of the interest rate swaps are recorded as assets or liabilities and effective gains/losses are captured in a component of accumulated other comprehensive income (“OCI”) until reclassified to interest expense when the hedged variable rate interest expenses are accrued and paid.  See Notes 8, 9 and 10 for additional disclosures on the Company’s interest rate swaps.

 

CONCENTRATION OF CREDIT RISK - The Company maintains substantially all of its cash with three financial institutions.  None of the Company’s cash balances are covered by insurance in the event of default by these financial institutions.

 

SIGNIFICANT CUSTOMERS - For the three months ended March 31, 2011, two customers accounted for 13.8% and 12.5% of revenue.  For the three months ended March 31, 2010, one customer accounted for 17.4% of revenue.

 

RECENT ACCOUNTING PRONOUNCEMENTS - The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

2.             EARNINGS PER COMMON SHARE

 

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the exercise of all dilutive stock options using the treasury stock method and the vesting of restricted stock awards for which the assumed proceeds upon grant are deemed to be the amount of compensation cost attributable to future services and not yet recognized using the treasury stock method, to the extent dilutive. For the three months ended March 31, 2011 and 2010, none of the Company’s outstanding stock options (6,700 options for each period) were considered to be dilutive.

 

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The components of the denominator for the calculation of basic earnings per share and diluted earnings per share for the three months ended March 31, 2011 and 2010 are as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Weighted average common shares outstanding, basic

 

86,622,806

 

55,660,876

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Weighted average common shares outstanding, basic

 

86,622,806

 

55,660,876

 

Stock options

 

 

 

Restricted stock awards

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, diluted

 

86,622,806

 

55,660,876

 

 

Due to the net loss realized for the three months ended March 31, 2011 and 2010, potentially dilutive restricted stock awards totaling 155,893 shares and 310,917 shares, respectively, were determined to be anti-dilutive.

 

3.             CASH FLOW INFORMATION

 

The Company excluded from cash flows from investing activities in the Consolidated Statement of Cash Flows items included in accounts payable and accrued expenses for the purchase of Other fixed assets of $3,758 and Vessel deposits of $6 for the three months ended March 31, 2011.  The Company excluded from cash flows from investing activities in the Consolidated Statement of Cash Flows items included in accounts payable and accrued expenses for the purchase of Other fixed assets of $1,141 for the three months ended March 31, 2010.

 

4.             VESSEL ACQUISITIONS/ DELIVERIES

 

On June 3, 2010, the Company entered into agreements to purchase seven tankers (the “Metrostar Vessels”), consisting of five VLCCs built between 2002 and 2010 and two Suezmax newbuildings from subsidiaries of Metrostar Management Corporation (“Metrostar”), for an aggregate purchase price of approximately $620,000.  During 2010, the Company took delivery of the five VLCCs for $468,000 and one of the Suezmax newbuildings for $76,000, of which $326,292 was financed by a new credit facility (see Note 8), $22,800 was financed by a bridge loan (see Note 8) with the remainder being paid for with cash on hand and the proceeds of a common stock offering.  As of March 31, 2011, $7,618 is included in Vessel deposits relating to the remaining Suezmax newbuilding which was delivered on April 12, 2011.

 

5.             VESSELS HELD FOR SALE AND VESSEL IMPAIRMENT

 

As of December 31, 2010, the Company classified five vessels as held for sale, at that time having engaged in a program to actively locate buyers for these vessels.  These vessels were written down to their fair value, less cost to sell, as determined by contracts to sell these vessels which were finalized in January 2011, and were reclassified on the consolidated balance sheet to current assets.  In addition, unamortized drydock costs, undepreciated vessel equipment and unamortized time charter asset balances relating to these five vessels were also written off as they were deemed to have been impaired.  The aggregate loss of $74,436 was recorded on the consolidated statement of operations as a component of Loss on impairment of vessels.

 

During the three months ended March 31, 2011, the Company classified two vessels with carrying amounts aggregating $14,515 as held for sale.  Because both of these vessels had been impaired as of December 31, 2010, no impairment was required during the three months ended March 31, 2011.  One of these vessels was sold during the three months ended March 31, 2011 and the other, with a book value of $7,206, was sold in April 2011.

 

During the three months ended March 31, 2011, the five vessels classified as held for sale as of December 31, 2010 along with one of the vessels classified as held for sale subsequent to December 31, 2010 were sold.  For the three months ended March 31, 2011,  the Company incurred losses on disposal of vessels of $2,658, which primarily relate to fuel consumed to deliver the vessels to their point of sale, as well as legal costs and commissions.

 

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6.             BAREBOAT CHARTERS

 

In connection with the sales of the Stena Contest, the Genmar Concord and the Genmar Concept during the three months ended March 31, 2011, which were sold for an aggregate of $61,740, each vessel has been leased back to subsidiaries of the Company under bareboat charters entered into with the seller for a period of seven years at a rate of $6,500 per day per vessel for the first two years of the charter period and $10,000 per day per vessel for the remainder of the charter period.  The obligations of the subsidiaries are guaranteed by the Company.  As part of these agreements, the subsidiaries will have options to repurchase the vessels for $24,000 per vessel at the end of year two of the charter period, $21,000 per vessel at the end of year three of the charter period, $19,500 per vessel at the end of year four of the charter period, $18,000 per vessel at the end of year five of the charter period, $16,500 per vessel at the end of year six of the charter period, and $15,000 per vessel at the end of year seven of the charter period.

 

The Company has recorded bareboat lease expense of $1,584 for the three months ended March 31, 2010 at a daily rate of $9,000 per day, which is the straight-line average of daily rates over the life of the lease.

 

7.             ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following:

 

 

 

March 31,
2011

 

December 31,
2010

 

Accounts payable

 

$

42,035

 

$

26,539

 

Accrued operating expenses

 

23,779

 

18,410

 

Accrued administrative expenses

 

871

 

4,358

 

Accrued interest

 

15,514

 

8,557

 

Total

 

$

82,199

 

$

57,864

 

 

8.             LONG-TERM DEBT

 

Long-term debt consists of the following:

 

 

 

March 31,
2011

 

December 31,
2010

 

2005 Credit Facility

 

$

716,303

 

$

744,804

 

2010 Credit Facility

 

307,610

 

315,241

 

Senior Notes, net of discount of $6,643 and $6,802

 

293,357

 

293,198

 

Long-term debt

 

1,317,270

 

1,353,243

 

Less: Current portion of long-term debt

 

133,699

 

1,353,243

 

Long-term debt

 

$

1,183,571

 

$

 

 

Senior Notes

 

On November 12, 2009, the Company and certain of the Company’s direct and indirect subsidiaries (the “Subsidiary Guarantors”) issued $300,000 of 12% Senior Notes which are due November 15, 2017 (the “Senior Notes”).  Interest on the Senior Notes is payable semiannually in cash in arrears each May 15 and November 15, commencing on May 15, 2010.  The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company and the Subsidiary Guarantor’s existing and future senior unsecured indebtedness.  The Senior Notes are guaranteed on a senior unsecured basis by the Subsidiary Guarantors. The Subsidiary Guarantors, jointly and severally, guarantee the payment of principal of, premium, if any, and interest on the Senior Notes on an unsecured basis. If the Company is unable to make payments on the Senior Notes when they are due, any Subsidiary Guarantors are obligated to make them instead.  The proceeds of the Senior Notes, prior to payment of fees and expenses, were $292,536.  Of these proceeds, $229,500 was used to fully prepay the RBS Credit Facility in accordance with its terms, $15,000 was placed as collateral against an interest rate swap agreement with the Royal Bank of Scotland and the remainder was used for general corporate purposes.  As of March 31, 2011, the discount on the Senior Notes is $6,643.  This discount is being amortized as interest expense over the term of the Senior Notes using the effective interest method.  As described below, the entire balances of the 2005 Credit Facility and 2010 Credit Facility had been classified as a current liability on the consolidated balance sheet as of

 

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December 31, 2010. Although the Senior Notes are due in 2017, the indenture contains certain cross default provisions with respect to these credit facilities. As such, the Senior Notes had also been classified as a current liability on the consolidated balance sheet as of December 31, 2010.  As of March 31, 2011, because management does not believe it to be probable that the Company would violate any of its loan covenants under the 2011 Credit Facility and 2010 Amended Credit Facility over the next 12 months, the Senior Notes have been classified as a long-term liability.

 

On January 18, 2011, seven of the Company’s subsidiaries — General Maritime Subsidiary NSF Corporation, Concord Ltd., Contest Ltd., Concept Ltd., GMR Concord LLC, GMR Contest LLC and GMR Concept LLC — were declared Unrestricted Subsidiaries under the Indenture, dated as of November 12, 2009, as amended (the “Indenture”), among the Company, the Subsidiary Guarantors parties thereto and The Bank of New York Mellon, as Trustee.  Concord Ltd., Contest Ltd. and Concept Ltd., which had previously been Subsidiary Guarantors under the Indenture, were released from their Subsidiary Guarantees as a result.

 

2011 Credit Facility

 

On October 26, 2005, General Maritime Subsidiary entered into a revolving credit facility with a syndicate of commercial lenders, and on October 20, 2008, such facility was amended and restated to give effect to the acquisition of Arlington Tankers Ltd. (“Arlington”) which occurred on December 16, 2008 (the “Arlington Acquisition”) and the Company was added as a loan party. Such facility was further amended on various dates through January 31, 2011, and was amended and restated on May 6, 2011 (the “2011 Credit Facility”). The 2011 Credit Facility provides a total commitment as of May 6, 2011 of $550,000 and that amount is fully drawn. Pursuant to this amendment and restatement, the Company will write off during the second quarter of 2011 approximately $4,800 of unamortized deferred financing costs associated with such facility.

 

The 2011 Credit Facility bears interest at a rate per annum based on LIBOR plus, if the total leverage ratio (defined as the ratio of consolidated indebtedness less unrestricted cash and cash equivalents, to consolidated total capitalization) is greater than 0.60 to 1.00, a margin of 4% per annum, and if the total leverage ratio is equal to or less than 0.60 to 1.00, a margin of 3.75% per annum. As of March 31, 2011, prior to giving effect to the amendment and restatement, $716,303 of the 2011 Credit Facility is outstanding and the commitment thereunder has been reduced to such amount. The 2011 Credit Facility is secured on a first lien basis by a pledge by the Company of its interest in General Maritime Subsidiary and Arlington, a pledge by such subsidiaries of their interest in the vessel-owning subsidiaries that they own and a pledge by such vessel-owning subsidiaries of all their assets, and on a second lien basis by a pledge by the Company of its interest in General Maritime Subsidiary II, a pledge by such subsidiary of its interest in the vessel-owning subsidiaries that its owns and a pledge by such vessel-owning subsidiaries of all their assets, and is guaranteed by the Company and subsidiaries of the Company (other than General Maritime Subsidiary) that guarantee its other existing credit facilities.

 

The 2011 Credit Facility matures on May 6, 2016. The 2011 Credit Facility will be reduced (i) based on, for the first two years of the 2011 Credit Facility, liquidity in excess of $100,000 based on average cash levels and taking into account outstanding borrowing capacity, and for the remainder of the term of the 2011 Credit Facility, pursuant to quarterly reductions of $17,188, as well as (ii) after disposition or loss of a mortgaged vessel constituting collateral on a first lien basis.

 

Up to $50,000 of the 2011 Credit Facility is available for the issuance of standby letters of credit to support obligations of the Company and its subsidiaries. As of March 31, 2011, the Company has outstanding letters of credit aggregating $5,008 which expire between October 2011 and March 2012, leaving $44,992 available to be issued.  However, because the 2011 Credit Facility is fully drawn as of March 31, 2011, none of this balance may be issued.

 

The Company’s ability to borrow amounts under the 2011 Credit Facility is subject to satisfaction of certain customary conditions precedent, and compliance with terms and conditions contained in the credit documents. The Company is also subject to collateral maintenance and other covenants.  The Company is required to comply with various

 

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financial covenants, including with respect to the Company’s minimum cash balance, a total leverage ratio covenant and an interest coverage ratio covenant.

 

The 2011 Credit Facility includes a collateral maintenance covenant requiring that the fair market value of all vessels acting as security on a first lien basis for the 2011 Credit Facility shall at all times be at least 135% of the then total commitment under the 2011 Credit Facility. The 2011 Credit Facility also requires us to comply with the collateral maintenance covenant of the Oaktree Credit Facility.

 

Under the minimum cash balance covenant, the Company is not permitted to allow the sum of (A) unrestricted cash and cash equivalents plus (B) the lesser of (1) the sum of the unutilized commitments under the 2011 Credit Facility and the unutilized revolving commitments under the 2010 Amended Credit Facility and (2) $25,000, to be less than $50,000 at any time.

 

The Company must maintain a total leverage ratio no greater than 0.85 to 1.00 until the quarter ending March 31, 2013, 0.80 to 1.00 from the quarter ending June 30, 2013 until March 31, 2014 and 0.70 to 1.00 thereafter, and an interest coverage ratio (defined as the ratio of consolidated EBITDA to consolidated cash interest expense) starting on the quarter ending June 30, 2014 of no less than 1.50 to 1.00.

 

Subject to certain exceptions, the Company is not permitted to incur any indebtedness which would cause any default or event of default under the financial covenants, either on a pro forma basis for the most recently ended four consecutive fiscal quarters or on a projected basis for the one-year period following such incurrence (the “Incurrence Test”). While the 2011 Credit Facility prohibits the incurrence of indebtedness until the date that is the later of the second anniversary of the 2011 Credit Facility and the elimination of the amortization shortfall, indebtedness which does not require any mandatory repayments to be made at any time (other than regularly scheduled interest payments, in the event of the sale or loss of the vessel so financed, and in connection with the acceleration of such indebtedness) is permitted in order to purchase a vessel to the extent the Incurrence Test is satisfied.

 

The 2011 Credit Facility prohibits the declaration or payment by the Company of dividends and the making of share repurchases until the later of the second anniversary of the date of the 2011 Credit Facility and the elimination of any amortization shortfall, subject to compliance with the total leverage ratio on a pro forma basis of no greater than 0.60 to 1.00. After such time, the Company will be permitted to declare or pay dividends up to a specified amount based on 50% of the cumulative consolidated net income of the Company plus cash proceeds from equity issuances (less cash amounts so raised used to acquire vessels, to make certain other investments, to make capital expenditures not in the ordinary course of business, to repay the loans under the Oaktree Credit Agreement to the extent permitted and to pay dividends under the general dividend basket after the later of the second anniversary of the date of the 2011 Credit Facility and the elimination of any amortization shortfall, in each case, since May 6, 2011), less the amount of investments made under the general investments basket since such date.

 

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The 2011 Credit Facility prohibits capital expenditures by the Company until the later of the second anniversary of the date of the 2011 Credit Facility and the elimination of any amortization shortfall, except for maintenance capital expenditures incurred in the ordinary course of business and consistent with past practice, acquisitions of new vessels and other cash expenditures not in the ordinary course of business with the net cash proceeds of equity offerings since the date of the 2011 Credit Facility or permitted indebtedness which does not require any mandatory repayments to be made at any time on or prior to the second anniversary of the date of the 2011 Credit Facility (other than regularly scheduled interest payments, in the event of the sale or loss of the vessel so financed, and in connection with the acceleration of such indebtedness).

 

The 2011 Credit Facility also restricts voluntary prepayment of the Oaktree Loan, except for payments with cash proceeds from equity issuances, payments in kind, payments with certain equity interests or with net cash proceeds of certain equity interests, and payments with cash proceeds received by the Company from refinancing indebtedness. The 2011 Credit Facility also restricts any amendment without consent or only to the extent permitted under the intercreditor agreements governing the credit facilities.

 

The 2011 Credit Facility also requires the Company to comply with a number of customary covenants, including covenants related to delivery of quarterly and annual financial statements, budgets and annual projections; maintaining required insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of the collateral vessels; restrictions on consolidations, mergers or sales of assets; limitations on liens; limitations on issuance of certain equity interests; limitations on transactions with affiliates; and other customary covenants.

 

The 2011 Credit Facility includes customary events of default and remedies for facilities of this nature.  If the Company does not comply with the various financial and other covenants and the requirements of the 2011 Credit Facility, the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the 2011 Credit Facility.

 

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2010 Amended Credit Facility

 

On July 16, 2010, General Maritime Subsidiary II Corporation (“General Maritime Subsidiary II”) entered into a term loan facility, with a syndicate of commercial lenders which was amended and restated on May 6, 2011 in connection with the Oaktree Transaction (the “2010 Amended Credit Facility”).  The 2010 Amended Credit Facility provides for term loans in the amount of $322,000 (the “Term Loans”) and a $50,000 revolver (the “Revolving Loans”).   The Term Loans are available solely to finance, in part, the acquisition of the Metrostar Vessels.   The Revolving Loans are to be used for working capital, capital expenditures and general corporate purposes. As of May 6, 2011, the 2010 Amended Credit Facility has been reduced to $328,210, including $50,000 of Revolving Loans, and the 2010 Amended Credit Facility is fully drawn.

 

The 2010 Amended Credit Facility bears interest at a rate per annum based on LIBOR plus, if the total leverage ratio (defined as the ratio of consolidated indebtedness less unrestricted cash and cash equivalents, to consolidated total capitalization) is greater than 0.60 to 1.00, a margin of 4% per annum, and if the total leverage ratio is equal to or less than 0.60 to 1.00, a margin of 3.75% per annum. As of March 31, 2011, prior to giving effect to the amendment and restatement, $326,292 of the 2010 Amended Credit Facility is outstanding and the commitment thereunder has been reduced to $307,610. The 2010 Amended Credit Facility is secured on a first lien basis by a pledge by the Company of its interest in General Maritime Subsidiary II, a pledge by such subsidiary of its interest in the vessel-owning subsidiaries that its owns and a pledge by such vessel-owning subsidiaries of all their assets, and on a second lien basis by a pledge by the Company of its interest in General Maritime Subsidiary and Arlington, a pledge by such subsidiaries of their interest in the vessel-owning subsidiaries that they own and a pledge by such vessel-owning subsidiaries of all their assets, and is guaranteed by the Company and subsidiaries of the Company (other than General Maritime Subsidiary II) that guarantee its other existing credit facilities.

 

The 2010 Amended Credit Facility matures on July 16, 2015. The 2010 Amended Credit Facility will be reduced (i) by scheduled amortization payments in the amount of $7,631 quarterly (subject to payment of the remainder at maturity), as well as (ii) after disposition or loss of a mortgaged vessel constituting collateral on a first lien basis.

 

The Company’s ability to borrow amounts under the 2010 Amended Credit Facility is subject to satisfaction of certain customary conditions precedent, and compliance with terms and conditions contained in the credit documents. The Company is also subject to collateral maintenance and other covenants.  The Company is required to comply with various financial covenants, including with respect to the Company’s minimum cash balance, a total leverage ratio covenant and an interest coverage ratio covenant.

 

The 2010 Amended Credit Facility includes a collateral maintenance covenant requiring that the fair market value of all vessels acting as security on a first lien basis for the 2010 Amended Credit Facility shall at all times be at least 135% of the then total revolving commitment and principal amount of term loan outstanding under the 2010 Amended

 

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Credit Facility. The 2010 Amended Credit Facility also requires us to comply with the collateral maintenance covenant of the Oaktree Credit Facility.

 

Under the minimum cash balance covenant, the Company is not permitted to allow the sum of (A) unrestricted cash and cash equivalents plus (B) the lesser of (1) the sum of the unutilized revolving commitments under the 2010 Amended Credit Facility and the unutilized commitments under the 2011 Amended Credit Facility and (2) $25,000, to be less than $50,000 at any time.

 

The Company must maintain a total leverage ratio no greater than 0.85 to 1.00 until the quarter ending March 31, 2013, 0.80 to 1.00 from the quarter ending June 30, 2013 until March 31, 2014 and 0.70 to 1.00 thereafter, and an interest coverage ratio starting on the quarter ending June 30, 2014 of no less than 1.50 to 1.00.

 

Subject to certain exceptions, the Company is not permitted to incur any indebtedness which would cause any default or event of default under the financial covenants, either on a pro forma basis for the most recently ended four consecutive fiscal quarters or on a projected basis for the one-year period following such incurrence (the “Incurrence Test”). While the 2010 Amended Credit Facility prohibits the incurrence of indebtedness until the date that is the later of the second anniversary of the 2010 Amended Credit Facility and the elimination of the amortization shortfall under the 2011 Credit Facility, indebtedness which does not require any mandatory repayments to be made at any time (other than regularly scheduled interest payments, in the event of the sale or loss of the vessel so financed, and in connection with the acceleration of such indebtedness) is permitted in order to purchase a vessel to the extent the Incurrence Test is satisfied.

 

The 2010 Amended Credit Facility prohibits the declaration or payment by the Company of dividends and the making of share repurchases until the later of the second anniversary of the date of the 2010 Amended Credit Facility and the elimination of any amortization shortfall under the 2011 Credit Facility, subject to compliance with the total leverage ratio on a pro forma basis of no greater than 0.60 to 1.00. After such time, the Company will be permitted to declare or pay dividends up to a specified amount based on 50% of the cumulative consolidated net income of the Company plus cash proceeds from equity issuances (less cash amounts so raised used to acquire vessels, to make certain other investments, to make capital expenditures not in the ordinary course of business, to repay the loans under the Oaktree Credit Agreement to the extent permitted and to pay dividends under the general dividend basket after the later of the second anniversary of the date of the 2010 Amended Credit Facility and the elimination of any amortization shortfall under the 2011 Credit Facility, in each case, since May 6, 2011), less the amount of investments made under the general investments basket since such date.

 

The 2010 Amended Credit Facility prohibits capital expenditures by the Company until the later of the second anniversary of the date of the 2010 Amended Credit Facility and the elimination of any amortization shortfall under the 2011 Credit Facility, except for maintenance capital expenditures, acquisitions of new vessels and other cash expenditures not in the ordinary course of business with the net cash proceeds of equity offerings since the date of the 2010 Amended Credit Facility or permitted indebtedness

 

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which does not require any mandatory repayments to be made at any time on or prior to the second anniversary of the date of the 2010 Amended Credit Facility (other than regularly scheduled interest payments, in the event of the sale or loss of the vessel so financed, and in connection with the acceleration of such indebtedness).

 

The 2010 Amended Credit Facility also restricts voluntary prepayment of the Oaktree Loan, except for payments with cash proceeds from equity issuances, payments in kind, payments with certain equity interests or with net cash proceeds of certain equity interests, and payments with cash proceeds received by the Company from refinancing indebtedness. The 2010 Amended Credit Facility also restricts any amendment without consent or only to the extent permitted under the intercreditor agreements governing the credit facilities.

 

The 2010 Amended Credit Facility also requires the Company to comply with a number of customary covenants, including covenants related to delivery of quarterly and annual financial statements, budgets and annual projections; maintaining required insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of the collateral vessels; restrictions on consolidations, mergers or sales of assets; limitations on liens; limitations on issuance of certain equity interests; limitations on transactions with affiliates; and other customary covenants.

 

The 2010 Amended Credit Facility includes customary events of default and remedies for facilities of this nature.  If the Company does not comply with the various financial and other covenants and the requirements of the 2010 Amended Credit Facility, the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the 2010 Amended Credit Facility.

 

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On April 26, 2011, the Company breached the $50,000 minimum cash balance covenant under the 2011 Credit Facility (prior to giving effect to the Oaktree Transaction) and the 2010 Amended Credit Facility (prior to giving effect to the Oaktree Transaction) following a scheduled payment of $47,631 under the 2011 Credit Facility (prior to giving effect to the Oaktree Transaction). The Company obtained waivers of the minimum cash covenant through May 6, 2011 in connection with the closing of the 2011 Credit Facility and the 2010 Amended Credit Facility. The Company remains subject to the minimum cash covenant after giving effect to the closing of the 2011 Credit Facility and the 2010 Amended Credit Facility, and if current weak market conditions persist may breach this covenant at some point during 2011. In the event of any breach or potential breach of its minimum cash covenant, the Company intends to pursue alternatives including discussions with lenders to seek waivers or modifications allowing the Company to remain in compliance, potential financings, or other possible actions.

 

Bridge Loan Credit Facility

 

On October 4, 2010, the Company entered into a term loan facility (the “Bridge Loan Credit Facility”) which provided for a total commitment of $22,800 in a single borrowing which was used to finance a portion of the acquisition of one of the Metrostar Vessels.

 

The Bridge Loan Credit Facility was secured by the Genmar Vision, as well as Arlington’s equity interests in Vision Ltd. (the owner of the Genmar Vision), insurance proceeds, earnings and certain long-term charters of the Genmar Vision and certain deposit accounts related to the Genmar Vision.  Vision Ltd. also provided an unconditional guaranty of amounts owing under the Bridge Loan Credit Facility.

 

The other covenants, conditions precedent to borrowing, events of default and remedies under the Bridge Loan Credit Facility were substantially similar in all material respects to those contained in the Company’s existing credit facilities.

 

The applicable margin for the Bridge Loan Credit Facility, as amended, and permitted dividends were based on substantially the same pricing grid applicable to the 2005 Credit Facility.

 

A portion of the proceeds from the sale of three Handymax vessels, which was completed on February 7, 2011, were used to repay the Bridge Loan Credit Facility on February 8, 2011, as discussed above.  As a result of the repayment of the Bridge Loan Credit Facility, the Genmar Vision was released from its mortgage.  It is now subject to a first-lien mortgage under the 2011 Credit Facility and a second-lien mortgage under the 2010 Amended Credit Facility.

 

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A repayment schedule of outstanding borrowings at March 31, 2011 is as follows:

 

YEAR ENDING DECEMBER 31, 

 

2005 Credit
Facility

 

2010 Credit
Facility

 

Senior
Notes

 

TOTAL

 

 

 

 

 

 

 

 

 

 

 

2011 (April 1, 2011 to December 31, 2011)

 

$

103,176

 

$

22,892

 

$

 

$

126,068

 

2012

 

613,127

 

30,523

 

 

643,650

 

2013

 

 

30,523

 

 

30,523

 

2014

 

 

30,523

 

 

30,523

 

2015

 

 

193,149

 

 

193,149

 

Thereafter

 

 

 

300,000

 

300,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$

716,303

 

$

307,610

 

$

300,000

 

$

1,323,913

 

 

During the three months ended March 31, 2011 and 2010, the Company paid dividends of $0 and $7,281, respectively.

 

Interest Rate Swap Agreements

 

On March 31, 2011, the Company is party to three interest rate swap agreements to manage interest costs and the risk associated with changing interest rates. The notional principal amounts of these swaps aggregate $250,000, the details of which are as follows:

 

Notional
Amount

 

Expiration
Date

 

Fixed
Interest
Rate

 

Floating
Interest Rate

 

Counterparty

 

$

100,000

 

9/30/2012

 

3.515

%

3 mo. LIBOR

 

Citigroup

 

75,000

 

9/28/2012

 

3.390

%

3 mo. LIBOR

 

DnB NOR Bank

 

75,000

 

12/31/2013

 

2.975

%

3 mo. LIBOR

 

Nordea

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense pertaining to interest rate swaps for the three months ended March 31, 2011 and 2010 was $1,948 and $3,870, respectively.

 

The Company’s 25 vessels which collateralize the 2005 Credit Facility also serve as collateral for these three interest rate swap agreements, subordinated to the outstanding borrowings and outstanding letters of credit under the 2005 Credit Facility.

 

Interest expense, excluding amortization of Deferred financing costs, under all of the Company’s credit facilities, Senior Notes and interest rate swaps aggregated $21,346 and $18,156 for the three months ended March 31, 2011 and 2010, respectively.

 

The Company would have paid approximately $10,453 to settle its outstanding swap agreements based upon their aggregate fair value as of March 31, 2011. This aggregate fair value is based upon estimates received from financial institutions (See Note 10).  At March 31, 2011, $7,119 of Accumulated OCI is expected to be reclassified into income over the next 12 months associated with interest rate derivatives.

 

The Company holds all of its assets and conducts all of its operations through its subsidiaries and has no independent assets or operations.  Its subsidiaries, other than the Subsidiary Guarantors under the Senior Notes, are minor in significance.  The guarantees of the Subsidiary Guarantors are full and unconditional and joint and several.  There are no significant restrictions on the ability of the Company or any of the Subsidiary Guarantors to obtain funds from any of their respective subsidiaries by dividend or loan.

 

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9.             DERIVATIVE FINANCIAL INSTRUMENTS

 

During the three months ended March 31, 2011 and 2010, the Company has only been party to interest rate swap agreements (see Note 8), which are carried at fair value on the consolidated balance sheet at each period end. Tabular disclosure of derivative instruments are as follows:

 

 

 

Liability Derivatives

 

 

 

 

 

Fair Value

 

 

 

Balance Sheet Location

 

March 31,
2011

 

December 31,
2010

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments under FASB ASC 815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Derivative Liability, current

 

$

(7,103

)

$

(7,132

)

Interest rate contracts

 

Derivative Liability, noncurrent

 

(3,350

)

(4,929

)

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments under FASB ASC 815

 

 

 

(10,453

)

(12,061

)

 

 

 

 

 

 

 

 

Total derivatives

 

 

 

$

(10,453

)

$

(12,061

)

 

The Effect of Derivative Instruments on the Consolidated Statements of Operations

 

Derivatives in FASB ASC 815

 

Amount of Gain (Loss) Recognized
in OCI on Derivative (Effective
Portion)

 

Location of Gain
(Loss) Reclassified
from Accumulated OCI

 

Amount of Gain (Loss)
Reclassified from
Accumulated OCI into Income
(Effective Portion)

 

Location of Gain (Loss)
Recognized in Income

 

Amount of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion)

 

Cash Flow Hedging

 

Three months ended March 31,

 

into Income (Effective

 

Three months ended March 31,

 

on Derivative (Ineffective

 

Three months ended March 31,

 

Relationships

 

2011

 

2010

 

Portion)

 

2011

 

2010

 

Portion)

 

2011

 

2010

 

Interest rate contracts

 

$

(209

)

$

(4,842

)

Interest Expense

 

$

(1,883

)

$

(3,777

)

Other income/expense

 

$

 

$

34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(209

)

$

(4,842

)

 

 

$

(1,883

)

$

(3,777

)

 

 

$

 

$

34

 

 

10.          FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The estimated fair values of the Company’s financial instruments are as follows:

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

Cash

 

$

62,765

 

$

62,765

 

$

16,858

 

$

16,858

 

Floating rate debt

 

1,023,913

 

1,023,913

 

1,082,845

 

1,082,845

 

Senior Notes

 

293,357

 

291,750

 

293,198

 

289,125

 

Derivative financial instruments (See Note 9)

 

(10,453

)

(10,453

)

(12,061

)

(12,061

)

 

The fair value of term loans, bridge loans and revolving credit facilities is estimated based on current rates offered to the Company for similar debt of the same remaining maturities. The carrying value approximates the fair market value for the variable rate loans. The Senior Notes are carried at par value, net of original issue discount.  The fair value of the Senior Notes is derived from quoted market prices, but is thinly traded and as such is a Level 2 item.  The fair value of interest rate swaps is the estimated amount the Company would pay to terminate swap agreements at the reporting date, taking into account current interest rates and the current credit-worthiness of the swap counterparties.

 

The Company has elected to use the income approach to value the interest rate swap derivatives using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.  Level 2 inputs for the swap valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals).  Mid-market pricing is used as a practical expedient for fair value measurements.  FASB ASC 820 states that the fair value measurements must include credit considerations.  Credit default swaps basis available at commonly quoted intervals are collected from Bloomberg and applied to all cash flows when the swap is in an asset position pre-credit effect to reflect the credit risk of the

 

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counterparties.  The spread over LIBOR on the Company’s 2010 Credit Facility of 3.5% is applied to all cash flows when the swap is in a liability position pre credit-effect to reflect the credit risk to the counterparties.

 

FASB ASC 820-10 states that the fair value measurement of a liability must reflect the nonperformance risk of the entity.  Therefore, the impact of the Company’s creditworthiness has also been factored into the fair value measurement of the derivative instruments in a liability position.

 

The fair value of Vessels held for sale (see Note 5) was determined based on the selling price, net of estimated costs to sell, of such assets based on contracts finalized within a short period of time of their classification as held for sale, and measured on a nonrecurring basis.  Because sales of vessels occur infrequently, as the sale of such assets was being negotiated at year end, these selling prices are considered to be Level 2 items.  The fair value of Goodwill can be measured only as a residual and cannot be measured directly, and is measured on a nonrecurring basis.  Note 4 describes the methodology used to determine an amount that achieves a reasonable estimate of the value of goodwill for purposes of measuring an impairment loss. That estimate, referred to as implied fair value of goodwill, is a Level 3 input.  The following table summarizes the valuation of assets measured on a nonrecurring basis:

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

 

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 2)

 

(Level 3)

 

Total

 

(Level 2)

 

(Level 3)

 

Vessels held for sale

 

$

7,206

 

$

7,206

 

$

 

$

80,219

 

$

80,219

 

$

 

Goodwill

 

 

 

 

1,818

 

 

1,818

 

 

The following table summarizes the valuation of our financial instruments by the above FASB ASC 820 pricing levels as of the valuation date listed:

 

 

 

March 31,
2011

 

December 31,
2010

 

 

 

Significant Other
Observable Inputs

 

Significant Other
Observable Inputs

 

 

 

(Level 2)

 

(Level 2)

 

 

 

 

 

 

 

Derivative instruments – asset position

 

$

 

$

 

 

 

 

 

 

 

Derivative instruments – liability position

 

$

(10,453

)

$

(12,061

)

 

11.          RELATED PARTY TRANSACTIONS

 

During the three months ended March 31, 2011 and 2010, the Company incurred office expenses totaling $11 and $15, respectively, on behalf of Peter C. Georgiopoulos, the Chairman of the Company’s Board of Directors, and P C Georgiopoulos & Co. LLC, an investment management company controlled by Peter C. Georgiopoulos. The balance of $18 and $14 remains outstanding as of March 31, 2011 and December 31, 2010, respectively.

 

During the three months ended March 31, 2011 and 2010, the Company incurred fees for legal services aggregating $81and $7, respectively, to the father of Peter C. Georgiopoulos. As of March 31, 2011 and December 31, 2010, the balance of $81and $12, respectively, was outstanding.

 

During the three months ended March 31, 2011 and 2010, the Company incurred certain entertainment and travel related costs totaling $157 and $135, respectively, on behalf of Genco Shipping & Trading Limited (“Genco”), an owner and operator of dry bulk vessels.  Peter C. Georgiopoulos is chairman of Genco’s board of directors. The balance due from Genco of $0 and $159 remains outstanding as of March 31, 2011 and December 31, 2010, respectively.

 

During the three months ended March 31, 2011 and 2010, Genco made available two of its employees who performed internal audit services for the Company for which the Company was invoiced $46 and $35, respectively, based on actual time spent by the employee, of which the balance due to Genco of $34 and $85 remains outstanding as of March 31, 2011 and December 31, 2010, respectively.

 

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During the three months ended March 31, 2011 and 2010, Aegean Marine Petroleum Network, Inc. (“Aegean”) supplied bunkers and lubricating oils to the Company’s vessels aggregating $12,112 and $4,274, respectively. At March 31, 2011 and December 31, 2010, $12,056 and $9,805, respectively, remains outstanding. Peter C. Georgiopoulos and John Tavlarios, a member of the Company’s board of directors and the president of the Company, are directors of Aegean.  In addition, the Company provided office space to Aegean and Aegean incurred rent and other expenses in its New York office during the three months ended March 31, 2011 and 2010 for $18 and $18, respectively. A balance of $15 and $7 remains outstanding as of March 31, 2011 and December 31, 2010, respectively.

 

On March 29, 2011, the Company, General Maritime Subsidiary Corporation and General Maritime Subsidiary II Corporation entered into a Credit Agreement with affiliates of Oaktree Capital Management, L.P., pursuant to which the lender (the “Oaktree Lender”) agreed to make a $200,000 secured loan (the “Oaktree Loan”) to General Maritime Subsidiary Corporation and General Maritime Subsidiary II Corporation, along with detachable warrants (the “Warrants”) to be issued by the Company for the purchase of 19.9% of the Company’s outstanding common stock (measured as of immediately prior to the closing date of such transaction) at an exercise price of $0.01 per share (collectively, the “Oaktree Transaction”).

 

On May 6, 2011, the Company amended and restated in its entirety the Credit Agreement with the Oaktree Lender (as so amended and restated, the “Oaktree Credit Facility”) and, pursuant to the Oaktree Credit Facility, the Oaktree Lender provided the $200,000 Oaktree Loan to General Maritime Subsidiary Corporation and General Maritime Subsidiary II Corporation, and also received the Warrants for the purchase of 23,091,811 shares of the Company’s common stock.  The Company used the proceeds from the Oaktree Transaction to repay approximately $140,800 of its existing credit facilities, to pay fees and for working capital.

 

12.          STOCK-BASED COMPENSATION

 

2001 Stock Incentive Plan

 

On June 10, 2001, General Maritime Subsidiary adopted the General Maritime Corporation 2001 Stock Incentive Plan.  On December 16, 2008, the Company assumed the obligations of General Maritime Subsidiary under the 2001 Stock Incentive Plan in connection with the Arlington Acquisition. The aggregate number of shares of common stock available for award under the 2001 Stock Incentive Plan was increased from 3,886,000 shares to 5,896,000 shares pursuant to an amendment and restatement of the plan as of May 26, 2005. Under this plan, the Company’s Compensation Committee, another designated committee of the Board of Directors, or the Board of Directors, may grant a variety of stock based incentive awards to employees, directors and consultants whom the Compensation Committee (or other committee or the Board of Directors) believes are key to the Company’s success. The compensation committee may award incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, unrestricted stock and performance shares.

 

Since inception of the 2001 Stock Incentive Plan, the Company has issued stock options and restricted stock. Upon the granting of stock options and restricted stock, the Company allocates new shares from its reserve of authorized shares to employees subject to the maximum shares permitted by the 2001 Stock Incentive Plan, as amended.

 

The Company’s policy for attributing the value of graded-vesting stock options and restricted stock awards is to use an accelerated multiple-option approach.

 

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Table of Contents

 

Stock Options

 

As of March 31, 2011, there was no unrecognized compensation cost related to nonvested stock option awards.  Also, during the three months ended March 31, 2011 no stock options were granted, forfeited or exercised.

 

The following table summarizes certain information about stock options outstanding as of March 31, 2011, all of which were fully vested by December 31, 2010:

 

 

 

Options Outstanding, March 31, 2011

 

Options Exercisable,
March 31, 2011

 

Exercise Price

 

Number of
Options

 

Weighted
Average
Exercise Price

 

Weighted
Average
Remaining
Contractual
Life

 

Number of
Options

 

Weighted
Average
Exercise
Price

 

 

 

 

 

 

 

 

 

 

 

 

 

$

10.88

 

1,675

 

$

10.88

 

2.6

 

1,675

 

$

10.88

 

$

16.84

 

5,025

 

$

16.84

 

3.1

 

5,025

 

$

16.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,700

 

$

15.35

 

3.0

 

6,700

 

$

15.35

 

 

Restricted Stock

 

The Company’s restricted stock grants to employees generally vest ratably upon continued employment over periods of approximately 4 or 5 years from date of grant.  Certain restricted stock grants to the Company’s Chairman vest approximately 10 years from date of grant.  Restricted stock grants to non-employee directors generally vest over a one year period.  Such grants are subject to accelerated vesting upon certain circumstances set forth in the relevant grant agreements.

 

On May 14, 2009, the Company granted a total of 42,252 shares of restricted common stock to the Company’s six non-employee Directors.  Restrictions on the restricted stock lapsed on May 13, 2010 which was the date of the Company’s 2010 Annual Meeting of Shareholders.

 

On December 24, 2009, the Company made grants of restricted common stock in the amount of 160,390 shares to employees of the Company and 213,680 shares to officers of the Company.  The restrictions on all of these shares will lapse as to 25% of these shares on November 15, 2010 and as to 25% of these shares on November 15 of each of the three years thereafter, and will become fully vested on November 15, 2013. The foregoing grants are subject to accelerated vesting upon certain circumstances set forth in the relevant grant agreements.

 

On May 13, 2010, the Company granted a total of 57,168 shares of restricted common stock to the Company’s six non-employee Directors.  Restrictions on the restricted stock will lapse, if at all, on May 13, 2011 or the date of the Company’s 2011 Annual Meeting of Shareholders, whichever occurs first. The foregoing grants are subject to accelerated vesting upon certain circumstances set forth in the relevant grant agreement.

 

On December 31, 2010, the Company made grants of restricted common stock in the amount of 697,784 shares to employees and officers of the Company.  The restrictions on all of these shares will lapse, if at all, as to 25% of these shares on November 15, 2011 and as to 25% of these shares on November 15 of each of the three years thereafter, and will become fully vested on November 15, 2014. The foregoing grants are subject to accelerated vesting upon certain circumstances set forth in the relevant grant agreements.

 

No restricted stock was granted during the three months ended March 31, 2011 and 2010.

 

A summary of the activity for restricted stock awards during the three months ended March 31, 2011 is as follows:

 

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Table of Contents

 

 

 

 

 

Weighted

 

 

 

Number of

 

Average

 

 

 

Shares

 

Fair Value

 

Outstanding and nonvested, January 1, 2011

 

2,974,151

 

$

19.07

 

 

 

 

 

 

 

Granted

 

 

 

Vested

 

(3,685

)

11.85

 

Forfeited

 

(4,020

)

8.47

 

Outstanding and nonvested, March  31, 2011

 

2,966,446

 

$

19.10

 

 

The following table summarizes the amortization, which will be included in general and administrative expenses, of all of the Company’s restricted stock grants as of March 31, 2011:

 

 

 

2011 *

 

2012

 

2013

 

2014

 

2015

 

Thereafter

 

TOTAL

 

Restricted Stock Grant Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 9, 2005

 

$

555

 

$

740

 

$

738

 

$

646

 

$

 

$

 

$

2,679

 

April 5, 2005

 

1,317

 

1,753

 

1,749

 

1,749

 

 

 

6,568

 

December 21, 2005

 

733

 

976

 

974

 

974

 

851

 

 

4,508

 

December 18, 2006

 

470

 

541

 

540

 

539

 

539

 

472

 

3,101

 

December 21, 2007

 

739

 

728

 

620

 

620

 

620

 

1,165

 

4,492

 

December 15, 2008

 

165

 

98

 

10

 

 

 

 

273

 

December 23, 2008

 

226

 

172

 

71

 

 

 

 

469

 

December 24, 2009

 

514

 

366

 

147

 

 

 

 

1,027

 

May 13, 2010

 

52

 

 

 

 

 

 

52

 

December 31, 2010

 

893

 

609

 

319

 

128

 

 

 

1,949

 

Total by year

 

$

5,664

 

$

5,983

 

$

5,168

 

$

4,656

 

$

2,010

 

$

1,637

 

$

25,118

 

 


* Represents the period from April 1, 2011 through December 31, 2011.

 

As of March 31, 2011 and December 31, 2010, there was $25,118 and $27,132, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. As of March 31, 2011, this cost is expected to be recognized as an addition to paid-in capital over a weighted average period of 2.3 years.

 

Total compensation cost recognized in income relating to amortization of restricted stock awards for the three months ended March 31, 2011 and 2010 was $2,013 and $2,182, respectively.

 

13.                               LEGAL PROCEEDINGS

 

From time to time the Company has been, and expects to continue to be, subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

 

On or about August 29, 2007, an oil sheen was discovered by shipboard personnel of the Genmar Progress in Guayanilla Bay, Puerto Rico in the vicinity of the vessel. The vessel crew took prompt action pursuant to the vessel response plan. The Company’s subsidiary which operates the vessel promptly reported this incident to the U.S. Coast Guard and subsequently accepted responsibility under the U.S. Oil Pollution Act of 1990 for any damage or loss resulting from the accidental discharge of bunker fuel determined to have been discharged from the vessel. The Company understands the federal and Puerto Rico authorities are conducting civil investigations into an oil pollution incident which occurred during this time period on the southwest coast of Puerto Rico including Guayanilla Bay. The extent to which oil discharged from the Genmar Progress is responsible for this incident is currently the subject of investigation. The U.S. Coast Guard has designated the Genmar Progress as a potential source of discharged oil. Under the U.S. Oil Pollution Act of 1990, the source of the discharge is liable, regardless of fault, for damages and oil spill remediation as a result of the discharge.

 

On January 13, 2009, the Company received a demand from the U.S. National Pollution Fund for approximately $5,800 for the U.S. Coast Guard’s response costs and certain costs of the Departamento de Recursos Naturales y Ambientales of Puerto Rico in connection with the alleged damage to the environment caused by the spill. In April 2010, the U.S. National Pollution Fund made an additional natural resource damage assessment claim against the Company of approximately $500.  In October 2010, the Company

 

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Table of Contents

 

entered into a settlement agreement with the U.S. National Pollution Fund in which the Company agreed to pay approximately $6,273 in full satisfaction of the oil spill response costs of the U.S. Coast Guard and natural damage assessment costs of the U.S. National Pollution Fund through the date of the settlement agreement.  Pursuant to the settlement agreement, the U.S. National Pollution Fund will waive its claims to any additional civil penalties under the U.S. Clean Water Act as well as for accrued interest.  The settlement has been paid in full by the vessel’s Protection and Indemnity Underwriters. Notwithstanding the settlement agreement, the Company may be subject to any further potential claims by the U.S. National Pollution Fund or the U.S. Coast Guard arising from the ongoing natural damage assessment.

 

The U.S. Department of Justice also investigated the Company’s involvement in the spill incident.  On February 28, 2011, the U.S. Department of Justice notified the Company that the investigation has been closed and, therefore, the Company does not expect that any charges, fines and/or penalties will be levied against the Company or any of its subsidiaries.

 

The Company has been cooperating in these investigations and has posted a surety bond to cover potential fines or penalties that may be imposed in connection with these matters.

 

These matters have been reported to the Company’s protection and indemnity insurance underwriters, and management believes that any such liabilities (including our obligations under the settlement agreement) will be covered by our insurance, less a $10 deductible.

 

14.                               SUBSEQUENT EVENTS

 

On April 5, 2011, the Company sold the Genmar Progress, for which it received net proceeds of $7,840, and repaid $7,913 under its 2005 Credit Facility.

 

On April 5, 2011, the Company completed a registered follow-on common stock offering pursuant to which it sold 23,000,000 shares of its common stock, par value $0.01 per share for a purchase price of $1.89 per share, which reflects a price to the public of $2.00 per share less underwriting discounts and commissions resulting in net proceeds to the Company of $43,470.

 

On April 8, 2011, an additional 3,450,000 shares of the Company’s common stock were issued pursuant to the underwriters’ exercise of their overallotment option under the same terms as the April 5, 2011 issuance resulting in net proceeds to the Company of $6,520.

 

On April 12, 2011, the Company took delivery of the last Metrostar Vessel, a Suezmax newbuilding, for a total purchase price of $76,000, of which $7,600 was previously paid in the form of the initial deposit.  Of the balance, $22,800 was paid using available cash and $45,600 was paid using borrowings under the Company’s 2010 Credit Facility.

 

On April 26, 2011, the Company paid $47,631 pursuant to a scheduled semi-annual commitment reduction under its 2005 Credit Facility.  Pursuant to making this payment, the Company violated the minimum cash covenant under the 2005 Credit Facility and the 2010 Credit Facility.

 

On May 6, 2011, the Company amended and restated in its entirety the Credit Agreement with affiliates of Oaktree Capital Management, L.P., pursuant to which the lender (the “Oaktree Lender”) (as so amended and restated, the “Oaktree Credit Facility”) and, pursuant to the Oaktree Credit Facility, the Oaktree Lender provided the $200,000 Oaktree Loan to General Maritime Subsidiary Corporation and General Maritime Subsidiary II Corporation, and also received the Warrants for the purchase of 23,091,811 shares of the Company’s common stock.  The Company used the proceeds from the Oaktree Transaction to repay approximately $140,800 of its existing credit facilities, to pay fees and for working capital.

 

On May 6, 2011, the Company entered into an amendment and restatement of the 2005 credit facility (the “2011 Credit Facility”), with Nordea Bank Finland plc, New York Branch, or Nordea, DnB NOR Bank ASA and HSH Nordbank AG as joint lead arrangers, in the amount of $550,000.  In connection with the Oaktree Transaction, General Maritime Subsidiary paid down the 2005 Credit Facility in an aggregate amount of approximately $115,800. The 2011 Credit Facility is a five-year senior secured revolving credit facility and includes a $25,000 letter of credit facility.

 

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Table of Contents

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and observations. Included among the factors that, in our view, could cause actual results to differ materially from the forward looking statements contained in this Quarterly Report on Form 10-Q are the following:  (i) loss or reduction in business from our significant customers; (ii) the failure of our significant customers to perform their obligations owed to us; (iii) changes in demand; (iv) a material decline or prolonged weakness in rates in the tanker market; (v) changes in production of or demand for oil and petroleum products, generally or in particular regions; (vi) greater than anticipated levels of tanker newbuilding orders or lower than anticipated rates of tanker scrapping; (vii) changes in rules and regulations applicable to the tanker industry, including, without limitation, legislation adopted by international organizations such as the International Maritime Organization and the European Union or by individual countries; (viii) actions taken by regulatory authorities; (ix) actions by the courts, the U.S. Coast Guard, the U.S. Department of Justice or other governmental authorities and the results of the legal proceedings to which we or any of our vessels may be subject; (x) changes in trading patterns significantly impacting overall tanker tonnage requirements; (xi) changes in the typical seasonal variations in tanker charter rates; (xii) changes in the cost of other modes of oil transportation; (xiii) changes in oil transportation technology; (xiv) increases in costs including without limitation: crew wages, insurance, provisions, repairs and maintenance; (xv) changes in general domestic and international political conditions; (xvi) changes in the condition of our vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs); (xvii) changes in the itineraries of the our vessels; (xviii) adverse changes in foreign currency exchange rates affecting our expenses;; and (xix) other factors listed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2010 and our subsequent reports on Form 8-K.

 

The following is a discussion of our financial condition and results of operations for the three months ended March 31, 2011 and 2010. You should consider the foregoing when reviewing the condensed consolidated financial statements and this discussion. You should read this section together with the condensed consolidated financial statements including the notes to those financial statements for the periods mentioned above.

 

We are a leading provider of international seaborne crude oil and petroleum products transportation services.  As of April 26, 2011, our fleet consists of 31 wholly-owned vessels: seven VLCCs, 12 Suezmax vessels, nine Aframax vessels, two Panamax vessels, and one Handymax vessel.  These vessels have a total of 5.2 million dwt carrying capacity on a combined basis and all are double-hulled.  As of April 26, 2011, we also chartered-in three Handymax vessels (the “Chartered-in Vessels”).  The Chartered-in Vessels, which are double-hulled, have a total of 0.1 million dwt carrying capacity on a combined basis.

 

On June 3, 2010, we entered into agreements to purchase seven tankers (the “Metrostar Vessels”), consisting of five VLCCs built between 2002 and 2010 and two Suezmax newbuildings from subsidiaries of Metrostar Management Corporation (“Metrostar”) for an aggregate purchase price of approximately $620 million. Through March 31, 2011, we took delivery of the five VLCCs and one Suezmax newbuilding.  The remaining Suezmax newbuilding was delivered to us in April 2011.

 

A summary of our completed vessel acquisitions and dispositions (excluding vessels leased back from purchaser) between January 1, 2008 and May 6, 2011 is as follows:

 

Vessel Name

 

Status

 

Vessel Type

 

Date

Genmar St. Nikolas

 

Delivered

 

Suezmax

 

February 7, 2008

Genmar Elektra

 

Acquired

 

Aframax

 

October 7, 2008

Genmar Daphne

 

Acquired

 

Aframax

 

December 3, 2008

Genmar Victory

 

Acquired

 

VLCC

 

December 16, 2008

Genmar Vision

 

Acquired

 

VLCC

 

December 16, 2008

Stena Compatriot

 

Acquired

 

Panamax

 

December 16, 2008

Genmar Companion

 

Acquired

 

Panamax

 

December 16, 2008

Genmar Concord

 

Acquired

 

Handymax

 

December 16, 2008

Stena Consul

 

Acquired

 

Handymax

 

December 16, 2008

Stena Concept

 

Acquired

 

Handymax

 

December 16, 2008

Stena Contest

 

Acquired

 

Handymax

 

December 16, 2008

Genmar Zeus

 

Acquired

 

VLCC

 

July 2, 2010

Genmar Poseidon

 

Acquired

 

VLCC

 

August 2, 2010

Genmar Ulysses

 

Acquired

 

VLCC

 

August 9, 2010

 

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Genmar Atlas

 

Acquired

 

VLCC

 

September 2, 2010

Genmar Hercules

 

Acquired

 

VLCC

 

September 9, 2010

Genmar Maniate

 

Acquired

 

Suezmax

 

October 6, 2010

Genmar Princess

 

Sold

 

Aframax

 

February 8, 2011

Genmar Gulf

 

Sold

 

Suezmax

 

February 23, 2011

Genmar Constantine

 

Sold

 

Aframax

 

March 18, 2011

Genmar Progress

 

Sold

 

Aframax

 

April 5, 2011

Genmar Spartiate

 

Acquired

 

Suezmax

 

April 12, 2011

 

We refer to the Genmar Agamemnon, Genmar Ajax, Genmar Alexandra, Genmar Argus, Genmar Daphne, Genmar Defiance, Genmar Elektra, Genmar George T, Genmar Harriet G, Genmar Hope, Genmar Horn, Genmar Kara G, Genmar Minotaur, Genmar Orion, Genmar Phoenix, Genmar Progress, Genmar Revenge, Genmar St. Nikolas, Genmar Spyridon and the Genmar Strength as the General Maritime Subsidiary Vessels.  We refer to the Genmar Vision, Genmar Victory, Stena Companion, Stena Compatriot and the Stena Consul as the Arlington Vessels.  We refer to the Genmar Spartiate, Genmar Zeus, Genmar Poseidon, Genmar Ulysses, Genmar Atlas, Genmar Hercules, and the Genmar Maniate as the Metrostar Vessels.

 

We actively manage the deployment of our fleet between spot market voyage charters, which generally last from several days to several weeks, and time charters, which generally last one to three years. A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed upon freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and fuel costs. A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily or monthly rate. Under time charters, the charterer pays voyage expenses such as port, canal and fuel costs.

 

We operate the majority of our vessels in the Atlantic, which includes ports in the Caribbean, South and Central America, the United States, Western Africa, the Mediterranean, Europe and the North Sea. We also currently operate vessels in the Black Sea, the Far East and in other regions worldwide, which we believe enables us to take advantage of market opportunities and to position our vessels in anticipation of drydockings.

 

We strive to optimize the financial performance of our fleet through the deployment of our vessels in both time charters and in the spot market. Vessels operating on time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot market during periods characterized by favorable market conditions. Vessels operating in the spot market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in tanker rates although we are exposed to the risk of declining tanker rates. We are constantly evaluating opportunities to increase the number of our vessels deployed on time charters, but only expect to enter into additional time charters if we can obtain contract terms that satisfy our criteria.

 

We employ experienced management in all functions critical to our operations, aiming to provide a focused marketing effort, tight quality and cost controls and effective operations and safety monitoring.  Through our wholly owned subsidiaries, General Maritime Management LLC and General Maritime Management (Portugal) Lda, we currently provide the commercial and technical management necessary for the operations of our General Maritime Subsidiary Vessels, which include ship maintenance, officer staffing, crewing, technical support, shipyard supervision, and risk management services through our wholly owned subsidiaries.

 

Our Arlington Vessels (which were acquired pursuant to the acquisition of Arlington Tankers Ltd. on December 16, 2008 (the Arlington Acquisition”)) and Metrostar Vessels are party to technical management agreements with third parties.  However, we provide commercial management for our Arlington Vessels and our Metrostar Vessels.  Two Handymax vessels (Stena Concept and Stena Contest) are party to fixed-rate ship management agreements with Northern Marine, which are scheduled to expire in July 2011, unless the charterer exercises its option to extend the time charter on these two vessels.Under these fixed-rate ship management agreements, Northern Marine is responsible for all technical management of the vessels, including crewing, maintenance, repair, drydockings, vessel taxes and other vessel operating and voyage expenses.  Northern Marine has outsourced some of these services to third-party providers.  We have agreed to guarantee the obligations of each of our vessel subsidiaries under the ship management agreements.

 

We signed new ship management agreements with Northern Marine for Genmar Victory and Genmar Vision and with Anglo Eastern for Genmar Companion, Genmar Concord, Genmar Compatriot and Genmar Consul after the expiration of the time charters to which they were party when we acquired them and the termination of the related fixed-rate management agreements for these vessels. These new agreements began on a mutually-agreed date after the expiration of the ship management agreements and have renewable terms of two years with respect to the new agreements with Northern Marine. The terms of each of these six new agreements are

 

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substantially different from those of the prior management agreements for these vessels, including the removal of certain provisions relating to coverage of costs for drydocking, return of vessels in-class, incentive fees, indemnification and insurance.

 

For discussion and analysis purposes only, we evaluate performance using net voyage revenues. Net voyage revenues are voyage revenues minus voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter. We believe that presenting voyage revenues, net of voyage expenses, neutralizes the variability created by unique costs associated with particular voyages or the deployment of vessels on time charter or on the spot market and presents a more accurate representation of the revenues generated by our vessels.

 

Our spot market voyage revenues are recognized on a pro rata basis based on the relative transit time in each period.  Revenue from time charters is recognized on a straight line basis as the average revenue over the term of the respective time charter agreement.

 

Direct vessel expenses are recognized when incurred.  We recognize the revenues of time charters that contain rate escalation schedules at the average rate during the life of the contract. We calculate time charter equivalent, or TCE, rates by dividing net voyage revenue by voyage days for the relevant time period. We also generate demurrage revenue, which represents fees charged to charterers associated with our spot market voyages when the charterer exceeds the agreed upon time required to load or discharge a cargo.

 

Glossary

 

The following are abbreviations and definitions of certain terms commonly used in the shipping industry and this quarterly report. The terms are taken from the Marine Encyclopedic Dictionary (Fifth Edition) published by Lloyd’s of London Press Ltd. and other sources, including information supplied by us.

 

Aframax tanker. Tanker ranging in size from 80,000 dwt to 120,000 dwt.

 

American Bureau of Shipping. American classification society.

 

Annual survey. The inspection of a vessel pursuant to international conventions, by a classification society surveyor, on behalf of the flag state, that takes place every year.

 

Bareboat charter. Contract or hire of a vessel under which the shipowner is usually paid a fixed amount for a certain period of time during which the charterer is responsible for the complete operation and maintenance of the vessel, including crewing.

 

Bunker Fuel. Fuel supplied to ships and aircraft in international transportation, irrespective of the flag of the carrier, consisting primarily of residual fuel oil for ships and distillate and jet fuel oils for aircraft.

 

Charter. Contract entered into with a customer for the use of the vessel for a specific voyage at a specific rate per unit of cargo (“Voyage charter”), or for a specific period of time at a specific rate per unit (day or month) of time (“Time charter”).

 

Charterer. The individual or company hiring a vessel.

 

Charterhire. A sum of money paid to the shipowner by a charterer under a charter for the use of a vessel.

 

Classification society. A private, self-regulatory organization which has as its purpose the supervision of vessels during their construction and afterward, in respect to their seaworthiness and upkeep, and the placing of vessels in grades or “classes” according to the society’s rules for each particular type of vessel.

 

Demurrage. The delaying of a vessel caused by a voyage charterer’s failure to load, unload, etc. before the time of scheduled departure. The term is also used to describe the payment owed by the voyage charterer for such delay.

 

Det Norske Veritas. Norwegian classification society.

 

Double-hull. Hull construction design in which a vessel has an inner and outer side and bottom separated by void space, usually several feet in width.

 

Double-sided. Hull construction design in which a vessel has watertight protective spaces that do not carry any oil and which separate the sides of tanks that hold any oil within the cargo tank length from the outer skin of the vessel.

 

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Table of Contents

 

Drydock. Large basin where all the fresh/sea water is pumped out to allow a vessel to dock in order to carry out cleaning and repairing of those parts of a vessel which are below the water line.

 

Dwt. Deadweight ton. A unit of a vessel’s capacity, for cargo, fuel oil, stores and crew, measured in metric tons of 1,000 kilograms. A vessel’s dwt or total deadweight is the total weight the vessel can carry when loaded to a particular load line.

 

Gross ton. Unit of 100 cubic feet or 2.831 cubic meters.

 

Handymax tanker. Tanker ranging in size from 40,000 dwt to 60,000 dwt.

 

Hull. Shell or body of a vessel.

 

IMO. International Maritime Organization, a United Nations agency that sets international standards for shipping.

 

Intermediate survey. The inspection of a vessel by a classification society surveyor which takes place approximately two and half years before and after each special survey. This survey is more rigorous than the annual survey and is meant to ensure that the vessel meets the standards of the classification society.

 

Lightering. To put cargo in a lighter to partially discharge a vessel or to reduce her draft. A lighter is a small vessel used to transport cargo from a vessel anchored offshore.

 

Net voyage revenues. Voyage revenues minus voyage expenses.

 

Newbuilding. A new vessel under construction or just completed.

 

Off hire. The period a vessel is unable to perform the services for which it is immediately required under its contract. Off hire periods include days spent on repairs, drydockings, special surveys and vessel upgrades. Off hire may be scheduled or unscheduled, depending on the circumstances.

 

Panamax tanker. Tanker ranging in size from 60,000 dwt to 80,000 dwt.

 

P&I Insurance. Third party indemnity insurance obtained through a mutual association, or P&I Club, formed by shipowners to provide protection from third-party liability claims against large financial loss to one member by contribution towards that loss by all members.

 

Scrapping. The disposal of old vessel tonnage by way of sale as scrap metal.

 

Single-hull. Hull construction design in which a vessel has only one hull.

 

Sister ship.  Ship built to same design and specifications as another.

 

Special survey. The inspection of a vessel by a classification society surveyor that takes place every four to five years.

 

Spot market. The market for immediate chartering of a vessel, usually on voyage charters.

 

Suezmax tanker. Tanker ranging in size from 120,000 dwt to 200,000 dwt.

 

Tanker. Vessel designed for the carriage of liquid cargoes in bulk with cargo space consisting of many tanks. Tankers carry a variety of products including crude oil, refined products, liquid chemicals and liquid gas. Tankers load their cargo by gravity from the shore or by shore pumps and discharge using their own pumps.

 

TCE. Time charter equivalent. TCE is a measure of the average daily revenue performance of a vessel on a per voyage basis determined by dividing net voyage revenue by voyage days for the applicable time period.

 

Time charter. Charter of a vessel under which the shipowner is paid charterhire on a per day basis for a certain period of time. The shipowner is responsible for providing the crew and paying operating costs while the charterer is responsible for paying the voyage expenses.

 

VLCC. Acronym for Very Large Crude Carrier, or a tanker ranging in size from 200,000 dwt to 320,000 dwt.

 

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Table of Contents

 

Voyage charter.  A Charter under which a customer pays a transportation charge for the movement of a specific cargo between two or more specified ports. The shipowner pays all voyage expenses, and all vessel expenses, unless the vessel to which the Charter relates has been time chartered in. The customer is liable for Demurrage, if incurred.

 

Worldscale. Industry name for the Worldwide Tanker Nominal Freight Scale published annually by the Worldscale Association as a rate reference for shipping companies, brokers, and their customers engaged in the bulk shipping of oil in the international markets. Worldscale is a list of calculated rates for specific voyage itineraries for a standard vessel, as defined, using defined voyage cost assumptions such as vessel speed, fuel consumption and port costs. Actual market rates for voyage charters are usually quoted in terms of a percentage of Worldscale.

 

RESULTS OF OPERATIONS

 

Set forth below are selected historical consolidated and other data of General Maritime Corporation at the dates and for the periods shown.

 

INCOME STATEMENT DATA

 

Three months ended

 

(In thousands, except per share data)

 

March 31, 2011

 

March 31, 2010

 

Voyage revenues

 

$

102,933

 

$

97,556

 

Voyage expenses

 

43,951

 

31,670

 

Direct vessel expenses

 

29,840

 

24,261

 

Bareboat lease expense

 

1,584

 

 

General and administrative expenses

 

8,787

 

9,727

 

Depreciation and amortization

 

22,434

 

22,307

 

Goodwill impairment

 

1,818

 

 

Loss (gain) on disposal of vessels and vessel equipment

 

3,285

 

(13

)

Total operating expenses

 

111,699

 

87,952

 

Operating (loss) income

 

(8,766

)

9,604

 

Net interest expense

 

22,858

 

18,855

 

Other income

 

84

 

172

 

Net loss

 

$

(31,540

)

$

(9,079

)

 

 

 

 

 

 

Basic loss per share

 

$

(0.36

)

$

(0.16

)

Diluted loss per share

 

$

(0.36

)

$

(0.16

)

 

 

 

 

 

 

Basic weighted average shares outstanding, thousands

 

86,623

 

55,661

 

Diluted weighted average shares outstanding, thousands

 

86,623

 

55,661

 

 

BALANCE SHEET DATA, at end of period

 

 

 

 

 

(Dollars in thousands)

 

March 31, 2011

 

December 31, 2010

 

Cash

 

$

62,765

 

$

16,858

 

Current assets, including cash

 

137,913

 

168,538

 

Total assets

 

1,721,824

 

1,781,785

 

Current liabilities

 

228,033

 

1,442,593

 

Total long-term debt

 

1,317,270

 

1,353,243

 

Shareholders’ equity

 

304,255

 

332,046

 

 

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OTHER FINANCIAL DATA

 

Three months ended

 

(dollars in thousands except average daily results)

 

March 31, 2011

 

March 31, 2010

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

24,499

 

$

19,971

 

Net cash provided by investing activities

 

82,563

 

1,514

 

Net cash used by financing activities

 

(61,065

)

(7,409

)

Capital and drydock expenditures

 

 

 

 

 

Vessel sales (purchases), including deposits

 

85,301

 

 

Drydocking or capitalized survey or improvement costs

 

4,402

 

1,203

 

Weighted average long-term debt

 

1,343,286

 

1,018,656

 

OTHER DATA

 

 

 

 

 

EBITDA (1)

 

13,752

 

32,083

 

FLEET DATA

 

 

 

 

 

Total number of vessels including vessels chartered in (at end of period)

 

34

 

31

 

Average number of vessels (2)

 

35.9

 

31.0

 

Total vessel operating days for fleet (3)

 

2,974

 

2,709

 

Total time charter days for fleet

 

1,445

 

1,614

 

Total spot market days for fleet

 

1,529

 

1,095

 

Total calendar days for fleet (4)

 

3,228

 

2,790

 

Fleet utilization (5)

 

92.1

%

97.1

%

AVERAGE DAILY RESULTS

 

 

 

 

 

Time Charter Equivalent (6)

 

$

19,833

 

$

24,321

 

Direct vessel operating expenses per vessel (7)

 

9,244

 

8,696

 

 

 

 

Three months ended

 

 

 

March 31, 2011

 

March 31, 2010

 

EBITDA Reconciliation

 

 

 

 

 

Net Loss

 

$

(31,540

)

$

(9,079

)

+

Net interest expense

 

22,858

 

18,855

 

+

Depreciation and amortization

 

22,434

 

22,307

 

 

EBITDA

 

$

13,752

 

$

32,083

 

 


(1) EBITDA represents net income plus net interest expense and depreciation and amortization. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common performance measure to compare results across peers. Management of the Company uses EBITDA as a performance measure in consolidating monthly internal financial statements and is presented for review at our board meetings. The Company believes that EBITDA is useful to investors as the shipping industry is capital intensive which often brings significant cost of financing. EBITDA is not an item recognized by accounting principles generally accepted in the United States of America (GAAP), and should not be considered as an alternative to net income, operating income or any other indicator of a company’s operating performance required by GAAP. The definition of EBITDA used here may not be comparable to that used by other companies.

 

(2) Average number of vessels is the number of vessels, including Chartered-in Vessels,  that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was part of our fleet during the period divided by the number of calendar days in that period.

 

(3) Vessel operating days for fleet are the total days our vessels, including Chartered-in Vessels, were in our possession for the relevant period net of off hire days associated with major repairs, drydockings or special or intermediate surveys.

 

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(4) Calendar days are the total days the vessels were in our possession for the relevant period including off hire days associated with major repairs, drydockings or special or intermediate surveys.

 

(5) Fleet utilization is the percentage of time that our vessels, including Chartered-in Vessels, were available for revenue generating voyage days, and is determined by dividing vessel operating days by calendar days for the relevant period.

 

(6) Time Charter Equivalent, or TCE, is a measure of the average daily revenue performance of a vessel on a per voyage basis. Our method of calculating TCE is consistent with industry standards and is determined by dividing net voyage revenue by voyage days for the relevant time period. Net voyage revenues are voyage revenues minus voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract.

 

(7) Daily direct vessel operating expenses, or daily DVOE, is calculated by dividing direct vessel expenses, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance and maintenance and repairs, by calendar days for the relevant time period.

 

Margin analysis for the indicated items as a percentage of net voyage revenues for the three months ended March 31, 2011 and 2010 is set forth in the table below. 

 

 

 

FOR THE THREE MONTHS

 

 

 

ENDED MARCH 31,

 

 

 

2011

 

2010

 

INCOME STATEMENT DATA

 

 

 

 

 

Net voyage revenues (1)

 

100.0

%

100.0

%

Direct vessel expenses

 

50.6

%

36.8

%

Bareboat lease expense

 

2.7

%

0.0

%

General and administrative expenses

 

14.9

%

14.8

%

Depreciation and amortization

 

38.0

%

33.9

%

Goodwill impairment

 

3.1

%

0.0

%

Loss (gain) on disposal of vessels and vessel

 

5.6

%

0.0

%

Operating (loss) income

 

-14.9

%

14.5

%

Net interest expense

 

-38.8

%

-28.6

%

Other income

 

0.1

%

0.3

%

Net loss

 

-53.6

%

-13.8

%

 


(1)          Net voyage revenues are voyage revenues minus voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter.

 

 

 

FOR THE THREE MONTHS

 

STATEMENT OF OPERATIONS DATA

 

ENDED MARCH 31,

 

(Dollars in thousands)

 

2011

 

2010

 

 

 

 

 

 

 

Voyage revenues

 

$

102,933

 

$

97,556

 

Voyage expenses

 

(43,951

)

(31,670

)

Net voyage revenues

 

$

58,982

 

$

65,886

 

 

Three months ended March 31, 2011 compared to the three months ended March 31, 2010

 

VOYAGE REVENUES—Voyage revenues increased by $5.3 million, or 5.5%, to $102.9 million for the three months ended March 31, 2011 compared to $97.6 million for the prior year period. This increase is primarily due to a 9.8% increase in the number of vessel operating days, including those attributable to the Chartered-in Vessels, during the three months ended March 31, 2011 to 2,974 days from 2,709 days in the prior year period.  The increase in vessel operating days is primarily due to an increase in the size of our fleet resulting from the acquisition of six Metrostar Vessels during the second half of 2010 partially offset by the sale of three vessels which were not leased back as well as lower utilization rates associated with offhire time from the completion of the last voyage of these three vessels and an additional vessel held for sale at March 31, 2011 until the dates such vessels were actually sold.  The average size of our fleet during the three months ended March 31, 2011 was 35.9 (11.3 Aframax, 11.6 Suezmax, 4.0 Handymax

 

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(including three Chartered-in Vessels), 7.0 VLCC, and 2.0 Panamax) vessels compared to 31.0 (12.0 Aframax, 11.0 Suezmax, 4.0 Handymax, 2.0 VLCC, and 2.0 Panamax) vessels during the prior year period.  This increase in voyage revenues is partially offset by lower spot voyage rates associated with a weaker spot voyage market during the three months ended March 31, 2011 compared to the prior year period  as well as a decline in time charter rates during the three months ended March 31, 2011 as compared to the prior year period, as discussed below under “Net Voyage Revenues”.

 

VOYAGE EXPENSES—Voyage expenses increased by $12.3 million, or 38.8%, to $44.0 million for the three months ended March 31, 2011 compared to $31.7 million for the prior year period.  Substantially all of our voyage expenses relate to spot charter voyages, under which the vessel owner is responsible for voyage expenses such as fuel and port costs.   During the three months ended March 31, 2011, the number of days our vessels operated under spot charters increased by 434 days, or 39.6%, to 1,529 days (387 days Aframax, 717 days Suezmax, 360 days VLCC, 38 days Panamax and 27 days Handymax) from 1,095 days (475 days Aframax, 489 days Suezmax, 119 days VLCC, 12 days Panamax) during the prior year period.  The increase in spot voyage days during the three months ended March 31, 2011 compared to the prior year period reflects an increase in the proportion of such days consisting of the larger VLCC and Suezmax vessels.  Larger vessels consume more fuel and undergo longer voyages and accordingly, fewer port calls than smaller vessels and incur greater fuel costs but lower port costs.  Primarily because of this, fuel costs increased by $12.1 million, or 53.3%, to $34.9 million during the three months ended March 31, 2011 compared to $22.8 million during the prior year period.  This increase in fuel cost corresponds to a 9.8% increase in fuel cost per spot voyage day to $22,839 during the three months ended March 31, 2011 compared to $20,799 during the prior year period.  Port costs, which can vary depending on the geographic regions in which the vessels operate and their trading patterns, increased by $0.1 million, or 1.5%, to $6.1 million during the three months ended March 31, 2011 compared to $6.0 million during the prior year period.  This increase in overall port costs reflects a 27.3% decrease in port costs per spot day to $3,992 for the three months ended March 31, 2011 compared to $5,492 for the prior year period.

 

NET VOYAGE REVENUES—Net voyage revenues, which are voyage revenues minus voyage expenses, decreased by $6.9 million, or 10.5%, to $59.0 million for the three months ended March 31, 2011 compared to $65.9 million for the prior year period.  Substantially all of this decrease is attributable to lower TCE rates earned during the three months ended March 31, 2011 compared to prior year.  Our average TCE rates decreased to $19,833 during the three months ended March 31, 2011 compared to $24,321 for the prior year period.  This decrease in TCE during the three months ended March 31, 2011 as compared to the prior year period is attributable to a decline in spot charter rates due to a weaker rate environment  and a decrease in time charter rates  due to time charters that have expired during 2009 which had rates higher than prevailing market rates.  Accordingly, when these time charters expired, the vessels were either put on time charters with lower rates or placed in the spot voyage charter market.  Partially offsetting this decrease is a 15.8% increase in the average size of our fleet during the three months ended March 31, 2011 to 35.9 (11.3 Aframax, 11.6 Suezmax, 4.0 Handymax (including three Chartered-in Vessels), 7.0 VLCC, and 2.0 Panamax) vessels compared to 31.0 (12.0 Aframax, 11.0 Suezmax, 4.0 Handymax, 2.0 VLCC, and 2.0 Panamax) vessels during the prior year period.

 

The following table includes additional data pertaining to net voyage revenues:

 

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Table of Contents

 

 

 

3 months ended March 31,

 

Increase

 

%

 

 

 

2011

 

2010

 

(Decrease)

 

Change

 

Net voyage revenue (in thousands):

 

 

 

 

 

 

 

 

 

Time charter:

 

 

 

 

 

 

 

 

 

Aframax

 

$

7,699

 

$

10,701

 

$

(3,002

)

-28.1

%

Suezmax

 

7,709

 

16,758

 

(9,049

)

-54.0

%

VLCC

 

7,443

 

2,081

 

5,362

 

257.7

%

Panamax

 

1,799

 

2,940

 

(1,141

)

-38.8

%

Product

 

4,252

 

5,033

 

(781

)

-15.5

%

Total

 

28,902

 

37,513

 

(8,611

)

-23.0

%

 

 

 

 

 

 

 

 

 

 

Spot charter:

 

 

 

 

 

 

 

 

 

Aframax

 

3,875

 

7,548

 

(3,673

)

-48.7

%

Suezmax

 

16,768

 

16,849

 

(81

)

-0.5

%

VLCC

 

8,615

 

4,199

 

4,416

 

105.2

%

Panamax

 

488

 

(223

)

711

 

n/a

 

Product

 

334

 

 

334

 

n/a

 

Total

 

30,080

 

28,373

 

1,707

 

6.0

%

 

 

 

 

 

 

 

 

 

 

TOTAL NET VOYAGE REVENUE

 

$

58,982

 

$

65,886

 

$

(6,904

)

-10.5

%

 

 

 

 

 

 

 

 

 

 

Vessel operating days:

 

 

 

 

 

 

 

 

 

Time charter:

 

 

 

 

 

 

 

 

 

Aframax

 

460

 

587

 

(127

)

-21.6

%

Suezmax

 

282

 

448

 

(166

)

-37.1

%

VLCC

 

236

 

59

 

177

 

300.0

%

Panamax

 

141

 

166

 

(25

)

-15.1

%

Product

 

326

 

354

 

(28

)

-7.9

%

Total

 

1,445

 

1,614

 

(169

)

-10.5

%

 

 

 

 

 

 

 

 

 

 

Spot charter:

 

 

 

 

 

 

 

 

 

Aframax

 

387

 

475

 

(88

)

-18.5

%

Suezmax

 

717

 

489

 

228

 

46.6

%

VLCC

 

360

 

119

 

241

 

202.5

%

Panamax

 

38

 

12

 

26

 

216.7

%

Product

 

27

 

 

27

 

n/a

 

Total

 

1,529

 

1,095

 

434

 

39.6

%

TOTAL VESSEL OPERATING DAYS

 

2,974

 

2,709

 

265

 

9.8

%

AVERAGE NUMBER OF VESSELS

 

35.9

 

31.0

 

4.9

 

15.8

%

 

 

 

 

 

 

 

 

 

 

Time Charter Equivalent (TCE):

 

 

 

 

 

 

 

 

 

Time charter:

 

 

 

 

 

 

 

 

 

Aframax

 

$

16,738

 

$

18,230

 

$

(1,492

)

-8.2

%

Suezmax

 

$

27,338

 

$

37,406

 

$

(10,068

)

-26.9

%

VLCC

 

$

31,537

 

$

35,269

 

$

(3,732