Genco Shipping & Trading Limited Announces Third Quarter 2011 Financial Results

NEW YORK, Nov. 1, 2011 /PRNewswire/ -- Genco Shipping & Trading Limited (NYSE: GNK) ("Genco" or the "Company") today reported its financial results for the three and nine months ended September 30, 2011.

The following financial review discusses the results for the three and nine months ended September 30, 2011 and September 30, 2010.

Third Quarter 2011 and Year-to-Date Highlights

• Recorded net income attributable to Genco for the third quarter of $1.6 million, or $0.04 basic and diluted earnings per share;
• Maintained strong cash position of $301.5 million on a consolidated basis, including restricted cash;
  • $296.2 million for Genco Shipping & Trading Limited, including restricted cash
  • $5.3 million for Baltic Trading Limited
• Took delivery of the Genco Mare on July 20, 2011; and  
• Continued time charter strategy of fixing vessels on short term or spot market-related contracts with options to convert to fixed employment contracts while market remains soft.

Financial Review: 2011 Third Quarter

The Company recorded net income attributable to Genco for the third quarter of 2011 of $1.6 million, or $0.04 basic and diluted earnings per share. Comparatively, for the three months ended September 30, 2010, net income attributable to Genco was $36.2 million or $1.07 basic and $0.99 diluted earnings per share.

EBITDA was $57.9 million for the three months ended September 30, 2011 versus $85.9 million for the three months ended September 30, 2010.  

Robert Gerald Buchanan, President, commented, "Our opportunistic time charter approach enabled Genco to capitalize on a rising freight rate environment during the third quarter. As we continue to employ a majority of our vessels on contracts that preserve the ability to take advantage of future rate increases, we took delivery of a Handysize newbuilding. Consistent with our strategy, this vessel commenced a long-term spot market-related time charter with a top counterparty. Our large and modern fleet bodes well for Genco to continue to provide first-rate service for leading international charterers and capitalize on the positive long-term demand for essential drybulk commodities."

Genco's voyage revenues decreased to $93.5 million for the three months ended September 30, 2011 versus $117.6 million for the three months ended September 30, 2010, mainly due to lower charter rates achieved by the majority of our vessels and partially offset by the increase in the size of our fleet. The average daily time charter equivalent, or TCE, rates obtained by the Company's fleet decreased to $16,447 per day for the three months ended September 30, 2011 compared to $26,819 per day for the three months ended September 30, 2010. The decrease in TCE rates resulted from lower charter rates achieved in the third quarter of 2011 versus the same period last year for the majority of the vessels in our fleet. Cargo availability recovered from first quarter lows due to weather related events, and earnings on the vessels trading on spot-market related charters benefited from an increase in spot rates during the last month of the quarter.

Total operating expenses increased to $71.0 million for the three months ended September 30, 2011 from $60.2 million for the three month period ended September 30, 2010. Vessel operating expenses were $26.1 million for the third quarter of 2011 compared to $21.4 million for the same period last year. The increase in vessel operating expenses was due to the operation of a larger fleet, the consolidated expenses of Baltic Trading Limited's fleet and higher crew related expenses offset by lower insurance and lube expenses for the third quarter of 2011 versus the same period last year.  

Depreciation and amortization expenses increased to $34.4 million for the third quarter of 2011 from $30.0 million for the third quarter of 2010 as a result of the growth of our fleet offset by a decrease in depreciation due to a change in estimated residual scrap value as described below. For the year beginning January 1, 2011, the Company revised its estimated residual scrap value from $175 per lightweight ton to $245 per lightweight ton which had the impact of decreasing depreciation expense $0.6 million for the three months ended September 30, 2011. The change in residual scrap value will only affect depreciation on a prospective basis. General, administrative and management fees increased to $8.8 million in the third quarter of 2011 from $7.3 million in the third quarter of 2010 primarily due to the addition of personnel as the fleet expanded, as well as higher third-party management fees due to the growth of the fleet.

Daily vessel operating expenses, or DVOE, decreased to $4,673 per vessel per day during the third quarter of 2011 as compared to $4,918 per vessel per day for the same quarter last year mainly due to lower lube consumption and insurance related expenses. We believe daily vessel operating expenses are best measured for comparative purposes over a 12month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers and management's expectations, we expect DVOE for the fourth quarter of 2011 to be $5,000 per vessel per day on a weighted average basis.

John C. Wobensmith, Chief Financial Officer, commented, "During the third quarter, Genco further strengthened its leading reputation as an owner and operator of modern tonnage with the delivery of the Genco Mare, the third newbuilding delivered to Genco to date in 2011. We intend to draw upon our current liquidity position, including $296.2 million of cash at the end of the third quarter, to fund the remaining Handysize vessel scheduled to be delivered by the end of the year. As we continue to actively consolidate the industry and expand the Company's future earnings power, we remain dedicated to maintaining an appropriate capital structure and a strong balance sheet for the benefit of shareholders."

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities for the nine months ended September 30, 2011 and 2010 was $121.3 million and $189.7 million, respectively. The decrease in cash provided by operating activities was primarily due to lower net income for the nine months of 2011, which resulted primarily from lower charter rates achieved in the 2011 period versus the same period last year for the majority of the vessels in our fleet. For the nine months ended September 30, 2011 as compared to September 30, 2010, the lower net income was offset by significantly higher depreciation and amortization due to the operation of a larger fleet.

Net cash used in investing activities for the nine months ended September 30, 2011 and 2010 was $100.4 million and $795.2 million, respectively.  The decrease was primarily due to fewer funds used for deposits and purchases of vessels during the first nine months of 2011 compared to the same period of 2010. For the nine months ended September 30, 2011, cash used in investing activities primarily related to the purchase of vessels in the amount of $98.9 million. For the nine months ended September 30, 2010, cash used in investing activities primarily related to purchases of vessels in the amount of $789.5 million and deposits on vessels in the amount of $31.5 million.  This was offset by proceeds of $36.6 million related to the back to back sale of one vessel to Maritime Equity Partners.

Net cash used in financing activities was $39,000 during the nine months ended September 30, 2011 as compared to $682.1 million in net cash provided by financing activities during the nine months ended September 30, 2010. Cash used in financing activities in 2011 mainly consisted of $21.5 million of proceeds from the $253 Million Term Loan Facility related to the Bourbon vessels acquired and $40.0 million of proceeds from the $100 Million Term Loan Facility offset by the following uses of cash: $37.5 million repayment of debt under the 2007 Credit Facility, $14.8 million repayment of debt under the $253 Million Term Loan Facility, $3.2 million repayment of debt under the $100 Million Term Loan Facility and the $5.6 million dividend payments of our subsidiary, Baltic Trading Limited, to its outside shareholders. For the same period last year, cash provided by financing activities consisted of $231.5 million of proceeds from the $253 Million Term Loan Facility, $40.0 million of proceeds from the $100 Million Term Loan Facility, $214.5 million of proceeds from the initial public offering of Baltic Trading Limited, $125.0 million of proceeds from the issuance of convertible senior notes, $55.2 million of proceeds from the issuance of common stock and $69.8 million of proceeds from the 2010 Baltic Trading Credit Facility offset by repayments on the 2007 Credit Facility of $37.5 million, $3.7 million for payments of common stock issuance costs, $8.8 million for payments of deferred financing costs and the $2.7 million dividend payment of our subsidiary, Baltic Trading Limited.

Capital Expenditures

We make capital expenditures from time to time in connection with vessel acquisitions. Excluding Baltic Trading Limited's vessels, and assuming delivery of the last remaining vessel we have agreed to acquire, we will own a fleet of 53 drybulk vessels, consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize vessels, with an aggregate carrying capacity of approximately 3,811,000 dwt. In addition, our subsidiary Baltic Trading Limited currently owns a fleet of nine drybulk vessels, consisting of two Capesize, four Supramax, and three Handysize vessels with an aggregate carrying capacity of approximately 672,000 dwt.

In addition to acquisitions that we may undertake in future periods, we will incur additional expenditures due to special surveys and drydockings for our fleet. We estimate that three of our vessels will be drydocked in the fourth quarter of 2011. We further anticipate that 17 of our vessels will be drydocked in 2012.

We estimate our drydocking costs for our fleet, excluding the vessels owned by Baltic Trading Limited, through 2012 to be:

(1) Estimates are based on our budgeted cost of drydocking our vessels in China.  Actual costs will vary based on various factors, including where the drydockings are actually performed.  We expect to fund these costs with cash from operations.

(2) Assumes 20 days per drydocking per vessel.  Actual length will vary based on the condition of the vessel, yard schedules and other factors.

The Genco Augustus completed its drydocking during the third quarter of 2011 at a cumulative cost of approximately $0.7 million. The vessel was on planned offhire for an aggregate of 11.0 days in connection with its scheduled drydocking.

Summary Consolidated Financial and Other Data

The following table summarizes Genco Shipping & Trading Limited's selected consolidated financial and other data for the periods indicated below.

(1) The convertible notes were anti-dilutive for the quarter and year to date ending September 30, 2011 but were dilutive for the 2010 periods.

(1) EBITDA represents net income attributable to Genco Shipping & Trading Limited plus net interest expense, taxes 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.  Our management uses EBITDA as a performance measure in our consolidating internal financial statements, and it 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 results in significant depreciation and cost of financing.  EBITDA presents investors with a measure in addition to net income to evaluate the Company's performance prior to these costs.  EBITDA is not an item recognized by U.S. GAAP and should not be considered as an alternative to net income, operating income or any other indicator of a company's operating performance required by U.S. GAAP.  EBITDA is not a source of liquidity or cash flows as shown in our consolidated statement of cash flows.  The definition of EBITDA used here may not be comparable to that used by other companies.  The foregoing definition of EBITDA differs from the definition of Consolidated EBITDA used in the financial covenants of our 2007 Credit Facility, our $253 Million Term Loan Credit Facility, and $100 Million Term Loan Credit Facility.  Specifically, Consolidated EBITDA substitutes gross interest expense (which includes amortization of deferred financing costs) for net interest expense used in our definition of EBITDA, includes adjustments for restricted stock amortization and non-cash charges for deferred financing costs related to the refinancing of the other credit facilities or any non-cash losses from our investment in Jinhui and excludes extraordinary gains or losses and gains or losses from derivative instruments used for hedging purposes or sales of assets other than inventory sold in the ordinary course of business.  

(2) Average number of vessels is the number of 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) We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.

(4) We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be capable of generating revenues.

(5) We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.

(6) We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning.

(7) We define TCE rates as our net voyage revenue (voyage revenues less voyage expenses) divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not expressed in per-day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts. Since some vessels were acquired with an existing time charter at a below-market rate, we allocated the purchase price between the vessel and an intangible liability for the value assigned to the below-market charterhire.  This intangible liability is amortized as an increase to voyage revenues over the minimum remaining term of the charter.

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

Genco Shipping & Trading Limited's Fleet

Genco Shipping & Trading Limited transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. Excluding Baltic Trading's vessels, and assuming delivery of the last remaining vessel we have agreed to acquire, we will own a fleet of 53 drybulk vessels, consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize vessels, with an aggregate carrying capacity of approximately 3,811,000 dwt.  In addition, our subsidiary Baltic Trading Limited currently owns a fleet of nine drybulk vessels, consisting of two Capesize, four Supramax, and three Handysize vessels.

Our current fleet, other than Baltic Trading's vessels, contains ten groups of sister ships, which are vessels of virtually identical sizes and specifications. We believe that maintaining a fleet that includes sister ships reduces costs by creating economies of scale in the maintenance, supply and crewing of our vessels. As of November 1, 2011, the average age of our current fleet, consisting of vessels already delivered to us, was 6.6 years, as compared to the average age for the world fleet of approximately 12 years for the drybulk shipping segments in which we compete.

The following table reflects the current employment of Genco's current fleet, excluding Baltic Trading's vessels:

(1) The charter expiration dates presented represent the earliest dates that our charters may be terminated in the ordinary course.  Except for the Genco Constantine and the Genco Hadrian under the terms of each contract, the charterer is entitled to extend the time charters from two to four months in order to complete the vessel's final voyage plus any time the vessel has been off-hire. The charterer of the Genco Hadrian has the option to extend the charter for a period of one year.  The charterer of the Genco Constantine has the option to extend the charter for a period of eight months.  

(2) Time charter rates presented are the gross daily charterhire rates before third-party commissions generally ranging from 1.25% to 6.25%. In a time charter, the charterer is responsible for voyage expenses such as bunkers, port expenses, agents' fees and canal dues.

(3) We have reached an agreement with Cargill International S.A. on extensions for the Genco London and Genco Tiberius for 11 to 14.5 months based on 100% of the Baltic Capesize Index, or BCI, as reflected in daily reports.  Hire is paid every 15 days in arrears net of a 5.00% third party brokerage commission.  Genco maintains the option to convert to a fixed rate based on Capesize FFA values at 100%.  The new rate for the Genco Tiberius began on September 13, 2011, while the Genco London began on its new rate on September 27, 2011.    

(4) We have reached an agreement with Swissmarine Services S.A. on a spot market-related time charter for 10.5 to 13.5 months based on 100% of the average of the daily rates of the BCI, as reflected in daily reports.  Hire is paid every 15 days in arrears net of a 5.00% third party brokerage commission.  Genco maintains the option to convert to a fixed rate based on Capesize FFA values at 100%.  The vessel delivered to charterers on September 12, 2011.

(5) These charters include a 50% index-based profit sharing component above the respective base rates listed in the table. The profit sharing between the charterer and us for each 15-day period is calculated by taking the average over that period of the published BCI of the four time charter routes, as reflected in daily reports. If such average is more than the base rate payable under the charter, the excess amount is allocable 50% to each of the charterer and us. A third-party brokerage commission of 3.75% based on the profit sharing amount due to us is payable out of our share.

(6) We have reached an agreement with Sangamon Transportation Group on a time charter for one trip via the East Coast of South America to the Far East at a rate of $12,750 per day.  Hire payment is to be made every 15 days in advance less a 5.00% brokerage commission.  The vessel's previous time charter ended on September 11, 2011 and delivered to charterers on September 28, 2011 after repositioning.  A ballast bonus was awarded after the repositioning period.

(7) We have reached an agreement with Swissmarine Services S.A. on a spot market-related time charter for 3 to 5.5 months based on 95% of the BSI, as reflected in daily reports.  Hire is paid every 15 days in arrears net of a 5.00% third party brokerage commission.  Genco maintains the option to convert the balance of any period to a fixed rate based on Supramax FFA values at 95%.  The vessel delivered to charterers on September 9, 2011.

(8) We have reached an agreement with D/S Norden A/S on a time charter for 2.5 to 5.5 months at a rate of $13,000 per day less a 5.00% third party brokerage commission.  Hire is paid every 15 days in advance.  The vessel's previous time charter ended on September 5, 2011 and delivered to its new charterer on September 20, 2011 after repositioning.  A ballast bonus was awarded after the repositioning period.

(9) We have reached an agreement with Pacific Basin Chartering Ltd. on a time charter at a rate of $13,500 per day less a 5.00% third party brokerage commission for 5 to 7.5 months.  Hire payment is made every 15 days in advance.  The vessel delivered to its new charterer on October 28, 2011.

(10) We have reached an agreement with Louis Dreyfus Commodities Suisse S.A. on a time charter at a rate of $12,000 per day less a 5.00% third party brokerage commission for 3 to 5.5 months.  Hire payment is made every 15 days in advance.  The vessel's time charter commenced on August 1, 2011 after repositioning.  A ballast bonus was awarded after the repositioning period.

(11) We have reached an agreement with Klaveness Chartering on spot market-related time charter for 12 to 15.5 months at a rate based on 92% of the average of the daily rates of the BSI, as reflected in daily reports.  Hire payment is made every 15 days in arrears less a 5.00% third party brokerage commission.  Genco maintains the option to convert the balance period to a fixed rate based on Supramax FFA values at 92%. The vessel began on its new rate on September 21, 2011.

(12) We have reached an agreement to enter these vessels into the LB/IVS Pool whereby Lauritzen Bulkers A/S acts as the pool manager. We can withdraw up to two vessels with three months' notice and the remaining three vessels with 12 months' notice.

(13) The rate for the spot market-related time charter will be linked with a floor of $8,500 and a ceiling of $13,500 daily with a 50% profit sharing arrangement to apply to any amount above the ceiling. The rate will be based on 115% of the average of the daily rates of the BHSI, as reflected in daily reports. Hire will be paid every 15 days in advance net of a 5.00% third party brokerage commission.  These vessels were acquired with existing time charters with below-market rates. As described in footnote 15, intangible liabilities will be amortized as an increase to voyage revenues over the minimum remaining terms of the applicable charters. Specifically, for the Genco Avra, Genco Ocean and Genco Bay, the daily amount of amortization associated with them will be approximately $350, $700 and $750 per day over the actual cash rate earned, respectively.

(14) Built & delivery date for the vessel being delivered in the future is an estimate based on guidance received from the seller and/or shipyard.

(15) This vessel was acquired with an existing time charter with a below-market rate. For the time charters that are below-market, Genco allocates the purchase price between the respective vessels and an intangible liability for the value assigned to the below-market charter-hire. This intangible liability will be amortized as an increase to voyage revenues over the minimum remaining terms of the applicable charters, at which point the respective liabilities will be amortized to zero and the vessels will begin earning the ''Cash Daily Rate.'' For cash flow purposes, Genco will continue to receive the rate presented in the ''Cash Daily Rate'' column until the charter expires.

About Genco Shipping & Trading Limited

Genco Shipping & Trading Limited transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. Excluding Baltic Trading Limited's fleet, and assuming delivery of the last remaining vessel we have agreed to acquire, we will own a fleet of 53 drybulk vessels, consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize vessels, with an aggregate carrying capacity of approximately 3,811,000 dwt.  In addition, our subsidiary Baltic Trading Limited currently owns a fleet of nine drybulk vessels, consisting of two Capesize, four Supramax, and three Handysize vessels. References to Genco's vessels and fleet in this press release exclude vessels owned by Baltic Trading Limited, a subsidiary of Genco.

Conference Call Announcement

Genco Shipping & Trading Limited announced that it will hold a conference call on Wednesday, November 2, 2011 at 8:30 a.m. Eastern Time, to discuss its 2011 third quarter financial results.  The conference call and a presentation will be simultaneously webcast and will be available on the Company's website, www.GencoShipping.com. To access the conference call, dial (888) 300-2343 or (719) 325-2413 and enter passcode 7436270.  A replay of the conference call can also be accessed for two weeks by dialing (888) 203-1112 or (719) 457-0820 and entering the passcode 7436270. The Company intends to place additional materials related to the earnings announcement, including a slide presentation, on its website prior to the conference call.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on management's current expectations and observations. Included among the factors that, in our view, could cause actual results to differ materially from the forward looking statements contained in this report are the following: (i) changes in demand or rates in the drybulk shipping industry; (ii) changes in the supply of or demand for drybulk products, generally or in particular regions; (iii) changes in the supply of drybulk carriers including newbuilding of vessels or lower than anticipated scrapping of older vessels; (iv) changes in rules and regulations applicable to the cargo industry, including, without limitation, legislation adopted by international organizations or by individual countries and actions taken by regulatory authorities; (v) increases in costs and expenses including but not limited to: crew wages, insurance, provisions, lube, oil, bunkers, repairs, maintenance and general, administrative and management fee expenses; (vi) the adequacy of our insurance arrangements; (vii) changes in general domestic and international political conditions; (viii) acts of war, terrorism, or piracy; (ix) changes in the condition of the Company's vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs) and unanticipated drydock expenditures; (x) the Company's acquisition or disposition of vessels; (xi) the number of offhire days needed to complete repairs on vessels and the timing and amount of any reimbursement by our insurance carriers for insurance claims, including offhire days; (xii) the fulfillment of the closing conditions under, and the execution of customary additional documentation for, the Company's agreements to acquire one drybulk vessel; (xiii) the completion of definitive documentation with respect to charters; (xiv) charterers' compliance with the terms of their charters in the current market environment; and other factors listed from time to time in our public filings with the Securities and Exchange Commission including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2010 and its reports on Form 10-Q and Form 8-K.  

SOURCE Genco Shipping & Trading Limited

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