Attached files
file | filename |
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EX-31.1 - CERTIFICATION OF CEO - TBS INTERNATIONAL LTD | ex-31_1.htm |
EX-31.2 - CERTIFICATION OF CFO - TBS INTERNATIONAL LTD | ex-31_2.htm |
EX-31.3 - CERTIFICATION OF CAO - TBS INTERNATIONAL LTD | ex-31_3.htm |
EX-31 - SEC 906 OF SOX ACT OF 2002 - TBS INTERNATIONAL LTD | ex-32.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the quarterly period ended September 30, 2009
or
o Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission
File Number 000-51368
TBS
INTERNATIONAL LIMITED
(Exact
name of registrant as specified in its charter)
Bermuda
|
98-0225954
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
Commerce Building,
Chancery
Lane,
Hamilton
HM 12, Bermuda
|
|
(Address
of principal executive offices)
|
|
(441)
295-9230
|
|
(Registrant's
telephone number, including area
code)
|
N/A
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files): Yes ¨
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer," "accelerated filer” and "smaller
reporting company" in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer
¨ Accelerated Filer x Non-accelerated
Filer
¨ Smaller Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes ¨
No x
As
of November 6, 2009, the registrant had outstanding 17,513,371
Class A common shares, par value $0.01 per share, and
12,390,461 Class B common shares, par value $0.01 per
share.
|
TBS
INTERNATIONAL LIMITED
Form 10-Q For the Quarterly Period
Ended September 30, 2009
Table of Contents | |||
Page
|
|||
PART
I: FINANCIAL INFORMATION
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|||
Item
1
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|||
3
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|||
4
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5
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6
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7
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Item
2
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25
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Item
3
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49
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Item
4
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50
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PART
II: OTHER INFORMATION
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|||
Item
1
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51
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Item
1A
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51
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Item
2
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53
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Item
3
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53
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Item
4
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53
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Item
5
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53
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Item
6
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54
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2
PART
I. FINANCIAL INFORMATION
TBS INTERNATIONAL LIMITED AND
SUBSIDIARIES
(in
thousands, except shares and par value per share)
September
30,
|
December
31,
|
||||||||||
2009
|
2008
|
||||||||||
(unaudited)
|
|||||||||||
Assets
|
|||||||||||
Current
assets
|
|||||||||||
Cash
and cash equivalents
|
$ | 46,401 | $ | 131,150 | |||||||
Restricted
cash
|
12,675 | ||||||||||
Charter
hire receivable, net of allowance of $500 in 2009 and 2008
|
30,918 | 45,786 | |||||||||
Fuel
and other inventories
|
13,859 | 12,079 | |||||||||
Prepaid
expenses and other current assets
|
8,246 | 10,722 | |||||||||
Advances
to affiliates
|
1,238 | 6,402 | |||||||||
Total
current assets
|
113,337 | 206,139 | |||||||||
Fixed
assets, net
|
798,634 | 808,706 | |||||||||
Goodwill
|
8,426 | 8,426 | |||||||||
Other
assets and deferred charges
|
21,069 | 18,414 | |||||||||
Total
assets
|
$ | 941,466 | $ | 1,041,685 | |||||||
Liabilities
and Shareholders' Equity
|
|||||||||||
Current
liabilities
|
|||||||||||
Debt
(Note 1 and 8)
|
$ | 341,247 | $ | 56,945 | |||||||
Accounts
payable and accrued expenses
|
41,091 | 41,602 | |||||||||
Voyages
in progress
|
284 | 3,268 | |||||||||
Advances
from affiliates
|
271 | 13 | |||||||||
Total
current liabilities
|
382,893 | 101,828 | |||||||||
Debt,
long-term portion (Note 8)
|
326,129 | ||||||||||
Other
liabilities
|
12,402 | 15,432 | |||||||||
Total
liabilities
|
395,295 | 443,389 | |||||||||
COMMITMENTS
AND CONTINGENCIES (Note 12)
|
|||||||||||
Shareholders'
equity
|
|||||||||||
Common
shares, Class A, $.01 par value, 75,000,000 authorized, 17,531,996 shares
issued
and
17,513,371 shares outstanding in 2009 and 17, 519,496 shares issued and
17,509,496 outstanding in 2008
|
175 | 175 | |||||||||
Common
shares, Class B, $.01 par value, 30,000,000 authorized, 12,390,461 shares
issued
and
outstanding in 2009 and 2008
|
124 | 124 | |||||||||
Warrants
|
21 | 21 | |||||||||
Additional
paid-in capital
|
187,664 | 186,683 | |||||||||
Accumulated
other comprehensive (loss)
|
(10,415 | ) | (13,727 | ) | |||||||
Retained
earnings
|
369,069 | 425,409 | |||||||||
Less:
Treasury stock (18,625 shares, at cost)
|
(467 | ) | (389 | ) | |||||||
Total
shareholders' equity
|
546,171 | 598,296 | |||||||||
Total
liabilities and shareholders' equity
|
$ | 941,466 | $ | 1,041,685 | |||||||
The
accompanying notes are an integral part of these consolidated financial
statements
TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES
(in
thousands, except per share amounts and outstanding shares)
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
||||||||||||||
Revenue
|
|||||||||||||||||
Voyage
revenue
|
$ | 57,163 | $ | 161,397 | $ | 181,417 | $ | 388,253 | |||||||||
Time
charter revenue
|
15,972 | 19,308 | 34,311 | 77,292 | |||||||||||||
Logistics
revenue
|
1,014 | 2,045 | 1,550 | 5,288 | |||||||||||||
Other
revenue
|
183 | 572 | 448 | 1,012 | |||||||||||||
Total
revenue
|
74,332 | 183,322 | 217,726 | 471,845 | |||||||||||||
Operating
expenses
|
|||||||||||||||||
Voyage
|
25,505 | 52,882 | 81,818 | 126,731 | |||||||||||||
Logistics
|
754 | 1,726 | 1,175 | 4,417 | |||||||||||||
Vessel
|
28,502 | 30,759 | 82,001 | 78,508 | |||||||||||||
Depreciation
and amortization of vessels and other fixed assets
|
23,747 | 19,980 | 70,069 | 49,988 | |||||||||||||
General
and administrative
|
9,086 | 14,121 | 26,121 | 41,184 | |||||||||||||
Total
operating expenses
|
87,594 | 119,468 | 261,184 | 300,828 | |||||||||||||
(Loss)
income from operations
|
(13,262 | ) | 63,854 | (43,458 | ) | 171,017 | |||||||||||
Other
(expenses) and income
|
|||||||||||||||||
Interest
expense
|
(4,863 | ) | (5,041 | ) | (12,840 | ) | (12,318 | ) | |||||||||
Loss
on extinguishment of debt
|
(2,318 | ) | |||||||||||||||
Interest
and other income (expense)
|
(14 | ) | 330 | (42 | ) | 781 | |||||||||||
Total
other (expenses) and income, net
|
(4,877 | ) | (4,711 | ) | (12,882 | ) | (13,855 | ) | |||||||||
Net
(loss) income
|
$ | (18,139 | ) | $ | 59,143 | $ | (56,340 | ) | $ | 157,162 | |||||||
Earnings
per share
|
|||||||||||||||||
Net
(loss) income per common share
|
|||||||||||||||||
Basic
and Diluted
|
$ | (0.61 | ) | $ | 1.96 | $ | (1.89 | ) | $ | 5.40 | |||||||
Weighted
average common shares outstanding
|
|||||||||||||||||
Basic
and Diluted
|
29,863,460 | 30,104,863 | 29,836,239 | 28,980,101 | |||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES
(in
thousands)
Nine
Months Ended September 30,
|
|||||||||||
2009
|
2008
|
||||||||||
(unaudited)
|
(unaudited)
|
||||||||||
Cash
flows from operating activities
|
|||||||||||
Net
(loss) income
|
$ | (56,340 | ) | $ | 157,162 | ||||||
Adjustments
to reconcile net income to net cash
|
|||||||||||
provided
by operating activities
|
|||||||||||
Depreciation and amortization | 70,069 | 49,988 | |||||||||
Loss
on change in value of interest swap contract
|
282 | 234 | |||||||||
Amortization and write-off of deferred financing costs | 1,889 | 3,342 | |||||||||
Non cash stock based compensation | 981 | 1,949 | |||||||||
Drydocking expenditures | (10,544 | ) | (9,138 | ) | |||||||
Loss
in joint venture
|
(226 | ) | |||||||||
Changes in operating assets and liabilities | |||||||||||
Decrease
(increase) in charter hire receivable
|
14,868 | (26,711 | ) | ||||||||
(Increase)
in fuel and other inventories
|
(1,780 | ) | (6,873 | ) | |||||||
Decrease
(increase) in prepaid expenses and other current assets
|
2,476 | (2,122 | ) | ||||||||
(Increase)
in other assets and deferred charges
|
(776 | ) | (3,973 | ) | |||||||
(Decrease)
increase in accounts payable and accrued expenses
|
(511 | ) | 7,612 | ||||||||
(Decrease)
increase in voyages in progress
|
(2,984 | ) | 4,381 | ||||||||
Increase
(decrease) in advances from/to affiliates, net
|
5,422 | (2,993 | ) | ||||||||
Net
cash provided by operating activities
|
23,052 | 172,632 | |||||||||
Cash
flows from investing activities
|
|||||||||||
Vessel
acquisitions / capital improvement costs / vessel construction in progress
payments
|
(49,453 | ) | (356,304 | ) | |||||||
Restricted
cash to fund 2009 new vessel payments
|
(20,000 | ) | |||||||||
Decrease
in restricted cash for new vessel payments
|
7,325 | ||||||||||
Deposit
for vessel purchases
|
(4,120 | ) | |||||||||
Investment
in joint venture
|
(366 | ) | |||||||||
Return
of dividend from joint venture
|
100 | ||||||||||
Repayment
of loan made from joint venture
|
760 | ||||||||||
Net
cash (used) by investing activities
|
(62,494 | ) | (359,564 | ) | |||||||
Cash
flows from financing activities
|
|||||||||||
Proceeds
from issuance of shares in secondary public offering, net of offering
costs
|
95,739 | ||||||||||
Repayment
of debt principal
|
(61,002 | ) | (162,636 | ) | |||||||
Proceeds
from debt
|
19,175 | 318,000 | |||||||||
Payment
of deferred financing and leasing costs
|
(3,402 | ) | (4,688 | ) | |||||||
Acquisition
of treasury stock
|
(78 | ) | |||||||||
Net
cash provided by (used in) financing activities
|
(45,307 | ) | 246,415 | ||||||||
Net
increase (decrease) in cash and cash equivalents
|
(84,749 | ) | 59,483 | ||||||||
Cash
and cash equivalents beginning of period
|
131,150 | 30,498 | |||||||||
Cash and cash equivalents end of period | $ | 46,401 | $ | 89,981 | |||||||
Supplemental
cash flow information:
|
|||||||||||
Interest
paid, net of amounts capitalized
|
$ | 18,314 | $ | 10,207 | |||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES
(in
thousands, except shares)
(unaudited)
Accumulated
|
|||||||||||||||||||||||||||||||
Other
Com-
|
|||||||||||||||||||||||||||||||
Additional
|
prehensive
|
||||||||||||||||||||||||||||||
|
Common
Shares
|
Treasury
Stocks
|
Warrants
|
Paid-in
|
Retained
|
Income
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
(Loss)
|
Total
|
||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||
Balance
at December 31, 2008
|
29,909,957 | 299 | 10,000 | (389 | ) | 311,903 | 21 | 186,683 | 425,409 | (13,727 | ) | $ | 598,296 | ||||||||||||||||||
Net
loss
|
(56,340 | ) | (56,340 | ) | |||||||||||||||||||||||||||
Unrealized
gain on cash flow hedges
|
3,312 | 3,312 | |||||||||||||||||||||||||||||
Comprehensive
income
|
(53,028 | ) | |||||||||||||||||||||||||||||
Stock
based compensation
|
12,500 | 981 | 981 | ||||||||||||||||||||||||||||
Treasury
stock
|
8,625 | (78 | ) | (78 | ) | ||||||||||||||||||||||||||
Balance
at September 30, 2009
|
29,922,457 | $ | 299 | 18,625 | $ | (467 | ) | 311,903 | $ | 21 | $ | 187,664 | $ | 369,069 | $ | (10,415 | ) | $ | 546,171 | ||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
TBS
International Limited ("TBSI") and its subsidiaries (the "Company", "we" or
"our") are engaged in the ocean transportation of dry cargo offering shipping
solutions through liner, parcel, bulk and services. Substantially all
related corporations of TBSI are foreign corporations and conduct their business
operations worldwide. The accompanying unaudited consolidated
financial statements and notes thereto have been prepared in accordance with
U.S. generally accepted accounting principles for interim financial statements
and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These consolidated interim financial
statements should be read in conjunction with the financial statements and notes
included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008. Operating results for the nine month period
ended September 30, 2009 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2009.
The
consolidated balance sheet at December 31, 2008 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 2008 included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange Commission
("SEC") on March 30, 2009.
The Company's
board of directors has unanimously approved, and is submitting to our
shareholders, a proposal that would result in our shareholders holding shares in
TBS International plc, an Irish company, rather than TBS International Limited,
a Bermuda company. Later this year, our shareholders will be asked to
vote in favor of completing the reorganization at a shareholders
meeting. If conditions are satisfied, including approval by the
Company's shareholders and the Supreme Court of Bermuda, TBS International plc
will replace TBS International Ltd. as the ultimate parent company for the
Company's operations.
Accounting
principles require that long-term loans be classified as a current liability
when either a covenant violation that gives the lender the right to call the
debt has occurred at the balance sheet date, or such a covenant violation would
have occurred absent a waiver of those covenants and, in either case, it is
probable that the covenant violation will not be cured within the
next twelve months. At September 30, 2009, although the Company
was in compliance with all modified additional covenants and the debt is not
currently callable by the lenders, the Company would have been in violation of
the previously effective minimum consolidated fixed charge coverage ratio and
the maximum consolidated leverage ratio. Based on current internal
projections, the Company anticipates that it will not meet certain of the
restated covenant requirement during the next
twelve months. Accordingly, long-term loans are classified as a
current liability in the consolidated balance sheet at September 30,
2009. As further discussed in Note 8 – Financing, the Company is in
the process of both seeking financing to repay most of its credit facilities and
discussing permanent and / or temporary modifications of the financial covenants
on any credit facilities not being repaid. Assuming the Company is
successful in completing the financing and / or modifications, the Company
expects to reclassify the long-term portion of outstanding debt as such on
the consolidated balance sheet. The Company cannot give any assurance
that it will be able to obtain the financing and / or covenant
modifications, which would have a material adverse effect on its business,
operations, financial condition and liquidity and would raise substantial doubt
about its ability to continue as a going concern at that
time.
Note
2 — New Accounting Pronouncements
In
June 2009, the Financial Accounting Standards Board (FASB) issued the FASB
Accounting Standards Codification (ASC), The Codification and the Hierarchy
of Generally Accepted Accounting Principles Topic ASC
105-10. The Company implemented the guidance in the third quarter of
2009 which stipulates the Codification as the authoritative version of the FASB
Accounting Standards Codification (Codification) as the single source of
authoritative nongovernmental U.S. Generally Accepted Accounting Principles
(GAAP). The statement is effective for interim and annual periods
ending after September 15, 2009. The Company updated its
references to GAAP in its consolidated financial statements issued for the
period ended September 30, 2009. As the Codification was not
intended to change or alter existing GAAP, it did not have any impact on the
Company’s consolidated financial statements.
Adopted
In May 2009,
the FASB issued guidance on accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. The guidance, which is outlined in ASC Topic 855 – Subsequent Events,
establishes the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The adoption of these changes did not
have an impact on our consolidated financial statements because the Company
already followed a similar approach prior to the adoption of this
guidance.
In April
2009, the FASB issued updated guidance on interim
disclosures about the fair value of financial instruments effective for interim
periods ending after June 15, 2009. The guidance, which is outlined
in ASC Topic 825 – Financial
Instruments, did not have an impact on our consolidated financial
statements.
On January 1,
2009, the Company adopted changes issued by the FASB on determining whether
instruments granted in share-based payment transactions are participating
securities and should be included in the computation of earnings per share using
the two-class method. The guidance, which is outlined in ASC Topic
260 – Earnings per
Share, provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends are participating securities that should use
the two-class method of computing earnings per share, which is an earnings
allocation formula that determines earnings per share for common stock and any
participating securities according to dividends declared (whether paid or
unpaid) and participation rights in undistributed earnings. Our non-vested
stock, consisting of time-vested restricted shares, are considered participating
securities since the share-based awards contain a non-forfeitable right to
dividends irrespective of whether the awards ultimately vest. The
adoption of the provisions did not have a material impact on the Company’s
previously issued consolidated financial statements.
On January 1,
2009, the Company adopted changes issued by the FASB on accounting and reporting
standards for entities with an outstanding noncontrolling interest in one or
more subsidiaries or that deconsolidate a subsidiary. The guidance,
which is outlined in ASC Topic 810 – Consolidation is effective
for fiscal years and interim periods beginning after December 15, 2008.
The changes improve the relevance, comparability and transparency of
financial information that a reporting entity provides in its consolidated
financial statements. The guidance requires: ownership
interests in subsidiaries held by parties other than the parent be clearly
identified and presented within equity but separate from the parent's equity in
the consolidated statement of financial position; consolidated net income
attributable to the parent and the noncontrolling interest be identified and
presented on the face of the consolidated statement of income; changes in a
parent's ownership interest while the parent retains its controlling financial
interest in its subsidiary be consistently accounted for as equity transactions;
any retained noncontrolling equity investment in a deconsolidated
subsidiary be initially measured at fair value and that any gain or loss on the
deconsolidation of a subsidiary be measured using fair value of the
noncontrolling equity investment rather than the carrying amount of that
retained investment; and entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and noncontrolling
owners. Adoption of these changes had no impact on our consolidated
financial statements as all consolidated subsidiaries are wholly
owned.
On
January 1, 2009, the Company adopted changes issued by the FASB on accounting
for business combinations. The guidance, which is outlined in ASC
Topic 805 – Business
Combinations, applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The changes, while
retaining the fundamental requirements of accounting for business combinations,
require that the purchase method be used for all business
combinations. The guidance establishes principles and requirements
for how an acquiring entity measures and recognizes in its financial statements:
the identifiable assets acquired; the liabilities assumed; any noncontrolling
interest in the acquiree; and the goodwill acquired or a gain from a bargain
purchase. It further sets forth disclosure criteria to enable a
better understanding of the nature and effects of a business
combination. Adoption of this guidance did not have an impact on our
consolidated financial statements.
As of
January 1, 2009, the Company adopted changes issued by the FASB on fair value
accounting and reporting relating to nonfinancial assets and liabilities that
are not recognized or disclosed at fair value in the financial
statements. The Company has previously adopted as of January 1, 2008,
changes issued by the FASB on fair value accounting and reporting of financial
assets and liabilities. The guidance, which is outlined in ASC Topic
820 – Fair Value
Measurements and Disclosures, defines fair value, establishes a framework
for measuring fair value and expands the related disclosure requirements about
fair value measurement. The guidance applies to other accounting
standards that require or permit fair value measurements and indicates, among
other things, that a fair value measurement assumes that the transaction to sell
an asset or transfer a liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market
for the asset or liability. Fair value is defined in the guidance as
based upon an exit price model. Adoption of these changes did not
have an impact on our consolidated financial statements.
Starting
with the consolidated financial statements for the first quarter of
2008, the Company adopted changes issued by the FASB on disclosures about
derivative instruments and hedging activities. The changes enhance
disclosures about an entity’s derivative and hedging activities, including (i)
how and why an entity uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. The guidance, which is
outlined in ASC Topic 815 – Derivatives and Hedging, was
effective for fiscal years and interim periods beginning after November 15, 2008
with early application encouraged. Adoption of these changes had no
impact on our consolidated financial statements other than additional
disclosures made in our notes to the consolidated financial
statements.
Issued
In August
2009, the FASB issued changes to fair value accounting for liabilities. These
changes clarify existing guidance that in circumstances in which a quoted price
in an active market for the identical liability is not available, an entity is
required to measure fair value using either a valuation technique that uses a
quoted price of either a similar liability or a quoted price of an identical or
similar liability when traded as an asset, or another valuation technique that
is consistent with the principles of fair value measurements, such as an income
approach (e.g., present value technique). This guidance also states
that both a quoted price in an active market for the identical liability and a
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. The Company is currently evaluating
the potential impact to the consolidated financial statements of these changes,
which become effective for the Company on October 1, 2009.
In June
2009, the FASB issued changes to the accounting for variable interest entities.
These changes require an enterprise to perform an analysis to determine whether
the enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity; to require ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity;
to eliminate the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable interest
entity when any changes in facts and circumstances occur such that holders of
the equity investment at risk, as a group, lose the power from voting rights or
similar rights of those investments to direct the activities of the entity that
most significantly impact the entity’s economic performance; and to require
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest
entity. These changes become effective January 1, 2010, and the Company is
currently evaluating the potential impact of these changes on our consolidated
financial statements.
Note 3 — Fuel and Other Inventories
Fuel and
other inventories consist of the following (in thousands):
September
30,
|
December
31,
|
|||||||
Description
|
2009
|
2008
|
||||||
Fuel
|
$ | 8,084 | $ | 7,081 | ||||
Lubricating
oil
|
4,898 | 4,356 | ||||||
Other
|
877 | 642 | ||||||
TOTAL
|
$ | 13,859 | $ | 12,079 |
Note
4 — Advances to / from Affiliates
Advances
to/from affiliates, which are entities related by common shareholders, are
non-interest-bearing, due on demand, and expected to be collected or paid in the
ordinary course of business, generally within one year. The Company
typically advances funds to affiliates in connection with the payment of
management fees, commissions and consulting fees. Advances from affiliates
originated primarily from amounts due to affiliates for management fees,
commissions and consulting fees earned.
Note
5 — Fixed Assets
Fixed assets
consist of the following (in thousands):
Description
|
September
30, 2009
|
December
31, 2008
|
||||||
Vessels
|
$ | 717,535 | $ | 677,901 | ||||
Vessel
improvements and other equipment
|
159,931 | 140,738 | ||||||
Deferred
drydocking costs
|
26,268 | 15,724 | ||||||
Vessel
construction in process
|
114,883 | 126,024 | ||||||
Other
fixed assets
|
18,746 | 16,979 | ||||||
1,037,363 | 977,366 | |||||||
Less
accumulated depreciation and amortization
|
(238,729 | ) | (168,660 | ) | ||||
$ | 798,634 | $ | 808,706 | |||||
In
February 2007, the Company entered into individual contracts, through six wholly
owned subsidiaries, with China Communications Construction Company Ltd. and
Nantong Yahua Shipbuilding Group Co., Ltd. ("Shipyard") to build six newly
designed 34,000 dwt multipurpose tweendecker vessels with retractable tweendecks
at an original contract purchase price of $35.4 million per
vessel. The vessels were designated as Hull numbers NYHS200720
through NYHS200725. One vessel the Rockaway Belle formerly Hull
No. NYHS200720 was delivered in September 2009. Another vessel, the
Dakota Princess
formerly Hull No NYHS200721 was launched in May 2009 and is tentatively
scheduled to be delivered during the first quarter of 2010. Based on
delays at the shipyard the anticipated delivery of the remaining vessels have
been pushed back an average of seven months. Accordingly, the
anticipated delivery dates of the remaining four vessels were changed from one
vessel during each quarter of 2010 to two vessels anticipated to be delivered in
2010 and two vessels to be delivered in 2011. We are working with the
shipyard in effort to keep as close as possible to the original scheduled
delivery dates.
Upon
delivery of the Rockaway
Belle, the Company transferred $39.6 million representing
the purchase price, capitalized interest, design and other costs from
vessel construction in progress to vessels. As of September 30, 2009,
the Company made cumulative payments of $98.4 million to the shipyard toward the
purchase of the five remaining newbuild vessels. The Company also
made payments of $3.2 million on those five vessels for design, supervisory and
other costs.
The
Company capitalizes interest expense and deferred finance costs incurred in
financing the construction of the vessels as part of the vessels
cost. For the three and nine months ended September 30, 2009
approximately $1.9 million and $6.3 million, respectively, of
interest incurred was capitalized. The Company also capitalized
financing costs, principally loan origination and bank guarantee fees of $3.0
million associated with The Royal Bank of Scotland new vessel building credit
facility including $1.0 million of capitalized finance cost incurred in
connection with the March 2009 loan modification.
Note
6 — Valuation of Long-Lived Assets and Goodwill
We
perform tests for impairment of long-lived assets whenever events or
circumstances, such as significant changes in charter rates or vessel
valuations, suggest that long-lived assets may not be
recoverable. An analysis of long-lived assets differs from our
goodwill analysis in that impairment is only deemed to have occurred if the sum
of the forecasted undiscounted future cash flows related to the assets is less
than the carrying value of the assets we are testing for
impairment. If the forecasted cash flows from long-lived assets are
less than the carrying value of such assets, then we must write down the
carrying value to its estimated fair value. Forecasting future cash
flows involves the use of significant estimates and assumptions. Due
to the economic climate, the decline in the spot shipping rates that occurred in
the fourth quarter of 2008 and the decline in our market capitalization, we
concluded that there was a possible indication of impairment of long-lived
assets at December 31, 2008 and accordingly an analysis was
prepared. The cash flow period was based on the remaining lives of
the vessels which range from 4 to 30 years. Revenue and expense
assumptions used in the cash flow projections are consistent with internal
projections and reflected our economic outlook. As of the December
31, 2008 analysis, there was no impairment of long-lived
assets. During the nine month period ended September 30, 2009, we
continued to monitor the overall shipping market including freight and charter
rates. Based on our observations it is our belief that the
assumptions used in our December 31, 2008 impairment analysis, are still
applicable, and there have not been any significant changes in events or
circumstances. Consequently we have concluded that our analysis does
not require updating and that there is no impairment to our fleet at September
30, 2009. Future events or circumstances, which could require us to
perform updated tests for impairment, may cause us to conclude that
impairment of our fleet exists.
The
provisions of FASB ASC Topic 350 – Intangible – Goodwill and
Other requires an annual impairment test be performed on
goodwill. We perform our annual impairment analysis of goodwill on
May 31st of each year, or more often if there are indicators of impairment
present. The first of two steps require us to compare the reporting unit’s
carrying value of net assets to their fair value. If the fair value
exceeds the carrying value, goodwill is considered not impaired and we are not
required to perform further testing. If the carrying value of the net
assets exceeds the fair value, then we must perform the second step of the
impairment test in order to determine the implied fair value of
goodwill. If the carrying value of goodwill exceeds its implied fair
value, then we are required to record an impairment loss equal to the
difference.
Determining
the reporting unit’s fair value involves the use of significant estimates and
assumptions. The reporting unit consists of the companies acquired in
connection with the initial public offering that created the goodwill of $8.4
million. We estimate the fair value using income and market approaches
through the application of discounted cash flow. We performed our annual
analysis at May 31, 2009 by: (a) updating our 2009 budgeted cash flow
based on actual results, (b) updating our forecast for years 2010 through 2013
based on changes made to our 2009 cash flow estimates, (c) updating our
estimates of the weighted-average cost of capital. During the three
months ended September 30, 2009, there were no changes in circumstances that
necessitated goodwill impairment testing. Based on our review,
there was no impairment of goodwill at September 30,
2009.
Note
7 — Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following (in
thousands):
September
30,
|
December
31,
|
|||||||
Description
|
2009
|
2008
|
||||||
Accounts
payable and accrued expenses - vessel
|
$ | 21,616 | $ | 29,082 | ||||
Accounts
payable and accrued expenses - voyage
|
18,578 | 11,126 | ||||||
Accrued
expenses - General administrative
|
897 | 1,394 | ||||||
Total
|
$ | 41,091 | $ | 41,602 | ||||
Note
8 — Financing
The
Company's outstanding debt balances consist of the following (in
thousands)
Interest
Rate at September 30, 2009
|
September
30, 2009
|
December
31, 2008
|
|||||||||
Bank
of America term credit facility,
|
|||||||||||
expires
December 31, 2011
|
4.28 | % | $ | 76,000 | $ | 95,000 | |||||
Bank
of America revolving credit facility,
|
|||||||||||
expires
March 26, 2012
|
4.30%
& 4.32
|
% | 75,000 | 75,000 | |||||||
The
Royal Bank of Scotland credit facility,
|
|||||||||||
new
vessel buildings, expires December 2015
|
3.78 | % | 93,758 | 75,000 | |||||||
Credit
Suisse credit facility,
|
|||||||||||
expires
December 12, 2017 and February 19, 2018
|
3.05%
& 3.18
|
% | 28,750 | 31,750 | |||||||
DVB
Group Merchant Bank (Asia) Ltd credit facility,
|
|||||||||||
expires
January 23, 2013
|
4.50 | % | 35,864 | 60,324 | |||||||
AIG
Commercial Equipment Finance, Inc. credit facility,
|
|||||||||||
expires
April 1, 2012
|
7.00 | % | 19,250 | 29,750 | |||||||
Commerzbank
AG credit facility,
|
|||||||||||
expires
June 2, 2011
|
3.60 | % | 4,500 | 6,500 | |||||||
Berenberg
Bank credit facility,
|
|||||||||||
expires
June 19, 2012
|
3.31 | % | 8,125 | 9,750 | |||||||
Total
|
$ | 341,247 | $ | 383,074 | |||||||
Less:
Current Portion
|
(341,247 | ) | (56,945 | ) | |||||||
Long
Term Portion
|
$ | $ | 326,129 | ||||||||
The table
below illustrates our payment obligations due according to the original
agreements. The long-term portion of the debt obligations on the
below table have not been reclassified to current debt.
2009
(October 1, 2009 through December 31, 2009)
|
$ | |||
2010
|
73,479 | |||
2011
|
72,533 | |||
2012
|
103,908 | |||
2013
|
15,959 | |||
Thereafter
|
75,368 | |||
$ | 341,247 | |||
Debt
Reclassification
Generally
accepted accounting principles require that long-term loans be classified as a
current liability when either a covenant violation that gives the lender the
right to call the debt has occurred at the balance sheet date, or such a
covenant violation would have occurred absent a waiver of those covenants, and
in either case it is probable that the covenant violation will not be cured
within the next twelve months. At September 30, 2009, although the
Company was in compliance with all modified additional covenants and the debt is
not currently callable by the lenders, the Company would have been in violation
of the previously effective minimum consolidated fixed charge coverage ratio and
the maximum consolidate leverage ratio. Based on current internal
projections, the Company anticipates that it will not meet certain of the
reinstated covenant requirements during the next twelve
months. Accordingly, long-term loans are classified as a current
liability in the consolidated balance sheet at September 30,
2009. The Company is in the process of both seeking financing to
repay most of its credit facilities and discussing permanent and / or temporary
modifications of the financial covenants on any credit facilities not being
repaid. The Company expects that in conjunction with
refinancing or modifications of any of its credit facilities, amounts that may
be borrowed under such credit facilities may be reduced. If and when
the Company is able to obtain such financing and / or modifications, the Company
expects to reclassify its long-term portion of outstanding debt as such on the
consolidated balance sheet.
March
2009 Loan Modifications
In March
2009, the Company finalized negotiations with all of its creditors to obtain
waivers of the collateral coverage requirements and other financial covenants
such as leverage, fixed interest coverage ratios and minimum net worth and cash
balance requirements through the fourth quarter of 2009. The
lenders agreed to waive the original financial covenants through January 1,
2010, at that will be reinstated, provided the company is in compliance with two
additional covenants during the period. The two additional covenants
require (1) an earnings before interest, depreciation and amortization to
interest expense ratio of not less than 1.35 to 1.00 and 1.75 to 1.00 at the end
of the third and fourth quarters of 2009, respectively, and (2) minimum end of
month cash balance of not less than $40.0 million. The Company was in
compliance with the two additional covenants for the period ending September 30,
2009; however, based on current internal projections the Company anticipates
that it will not meet the reinstated covenant requirements in
2010. As discussed above, at September 30, 2009, while the Company
was in compliance with the two additional covenants, the Company would not have
been in compliance with two of the previously-effective original financial
covenants.
In
connection with the modification of the Bank of America Credit Facility, the
amount available under the Bank of America Revolving Credit Facility was reduced
from $125.0 million to $85.0 million. The interest rate margins on
the Bank of America, The Royal Bank of Scotland, and AIG Commercial Equipment
Finance, Inc. credit facilities increased 1.75%. The
interest rate margins on the Credit Suisse, DVB Group Merchant Bank and the
Commerzbank AG credit facilities increased 1.70%, 1.50% and 1.50%,
respectively. The interest rate margin on the Joh. Berenberg, Gossler
& Co. KG Credit Facility increased 1.30%. The repayment term
of each of the loans made under The Royal Bank of Scotland Credit Facility
were modified from 40 quarterly installments after the drawdown of the
respective delivery advance to 20 quarterly installments. The
quarterly installments of $0.4 million due on each of the loans remained the
same; however, the final payment due when the last quarterly payment is made
increased from $8.3 million to $16.6 million. The Company is required
under the amended Bank of America and The Royal Bank of Scotland Credit
Facilities to maintain an average monthly cash balance of $15 million and $10
million, respectively that is counted toward the $40.0 million end of month cash
balance requirement. The Company was also required under the amended
The Royal Bank of Scotland Credit Facility to deposit $20.0 million, which
represents the portion of payments due to the shipyard during 2009 that are not
funded by The Royal Bank of Scotland Credit Facility and is recorded as
restricted cash on the consolidated balance sheet. During the third
quarter of 2009, payments of approximately $2.5 million were made to the
shipyard which reduced the balance in restricted cash from $15.2 million to
$12.7 million at September 30, 2009. Cash held in restricted cash
account is not counted toward the $40.0 million end of month cash balance
requirement. In connection with the loan modifications the Company
incurred total financing costs of $4.0 million, including $1.0 million for
The Royal Bank of Scotland Credit Facility.
Bank of America Credit
Facility
On March
26, 2008, the Company, through its subsidiaries, entered into a credit agreement
to amend and restate the existing Bank of America Credit Facility ("BA Credit
Facility"). The amendment increased the total syndicated BA Credit
Facility to $267.5 million from $160 million, increasing both the loan facility
("BA Term Credit Facility") and the revolving credit facility ("BA Revolving
Credit Facility"). The BA Term Credit Facility was increased to
$142.5 million from $80 million and the BA Revolving Credit Facility was
increased to $125 million from $80 million. In connection with
the March 27, 2009 modification of the Bank of America Credit Facility, the
amount available under the Bank of America Revolving Credit Facility was reduced
from $125.0 million to $85.0 million. At September 30, 2009, $75
million was outstanding under the BA Revolving Credit Facility. The
March 27, 2009 loan modification requires the Company maintain to minimum
average monthly cash balance of $15.0 million with Bank of America, which is
part of the $40.0 million minimum average cash balance required to be maintained
under the additional covenants.
The BA
Term Credit Facility is repayable over four years in 15 quarterly installments
of $9.5 million with the last installment due December 31, 2011. At
September 30, 2009 the Company had $9.5 million remaining from a prepayment made
during the first quarter of 2009 in connection with the loan modification
covering the December 2009 installment. The BA Revolving Credit Facility
is due March 26, 2012. The Company has the option of selecting interest on
the BA Credit Facility at the 30-day, 60-day, or 90-day Eurodollar LIBOR rate or
the Base rate, each as defined in the credit agreement. Interest is
at the index rate selected by the Company plus a loan margin rate based on the
Company’s consolidated leverage ratio. After March 13, 2009, the
loan margin increased pursuant to the terms of the March 27, 2009 loan
modification to 4.0% if the Company’s quarter-end consolidated leverage ratio is
less than 6.00 to 1.00 and 5.25% if the consolidated leverage ratio is 6.00 to
1.00 or higher.
In
connection with the March 26, 2008 amendment and restatement of the Bank of
America Credit Facility, the Company incurred deferred financing costs of $2.4
million. Applying the guidance of FASB ASC Topic 470, (Debt, 50-40-6
through 40-12), which is applicable to the BA Term Credit Facility, and FASB ASC
Topic 470-50 which is applicable to the BA Revolving Credit Facility, $2.3
million of unamortized financing costs, previously incurred on the credit
facility prior to the amendment, was charged to consolidated income during the
first quarter of 2008 and reported under the caption "Loss on extinguishment of
debt". The $2.4 million incurred as a result of the March 2008
amendment and restatement of the Bank of America Credit Facility is being
amortized over the term of the BA Credit Facility. In connection with
the March 2009 loan modification the Company incurred additional finance cost of
$2.4 million, which is being amortized over the remaining term of the BA Credit
Facility, and charged to income from operations as interest expense,
approximately $0.4 million in deferred financing costs associated with the
decrease in the BA Revolving Credit Facility.
The BA
Credit Facility is collateralized primarily by 30 of our vessels having a net
book value at September 30, 2009 of $398.6 million, as well as by TBSI’s equity
interests in the subsidiaries that own the vessels. In connection
with the March 27, 2009 loan modification, five vessels were added as additional
collateral to the BA Credit Facility, which increased the number of vessels
collateralizing the credit facility from 25 to 30 vessels. Each
subsidiary of TBSI with an ownership interest in the collateralized vessels has
provided an unconditional guaranty and pledged any insurance proceeds received
related to the vessels. The BA Credit Facility is guaranteed by TBSI
and other non-borrowing subsidiaries.
The BA
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions
on the Company’s ability to incur indebtedness or grant liens; pay dividends
under certain circumstances; enter into transactions with affiliates, merge,
consolidate, or dispose of assets; and change the nature of its
business. The financial covenants require that we maintain certain
fixed charge and leverage ratios, as well as maintain tangible net worth within
defined limits. We are also required to maintain minimum cash and
cash equivalent balances and collateral coverage. Further, mandatory
prepayment or delivery of additional security is required in the event that the
fair market value of the vessels falls below limits specified in the loan
agreement. As described in "Loan Modifications" above the Company
obtained a waiver of the collateral coverage requirement and other financial
covenants. At September 30, 2009, the Company was in compliance with
the additional financial covenants under the modified credit
facility.
The
Royal Bank of Scotland Credit Facility - New Vessel Buildings
On March
29, 2007, the Company, through six wholly owned subsidiaries, entered into
a credit agreement with a syndicate of lenders led by The Royal Bank of Scotland
plc for a $150.0 million term loan credit facility (the "RBS Credit Facility")
to finance the building and purchase of six new Multi-Purpose vessels with
retractable tweendecks. On March 27, 2009, the Company agreed to a
modification of the RBS Credit Facility that reduced the collateral coverage
requirements and waived the financial covenants through January 1,
2010. In connection with the loan modification, the loan interest
margin and commitment fee increased and the Company is required to keep minimum
cash balances with The Royal Bank of Scotland. Originally payments
toward each vessel were scheduled to be made in $5 million installments based on
the completion of five milestones. The five milestones were (1)
contract signing, (2) steel cutting (3) keel laying (4) launching and (5)
delivery. The RBS Credit Facility was therefore made up of six $25.0
million individual term loans. However, based on the modification
construction advances made during the covenant waiver period are subject to
adjustment if the amount scheduled for advance by the lenders, exceeds 75% of
the value of the vessel, as determined by a valuation of similar size and type
ship and due to be delivered at the same time as the ship
in construction. Therefore, the milestone payment would be reduced
from $5 million to an amount adjusted based on the delivery value of the
vessel. The loans for the remaining four vessels are available
through April 30, 2010, August 31, 2010, June 30, 2010 and October 31, 2010, or
such later date as agreed upon by the lenders.
At
September 30, 2009 the Company had $24.6 million outstanding under the RBS
Credit Facility, which was collateralized by the Rockaway Belle, and the
following draw downs made with respect to building milestones;
·
|
$
19.6 million drawn down on the contract signing, steel
cutting keel laying and launch
of Hull No NYHS20721 (M/V Dakota
Princess);
|
·
|
$
15.0 million drawn down on the contract signing, steel cutting, keel laying
of Hull No NYHS20722 (M/V Montauk
Maiden);
|
·
|
$ 10.0
million drawn down on the contract signing, steel cutting of Hull No
NYHS200723;
|
·
|
$ 14.6
million drawn down on the contract signing, steel cutting, keel laying of
Hull No NYHS200724, and
|
·
|
$ 10.0
million drawn down on the contract signing, steel cutting of Hull No
NYHS200725.
|
The
RBS Credit Facility is collateralized by the respective shipbuilding contracts
while the vessels are under construction and after delivery of the respective
vessel by Preferred Ship Mortgages (as defined in the loan agreement) on the new
vessels and assignment of freight revenue and insurance. At September
30, 2009, the newly delivered vessel Rockaway Belle had a net book
value of approximately $39.6 million. TBSI guarantees the obligations
of the borrowing subsidiaries under the RBS Credit
Facility.
Under the
loan modification, the loan margin increased to LIBOR plus a margin of 3.50%
from a margin of 1.75% prior to the drawdown of the advance at the time of
delivery. The loan margin after the delivery advance is drawn down
was not changed from LIBOR plus a margin of 1.50%. Interest is
payable either monthly, quarterly or semi-annually depending on the interest
period selected by the Company. Each of the loans made under the RBS
Credit Facility were originally payable in 40 quarterly installments of $0.4
million beginning three months after the drawdown of the delivery advance with a
final payment of $8.3 million due when the last quarterly payment is
made. The repayment term of each of the loans was reduced under the
March 27, 2009 loan modification from 40 quarterly installments to 20 quarterly
installments. The quarterly installments of $0.4 million on each of the
loans remained unchanged; however the final payment due was increased from $8.3
million to $16.6 million. If the delivery advance is not
advanced in full, the repayment installments will be reduced pro-rata. In
September 2009, the Company made a prepayment of $0.4 million covering the
December 2009 quarterly installment due on the Rockaway Belle. The
loan modification requires the Company to maintain a minimum average monthly
cash balance of $10.0 million, which is part of the $40.0 million minimum cash
balance that is required under the modified covenants. The Company
was also required to deposit $20.0 million with The Royal Bank of Scotland after
the signing of the loan modification to be used to pay the Company’s portion of
the 2009 installment payments due under the shipbuilding
contracts. The amount on deposit with RBS is not considered part of
the $40.0 million end of month minimum cash balance required to be
maintained. The restricted cash balance decreases as payments are
made to the shipyard in 2009. For the three months ended September
30, 2009 we made payments to the shipyard of approximately $2.5
million. For the nine months ended September 30, 2009, we made total
payments to the shipyard of approximately $7.3 million out of restricted
cash. At September 30, 2009 the remaining balance of $12.7 million is
recorded as restricted cash on the consolidated balance
sheet.
The RBS
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions
on the borrowing subsidiaries' ability to incur indebtedness or grant liens,
enter into transactions with affiliates, merge, consolidate, or dispose of
assets, change the nature of their business and materially amend or fail to
enforce the shipbuilding contracts with China Communications Construction
Company Ltd. and Nantong Yahua Shipbuilding Group Co., Ltd. The
borrowing subsidiaries are also required to, among other things, maintain the
vessels when delivered, comply with all applicable laws, keep proper books and
records, preserve their corporate existence, maintain insurance and pay taxes in
a timely manner. Further, the fair market value of the vessels subject to
the mortgage must be at least 125% of the outstanding loan
amount. The financial covenants require that the Company maintain
certain fixed charge and leverage ratios, as well as maintain tangible net worth
within defined limits. We are also required to maintain minimum cash
and cash equivalent balances and collateral coverage. In connection
with the loan modification the Company obtained a waiver of the financial
covenants through January 1, 2010 and a reduction of the collateral coverage
requirement, which was reduced from 125% to 100% during the waiver
period. TBSI as Guarantor, as defined in the loan agreement, is
restricted from paying dividends or making other distributions that
would: (1) result in a default of the RBS Credit
Facility, (2) exceed 50% of consolidated net income for the fiscal
year the dividend or distributions are made or (3) cause the Company to be
out of compliance with the minimum consolidated fixed charge coverage ratio and
the maximum consolidate leverage ratio as defined in the loan
agreement. At September 30, 2009, the Company was in compliance with
the additional financial covenants under the loan modification. See above
section, "Loan Modifications".
Concurrent
with the TBSI's subsidiaries entering into the RBS Credit Facility, the
borrowing subsidiaries entered into an agreement ("Guarantee Facility") to have
The Royal Bank of Scotland plc guarantee payments due under the shipbuilding
contracts. Under the Guarantee Facility, The Royal Bank of Scotland plc has
agreed to guarantee the second, third, and fourth installments due by the
borrowing subsidiaries under their respective shipbuilding contracts. The
Guarantee Facility provides for a guarantee of up to $14.0 million for each
borrower subsidiary for an aggregate guarantee of $84.0 million. The
Guarantee Facility for each borrower subsidiary expires twelve months after the
rescheduled anticipated delivery date of the respective vessel. The
Company guarantees the obligations of the borrower subsidiary under the
Guarantee Facility.
As of
September 30, 2009, the Company capitalized interest and, finance cost,
including loan origination and bank guarantee fees of $9.4 million and $3.0
million, respectively on the Royal Bank of Scotland Credit
Facility.
Credit
Suisse Term Loan Facility
On
December 7, 2007, the Company, through two of its subsidiaries, entered
into a credit agreement with Credit Suisse for a $40.0 million term loan credit
facility (the "CS Credit Facility") to replenish working capital used to
purchase the Arapaho
Belle and Oneida
Princess. The loan was fully drawn down shortly after the
delivery of the Oneida
Princess on February 19, 2008. On March 24, 2009, the Company
agreed to a modification of the CS Credit Facility that waived the financial
covenants through January 1, 2010.
The CS
Credit Facility is repayable over ten years in quarterly installments of $1.5
million for the first eight quarters and $0.9 million for the remaining 32
quarters. At September 30, 2009 the Company had $1.5 million remaining
from a prepayment made during the first quarter of 2009 in connection with the
loan modification covering the December 2009 installment. The loan
modification increased the loan margin to LIBOR plus 2.75%.
During
2008, the Company incurred financing costs of $0.5 million that are being
deferred and amortized over the term of the CS Credit Facility. The CS
Credit Facility is collateralized primarily by the two vessels, which had a net
book value at September 30, 2009 of $59.8 million, and a pledge of any insurance
proceeds received related to the vessels. The CS Credit Facility is
guaranteed by TBSI. Under the loan modification the Company incurred
additional deferred finance cost in the first quarter of 2009 of $0.1 million,
which is being amortized over the remaining term of the CS Credit
Facility.
The CS
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions on
the Company’s ability to incur indebtedness or grant liens, pay dividends under
certain circumstances, enter into transactions with affiliates, merge,
consolidate, or dispose of assets, and change the nature of its
business. The financial covenants require that we maintain certain fixed
charge and leverage ratios, as well as maintain tangible net worth within
defined limits. We are also required to maintain minimum cash and cash
equivalent balances and collateral coverage. The CS Credit Facility
requires minimum collateral coverage, restricts the payment of dividends and the
amount of leverage, investment and capital expenditures without consent of the
lender. In addition, mandatory prepayment or delivery of additional
security is required in the event that the fair market value of the vessels
falls below limits specified in the loan agreement. As described in
the above "Loan Modifications" section the Company obtained a waiver of the
financial covenants provided that the additional financial covenants are
met. At September 30, 2009, the Company was in compliance with the
additional financial covenants under the modified credit facility.
The
DVB Credit Facility
On
January 16, 2008, the Company, through seven of its subsidiaries, entered into a
$75.0 million credit facility with a syndication of lenders led by DVB
Group Merchant Bank (Asia) Ltd. ("DVB Credit Facility"). The proceeds were
used to replenish working capital used to exercise a purchase option for seven
multipurpose tweendeck vessels chartered in under a sale-leaseback arrangement,
and for general corporate purposes. These vessels have been part of
our operational fleet since 2003 under a 66 month sale-leaseback contract which
provided purchase options. On March 24, 2009, the Company agreed to a
modification of the DVB Credit Facility that waived the financial covenants and
collateral coverage requirements through January 1, 2010 in return for a higher
loan margin and amendment fee.
The loan
is repayable over five years in quarterly installments of $4.9 million for the
first ten quarters and $2.6 million for the remaining ten
quarters. At September 30, 2009, the Company had $9.8 million
remaining from a prepayment a made during the first quarter of 2009 in
connection with the loan modification covering the October 2009 and January 2010
quarterly installments. Interest which was at LIBOR plus 2.50% was
increased to LIBOR plus 4.00%. Interest is payable quarterly in
arrears.
During
2008, the Company incurred financing costs of $1.3 million that are being
deferred and amortized over the term of the DVB Credit Facility. Under the
loan modifications the Company incurred additional deferred finance cost of $0.2
million in the first quarter of 2009 that is being amortized over the remaining
term of the DVB Credit Facility.
The DVB
Credit Facility is collateralized primarily by the seven vessels, which had a
net book value at September 30, 2009 of $36.5 million, and a pledge of any
insurance proceeds received related to the vessels. The DVB Credit
Facility is guaranteed by TBSI.
The DVB
Credit Facility agreement contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain
fixed charge and leverage ratios, minimum cash and cash equivalent balances and
collateral coverage, and tangible net worth within defined limits. As
described in "Loan Modifications" above the Company obtained a waiver of the
financial covenants and collateral coverage requirements provided that the
additional financial covenants are met. Non-financial covenants
include, among other covenants, compliance with maritime laws and regulations,
maintenance of the vessels consistent with first-class ship ownership and
management practice, keep appropriate accounting records and maintain adequate
insurance. At September 30, 2009, the Company was in compliance with
the additional financial covenants under the modified credit
facility.
AIG
Commercial Equipment Finance Credit Facility
On
February 29, 2008, the Company, through three of its subsidiaries, borrowed
$35.0 million from AIG Commercial Equipment Finance, Inc. ("AIG Credit
Facility"). The loan proceeds were used to replenish working capital used
to acquire the Hopi
Princess, Mohave
Maiden and Zuni
Princess. On March 27, 2009, the Company agreed to a
modification of the AIG Credit Facility that waived the financial covenants and
collateral coverage requirements through January 1, 2010.
The AIG
Credit Facility is repayable over four years in quarterly installments of $2.6
million for the first eight quarters and $1.75 million for the remaining eight
quarters. At September 30, 2009, the Company had $2.6 million remaining
from a prepayment made during the first quarter of 2009 in connection with the
loan modification covering the October 2009 quarterly installment. In
connection with the loan modification interest, which was at LIBOR plus an
interest margin of 1.75% with an interest rate floor of 5.0%, was changed to
LIBOR plus an interest margin of 3.50% with an interest rate floor of
7.0%.
Upon the
Company’s first borrowing under the AIG Credit Facility the Company incurred
financing costs of $0.5 million that are being deferred and amortized over the
term of the AIG Credit Facility. Under the March 27, 2009 loan modifications the
Company incurred additional finance cost of $0.3 million that is being amortized
over the remaining term of the AIG Credit Facility.
The
AIG Credit Facility was collateralized primarily by four vessels, including
the Zia Belle which was
added as collateral in connection with the loan
modification. Collateralized vessels had a net book value at
September 30, 2009 of $83.9 million. The AIG Credit Facility is also
collateralized with a pledge of any insurance proceeds received related to the
vessels and a guarantee from TBSI.
The AIG
Credit Facility agreement contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain
fixed charge and leverage ratios, minimum cash and cash equivalent balances and
collateral coverage, and tangible net worth within defined limits. As
described in the above "Loan Modifications" section the Company obtained a
waiver of the financial covenants and collateral coverage requirements provided
that the additional financial covenants are met. The non-financial
covenants require the Company, among other covenants, to maintain the vessels,
comply with applicable laws, maintain proper books and records preserve its
corporate existence and maintain adequate insurance. At September 30,
2009, the Company was in compliance with the additional financial covenants
under the modified credit facility.
Commerzbank
AG Loan
On June
2, 2008, the Company, through a subsidiary, borrowed $12.5 million from
Commerzbank AG to finance part of the acquisition costs of the vessel Caribe Maiden, whose
purchase price was $23.0 million (the "Commerzbank AG Loan"). The
Commerzbank AG Loan is guaranteed by TBS International Limited. On
March 2, 2009, Company agreed to a modification of the Commerzbank AG Loan that
waived the financial covenants and collateral coverage requirement through
December 31, 2009.
The
Commerzbank AG Loan is repayable over three years in 12 quarterly
installments. Payments are $1.5 million for the first four
installments, followed by six installment payments of $1.0 million and $0.25
million for the remaining two installments. At September 30, 2009,
the Company had $1.0 million remaining from a prepayment made during the first
quarter of 2009 in connection with the loan modification for the December 2009
quarterly installment. The loan modification increased the loan's
interest rate, which was at LIBOR plus an interest margin of 1.50%, to LIBOR
plus an interest margin of 3.00% during the waiver period.
The
Company incurred financing costs of $0.1 million that are being amortized over
the term of the Commerzbank AG Loan. The Commerzbank AG Loan is
collateralized by the vessel
Caribe Maiden, which had a net book value of $23.1 million at September
30, 2009, and assignment of freight and insurance proceeds.
The
Commerzbank AG Loan contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain
fixed charge and leverage ratios, minimum cash and cash equivalent balances and
collateral coverage, and tangible net worth within defined limits. As
described in "Loan Modifications" above the Company obtained a waiver of the
financial covenants and collateral coverage requirements provided that the
additional financial covenants are met. The non-financial covenants
require the Company, among other things to maintain the vessel, comply with
applicable laws, preserve its corporate existence and maintain adequate
insurance. At September 30, 2009, the Company was in compliance with
the additional financial covenants under the modified credit
facility.
Berenberg Bank
Loan
On June
19, 2008, the Company, through a subsidiary, borrowed $13.0 million from Joh.
Berenberg, Gossler & Co. KG (the "Berenberg Bank Loan") to finance part of
the acquisition cost of the vessel Ottawa Princess, whose
purchase price was $23 million. The Berenberg Bank Loan is guaranteed
by TBS International Limited. On March 10, 2009, Company agreed to a
modification of the Berenberg Bank Loan that waived the collateral coverage
requirement through December 31, 2009.
The
Berenberg Bank Loan is repayable over four years in 16 consecutive quarterly
installments of approximately $0.8 million each. At September 30,
2009, the Company had $0.8 million remaining from a prepayment made during the
first quarter of 2009 in connection with the loan modification covering the
December 2009 quarterly installment. The loan modification increased the
applicable rate of interest, which was at LIBOR plus an interest margin of
1.70%, to LIBOR plus an interest margin of 3.00% effective May 1,
2009.
The
Company incurred financing costs of $0.2 million that are being deferred and
amortized over the term of the Berenberg Bank Loan. The Berenberg
Bank Loan is collateralized by the vessel, Ottawa Princess, which had a
net book value of $24.0 million at September 30, 2009 and assignment of freight
and insurance proceeds.
The
Berenberg Bank Loan agreement contains a collateral coverage requirement and
non-financial covenants. The collateral coverage was waived by the
bank. The non-financial covenants require the Company, among other
covenants, to maintain the vessel, comply with applicable laws, preserve its
corporate existence and maintain adequate insurance. At September 30, 2009
the Company was in compliance with all covenants.
Note
9 — Derivative Financial Instruments
The
Company is exposed to certain risks relating to its ongoing business
operations. Currently, the only risk managed by using derivative
instruments is interest rate risk. Interest rate swaps are entered into to
manage interest rate risk associated with the Company’s floating-rate
borrowings. ASC Topic 815-
Derivative and Hedging requires companies to recognize all derivative
instruments as either assets or liabilities at fair value in the statement of
financial position. The Company designates and accounts for its
interest rate swap contracts as cash flow hedges in accordance with ASC Subtopic
815-30 Cash Flow
Hedges.
For
derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged transaction affects
earnings. Gains and losses on the derivative representing either
hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings.
As of
September 30, 2009, the total notional amount of the Company’s
receive-variable/pay-fixed interest rate swaps was $201.1 million.
Interest rate contracts have fixed interest rates ranging from 2.92% to
5.24%, with a weighted average rate of 3.78%. Interest rate contracts
having a notional amount of $131.1 million at September 30, 2009, decrease as
principal payments on the respective debt are made. Information on
the location and amounts of derivative fair values in the consolidated balance
sheets and derivative gains and losses in the consolidated income statements is
shown below (in thousands):
Liability
Derivatives
|
|||||||||||
September
30, 2009
|
December
31, 2008
|
||||||||||
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
||||||||
Derivatives
designated as hedging
instruments
|
|||||||||||
Interest
rate contracts
|
Other
liabilities
|
$ | 11,103 |
Other
liabilities
|
$ | 13,727 | |||||
Derivatives
not designated as hedging
instruments
|
|||||||||||
Interest
rate contracts
|
Other
liabilities
|
1,299 |
Other
liabilities
|
1,705 | |||||||
Total
derivatives
|
$ | 12,402 | $ | 15,432 | |||||||
Derivatives
in Cash Flow Hedging Relationships
|
Amount
of Gain or (Loss) Recognized in OCI on Derivatives
(Effective
Portion)
|
|||||
September
30,
2009
|
December
31,
2008
|
|||||
Interest
rate contracts
|
$ | 10,415 | $ | 13,727 |
Amount
of Gain or (Loss) Recognized in Income on Derivatives
|
||||||||||||||||||
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
|||||||||||||||||
Derivatives Cash
Flow Hedging Relationships
|
Location
of Gain or (Loss) Recognized in Income on
Derivatives
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Derivatives
Not Designated as Hedging Instruments
|
||||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
$ | 550 | $ | (153 | ) | $ | 407 | $ | (234 | ) | |||||||
Ineffective
Portion of Derivatives Designated as
Hedging
Instruments
|
||||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
(125 | ) | (689 | ) | |||||||||||||
$ | 425 | $ | (153 | ) | $ | (282 | ) | $ | (234 | ) | ||||||||
A
deferred starting interest rate contract, which starts December 29, 2014 and
continues through December 29, 2019, for the notional amount of $20.0
million of debt, is callable at the bank’s option at anytime during the
contract. Accordingly, changes to the value of the swap contract do
not qualify for hedge accounting treatment and are included as a component of
interest expense in the consolidated statement of income. For the
three and nine months ended September 30, 2009 approximately $0.3 million
loss and $0.4 million gain, respectively, were recognized as interest
expense.
In connection
with the loan modifications completed in March 2009, the Company prepaid
principal installments on all its credit facilities. The prepayment
resulted in the notional amount of certain swap contracts to be greater than the
debt balance being hedged. For the three and nine months ending
September 30, 2009, approximately $0.1 million and $0.7 million respectively,
were recognized as additional interest expense for the ineffective portion of
derivatives caused by the prepayment of principal installments.
The Company
does not obtain collateral or other security to support financial instruments
subject to credit risk. The Company monitors the credit risk of our
counterparties and enters into agreements only with established banking
institutions. The financial stability of those institutions is
subject to current and future global and national economic conditions, and
governmental support.
Effective
January 1, 2008, the Company adopted ASC Topic 820 - Fair Value Measurements and
Disclosures which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. The
fair value hierarchy for disclosure of fair value measurements is as
follows:
Level
1 – Quoted prices in active markets for identical assets or
liabilities
Level
2 – Quoted prices for similar assets and liabilities in active markets or inputs
that are observable
Level
3 – Inputs that are unobservable (for example cash flow modeling inputs based on
assumptions)
The following
table summarizes assets and liabilities measured at fair value on recurring
basis at September 30, 2009:
(in
thousands)
|
||||||||||||
Level
1
|
Level
2
|
Level
3
|
||||||||||
Liabilities
|
||||||||||||
Interest
rate contracts
|
$ | $ | 12,402 | $ | ||||||||
Our interest
rate swap contracts are traded in the over-the-counter market. The
fair value is based on the quoted market price for a similar liability or
determined using inputs that use as their basis readily observable market data
that are actively quoted and can be validated through external
sources.
Note
10 — Equity Transactions
Class
A and Class B Common Shares
The Company
has two classes of common shares that are issued and outstanding: Class A common
shares, which are listed on the NASDAQ Global Select Market under the symbol
"TBSI", and Class B common shares. The Class A common shares and
Class B common shares have identical rights to dividends, surplus and assets on
liquidation; however, the holders of Class A common shares are entitled to one
vote for each Class A common share on all matters submitted to a vote of holders
of common shares, while holders of Class B common shares are entitled to
one-half of a vote for each Class B common share.
The holders
of Class A common shares can convert their Class A common shares into Class B
common shares, and the holders of Class B common shares can convert their Class
B common shares into Class A common shares at any time. Further, the
Class B common shares will automatically convert into Class A common shares upon
transfer to any person other than another holder of Class B common shares, in
each case as long as the conversion will not cause the Company to become a
controlled foreign corporation, as defined in the Internal Revenue Code of 1986,
as amended ("Code"), or the Class A common shares cease to be regularly traded
on an established securities market for purposes of Section 883 of the
Code.
In
conjunction with the secondary public offering completed on May 28, 2008
shareholders of Class B shares elected to convert an aggregate of 1,014,000
Class B common shares to Class A common shares. On September 30, 2009 there were
17,531,996 Class A common shares issued, of which 17,513,371 were
outstanding, and 12,390,461 Class B common shares issued and
outstanding.
The
Company's board of directors has approved unanimously, and is submitting to our
shareholders, a proposal that would result in our shareholders holding shares in
TBS International plc, an Irish company, rather than TBS International Limited,
a Bermuda company. Later this year, our shareholders will be asked to
vote in favor of completing the reorganization at a shareholders
meeting. If conditions are satisfied, including approval by the
Company's shareholders and the Supreme Court of Bermuda, TBS International plc
will replace TBS International Ltd. as the ultimate parent company for the
Company's operations.
Warrants
At September
30, 2009, there were outstanding exercisable warrants to purchase 106,156 Class
A common shares and 205,747 Class B common shares held by parties not affiliated
with existing shareholders. The warrants are exercisable for a period
of ten years following the date on which their exercise condition was met
(February 8, 2005), at a price of $0.01 per share.
Treasury
Stock
The Company's
Equity Incentive Plan permits stock grant recipients to elect a net
settlement. Under the terms of a net settlement, the Company retains
a specified number of shares to cover the recipients’ estimated statutory
minimum tax liability. The retained shares are held in the Company's
treasury ("Treasury Stock"). In 2009 employees vested in a total of
28,000 Class A common shares granted in 2008. Certain employees
elected to have the Company withhold and remit their respective payroll tax
obligations. Accordingly, the Company retained and added to Treasury
Stock 8,625 Class A common shares, valued at $77,798, to cover the recipient's
estimated payroll tax liability. At September 30, 2009, there were
18,625 Treasury Stock shares held by the Company having a cost of
$466,798.
Note
11 — Earnings Per Share
The following
table sets forth the computation of basic and diluted net (loss) income per share for the three and nine
months ended September 30, 2009 and 2008:
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(in
thousands, except number of shares and earnings per share
amounts)
|
(in
thousands, except number of shares and earnings per share
amounts)
|
|||||||||||||||
Numerators:
|
||||||||||||||||
Net
(loss) income
|
$ | (18,139 | ) | $ | 59,143 | $ | (56,340 | ) | $ | 157,162 | ||||||
Allocation
of undistributed income to nonvested restricted common
shares
|
(219 | ) | (583 | ) | ||||||||||||
(Loss)
earnings available to common shareholders — Basic and
Diluted
|
$ | (18,139 | ) | $ | 58,924 | $ | (56,340 | ) | $ | 156,579 | ||||||
Denominators:
|
||||||||||||||||
Weighted
average common shares outstanding — Basic and Diluted
|
29,863,460 | 30,104,863 | 29,836,239 | 28,980,101 | ||||||||||||
Net
(loss) income per common share:
|
||||||||||||||||
Basic
and Diluted
|
$ | (0.61 | ) | $ | 1.96 | $ | (1.89 | ) | $ | 5.40 | ||||||
Anti-dilutive
warrants not included above
|
311,903 | 311,903 | ||||||||||||||
As outlined
in sections of ASC Topic 260 – Earnings per Share, unvested
share-based payment awards that contain non-forfeitable rights to dividends are
participating securities that should be included in the two-class method of
computing earnings per share. The two-class method of computing earnings
per share is an earnings allocation formula that determines earnings per share
for common stock and any participating securities according to dividends
declared (whether paid or unpaid) and participation rights in undistributed
earnings. Our nonvested stock, consisting of time-vested restricted
shares are considered participating securities since the share-based awards
contain a non-forfeitable right to dividends irrespective of whether the awards
ultimately vest. We have adopted the applicable provisions of ASC 260 and
computed earnings per common share using the two-class method for all periods
presented. The adoption of the provisions did not have a material
impact on the Company’s previously issued consolidated financial statements;
however, for comparability purposes, we recalculated and restated our previously
reported earnings per share. Basic and diluted earnings per common
share for the three months ended September 30, 2008 did not
change. Basic and diluted earnings per common share for the nine
months ended September 30, 2008 decreased $0.02 and $0.01, respectively, from
the amount previously disclosed in our prior filings.
At September
30, 2009, there were outstanding exercisable warrants to purchase 106,156 Class
A and 205,747 Class B common shares, held by parties not affiliated with
existing shareholders. The warrants are issuable for nominal consideration upon
exercise. Consequently, the warrants have been treated as outstanding
for purposes of computing basic earnings per share for the three and nine months
ended September 30, 2008. For the three and nine months ended
September 30, 2009, the warrants were not treated as outstanding for
purposes of computing basic and diluted earnings per share because they would be
antidilutive.
Note
12 — Commitments and Contingencies
Commitments
Charters-in
of Vessels
The Company
charters-in two vessels (Laguna Belle and Seminole Princess) under
long-term noncancelable operating leases (bareboat charters) that were part of a
sale-leaseback transaction. Both bareboat charters expire on January
30, 2014. Each bareboat charter requires charter hire payments of
$10,500 per day for the first two years of the charter, $10,000 per day during
the third year of the charter and $7,350 per day during the fourth through
seventh years of the charter. The charter agreements allow for the
purchase of the respective vessel at the end of the fifth, sixth or seventh year
of the charter period at a vessel price of $11.1 million, $9.15 million, or
$6.75 million, respectively, and for the purchase options to be exercised at any
other date during the option period at a pro-rata price. The leases under
the sale-leaseback transactions were classified as operating
leases. Deposits of $2.75 million, to be held by the lessor for each
charter during the charter period, were required at the inception of the
lease. The deposits are to be returned, without interest, at the
expiration of the charter period, unless applied earlier toward the amounts due
upon exercise of the purchase option. Deferred leasing costs of $1.6
million incurred in connection with the origination and the amendment of the
charters in March 2009, are being amortized over the terms of the leases. As
mentioned above, the bareboat charters contain predetermined fixed decreases of
the charter hire payments due under the charters. The Company recognizes
the related rental expense on a straight-line basis over the term of the
charters and records the difference between the amounts charged to operations
and amounts paid as deferred rent expense. At September 30, 2009 and
December 31, 2008, deferred rent expense was $3.4 million and $2.6 million,
respectively.
Other
Leases
The Company
leases two properties used by TBS’s service company subsidiaries Roymar and
TBS Shipping Services for the administration of their operations. The main
office space is rented from our chairman and chief executive officer by our
wholly-owned subsidiary TBS Shipping. The lease, which expires
December 31, 2009, contains five one-year renewal options through December 31,
2014. The lease provides for monthly rent of $20,000 per month, plus
operating expenses including real estate taxes.
Roymar
renewed its lease under the first of two one-year renewal options through
November 30, 2010 at a monthly rent of approximately $27,000. The
lease requires Roymar to pay additional rent for real estate tax
escalations.
TBS Energy
Logistics, LP leases a warehouse in Harris County, Texas for 38 months
commencing May 1, 2009 through June 30, 2012 at a monthly rent of $22,000 for
the period of July 1, 2009 through June 30, 2010. The monthly rent
increases to $22,400 and $22,800, for the period of July 2010 through June 2011
and July 2011 through June 2012, respectively.
As of
September 30, 2009, future minimum commitments under operating leases with
initial or remaining lease terms exceeding one-year are as follows (in
thousands):
Office
|
||||||||||||
At
September 30, 2009
|
Vessel
Hire
|
Premises
|
Total
|
|||||||||
2009 (October
1, 2009 through December 31, 2009)
|
$ | 1,840 | $ | 207 | $ | 2,047 | ||||||
2010
|
5,524 | 565 | 6,089 | |||||||||
2011
|
5,366 | 271 | 5,637 | |||||||||
2012
|
5,380 | 137 | 5,517 | |||||||||
2013
|
5,366 | 5,366 | ||||||||||
Thereafter
|
441 | 441 | ||||||||||
$ | 23,917 | $ | 1,180 | $ | 25,097 | |||||||
Purchase
Obligations – New Vessel Buildings
At September
30, 2009, the Company had purchase obligations totaling $81.5 million in
connection with its new vessel building program, including obligations under the
contract for the supervision and inspection of vessels under
construction. The obligations will become payable as the shipyard
meets several milestones during 2010 and 2011. As of September 30,
2009 $81.0 million of the purchase obligation is scheduled to be paid as
follows: $14.0 million during the remainder of 2009, $51.4 million in 2010 and
$15.6 million in 2011. The timing of actual payments will vary based
upon when the milestones are met.
Contingencies
The Company
is periodically a defendant in cases involving personal injury and other matters
that arise in the normal course of business. While any pending or threatened
litigation has an element of uncertainty, the Company believes that the outcome
of these lawsuits or claims, individually or combined, will not materially
adversely affect the consolidated financial position, results of operations or
cash flows of the Company.
Note
13 — Business Segment
The Company
is managed as a single business unit that provides worldwide ocean
transportation of dry cargo to its customers through the use of owned and
chartered vessels. The vessels are operated as one fleet and when
making resource allocation decisions, our chief operating decision maker
evaluates voyage profitability data, which considers vessel type and route
economics, but gives no weight to the financial impact of the resource
allocation decision on an individual vessel basis. The Company's
objective in making resource allocation decisions is to maximize its
consolidated financial results, not the individual results of the respective
vessels or routes.
The Company
transports cargo throughout the world, including the United
States. Voyage revenue is attributed to foreign countries based on
the loading port location. The difference between total voyage
revenues and total revenue by country is revenue from the United
States. Time charter revenue by country cannot be allocated because
the Company does not control the itinerary of the vessel.
Voyage
revenue generated in countries excluding the U.S. (in thousands):
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
Country
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Brazil
|
$ | 16,006 | $ | 35,265 | $ | 38,449 | $ | 101,755 | ||||||||
United
Arab Emirates
|
6,791 | 22,200 | 26,797 | 50,058 | ||||||||||||
Japan
|
5,893 | 20,239 | 25,452 | 60,995 | ||||||||||||
Peru
|
4,706 | 12,790 | 18,262 | 36,788 | ||||||||||||
Chile
|
3,679 | 13,288 | 13,580 | 34,561 | ||||||||||||
China
|
3,392 | 21,498 | 9,601 | 29,542 | ||||||||||||
Argentina
|
1,975 | 2,356 | 6,982 | 3,133 | ||||||||||||
Korea
|
1,139 | 3,044 | 5,202 | 12,007 | ||||||||||||
Venezuela
|
2,654 | 3,074 | 3,887 | 8,730 | ||||||||||||
Others
|
6,053 | 11,235 | 15,611 | 27,572 | ||||||||||||
Total
|
$ | 52,288 | $ | 144,989 | $ | 163,823 | $ | 365,141 | ||||||||
At September
30, 2009 one customer accounted for 10% or more of charter hire
receivables. No customers accounted for 10% or more of charter hire
receivables at December 31, 2008.
For the three
and nine months ended September 30, 2009, one customer accounted for 15.4%
and 14.0%, respectively of voyage and time charter revenue.
Note
14 — Subsequent Events
Management
evaluated all activity of the Company through
November 9, 2009, the date of issuance of our consolidated financial
statements, and concluded that no subsequent events have occurred
that would require recognition in the consolidated financial statements or
disclosure in the notes to the consolidated financial
statements.
Forward
- Looking Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995. These statements reflect current expectations of the Company's
management. They are based on our management's beliefs and
assumptions and on information currently available to our
management. Forward-looking statements include, among other things,
the information concerning our possible or assumed future results of operations,
business strategies, financing plans, competitive position, potential growth
opportunities and the effects of future regulation and
competition. Forward-looking statements include all statements that
are not historical facts and can generally be identified as forward-looking
statements because they use words such as "anticipates," "believes,"
"estimates," "expects," "future," "intends," "plans," "targets," "projects,"
"sees," "seeks" and similar terms.
Forward-looking
statements involve risks, uncertainties and assumptions. Although the
Company does not make forward-looking statements unless it believes it has a
reasonable basis for doing so, it cannot guarantee their
accuracy. Actual results may differ materially from those expressed,
implied or projected in or by these forward-looking statements due to a number
of uncertainties and risks, including the risks disclosed in our Form 10-K filed
with the Securities and Exchange Commission on March 30, 2009, and other
unforeseen risks. The uncertainties, risks and other factors, among
other unforeseen risks, include, but are not limited to:
·
|
changes
in demand for our services, which are increasingly difficult to
predict due to the current economic downturn and the widespread reduction
of business activity generally;
|
·
|
a
decline in rates in the shipping market will continue for a
prolonged period;
|
·
|
the
effect of a decline in vessel
valuations;
|
·
|
our
ability to maintain financial ratios and satisfy financial covenants in
our credit facilities;
|
·
|
changes
in rules and regulations applicable to the shipping industry, including,
without limitation, legislation adopted by international organizations
such as the International Maritime Organization and the European Union or
by individual countries;
|
·
|
actions
taken by regulatory authorities;
|
·
|
changes
in trading patterns significantly impacting overall vessel tonnage
requirements;
|
·
|
changes
in the typical seasonal variations in charter
rates;
|
·
|
increases
in costs, including changes in production of or demand for oil and
petroleum products, crew wages, insurance, provisions, repairs and
maintenance, generally or in particular
regions;
|
·
|
the
risk that financial counterparties will
default;
|
·
|
changes
in general domestic and international political
conditions;
|
·
|
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;
|
·
|
increases
in the cost of our drydocking program or delays in our anticipated
drydocking schedule;
|
·
|
China
Communications Construction Company Ltd./ Nantong Yahua Shipbuilding Group
Co., Ltd.’s ability to complete and deliver the newbuild vessels on the
anticipated schedule and the ability of the parties to satisfy the
conditions in the shipbuilding agreements;
and
|
·
|
other
factors listed from time to time in our filings with the Securities and
Exchange Commission, including, without limitation, the risks disclosed in
our Form 10-K filed with the Securities and Exchange Commission on March
30, 2009 and in our subsequent Forms 10-Q and other filings with the
Securities and Exchange Commission.
|
You should
not rely on any forward-looking statements. We undertake no
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise, except to the extent
required under applicable law.
General
The
following is a discussion of our financial condition at September 30, 2009 and
December 31, 2008 and our results of operations comparing the three and nine
months ended September 30, 2009 with the three and nine months ended September
30, 2008. You should read this section in conjunction with the consolidated
financial statements including the related notes to those financial statements
included elsewhere in this Quarterly Report.
Overview
We
are an ocean transportation services company that offers worldwide shipping
solutions to a diverse client base of industrial shippers. We offer
liner, parcel and bulk services supported by a fleet of multipurpose
tweendeckers and handysize and handymax bulk carriers. Our liner, parcel
and bulk services carry a wide range of cargo, including steel products, metal
concentrates, fertilizer, salt, sugar, grain, industrial goods, project cargo,
aggregates and general cargo. In addition to providing frequent,
regularly scheduled voyages within our shipping network, we offer a unique
Five-Star Service consisting of ocean transportation, logistics, port services,
operations and strategic planning, which distinguishes us from traditional dry
cargo shipping companies.
Our Five Star
Service provides a complete transportation solution to our global customers by
providing a fully-integrated cargo and transport management
system. We offer total project coordination, door-to-door supply
chain management including port services, terminal operations, trucking,
barging, warehousing, distribution, inland pick-up and delivery, and
documentation. The Five Star Service differentiates us from traditional dry bulk
ship owners by adding strategic planning and logistics support to our customers.
Additionally, we intend to expand our port warehouse network to support our
logistics services.
Over the past
16 years, we have developed our business model around key trade routes between
Latin
America and China, Japan and South Korea, as well as select ports in North
America, Africa, the Caribbean, and the Middle East. In
addition to providing frequent, regularly scheduled voyages within our shipping
network, we offer additional services such as cargo scheduling, loading and
discharge that offer a fully integrated shipping solution to our customers.
We have
a strong position in various trade lanes in the Far East, South America,
North America, the Caribbean, the Middle East and Africa. We
offer our services globally in more than 20 countries to over 300 customers
through a network of affiliated service companies. We have expanded
and upgraded our fleet, which now numbers 48 vessels, including 46 ships that we
own and two that we charter-in with an option to purchase. Historically,
we have expanded our fleet by acquiring secondhand vessels. While we
remain committed to expanding our fleet, the current economic conditions and the
current decline in demand for shipping services have caused us to reevaluate
acquiring secondhand vessels. Our current business strategy includes
growing through the acquisition of multi-purpose tweendeckers under
our newbuilding contract, and chartering-in vessels as needed. Our
financial results are largely driven by the following factors:
·
|
macroeconomic
conditions in the geographic regions where we
operate;
|
·
|
general
economic conditions in the industries in which our customers
operate;
|
·
|
changes
in our freight and sub-time charter rates - rates we charge for vessels we
charter out - and, in periods when our voyage and vessel expenses
increase, our ability to raise our rates to pass such cost increases
through to our customers;
|
·
|
the
extent to which we are able to efficiently utilize our controlled fleet
and optimize its capacity; and
|
·
|
the
extent to which we can control our fixed and variable costs, including
those for port charges, stevedore and other cargo-related expenses, fuel,
and commission expenses.
|
Our loan
agreements with our various credit facilities contain both financial and
non-financial covenants. We concluded in March 2009 that, based on
third-party vessel valuations, we did not meet collateral coverage
requirements. The credit facilities were modified to waive the collateral
coverage and all financial covenants through the fourth quarter 2009. See
- "Note 8 - Financing" to our financial statements in Part I. Item 1 and
“Liquidity and Capital Resources” for detailed information.
Recent
Developments
The Company's
board of directors has unanimously approved, and is submitting to our
shareholders, a proposal that would result in our shareholders holding shares in
TBS International plc, an Irish company, rather than TBS International Limited,
a Bermuda company. Later this year, our shareholders will be asked to
vote in favor of completing the reorganization at a shareholders
meeting. If conditions are satisfied, including approval by the
Company's shareholders and the Supreme Court of Bermuda, TBS International plc
will replace TBS International Ltd. as the ultimate parent company for the
Company's operations.
Drydocking
The hull and
machinery of every commercial vessel must be "classed" by a classification
society authorized by its country of registry. The classification
society certifies that a vessel is safe and seaworthy in accordance with the
applicable rules and regulations of the country of registry of the vessel and
international conventions. All of our vessels have been certified as
being "in class" by their respective classification societies.
A vessel
must undergo annual surveys, intermediate surveys and special
surveys. All of our controlled vessels are on special survey cycles
for hull inspection and continuous survey cycles for machinery inspection.
Therefore, these vessels must be drydocked twice during a five-year
cycle. Thus, our controlled fleet of 48 vessels at September 30,
2009, would result in approximately 96 drydockings over five years or an average
of 19 vessels per year.
In 2008
and prior years, we accelerated the timing of steel renewals and reinforcements
for vessels drydocked. We used vessel drydocking as an opportunity to
make steel renewal and reinforcements that we expected might have been required
during the next five to ten years, and we believe the accelerated steel
renewal and reinforcements will reduce the cost of future drydockings. We expect
that during the next few years our drydocking program will only address
deficiencies identified and recommendations made by classification
surveyors.
Our
drydocking expenditures and surveys are being accounted for using the deferral
method. Under the deferral method of accounting for drydocking, the
costs incurred are deferred and amortized on a straight-line basis over the
period through the date of the next drydocking, which is typically thirty
months. We only include in deferred drydocking costs those costs that are
incurred to meet regulatory requirements, or are expenditures that add economic
life to the vessel, increase the vessel’s earnings capacity or improve the
vessel’s efficiency. Normal repairs and maintenance, whether incurred
as part of the drydocking or not, are expensed as incurred.
During
the first quarter of 2009, one vessel that entered into drydock during the
fourth quarter of 2008 continued its drydocking for 16 days into the first
quarter and eight vessels entered drydock for 138 days. During the second
quarter of 2009, five vessels that entered into drydock during the first quarter
of 2009 continued their drydocking for 88 days and three vessels entered drydock
for 48 days. During the third quarter of 2009, three vessels that
entered into drydock during the second quarter of 2009 continued their
drydocking for 55 days and six vessels entered drydock for 136
days. Our quarterly drydock schedule of vessels anticipated to be
drydocked during the last quarter of 2009, including estimated number of drydock
days and metric tons of steel renewal, is as
follows:
Number
of vessels in drydock from
previous
quarter
|
Estimated
Number of vessels entering
drydock
during quarter
|
Estimated
Number of drydock days
during
quarter
|
Approximate
metric tons (MT) of
steel
installed
|
||||||||||
Fourth
Quarter 2009
|
3 | 5 | 179 |
days
|
505 |
MT
|
We
estimate that vessel drydockings that require less than 100 metric tons of steel
renewal will take from 25 to 35 days and that vessel drydockings that require
over 100 metric tons of steel renewal will take from 35 to 75 days.
We capitalize the cost of the first drydocking after we acquire
vessels.
New
Ship Building
We are
expanding our fleet of multipurpose retractable tweendeckers through our
newbuilding program. In 2007, we contracted a Chinese shipyard to
build six newly designed vessels. These 34,000 dwt vessels are a larger
class of tweendeckers and their addition to our fleet will be a significant
milestone in the implementation of our business plan to modernize and expand our
fleet. The ships were designed by a TBS team, drawn from all phases of our
operations, to optimize our efficient cargo transportation in our trade
lanes. Two vessels, the Rockaway Belle formerly Hull
No. NYHS200720, and the Dakota
Princess formerly Hull No. NYHS200721 were launched in November 2008 and
May 2009, respectively. We took delivery of the Rockaway Belle in the third
quarter of 2009 and we expect to take delivery of the Dakota Princess in the first
quarter of 2010. The milestones met (as defined in the agreements)
and the expected delivery dates as of September 30, 2009 are noted
below:
Argyle
|
Caton
|
Dorchester
|
Longwoods
|
McHenry
|
Sunswyck
|
|||||||
Maritime
Corp.
|
Maritime
Corp.
|
Maritime
Corp.
|
Maritime
Corp.
|
Maritime
Corp.
|
Maritime
Corp.
|
|||||||
Milestone
|
Hull
No NYHS200720
|
Hull
No NYHS200721
|
Hull
No NYHS200722
|
Hull
No NYHS200723
|
Hull
No NYHS200724
|
Hull
No NYHS200725
|
||||||
Rockaway
Belle
|
Dakota
Princess
|
Montauk
Maiden
|
To
be Named
|
To
be Named
|
To
be Named
|
|||||||
Contract
Signing
|
Met
|
Met
|
Met
|
Met
|
Met
|
Met
|
||||||
Steel
Cutting
|
Met
|
Met
|
Met
|
Met
|
Met
|
Met
|
||||||
Keel
Laying
|
Met
|
Met
|
Met
|
4th
Qtr 2009
|
Met
|
2nd Qtr
2010
|
||||||
Launching
|
Met
|
Met
|
4th
Qtr 2009
|
3rd
Qtr 2010
|
2nd
Qtr 2010
|
4th
Qtr 2010
|
||||||
Anticipated
Delivery
|
Delivered
3rd Qtr 2009
|
1st
Qtr 2010
|
3rd
Qtr 2010
|
1st
Qtr 2011
|
4th
Qtr 2010
|
3rd
Qtr 2011
|
||||||
While
delivery dates have been rescheduled, we are working with the shipyard in effort
to keep as close as possible to original scheduled delivery dates.
Components
of revenue and expense
We report
our revenue as voyage revenue, reflecting the operations of our vessels that are
not chartered out, and charter revenue, reflecting the operations of our vessels
that have been chartered out to third parties. Voyage revenue and expenses
for each reporting period include estimates for voyages in progress at the end
of the period. For voyages in progress at September 30, 2009, we
recognized voyage expense as incurred and recognized voyage revenues ratably
over the length of the voyage. When a loss is forecast for a voyage, the
full amount of the anticipated loss is recognized in the period in which that
determination is made. Revenue from time charters in progress is
calculated using the daily charter hire rate, net of daily expenses multiplied
by the number of voyage days on-hire through period end.
Voyage revenue
consists of freight charges paid to our subsidiaries for the transport of
customers' cargo. Freight rates are set by the market and depend on
the relationship between the demand for ocean freight transportation and the
availability of appropriate vessels. The key factors driving voyage
revenue are the number of vessels in the fleet, freight voyage days, revenue
tons carried and the freight rates.
Time charter
revenue consists of a negotiated daily hire rate for the duration of a
voyage. The key factors driving time charter revenue are the number of
days vessels are chartered out and the daily charter hire rates.
Voyage
expenses consist of costs attributable to specific voyages. The
number of voyage days is a significant determinant of voyage expense, which
primarily consists of fuel costs, commissions, port call, stevedoring and
lashing materials. The costs are paid by our
subsidiaries.
Vessel
expenses are vessel operating
expenses that consist of crewing, stores, lube oil, repairs and maintenance
including registration taxes and fees, insurance and communication
expenses for vessels we control and charter hire fees we pay to owners for
use of their vessels. The costs are paid by our
subsidiaries.
Depreciation and
amortization is computed for vessels
and vessel improvements on the remaining useful life of each vessel, which is
estimated as the period from the date we put the vessel into service to the date
30 years from the time that the vessel was initially delivered by the shipyard.
Drydock costs are amortized on a straight-line basis over the period through the
date of the next drydocking which is typically 30 months. Other fixed
assets, consisting principally of computer hardware, software and office
equipment are depreciated on a straight-line basis using useful lives of from
three to seven years. Grabs are depreciated on a straight-line basis
using useful lives of ten years. Vessel leasehold improvements, which
are included with vessel improvements and other equipment, are amortized on a
straight-line basis over the shorter of the useful life of the improvement or
the term of the lease.
Commissions on
freight and port agency fees, in addition to payments to unrelated parties are paid to two related
companies, Beacon Holdings Ltd. ("Beacon") and TBS Commercial Group
Ltd. ("TBS Commercial Group"), companies that are owned by our
principal shareholders. Management fees and commissions paid to
Beacon and TBS Commercial Group are fixed under agreements, and any new
management agreements or amendments to the current management agreements with
Beacon and TBS Commercial Group are subject to approval by the Compensation
Committee of our board of directors.
Results
of Operations
Comparison
of the three months ended September 30, 2009 to the three months ended September
30, 2008
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Increase
(Decrease)
|
||||||||||||||||||||
|
In
Thousands
|
As
a % of Total Revenue
|
In
Thousands
|
As
a % of Total Revenue
|
In
Thousands
|
Percentage
|
||||||||||||||||
Voyage
revenue
|
$ | 57,163 | 76.9 | $ | 161,397 | 88.0 | $ | (104,234 | ) | (64.6 | ) | |||||||||||
Time
charter revenue
|
15,972 | 21.5 | 19,308 | 10.5 | (3,336 | ) | (17.3 | ) | ||||||||||||||
Logistics
revenue
|
1,014 | 1.4 | 2,045 | 1.1 | (1,031 | ) | (50.4 | ) | ||||||||||||||
Other
revenue
|
183 | 0.2 | 572 | 0.4 | (389 | ) | (68.0 | ) | ||||||||||||||
Total
revenue
|
74,332 | 100.0 | 183,322 | 100.0 | (108,990 | ) | (59.5 | ) | ||||||||||||||
Voyage
expense
|
25,505 | 34.3 | 52,882 | 28.8 | (27,377 | ) | (51.8 | ) | ||||||||||||||
Logistics
|
754 | 1.0 | 1,726 | 0.9 | (972 | ) | (56.3 | ) | ||||||||||||||
Vessel
expense
|
28,502 | 38.3 | 30,759 | 16.9 | (2,257 | ) | (7.3 | ) | ||||||||||||||
Depreciation
and amortization
|
23,747 | 31.9 | 19,980 | 10.9 | 3,767 | 18.9 | ||||||||||||||||
General
and administrative
|
9,086 | 12.2 | 14,121 | 7.7 | (5,035 | ) | (35.7 | ) | ||||||||||||||
Total
operating expenses
|
87,594 | 117.7 | 119,468 | 65.2 | (31,874 | ) | (26.7 | ) | ||||||||||||||
(Loss)
income from operations
|
(13,262 | ) | (17.7 | ) | 63,854 | 34.8 | (77,116 | ) | (120.8 | ) | ||||||||||||
Other
(expenses) and income
|
||||||||||||||||||||||
Interest
expense
|
(4,863 | ) | (6.5 | ) | (5,041 | ) | (2.7 | ) | 178 | (3.5 | ) | |||||||||||
Loss
on extinguishment of debt
|
||||||||||||||||||||||
Other
income (expense)
|
(14 | ) | 330 | 0.2 | (344 | ) | ||||||||||||||||
Net (loss)
income
|
$ | (18,139 | ) | (24.2 | ) | $ | 59,143 | 32.3 | $ | (77,282 | ) | (130.7 | ) | |||||||||
Voyage
revenue
The
table below shows key metrics related to voyage revenue:
Three
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
|||||||||||||
Voyage
Revenue (in thousands)
|
$ | 57,163 | $ | 161,397 | $ | (104,234 | ) | (64.6 | )% | ||||||
Number
of vessels (1)
|
29 | 36 | (7 | ) | (19.4 | )% | |||||||||
Freight
voyage days (2)
|
2,630 | 3,296 | (666 | ) | (20.2 | )% | |||||||||
Days
on hire (3)
|
2,677 | 3,347 | (670 | ) | (20.0 | )% | |||||||||
Revenue
tons carried (thousands) (4)
|
|||||||||||||||
For
all cargoes
|
2,098 | 2,628 | (530 | ) | (20.2 | )% | |||||||||
Excluding
aggregates
|
1,063 | 1,461 | (398 | ) | (27.2 | )% | |||||||||
Aggregates
|
1,035 | 1,167 | (132 | ) | (11.3 | )% | |||||||||
Freight
Rates
|
|||||||||||||||
For
all cargoes
|
$ | 27.25 | $ | 61.40 | $ | (34.15 | ) | (55.6 | )% | ||||||
Excluding
aggregates
|
$ | 46.81 | $ | 95.85 | $ | (49.04 | ) | (51.2 | )% | ||||||
Daily
time charter equivalent rates (5)
|
$ | 12,296 | $ | 33,143 | $ | (20,847 | ) | (62.9 | )% | ||||||
(1)
|
Weighted
average number of vessels in the fleet, not including vessels chartered
out.
|
(2)
|
Number
of days that our vessels were earning revenue, not including vessels
chartered out.
|
(3)
|
Number
of days that our vessels were available for hire, not including vessels
chartered out.
|
(4)
|
Revenue
tons is a measurement on which shipments are freighted. Cargoes
are rated as weight (based on metric tons) or measure (based on cubic
meters); whichever produces the higher revenue will be considered the
revenue ton.
|
(5)
|
Daily
Time Charter Equivalent or "TCE" rates are defined as voyage revenue less
voyage expenses during the period divided by the number of available
freight voyage days during the period. Voyage expenses include: fuel, port
call, commissions, stevedore and other cargo related and miscellaneous
voyage expenses. No deduction is made for vessel or general and
administrative expenses. TCE includes the full amount of any probable
losses on voyages at the time such losses can be estimated. TCE is an
industry standard for measuring and analyzing fluctuations between
financial periods and as a method of equating TCE revenue generated
from a voyage charter to time charter
revenue.
|
The
decrease in voyage revenue for the three months ended September 30, 2009, as
compared to the same period in 2008, was primarily due to a decrease of
approximately 56% in average freight rates for all cargoes carried combined with
a decrease in revenue tons carried.
Average
freight rates for all cargoes decreased $34.15 per ton, or 55.6%, to $27.25 per
ton for the three months ended September 30, 2009, as compared to $61.40 per ton
for the same period in 2008. Included in voyage revenue is bulk cargo
revenue from high-volume, low-freighted aggregates. Excluding
aggregates, average freight rates were $46.81 per ton as compared to $95.85 per
ton for the same period in 2008. While average freight rates on
aggregates bulk cargo are lower than average freight rates on other types of
cargoes, voyage costs are also lower resulting in comparable daily time charter
equivalent rates.
Revenue
tons carried decreased 530,000 tons, or 20.2% to 2,098,000 tons for the three
months ended September 30, 2009 from 2,628,000 tons for the same period in
2008. Non-aggregate revenue tons carried decreased 398,000 tons for
the third quarter due to decreases in non-aggregate bulk
cargo. Aggregate revenue tons carried decreased 132,000 tons for the
three months ended September 30, 2009 as compared to the same period in
2008. For the three months ended September 30, 2009 and 2008, we had
contracts of affreightment, expiring through 2010, under which we carried
approximately 830,000 and 1,653,000 revenue tons and generated $11.8 million and
$61.1 million of voyage revenue, respectively.
The
following table shows revenues attributed to our principal cargoes:
Three
Months Ended
|
||||||||||||||||||||
|
September
30, 2009
|
September
30, 2008
|
Increase
(Decrease)
|
|||||||||||||||||
Description
|
In
Thousands
|
As
a % of Total Voyage Revenue
|
In
Thousands
|
As
a % of Total Voyage Revenue
|
In
Thousands
|
%
|
||||||||||||||
Steel
products
|
$ | 14,153 | 24.8 | $ | 41,364 | 25.6 | $ | (27,211 | ) | (65.8 | ) | |||||||||
Agricultural
products
|
11,070 | 19.3 | 27,011 | 16.7 | (15,941 | ) | (59.0 | ) | ||||||||||||
Other
bulk cargo
|
10,928 | 19.1 | 18,194 | 11.3 | (7,266 | ) | (39.9 | ) | ||||||||||||
Metal
concentrates
|
7,813 | 13.7 | 26,241 | 16.3 | (18,428 | ) | (70.2 | ) | ||||||||||||
Aggregates
|
7,398 | 12.9 | 21,370 | 13.2 | (13,972 | ) | (65.4 | ) | ||||||||||||
General
cargo
|
1,672 | 2.9 | 4,006 | 2.5 | (2,334 | ) | (58.3 | ) | ||||||||||||
Fertilizers
|
1,345 | 2.4 | 6,095 | 3.8 | (4,750 | ) | (77.9 | ) | ||||||||||||
Automotive
products
|
948 | 1.7 | 3,142 | 1.9 | (2,194 | ) | (69.8 | ) | ||||||||||||
Project
cargo
|
883 | 1.5 | 5,938 | 3.7 | (5,055 | ) | (85.1 | ) | ||||||||||||
Rolling
stock
|
518 | 0.9 | 6,479 | 4.0 | (5,961 | ) | (92.0 | ) | ||||||||||||
Other
|
276 | 0.5 | 1,557 | 1.0 | (1,281 | ) | (82.3 | ) | ||||||||||||
Fishmeal
|
159 | 0.3 | 159 | |||||||||||||||||
Total
voyage revenue
|
$ | 57,163 | 100.0 | $ | 161,397 | 100.0 | $ | (104,234 | ) | (64.6 | ) | |||||||||
Time charter revenue
The
key metrics related to time charter revenue are as follows:
Three
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
|||||||||||||
Time
Charter Revenue (in thousands)
|
$ | 15,972 | $ | 19,308 | $ | (3,336 | ) | (17.3 | )% | ||||||
Number
of vessels (1)
|
15 | 6 | 9 | 150.0 | % | ||||||||||
Time
Charter days (2)
|
1,384 | 577 | 807 | 139.9 | % | ||||||||||
Daily
charter hire rates (3)
|
$ | 11,540 | $ | 33,464 | $ | (21,924 | ) | (65.5 | )% | ||||||
Daily
time charter equivalent rates (4)
|
$ | 11,048 | $ | 32,206 | $ | (21,158 | ) | (65.7 | )% |
(1)
|
Weighted
average number of vessels chartered
out.
|
(2)
|
Number
of days the vessels earned charter
hire.
|
(3)
|
Weighted
average charter hire rates.
|
(4)
|
Daily
Time Charter Equivalent or "TCE" rates for vessels that are time chartered
out are defined as time charter revenue during the period reduced
principally by commissions divided by the number of available time charter
days during the period. Commission for vessels that are time
chartered out for the three months ended September 30, 2009 and September
30, 2008 were $0.7 million and $0.9 million, respectively. No deduction is
made for vessel or general and administrative expenses. TCE is an
industry standard for measuring and analyzing fluctuations between
financial periods and as a method of equating TCE revenue generated
from a voyage charter to time charter
revenue.
|
Time
charter revenue decreased to $16.0 million for the three months ended September
30, 2009 from $19.3 million for the comparable period in 2008. The
key factors driving time charter revenue are the daily charter hire rates and
the number of days that vessels are chartered out.
The
decrease in time charter revenue was primarily attributable to a decrease in
average charter hire rates, which decreased $21,924 per day to $11,540 for the
three months ended September 30, 2009 from $33,464 for the comparable period in
2008. This decrease was partially offset by an increase in time
charter-out days. Charter hire rates are set, to a significant
degree, by the market and depend on the relationship between the demand for
ocean freight transportation and the availability of appropriate
vessels. The decrease in the average charter hire rate per day is primarily
due to the worldwide economic crisis which has dramatically affected shipping
spot market rates. The increase in time-charter-out days is the
result of decreased use of our controlled vessels in our established voyage
business and shipping market conditions.
Logistics
revenue and expenses
Logistics
revenues represent revenues from cargo and transportation management services
provided in connection with our Five Star Service. We initiated
logistics support services in the fourth quarter of 2007. Logistics
revenue and expenses decreased approximately 50% and 56% respectively for the
three months ended September 30, 2009 as compared to the same period in
2008, principally due to the impact of the economic downturn.
Management
sees a slow strengthening in several of the targeted industries, and actual
logistics results will be heavily dependent on the decision of customers to go
forward with projects. We have reinforced our commitment to the
logistics business segments by relocating two executives, expanding our office
and establishing a port warehouse.
Voyage
expense
Voyage
expenses are costs attributable to specific voyages. The number of
voyage days is a significant determinant of voyage expense, which consists of
fuel costs, commissions, port call, stevedoring and other cargo related costs,
and miscellaneous voyage expense.
The
principal components of voyage expense were as follows:
Three
Months Ended
|
Three
Months Ended
|
||||||||||||||||||||||||||
|
September
30, 2009
|
September
30, 2008
|
Increase (Decrease) | ||||||||||||||||||||||||
|
|
In
Thousands
|
As
a % of Voyage Expense
|
As
a % of Voyage & Time Charter Revenue
|
In
Thousands
|
As
a % of Voyage Expense
|
As
a % of Voyage & Time Charter Revenue
|
In
Thousands
|
As
a % of 2008 Expense
|
As
a % of Voyage & Time Charter Revenue
|
|||||||||||||||||
Fuel
expense
|
$ | 13,123 | 51.5 | 17.9 | $ | 28,297 | 53.6 | 15.7 | $ | (15,174 | ) | (53.6 | ) | 2.2 | |||||||||||||
Commission
expense
|
3,774 | 14.8 | 5.2 | 9,111 | 17.2 | 5.0 | (5,337 | ) | (58.6 | ) | 0.2 | ||||||||||||||||
Port
call expense
|
5,686 | 22.3 | 7.8 | 7,694 | 14.5 | 4.3 | (2,008 | ) | (26.1 | ) | 3.5 | ||||||||||||||||
Stevedore
and other
|
|||||||||||||||||||||||||||
cargo-related
expense
|
2,082 | 8.2 | 2.8 | 4,813 | 9.1 | 2.7 | (2,731 | ) | (56.7 | ) | 0.1 | ||||||||||||||||
Miscellaneous
voyage
|
|||||||||||||||||||||||||||
expense
|
840 | 3.2 | 1.1 | 2,967 | 5.6 | 1.6 | (2,127 | ) | (71.7 | ) | (0.5 | ) | |||||||||||||||
Voyage
expense
|
$ | 25,505 | 100.0 | 34.8 | $ | 52,882 | 100.0 | 29.3 | $ | (27,377 | ) | (51.8 | ) | 5.5 | |||||||||||||
Voyage
expense decreased $27.4 million or 51.8% for the three months ended September
30, 2009, as compared to the same period in 2008, principally due to a
decrease in fuel, commission, and stevedore and other cargo-related
expense.
The
increase in voyage expense as a percentage of voyage and time charter revenue
for the three months ended September 30, 2009 as compared to the same period in
2008 was primarily due to the decrease in freight rates, which decreased
primarily due to the worldwide economic crisis.
The
decrease in fuel expense was due to a decrease in the average price per metric
ton ("MT") and a decrease in consumption. For the three months ended
September 30, 2009, the average price per MT decreased to $396 per MT as
compared to $663 per MT for the same period in 2008. Consumption
decreased for the three months ended September 30, 2009 to 33,175 MT from 42,653
MT for the same period in 2008. Average fuel cost per freight
voyage day was $4,990 during the three months ended September 30, 2009 and
$8,585 during the same period in 2008.
Commission
expense is based on the amount of revenue. The decrease in commission
expense for the three months ended September 30, 2009 as compared to the same
period in 2008 was primarily due to the decrease in revenue.
The
decrease in stevedore and other cargo-related expense for the three months ended
September 30, 2009 as compared to the same period in 2008 was primarily due to a
change in the mix of revenue booked under different shipping
terms. Most cargo was booked under "full liner" terms and a
combination of "free-in and free-out" terms. For analysis purposes we
group cargoes into three categories: (1) cargo booked under "free-in free-out"
terms which are shipments that the customer pays all or part of the costs of
loading and unloading, (2) cargo booked under "full liner" terms, which are
shipments where we bear the costs of loading and unloading and (3) a combination
of free-in free-out and full liner terms.
Port call
expense will vary from period to period depending on the number of port calls,
port days and cost structure of the ports called upon. The decrease
in port call expense is primarily due to a decrease in the number of port calls,
which decreased to 225 port calls for the three months ended September 30, 2009
from 335 port calls during the same period in 2008. The number of
port days decreased to 1,193 port days for the three months ended September 30,
2009 from 1,598 port days during the same period in 2008. The
decrease in port call expense was partially offset by a slight increase in
average port call costs.
The
decrease in miscellaneous voyage expense is primarily due to a decrease in
container overhead and other miscellaneous costs.
Vessel
expense
Vessel
expense consists of costs we incur to own and maintain our fleet that are not
allocated to a specific voyage, such as charter hire rates for vessels we
charter-in, crew costs, insurance, lube oil, maintenance, and registrations and
fees for vessels we own or control. The following table sets forth
the basic components of vessel expense:
Three
Months Ended
|
Three
Months Ended
|
||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Increase
(Decrease)
|
|||||||||||||||||||
|
In
Thousands
|
As
a % of Vessel Expense
|
In
Thousands
|
As
a % of Vessel Expense
|
In
Thousands
|
Percentage
|
|||||||||||||||
Owned
vessel expense
|
$ | 24,751 | 86.9 | $ | 25,753 | 83.7 | $ | (1,002 | ) | (3.9 | ) | ||||||||||
Chartered-in
vessel expense
|
1,638 | 5.7 | 2,311 | 7.5 | (673 | ) | (29.1 | ) | |||||||||||||
Controlled
vessel expense
|
1,651 | 5.8 | 1,632 | 5.3 | 19 | 1.2 | |||||||||||||||
Space
charter expense
|
462 | 1.6 | 1,063 | 3.5 | (601 | ) | (56.5 | ) | |||||||||||||
Vessel
expense
|
$ | 28,502 | 100.0 | $ | 30,759 | 100.0 | $ | (2,257 | ) | (7.3 | ) | ||||||||||
The
decrease in owned vessel expense for the three months ended September 30, 2009,
as compared to the same period in 2008 was due primarily to a decrease in the
operating expense day rate. For the three months ended September 30,
2009, the average operating expense day rate was $5,715 as compared to
$6,224 per day for the same period in 2008. Average operating expense
day rates deceased principally due to a decrease of expenditures for repairs and
maintenance. During the nine months ended September 30, 2008 we
acquired ten vessels. Those vessels required repairs and maintenance
at a higher level than vessels in our existing fleet which caused the day
rate to be higher. Although owned vessel expense decreased for the
three months ended September 30, 2009 compared to the same period in 2008 due to
decreased revenue resulting from a decrease in freight rates vessel expense as a
percentage of revenue increased 21.4% to 38.3% for the three months ended
September 30, 2009 compared to 16.9% for the same period in 2008.
33
Chartered-in
vessel expense consists of charter hire-in costs for vessels under charter
agreements that do not have a purchase option. We charter-in vessels to
meet specific customer needs, which will vary slightly from quarter to
quarter. The decrease in chartered-in vessel expense was due to a
decrease in the charter-in rate per day of $6,398 per day to $17,423 per day for
the three months ended September 30, 2009 from $23,821 per day for the same
period in 2008. For the three months ended September 30, 2009, we
chartered-in vessels for 94 days as compared to 97 days for the same period in
2008.
Controlled
vessel expense consists of charter hire-in costs for vessels under charter
agreements that contain a purchase option. During the three months ended
September 30, 2009, we incurred charter-in hire costs of $1.7 million compared
to $1.6 million for the same period in 2008. This controlled vessel
expense relates to the bareboat charters for the Laguna Belle and Seminole Princess, both of
which were part of a sale leaseback transaction that we entered into in January
2007.
Depreciation
and amortization
The 18.9%
increase in depreciation and amortization expense to $23.7 million in 2009 from
$20.0 million in 2008 was due principally to an increase in the average vessel
cost of newly acquired vessels, increased vessel improvements and the overall
growth of the fleet. The growth of our owned/controlled fleet
increased to an average number of 47 vessels for the three months ended
September 30, 2009 as compared to 45 vessels for the three months ended
September 30, 2008.
General
and administrative expense
General and
administrative expense decreased $5.0 million for the three months ended
September 30, 2009 compared to the same period for 2008. The decrease
in general and administrative expense is primarily due to a $4.5 million
decrease in salary and related expenses, and that no bonus accruals were made
for the three months ended September 30, 2009 as compared to $4.0 million
accrued for bonuses for the three months ended September 30, 2008.
Income
from operations
The decrease
in income from operations was mainly attributable to a decrease in revenue
resulting from decreased freight rates and revenue tons
carried. Freight and charter hire rates decreased due to weak market
conditions in the ocean transport industry. Operating expenses
decreased 26.7% in 2009; however as a percentage of revenue total operating
expenses increased to 117.7 % of revenue from 65.2% of revenue. The
decrease in revenue combined with the increased percentage of operating
expenses to revenue caused our operating margin to decrease to a loss of 17.7%
for the three months ended September 30, 2009 compared to an operating profit
margin of 34.8% for the same period in 2008.
Interest
expense
Interest expense decreased $0.2 million primarily due to
lower debt levels and lower LIBOR rates paid on debt not hedged with interest
rate swap contracts. This decrease was partially offset by an
increase in our loan margins on our credit facilities, and higher deferred
financing cost amortization. Our average effective interest rate was
approximately 6.5% for 2009 compared to approximately 6.4% for
2008.
Comparison
of the nine months ended September 30, 2009 and September 30, 2008
Nine
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Increase
(Decrease)
|
||||||||||||||||||||
In
Thousands
|
As
a % of Total Revenue
|
In
Thousands
|
As
a % of Total Revenue
|
In
Thousands
|
Percentage
|
|||||||||||||||||
Voyage
revenue
|
$ | 181,417 | 83.3 | $ | 388,253 | 82.3 | $ | (206,836 | ) | (53.3 | ) | |||||||||||
Time
charter revenue
|
34,311 | 15.8 | 77,292 | 16.4 | (42,981 | ) | (55.6 | ) | ||||||||||||||
Logistics
revenue
|
1,550 | 0.7 | 5,288 | 1.1 | (3,738 | ) | (70.7 | ) | ||||||||||||||
Other
revenue
|
448 | 0.2 | 1,012 | 0.2 | (564 | ) | (55.7 | ) | ||||||||||||||
Total
revenue
|
217,726 | 100.0 | 471,845 | 100.0 | (254,119 | ) | (53.9 | ) | ||||||||||||||
Voyage
expense
|
81,818 | 37.6 | 126,731 | 26.9 | (44,913 | ) | (35.4 | ) | ||||||||||||||
Logistics
|
1,175 | 0.5 | 4,417 | 0.9 | (3,242 | ) | (73.4 | ) | ||||||||||||||
Vessel
expense
|
82,001 | 37.7 | 78,508 | 16.6 | 3,493 | 4.4 | ||||||||||||||||
Depreciation
and amortization
|
70,069 | 32.2 | 49,988 | 10.7 | 20,081 | 40.2 | ||||||||||||||||
General
and administrative
|
26,121 | 12.0 | 41,184 | 8.7 | (15,063 | ) | (36.6 | ) | ||||||||||||||
Total
operating expenses
|
261,184 | 120.0 | 300,828 | 63.8 | (39,644 | ) | (13.2 | ) | ||||||||||||||
(Loss)
income from operations
|
(43,458 | ) | (20.0 | ) | 171,017 | 36.2 | (214,475 | ) | (125.4 | ) | ||||||||||||
Other
(expenses) and income
|
||||||||||||||||||||||
Interest
expense
|
(12,840 | ) | (5.9 | ) | (12,318 | ) | (2.6 | ) | (522 | ) | 4.2 | |||||||||||
Loss
on extinguishment of debt
|
(2,318 | ) | (0.5 | ) | 2,318 | (100.0 | ) | |||||||||||||||
Other
income (expense)
|
(42 | ) | 781 | 0.2 | (823 | ) | (105.4 | ) | ||||||||||||||
Net (loss)
income
|
$ | (56,340 | ) | (25.9 | ) | $ | 157,162 | 33.3 | $ | (213,502 | ) | (135.8 | ) | |||||||||
Voyage
revenue
The
table below shows key metrics related to voyage revenue:
Nine
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
|||||||||||||
Voyage
Revenue (in thousands)
|
$ | 181,417 | $ | 388,253 | $ | (206,836 | ) | (53.3 | )% | ||||||
Number
of vessels (1)
|
32 | 31 | 1 | 3.2 | % | ||||||||||
Freight
voyage days (2)
|
8,728 | 8,429 | 299 | 3.5 | % | ||||||||||
Days
on hire (3)
|
8,900 | 8,648 | 252 | 2.9 | % | ||||||||||
Revenue
tons carried (thousands) (4)
|
|||||||||||||||
For
all cargoes
|
6,694 | 6,960 | (266 | ) | (3.8 | )% | |||||||||
Excluding
aggregates
|
3,513 | 3,688 | (175 | ) | (4.7 | )% | |||||||||
Aggregates
|
3,181 | 3,272 | (91 | ) | (2.8 | )% | |||||||||
Freight
Rates
|
|||||||||||||||
For
all cargoes
|
$ | 27.10 | $ | 55.78 | $ | (28.68 | ) | (51.4 | )% | ||||||
Excluding
aggregates
|
$ | 43.75 | $ | 91.92 | $ | (48.17 | ) | (52.4 | )% | ||||||
Daily
time charter equivalent rates (5)
|
$ | 11,726 | $ | 31,463 | $ | (19,737 | ) | (62.7 | )% |
(1)
|
Weighted
average number of vessels in the fleet, not including vessels chartered
out.
|
(2)
|
Number
of days that our vessels were earning revenue, not including vessels
chartered out.
|
(3)
|
Number
of days that our vessels were available for hire, not including vessels
chartered out.
|
(4)
|
Revenue
tons is a measurement on which shipments are freighted. Cargoes
are rated as weight (based on metric tons) or measure (based on cubic
meters); whichever produces the higher revenue will be considered the
revenue ton.
|
(5)
|
Daily
Time Charter Equivalent or "TCE" rates are defined as voyage revenue less
voyage expenses during the period divided by the number of available
freight voyage days during the period. Voyage expenses include:
fuel, port call, commissions, stevedore and other cargo related and
miscellaneous voyage expenses. No deduction is made for vessel or
general and administrative expenses. TCE includes the full amount of any
probable losses on voyages at the time such losses can be estimated. TCE
is an industry standard for measuring and analyzing fluctuations between
financial periods and as a method of equating TCE revenue generated
from a voyage charter to time charter
revenue.
|
The decrease
in voyage revenue for the nine months ended September 30, 2009, as compared to
the same period in 2008, was primarily due to an approximately 51% decrease in
average freight rates for all cargoes carried.
Average
freight rates for all cargoes decreased $28.68 per ton, or 51.4%, to $27.10 per
ton for the nine months ended September 30, 2009, as compared to $55.78 per ton
for the same period in 2008. Included in voyage revenue is bulk cargo
revenue from high-volume, low-freighted aggregates. Excluding
aggregates, average freight rates were $43.75 per ton as compared to $91.92 per
ton for the same period in 2008. While average freight rates on
aggregates bulk cargo are lower than average freight rates on other types of
cargoes, voyage costs are also lower resulting in comparable daily time charter
equivalent rates. During the first nine months of 2009 the freight
rates for dry bulk ocean shipping decreased significantly due primarily to the
worldwide economic crisis.
Revenue
tons carried decreased 266,000 tons, or 3.8% to 6,694,000 tons for the nine
months ended September 30, 2009 from 6,960,000 tons for the same period in
2008. Non-aggregate revenue tons decreased 175,000 tons for the nine
months due to decreases in steel products, metal concentrates, and agricultural
products. Aggregate revenue tons decreased by 91,000 tons for the
nine months ended September 30, 2009 as compared to the same period in
2008. For the nine months ended September 30, 2009 and 2008, we had
contracts of affreightment, expiring through 2010, under which we carried
approximately 3,266,000 and 4,839,000 revenue tons and generated $49.4 million
and $165.7 million of voyage revenue, respectively.
The
following table shows revenues attributed to our principal
cargoes:
Nine
Months Ended
|
||||||||||||||||||||||
|
September
30, 2009
|
September
30, 2008
|
Increase
(Decrease)
|
|||||||||||||||||||
Description
|
In
Thousands
|
As
a % of Total
Voyage
Revenue
|
In
Thousands
|
As
a % of Total
Voyage
Revenue
|
In
Thousands
|
%
|
||||||||||||||||
Steel
products
|
$ | 41,034 | 22.6 | $ | 104,535 | 26.9 | $ | (63,501 | ) | (60.7 | ) | |||||||||||
Agricultural
products
|
33,858 | 18.7 | 62,065 | 16.0 | (28,207 | ) | (45.4 | ) | ||||||||||||||
Aggregates
|
27,727 | 15.3 | 49,229 | 12.7 | (21,502 | ) | (43.7 | ) | ||||||||||||||
Metal
concentrates
|
26,804 | 14.8 | 69,838 | 18.0 | (43,034 | ) | (61.6 | ) | ||||||||||||||
Other
bulk cargo
|
20,109 | 11.1 | 40,698 | 10.4 | (20,589 | ) | (50.6 | ) | ||||||||||||||
General
cargo
|
8,264 | 4.5 | 11,525 | 3.0 | (3,261 | ) | (28.3 | ) | ||||||||||||||
Project
cargo
|
7,786 | 4.3 | 17,531 | 4.5 | (9,745 | ) | (55.6 | ) | ||||||||||||||
Rolling
stock
|
4,994 | 2.8 | 14,531 | 3.7 | (9,537 | ) | (65.6 | ) | ||||||||||||||
Fertilizers
|
3,516 | 1.9 | 6,095 | 1.6 | (2,579 | ) | (42.3 | ) | ||||||||||||||
Automotive
products
|
3,370 | 1.9 | 7,626 | 2.0 | (4,256 | ) | (55.8 | ) | ||||||||||||||
Fishmeal
|
2,544 | 1.4 | 2,544 | |||||||||||||||||||
Other
|
1,411 | 0.7 | 4,580 | 1.2 | (3,169 | ) | (69.2 | ) | ||||||||||||||
Total
voyage revenue
|
$ | 181,417 | 100.0 | $ | 388,253 | 100.0 | $ | (206,836 | ) | (53.3 | ) | |||||||||||
Time
charter revenue
The key
metrics related to time charter revenue are as follows:
Nine
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
|||||||||||||
Time
Charter Revenue (in thousands)
|
$ | 34,311 | $ | 77,292 | $ | (42,981 | ) | (55.6 | )% | ||||||
Number
of vessels (1)
|
12 | 9 | 3 | 33.3 | % | ||||||||||
Time
Charter days (2)
|
3,411 | 2,384 | 1,027 | 43.1 | % | ||||||||||
Daily
charter hire rates (3)
|
$ | 10,059 | $ | 32,421 | $ | (22,362 | ) | (69.0 | )% | ||||||
Daily
time charter equivalent rates (4)
|
$ | 9,255 | $ | 30,876 | $ | (21,621 | ) | (70.0 | )% |
(1)
|
Weighted
average number of vessels chartered
out.
|
(2)
|
Number
of days vessels earned charter
hire.
|
(3)
|
Weighted
average charter hire rates.
|
(4)
|
Daily
Time Charter Equivalent or "TCE" rates for vessels that are time chartered
out are defined as time charter revenue during the period reduced
principally by commissions divided by the number of available time charter
days during the period. Commission for vessels that are time
chartered out for the nine months ended September 30, 2009 and September
30, 2008 were $1.4 million and $3.7 million, respectively. For the nine
months ended September 30, 2009, time charter voyages include primarily
fuel cost as well as other miscellaneous voyage costs for a total of $1.3
million. The fuel cost is related to fuel price differentials caused by
volatility in the fuel market and the cost for ballasting vessels to time
charter delivery ports. No deduction is made for vessel or
general and administrative expenses. TCE is an industry standard for
measuring and analyzing fluctuations between financial periods and as
a method of equating TCE revenue generated from a voyage charter to time
charter revenue.
|
Time
charter revenue decreased to $34.3 million for the nine months ended September
30, 2009 from $77.3 million for the comparable period in 2008. The
key factors driving time charter revenue are the daily charter hire rates and
the number of days that vessels are chartered out.
The
decrease in time charter revenue was due to a decline in the average charter
hire rate, which decreased $22,362 per day to $10,059 for the nine months ended
September 30, 2009 from $32,421 for the comparable period in
2008. This decrease is primarily due to the current weakness in the
overall worldwide shipping markets due to the current economic
crisis. Charter hire rates are set, to a significant degree, by the
market and depend on the relationship between the demand for ocean freight
transportation and the availability of appropriate vessels. The
decrease in average charter rates was partially offset by an increase in the
chartered vessel days, which increased 1,027 days to 3,411 for the nine months
ended September 30, 2009 compared to 2,384 days for the same period in
2008.
Logistics
revenue and expenses
Logistics
revenues represent revenues from cargo and transportation management services
provided in connection with our Five Star Service. We initiated
logistics support services in the fourth quarter of 2007. Logistics
revenue and expenses decreased approximately 71% and 73%, respectively, for the
nine months ended September 30, 2009 as compared to the same period in
2008, principally due to the impact of the economic downturn.
Management
sees a slow strengthening in several of the targeted industries, and actual
logistics results will be heavily dependent on the decision of customers to go
forward with projects. We have reinforced our commitment to the
logistics business segments by relocating two executives, expanding our office
and establishing a port warehouse.
Voyage
expense
Voyage
expenses are costs attributable to specific voyages. The number of
voyage days is a significant determinant of voyage expense, which consists of
fuel costs, commissions, port call, stevedoring and other cargo related costs,
and miscellaneous voyage expense.
The principal
components of voyage expense were as follows:
Nine
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||
|
September
30, 2009
|
September
30, 2008
|
Increase (Decrease) | |||||||||||||||||||||||||
|
In
Thousands
|
As
a % of Voyage Expense
|
As
a % of Voyage & Time Charter Revenue
|
In
Thousands
|
As
a % of Voyage Expense
|
As
a % of Voyage & Time Charter Revenue
|
In
Thousands
|
As
a % of 2008 Expense
|
As
a % of Revenue
|
|||||||||||||||||||
Fuel
expense
|
$ | 39,742 | 48.6 | 18.4 | $ | 62,659 | 49.4 | 13.5 | $ | (22,917 | ) | (36.6 | ) | 4.9 | ||||||||||||||
Commission
expense
|
10,728 | 13.1 | 5.0 | 23,928 | 18.9 | 5.1 | (13,200 | ) | (55.2 | ) | (0.1 | ) | ||||||||||||||||
Port
call expense
|
17,882 | 21.8 | 8.3 | 19,722 | 15.6 | 4.2 | (1,840 | ) | (9.3 | ) | 4.1 | |||||||||||||||||
Stevedore
and other
|
||||||||||||||||||||||||||||
cargo-related
expense
|
7,181 | 8.8 | 3.3 | 13,351 | 10.5 | 2.9 | (6,170 | ) | (46.2 | ) | 0.4 | |||||||||||||||||
Miscellaneous
voyage
|
||||||||||||||||||||||||||||
expense
|
6,285 | 7.7 | 2.9 | 7,071 | 5.6 | 1.5 | (786 | ) | (11.1 | ) | 1.4 | |||||||||||||||||
Voyage
expense
|
$ | 81,818 | 100.0 | 37.9 | $ | 126,731 | 100.0 | 27.2 | $ | (44,913 | ) | (35.4 | ) | 10.7 | ||||||||||||||
Voyage
expense decreased $44.9 million or 35.4% for the nine months ended September 30,
2009 as compared to the same period in 2008, principally due to a decrease
in fuel expense, commission expense, and stevedore and other cargo-related
expense.
The
increase in voyage expense as a percentage of voyage and time charter revenue
for the nine months ended September 30, 2009 as compared to the same period in
2008 was primarily due to the decrease in freight rates, which are set to a
significant degree by the market and have decreased primarily due to slowing
demand due to the worldwide economic crisis.
The
decrease in fuel expense was primarily due to a decrease in the average price
per metric ton ("MT") partially offset by an increase in
consumption. For the nine months ended September 30, 2009, the
average price per MT decreased to $347 per MT as compared to $604 per MT for the
same period in 2008. Consumption increased for the nine months ended
September 30, 2009 to 114,476 MT from 103,720 MT for the same period in
2008. Average fuel cost per freight voyage day was $4,553 during
the nine months ended September 30, 2009 and $7,434 during the same period in
2008. The increase in consumption is principally due to an increase in the
average number of controlled vessels, which increased to an average of 47
vessels during the nine months ended September 30, 2009, as compared to an
average of 42 vessels for the same period in 2008.
Commission
expense is based on the amount of revenue. The decrease in commission
expense for the nine months ended September 30, 2009 as compared to the same
period in 2008 was primarily due to the decrease in revenue.
The
decrease in stevedore and other cargo-related expense for the nine months ended
September 30, 2009 as compared to the same period in 2008 was primarily due to a
lower percentage of cargo being booked under “full liner” terms or a combination
of “free-in, free-out” terms. For analysis purposes we group cargoes
into three categories: (1) cargo booked under "free-in free-out" terms which are
shipments that the customer pays all or part of the costs of loading and
unloading, (2) cargo booked under "full liner" terms, which are shipments where
we bear the costs of loading and unloading and (3) a combination of free-in
free-out and full liner terms.
The
decrease in miscellaneous voyage expense is primarily due to decrease in leased
containers shipped and to a lesser extent a reduction in canal
dues.
Vessel expense
Vessel
expense consists of costs we incur to own and maintain our fleet that are not
allocated to a specific voyage, such as charter hire rates for vessels we
charter-in and maintenance, insurance and crewing expenses for vessels we own
and control. The following table sets forth the basic components of vessel
expense:
Nine
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Increase
(Decrease)
|
||||||||||||||||||||
|
In
Thousands
|
As
a % of Vessel Expense
|
In
Thousands
|
As
a % of Vessel Expense
|
In
Thousands
|
Percentage
|
||||||||||||||||
Owned
vessel expense
|
$ | 72,233 | 88.1 | $ | 63,793 | 81.3 | $ | 8,440 | 13.2 | |||||||||||||
Chartered-in
vessel expense
|
3,597 | 4.4 | 8,918 | 11.3 | (5,321 | ) | (59.7 | ) | ||||||||||||||
Controlled
vessel expense
|
4,887 | 5.9 | 4,734 | 6.0 | 153 | 3.2 | ||||||||||||||||
Space
charter expense
|
1,284 | 1.6 | 1,063 | 1.4 | 221 | |||||||||||||||||
Vessel
expense
|
$ | 82,001 | 100.0 | $ | 78,508 | 100.0 | $ | 3,493 | 4.4 | |||||||||||||
Vessel
expense for the nine months ended September 30, 2009, as compared to the same
period in 2008, increased $3.5 million. The 4.4% increase in vessel
expense for the nine months ended September 30, 2009 as compared to the same
period in 2008 was primarily due to an increase in the number of vessel days for
owned/controlled vessels.
The
increase in owned vessel expense for the nine months ended September 30, 2009,
as compared to the same period in 2008, was primarily due to an increase in the
average operating expense day rate, which increased $72 per
day. Increases in our controlled fleet translated to an increase in
vessel days, which are the total days we operate our controlled
vessels. During the nine months ended September 30, 2009, vessel days
increased 1,353 days to 12,838 days from 11,485 days for the comparable period
in 2008. For the nine months ended September 30, 2009, the average
operating expense day rate was $5,626 as compared to $5,554 per day for the same
period in 2008. Average operating expense day rates increased
principally due to increases in the crew and crew related costs and maintenance
& repair costs, which were slightly offset by reduction in freight expense
on spares and stores.
Chartered-in
vessel expense consists of charter-in hire costs for vessels under charter
agreements that do not have a purchase option. The 59.7% decrease in
chartered-in vessel expenses for the nine months ended September 30, 2009 as
compared to the same period in 2008 resulted from a decrease in vessel days and
charter-in rates. The average charter-in rate per day decreased
$11,670 per day, or 50%, to $11,494 per day for the nine months ended September
30, 2009 from $23,164 per day for the same period in
2008. Chartered-in vessel days decreased by 72 vessel days to 313
days for the nine months ended September 30, 2009 as compared to 385 days for
the same period in 2008.
Controlled
vessel expense consists of charter-in hire costs for vessels under charter
agreements that contain a purchase option. During the nine months
ended September 30, 2009, we incurred charter hire-in costs of $4.9 million
compared to $4.7 million for the same period ended September 30, 2008 under the
bareboat charters for the Laguna Belle and Seminole Princess both of
which were part of a sale-leaseback transaction that we entered into in January
2007.
Depreciation
and amortization
The $20.1
million increase in depreciation and amortization expense is due to an increase
in the average vessel cost of newly acquired vessels, increased vessel
improvements and the overall growth of the fleet. The growth of our
owned/controlled fleet increased to an average number of 47 vessels for the nine
months ended September 30, 2009 as compared to 42 vessels for the nine months
ended September 30, 2008.
General
and administrative expense
General
and administrative expense decreased $15.1 million primarily due to a $12.0
million decrease in salary and related expenses. Salary and related
expenses decreased primarily because no bonus accruals were made for the nine
months ended September 30, 2009 as compared to a bonus accrual of $13.8
million for the nine months ended September 30, 2008.
Income
from operations
The
decrease in income from operations was mainly attributable to a decrease in
revenue resulting from decreased freight rates and to a lesser extent revenue
tons carried. Freight and charter hire rates decreased due to weak
market conditions in the ocean transport industry. Operating expenses
decreased in 2009; however as a percentage of revenue they increased from 63.8%
to 120.0% of revenue. The decrease in revenue combined with the
increased percentage of operating expenses to revenue caused our operating
margin to decrease to a loss of 20% for the nine months ended September 30,
2009, compared to an operating profit margin of 36.2% for the same period in
2008.
Interest
expense
Interest
expense increase $0.5 million for the nine months ended September 30, 2009
principally due to higher borrowing costs resulting from higher loan margins on
our credit facilities and higher amortization of deferred financing
cost. Our average effective interest rate for the nine months ended
September 30, 2009 and 2008 was approximately 5.96% and 5.56%,
respectively.
Loss
on extinguishment of debt
The $2.3
million loss on extinguishment of debt in 2008 was due to the write-off of
unamortized deferred financing costs in connection with the March 2008
refinancing of our Bank of America syndicated credit
facility.
Balance
Sheet
Fuel
and Other Inventories
Fuel and
other inventories at September 30, 2009 increased $1.8 million to $13.9 million
from the December 31, 2008 balance of $12.1 million. There was a $1.6
million increase due to higher average prices at September 30, 2009 as compared
to December 31, 2008 which was offset by a $0.6 million decrease as a result of
lower quantities of fuel at September 30, 2009 as compared to December 31,
2008. At September 30, 2009, the combined average price for
industrial fuel oil/marine diesel oil increased to $465 per metric ton from
a combined average price of $370 per metric ton at December 31,
2008. Changes in fuel quantities resulted principally from the
timing of vessel refueling and the number of vessels having fuel
inventory. The number of vessels having fuel inventory will fluctuate
from period to period based on the number of vessels on time
charter. When a vessel is time chartered out, the fuel on board the
vessel is sold to the charterer and later repurchased at a price stipulated in
the charter party agreement. Vessels having fuel included in inventory
decreased to 32 vessels as of September 30, 2009 as compared to 37 vessels as of
December 31, 2008. There was also an increase of $0.5 million in
lubricating oil on board the vessels at September 30, 2009, which resulted
principally from the timing of deliveries to the vessels.
Charter
Hire Receivables
Our gross
charter hire receivables balance at September 30, 2009 and December 31, 2008 was
$31.4 million ($30.9 million net of allowance for doubtful accounts) and $46.3
million ($45.8 million net of allowance for doubtful accounts), respectively.
The decrease in receivables was mainly due to decreased freight rates, as
compared to the rates billed in December 31, 2008.
In
accordance with our reserve policy, we review the outstanding receivables by
customer and voyage at the close of each quarter and identify those receivables
which are deemed to be at risk for collection and reserve the appropriate
amount. At September 30, 2009 and December 31, 2008 our reserve totaled
$0.5 million.
Other
Commitments
Our
contractual obligations as of September 30, 2009 are shown in the following
table (in thousands):
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
|||||||||||||||
Debt
Obligations (1)
|
$ | 341,247 | $ | 55,703 | $ | 188,272 | $ | 48,568 | $ | 48,704 | |||||||||
Estimated
variable interest payments (2 )
|
60,095 | 20,390 | 24,043 | 11,433 | 4,229 | ||||||||||||||
Operating
Lease obligations (3)
|
25,163 | 6,676 | 11,328 | 7,159 | |||||||||||||||
Other
Purchase obligations (4) (5)
|
81,500 | 51,000 | 30,500 | ||||||||||||||||
Total
contractual cash obligations
|
$ | 508,005 | $ | 133,769 | $ | 254,143 | $ | 67,160 | $ | 52,933 |
The above
table illustrates our contractual obligations due according to the original
agreements. The long-term portion of the debt obligations on the
above table have not been reclassified to current debt.
|
(1)
|
As
of September 30, 2009, we had $341.2 million of indebtedness outstanding
under loans to our subsidiaries that we guarantee, $28.7
million under the $40.0 million credit facility with Credit Suisse, $35.9
million under the $75.0 million credit facility with DVB Group Merchant
Bank (Asia) Ltd., $19.2 million under the $35.0 million credit facility
with AIG Commercial Equipment Finance, $76.0 million under the $142.5 term
loan with Bank of America, $75.0 million under the $85.0
million revolving credit facility with Bank of America, $4.5 million under
the $12.5 million credit facility with Commerzbank AG, $8.1 million under
the $13.0 million credit facility with Berenberg Bank and $93.8 million
under the $150.0 million credit facility with The Royal Bank of Scotland
for the new vessel building program. The above schedule does
not reflect future advances of $55.8 million under the $150.0 million
credit facility with The Royal Bank of Scotland for the new vessel
building. The long-term portion of the debt obligations on the
above table have not been reclassified to current debt, see Footnote 8 –
Financing, Debt Reclassification. If the debt obligations of $341.2
million was reclassified to current debt and shown as being due in the
less than one year column, “Total contractual cash obligations” on the
above table would have been as follows: less than one year, $419.3
million; 1-3 years, $65.9 million; 3-5 years, $18.6 million; and more than
5 years, $4.2 million.
|
|
(2)
|
Amounts
for all periods represent our estimated future interest payments on our
debt facilities based upon amounts outstanding at September 30, 2009
and an annual interest rate of 6.5%, which approximates the average
interest rate on all outstanding debt at September 30, 2009.
|
|
(3)
|
Operating
lease obligations includes obligations under two seven-year bareboat
charters for the
Seminole Princess and the
Laguna Belle and office leases.
|
|
(4)
|
Approximately
$55.8 million of the purchase obligation for the new vessels will be
funded under the $150.0 million credit facility with The Royal Bank of
Scotland for the newbuilding program. Under the loan modification
construction advances made during the covenant waiver
period are subject to adjustment if the amount
scheduled for advance by the lenders, exceeds 75% of the value of the
vessel, as determined by a valuation of similar size and type ship and due
to be delivered at the same time as the ship in
construction. The covenant waiver period concludes at January 1,
2010. We had outstanding purchase obligations to the shipyard
at September 30, 2009 on the purchase of the five remaining vessels to be
delivered as follows (in
thousands):
|
Owning
Subsidiary
|
Hull
Number
|
Total
|
Less
than 1 year
|
1-3
years
|
||||||||||
Argyle
Maritime Corp.
|
NYHS200720
- Rockaway
|
$ | $ | $ | ||||||||||
Caton
Maritime Corp.
|
NYHS200721
- Dakota
|
7,800 | 7,800 | |||||||||||
Dorchester
Maritime Corp.
|
NYHS200722
|
14,800 | 14,800 | |||||||||||
Longwoods
Maritime Corp.
|
NYHS200723
|
21,800 | 14,000 | 7,800 | ||||||||||
McHenry
Maritime Corp.
|
NYHS200724
|
14,800 | 7,000 | 7,800 | ||||||||||
Sunswyck
Maritime Corp.
|
NYHS200725
|
21,800 | 7,000 | 14,800 | ||||||||||
Total
|
$ | 81,000 | $ | 50,600 | $ | 30,400 | ||||||||
|
(5)
|
In
connection with the newbuilding program, we entered into a contract for
the supervision and inspection of vessels under
construction. As of September 30, 2009, commitments under
the contract were $0.5 million, with $0.4 million due within one year and
$0.1 million due between one and three
years.
|
Liquidity
and Capital Resources
Our
principal sources of funds are operating cash flows and long-term bank
borrowings. Our principal uses of funds are expenditures to operate
our fleet of vessels, capital expenditures to grow and maintain the quality of
our fleet and keep us in compliance with international shipping standards and
regulations, and principal and interest repayments on outstanding debt. We
were in compliance with all of the covenants contained in our modified debt
agreements as of September 30, 2009.
We
believe we have sufficient liquidity to meet our needs for the fiscal year
ending December 31, 2009 based on our cash balance at September 30, 2009 of
$46.4 million, estimated operating cash flows and the measures we are taking to
manage the business during the global financial crisis. We continue
our cost control efforts, and we remain committed to maintaining our fleet to
our high standards. In addition to other cost containment measures,
we have a hiring freeze in place, as well as a pay freeze for all officers and
senior management. The cash balance of $46.4 million, excludes $12.7
million of restricted cash on deposit with The Royal Bank of Scotland to be used
to pay our portion of 2009 installments due under the shipbuilding
contracts. The $12.7 million is not counted toward the $40.0 million
end of month cash balance requirement that we are required to maintain under our
loan agreement. The $12.7 million of restricted cash will decrease as
payments are made to the shipyard.
Our
ability to fund future operating expenses and capital expenditures and our
ability to make scheduled payments of interest and to satisfy any other present
or future debt obligations will depend on future operating performance,
prevailing economic conditions, financial and other factors beyond our control,
including those disclosed under Part II. Item 2. "Risk Factors" below and under
“Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 30,
2009.
The dry
bulk shipping industry is volatile and unpredictable. We have
experienced added volatility in freight rates directly correlating to the
worldwide financial crisis. The worldwide financial crisis has
reduced the availability of liquidity and credit to borrowers, which further
restricted shipping rates. Corresponding with the decline in freight
rates there has been a reduced demand for steel products, agricultural and other
commodities. Many lenders and institutional investors have reduced
and, in some cases, ceased to provide funding to borrowers. This market
turmoil and tightening of credit have led to a widespread reduction of business
activity, which has adversely affected demand for our
services.
To
mitigate the impact of the economic decline, we have implemented the
following;
·
|
eliminated
bonuses,
|
·
|
froze
salary at the 2008 levels,
|
·
|
instituted
a cost cutting program,
|
·
|
prepaid
debt installments that would have been due in
2009,
|
·
|
obtained
waivers to collateral coverage and other financial covenants through
January 1, 2010,
|
·
|
provided
additional vessels as collateral on certain
loans,
|
·
|
scaled
back our accelerated steel renewal and reinforcement program during
drydocking,
|
·
|
reduced
capital expenditures and
|
·
|
suspended
the purchase of second-hand bulk
carriers.
|
Under our
accelerated steel renewal and reinforcement program we renewed and replaced
steel that we expected would be required over the next five to ten years. We
believe that the acceleration of steel renewals and replacements during 2008 and
prior will help reduce drydocking expenditures in 2009 and future
years.
Resumption
of the acquisition of vessels will be subject to improvement in global economic
conditions, management’s expectations, and the availability of funding on
favorable terms. Our business is capital intensive, and our future success
will still depend on our ability to maintain a high-quality fleet through the
ongoing maintenance of our currently owned ships and, in the long term, the
acquisition of additional ships. We believe our current initiatives
will not impact our long term goals.
The
economic downturn and its effect on the market value of vessels gave an
indication of possible collateral coverage (loan to value) ratio and financial
covenant issues in 2009. In the fourth quarter of 2008 we
decided to prepay certain loans and we initiated discussions with our lenders to
obtain waivers to the collateral and other financial covenants.
Our
various debt agreements contain both financial and non-financial covenants,
and include customary restrictions on our ability to incur indebtedness or
grant liens, pay dividends under certain circumstances, enter into transactions
with affiliates, merge, consolidate, or dispose of assets, and change the nature
of our business. The financial covenants require that we maintain certain fixed
charge and leverage ratios, as well as maintain tangible net worth within
defined limits. We are also required to maintain minimum cash and
cash equivalent balances and collateral coverage. In addition,
certain credit agreements restrict the payment of dividends, and the amount of
leverage, investment and capital expenditures we may undertake without consent
of the lender. Further, mandatory prepayment or delivery of additional
security is required in the event that the fair market value of the vessels
falls below limits specified in the loan agreement.
We
concluded in March 2009, that based on third-party vessel valuations we did not
meet our collateral coverage requirements. We obtained waivers from
all of our lenders to the collateral coverage ratio and financial covenants
through January 1, 2010. As a result of the loan
modification two additional covenants were introduced that require us
to have an earnings before interest, depreciation and amortization to
interest expense ratio of not less than 1.10 to 1.00, 1.35 to 1.00 and 1.75 to
1.00 at the end of the second, third and fourth quarters of 2009,
respectively, and a minimum end of month cash balance of not less than $40.0
million. These additional covenants have been met for each quarter in
2009. These additional covenants are applicable through the waiver
period which ends January 1, 2010, and so long as these two additional covenants
are met, the financial covenants described in the table below are
waived.
The loan
modifications resulted in the interest rate margins on the Bank of America, The
Royal Bank of Scotland, and AIG Commercial Equipment Finance, Inc. credit
facilities increased 1.75%. The interest rate margins on the
Credit Suisse, DVB Group Merchant Bank and the Commerzbank AG credit
facilities increased 1.70%, 1.50% and 1.50%, respectively. The
interest rate margin on the Joh. Berenberg, Gossler & Co. KG Credit Facility
increased 1.30%. Additionally, we incurred financing costs
of $4.0 million. The repayment term of each of the loans made
under The Royal Bank of Scotland Credit Facility were modified from 40 quarterly
installments after the drawdown of the respective delivery advance to 20
quarterly installments. The quarterly installments of $0.4 million due on
each of the loans remained the same; however, the final payment due when the
last quarterly payment is made increased from $8.3 million to $16.6
million. In connection with the Bank of America loan
modification, the BA Revolving Credit Facility was reduced from $125.0
million to $85.0 million, and the interest rate margin was increased to
4.0%. We drew down $75 million as of September 30,
2009. Consequently, we have $10 million available on the BA Revolving
Credit Facility, which expires on March 26, 2012. Additional borrowings
will be governed by the future value of the vessels. In connection
with the March 2009 amendment and restatement of the Bank of America Credit
Facility, approximately $0.4 million in deferred financing costs associated with
the decrease in the BA Revolving Credit Facility were charged to income from
operations as interest expense.
The table
below presents the original loan covenants, before loan modifications, and our
actual results.
Covenant
|
Required
|
Actual
|
|
Minimum
Consolidated Tangible Net Worth
|
$235
million plus 75% of net income per quarter for all quarters after
September 30, 2007 plus 100% of increases to shareholders equity, required
equals $501.0 million
|
$530.4
million
|
|
Maximum
Consolidated Leverage Ratio
|
Not
more than 3.00 to 1.00
|
3.04
|
|
Minimum
Consolidated Fixed Charge Coverage Ratio
|
Not
less than 1.50 to 1.00
|
0.9
|
|
Minimum Cash
Liquidity
|
$15
million [Qualified cash as defined in the agreement plus unused portion
under the revolving credit facility].
|
$46.4
million
|
At
September 30, 2009, although we were in compliance with all modified additional
covenants and the debt is not currently callable by the lenders, we would have
been in violation of the previously effective minimum consolidated fixed charge
coverage ratio and the maximum consolidate leverage ratio as shown
above. Based on current internal projections, the Company anticipates
that it will not meet certain of the reinstated covenant requirements during the
next twelve months. Generally accepted accounting principles require
that long-term loans be classified as a current liability when either a covenant
violation that gives the lender the right to call the debt has occurred at the
balance sheet date, or such a covenant violation would have occurred absent a
waiver of those covenants, and in either case it is probable that the covenant
violation will not be cured within the next twelve
months. Accordingly, long-term loans are classified as a current
liability in the consolidated balance sheet at September 30, 2009. We
are in the process of both seeking financing to repay most of our credit
facilities and discussing permanent and / or temporary modifications of the
financial covenants on any credit facilities not being
repaid. In conjunction with the refinancing or modifications of
any of our credit facilities, amounts that may be borrowed under such credit
facilities may be reduced. If and when we are able to obtain such
financing and / or modifications, we expect to reclassify our long-term portion
of outstanding debt as such on the consolidated balance sheet.
Assuming
we are able to obtain such financing and / or modifications, we believe we have
sufficient liquidity to meet our needs over the next twelve
months. We cannot assure you that we will be able to obtain such
financing and / or obtain modifications to the financial
covenants. Failure to do so would result in a default, which
would enable the lenders to accelerate the timing of payments and exercise their
lien on essentially all of our assets, which would have a material adverse
effect on our business, operations, financial condition and liquidity and would
raise substantial doubt about our ability to continue as a going concern at that
time.
We are
exposed to financial market risk resulting from the possible loss of deposits
held by financial institutions. Accordingly, we monitor the
depository institutions that hold our cash and cash equivalents. Our emphasis is
on safety of principal. We try to minimize our credit risk exposure
by diversifying our cash and cash equivalents among financial
institutions. In order to hedge our interest rate risk, we entered
into interest rate swap contracts that hedged approximately 58.9% of our
outstanding debt at September 30, 2009. We had interest rate swap
contracts to pay an average fixed rate of 3.78% before loan margin on the
notional amount of $201.1 million.
Below is
a summary of investing and financing activities for the nine months ended
September 30, 2009 and 2008:
Financing
Activities for Nine Months Ended September 30, 2009
·
|
We
made scheduled debt repayments totaling $7.5
million;
|
·
|
We
prepaid principal payments in the amount of $53.5 million,
consisting of $3.0 million to Credit Suisse, $19.6 million to DVB, $19.0
million to Bank of America, $7.9 million to AIG, $2.0 million to
Commerzbank, $0.4 million to The Royal Bank of Scotland and $1.6 million
to Berenberg Bank;
|
·
|
We
borrowed an additional $19.2 million under our $150.0 million credit
facility with The Royal Bank of Scotland to fund the construction
payments due on the building of six new multipurpose vessels with
retractable tweendecks. At September 30, 2009 we had $55.8
million remaining available under the credit facility, and we had total
borrowings under the facility of $93.8
million;
|
·
|
We
paid $3.4 million of deferred financing and leasing costs associated with
obtaining loan covenant waivers.
|
Investing
Activities for Nine Months Ended September 30, 2009
Using
capital from operations and borrowings, we made the following acquisitions and
capital improvements:
Nine
Months Ended September 30,
|
|||||||||
2009
|
2008
|
||||||||
(in
millions)
|
|||||||||
Vessels
|
$ | 39.6 | $ | 293.1 | |||||
Vessels
improvements and other equipment
|
19.1 | 33.2 | |||||||
Additions
construction in progress
|
28.5 | 40.0 | |||||||
Amount
reclassed from construction in progress to vessels
|
(39.6 | ) | 0.0 | ||||||
Other
fixed asset additions
|
1.8 | 4.8 | |||||||
49.4 | 371.1 | ||||||||
Less:
Vessel deposits paid in prior year
|
(14.8 | ) | |||||||
Total
Vessel acquisitions / capital improvement
|
$ | 49.4 | $ | 356.3 | |||||
·
|
In
connection with our construction program to build six newly designed
multipurpose vessels with retractable tweendecks, we made payments to the
ship building yard and incurred capitalized costs totaling $28.5 million.
These ships were designed by a TBS team drawn from all phases of our
operation specifically to optimize our efficient cargo transportation in
our trade lanes, support the requirements of our loyal customer base and
enhance the growth of our business. One vessel, the Rockaway Belle was
delivered in the third quarter of 2009, three vessels are scheduled to be
delivered in 2010, and the remaining two vessels are scheduled to be
delivered in 2011. The project is being funded from our $150.0
million credit facility with The Royal Bank of Scotland and operating cash
flow.
|
·
|
In
connection with the March amendment to The Royal Bank of Scotland Credit
Facility, we were required to deposit $20.0 million with The Royal Bank of
Scotland after the signing of the loan modification to be used to pay our
portion of the 2009 installment payments that are not funded by The Royal
Bank of Scotland new building credit facility. The restricted
cash balance decreases as payments are made to the shipyard in
2009. For the nine months ended September 30, 2009 payments of
approximately $7.3 million were made to the shipyard from the $20.0
million of restricted cash.
|
·
|
We
spent $19.1 million for vessel improvements and vessel
equipment. Vessel improvements and other equipment include
steel renewal and replacement, major overhauls, new equipment, and
takeover costs, including the cost of first drydocking after
acquisition.
|
Financing
Activities for Nine Months Ended September 30, 2008
During
2008, we increased our working capital by the following activities:
·
|
We
made debt repayments totaling $ 162.6 million consisting of $37.4 million
in scheduled debt principal payments and $125.2 million to payoff former
Bank of America and RBS credit
facilities.
|
·
|
In
June, we received $95.7 million in net proceeds from the issuance of Class
A common shares in a secondary public
offering;
|
·
|
We
borrowed $12.5 million from Commerzbank AG in June. The proceeds of this
loan together with working capital were used to purchase the vessel, Caribe
Maiden;
|
·
|
Also
in June, we borrowed $13.0 million from Berenberg Bank. The proceeds of
this loan together with working capital were used to purchase the vessel,
Ottawa
Princess;
|
·
|
In
March, we amended and restated our existing Bank of America Credit
Facility. In connection with the amendment, we increased the
term loan facility to $142.5 million and the revolving credit facility to
$125.0 million. We borrowed $142.5 million under the term loan credit
facility to repay the existing credit facility and pay closing costs and
fees. After the repayment of principal, interest and fees, the remaining
amount of $18.9 million was used for general corporate purposes. At
September 30, 2008, we had no borrowings outstanding under the revolving
credit facility;
|
·
|
We
borrowed an additional $20.0 million under our $150.0 million credit
facility with The Royal Bank of Scotland to fund the construction payments
due on the building of six new multipurpose vessels with retractable
tweendecks;
|
·
|
In
February, we borrowed the remaining $20.0 million available under the
Credit Suisse credit facility. The proceeds of this loan together with
available working capital were used to purchase the vessel, Oneida
Princess;
|
·
|
We
borrowed $35.0 million from AIG Commercial Equipment Finance, Inc. in
February to replenish operating funds used to purchase the Mohave Maiden, Zuni Princess and Hopi Princess;
and
|
·
|
In
January, we borrowed $75.0 million, under a syndicated credited facility
with DVB Group Merchant Bank (Asia) Ltd. The funds were used to replenish
funds used to exercise a purchase option for seven tweendeck vessels
chartered-in under a sale-leaseback arrangement, to fund additional
vessel acquisitions and for general corporate
purposes.
|
Investing
Activities 2008
Using
capital from operations and borrowings, we made the following acquisitions and
capital improvements:
·
|
We
acquired ten vessels that were delivered during the first nine months of
2008 for a total purchase price of $293.1 million, including $14.8 million
in deposits paid in 2007. We spent $33.2 million for vessel
improvements and vessel equipment additions. We used cash from borrowings
and operations to fund the
acquisitions;
|
·
|
Vessel
improvements and other equipment includes steel renewal and replacement,
major overhauls, new equipment, and takeover costs, including the cost of
first drydocking after acquisition;
|
·
|
In
connection with our construction program to build six newly designed
multipurpose vessels with retractable tweendecks, we made payments to the
ship building yard and incurred capitalized costs totaling $40.0
million.
|
·
|
We
made a deposit of $4.1 million for the CEC
Cardigan (renamed the Zia Belle) which was
delivered in the fourth quarter of
2008.
|
Dividend
Policy
We have
not declared or paid and do not anticipate declaring or paying in the
foreseeable future, any cash dividends on our common shares. The
provisions of some of our debt instruments and related loan agreements prevent
some of our subsidiaries from paying dividends to TBS International Limited,
which may restrict our ability to pay dividends on our common
shares. The timing and amount of future cash dividends, if any, would
be determined by our board of directors and would depend upon our earnings,
financial condition, cash requirements and obligations to lenders at the
time.
Pursuant
to Bermuda law, we cannot declare or pay a dividend, or make a distribution out
of contributed surplus, if there are reasonable grounds for believing that we
are, or after the payment would be, unable to pay our liabilities as they become
due, or that the realizable value of our assets would thereby be less than the
aggregate of our liabilities, our issued share capital and our share premium
accounts.
Because
we are a holding company with no material assets other than the stock of our
subsidiaries, our ability to pay dividends will depend on the earnings and cash
flow of our subsidiaries and their ability to pay dividends to us.
Summary
of Critical Accounting Policies
The
discussion and analysis of our results of operations financial condition, and
liquidity are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, or GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities at the date of our financial
statements. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may materially differ from these
estimates under different assumptions or conditions.
Critical
accounting policies are those that reflect significant judgments or
uncertainties and could result in materially different results under different
assumptions and conditions. We believe that there have been no
material changes in our critical accounting policies from those disclosed in our
Form 10-K filed with the Securities and Exchange Commission on March 30,
2009.
New
Accounting Pronouncements
In
June 2009, the Financial Accounting Standards Board (FASB) issued the FASB
Accounting Standards Codification (ASC), The Codification and the Hierarchy
of Generally Accepted Accounting Principles Topic ASC
105-10. The Company implemented the guidance in the third quarter of
2009 which stipulates the Codification as the authoritative version of the FASB
Accounting Standards Codification (Codification) as the single source of
authoritative nongovernmental U.S. Generally Accepted Accounting Principles
(GAAP). The statement is effective for interim and annual periods
ending after September 15, 2009. The Company updated its
references to GAAP in its consolidated financial statements issued for the
period ended September 30, 2009. As the Codification was not
intended to change or alter existing GAAP, it did not have any impact on the
Company’s consolidated financial statements.
Adopted
In May
2009, the FASB issued guidance on accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. The guidance, which is outlined in ASC Topic 855 –
Subsequent Events,
establishes the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The adoption of these changes did not
have an impact on our consolidated financial statements because the Company
already followed a similar approach prior to the adoption of this
guidance.
In April
2009, the FASB issued updated guidance on interim
disclosures about the fair value of financial instruments effective for interim
periods ending after June 15, 2009. The guidance, which is outlined
in ASC Topic 825 – Financial
Instruments, did not have an impact on our consolidated financial
statements.
On January 1,
2009, the Company adopted changes issued by the FASB on determining whether
instruments granted in share-based payment transactions are participating
securities and should be included in the computation of earnings per share using
the two-class method. The guidance, which is outlined in ASC Topic
260 – Earnings per
Share, provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends are participating securities that should use
the two-class method of computing earnings per share, which is an earnings
allocation formula that determines earnings per share for common stock and any
participating securities according to dividends declared (whether paid or
unpaid) and participation rights in undistributed earnings. Our non-vested
stock, consisting of time-vested restricted shares, are considered participating
securities since the share-based awards contain a non-forfeitable right to
dividends irrespective of whether the awards ultimately vest. The
adoption of the provisions did not have a material impact on the Company’s
previously issued consolidated financial statements.
On
January 1, 2009, the Company adopted changes issued by the FASB on accounting
and reporting standards for entities with an outstanding noncontrolling interest
in one or more subsidiaries or that deconsolidate a subsidiary. The
guidance, which is outlined in ASC Topic 810 – Consolidation is effective
for fiscal years and interim periods beginning after December 15, 2008.
The changes improve the relevance, comparability and transparency of
financial information that a reporting entity provides in its consolidated
financial statements. The guidance requires: ownership
interests in subsidiaries held by parties other than the parent be clearly
identified and presented within equity but separate from the parent's equity in
the consolidated statement of financial position; consolidated net income
attributable to the parent and the noncontrolling interest be identified and
presented on the face of the consolidated statement of income; changes in a
parent's ownership interest while the parent retains its controlling financial
interest in its subsidiary be consistently accounted for as equity transactions;
any retained noncontrolling equity investment in a deconsolidated
subsidiary be initially measured at fair value and that any gain or loss on the
deconsolidation of a subsidiary be measured using fair value of the
noncontrolling equity investment rather than the carrying amount of that
retained investment; and entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and noncontrolling
owners. Adoption of these changes had no impact on our consolidated
financial statements as all consolidated subsidiaries are wholly
owned.
On
January 1, 2009, the Company adopted changes issued by the FASB on accounting
for business combinations. The guidance, which is outlined in ASC
Topic 805 – Business
Combinations, applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The changes, while
retaining the fundamental requirements of accounting for business combinations,
require that the purchase method be used for all business
combinations. The guidance establishes principles and requirements
for how an acquiring entity measures and recognizes in its financial statements:
the identifiable assets acquired; the liabilities assumed; any noncontrolling
interest in the acquiree; and the goodwill acquired or a gain from a bargain
purchase. It further sets forth disclosure criteria to enable a
better understanding of the nature and effects of a business
combination. Adoption of this guidance did not have an impact on our
consolidated financial statements.
As of
January 1, 2009, the Company adopted changes issued by the FASB on fair value
accounting and reporting relating to nonfinancial assets and liabilities that
are not recognized or disclosed at fair value in the financial
statements. The Company has previously adopted as of January 1, 2008,
changes issued by the FASB on fair value accounting and reporting of financial
assets and liabilities. The guidance, which is outlined in ASC Topic
820 – Fair Value
Measurements and Disclosures, defines fair value, establishes a framework
for measuring fair value and expands the related disclosure requirements about
fair value measurement. The guidance applies to other accounting
standards that require or permit fair value measurements and indicates, among
other things, that a fair value measurement assumes that the transaction to sell
an asset or transfer a liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market
for the asset or liability. Fair value is defined in the guidance as
based upon an exit price model. Adoption of these changes did not
have an impact on our consolidated financial statements.
Starting
with the consolidated financial statements for the first quarter of
2008, the Company adopted changes issued by the FASB on disclosures about
derivative instruments and hedging activities. The changes enhance
disclosures about an entity’s derivative and hedging activities, including (i)
how and why an entity uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. The guidance, which is
outlined in ASC Topic 815 – Derivatives and Hedging, was
effective for fiscal years and interim periods beginning after November 15, 2008
with early application encouraged. Adoption of these changes had no
impact on our consolidated financial statements other than additional
disclosures made in our notes to the consolidated financial
statements.
Issued
In August
2009, the FASB issued changes to fair value accounting for liabilities. These
changes clarify existing guidance that in circumstances in which a quoted price
in an active market for the identical liability is not available, an entity is
required to measure fair value using either a valuation technique that uses a
quoted price of either a similar liability or a quoted price of an identical or
similar liability when traded as an asset, or another valuation technique that
is consistent with the principles of fair value measurements, such as an income
approach (e.g., present value technique). This guidance also states
that both a quoted price in an active market for the identical liability and a
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. The Company is currently evaluating
the potential impact to the consolidated financial statements of these changes,
which become effective for the Company on October 1, 2009.
In June
2009, the FASB issued changes to the accounting for variable interest entities.
These changes require an enterprise to perform an analysis to determine whether
the enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity; to require ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity;
to eliminate the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable interest
entity when any changes in facts and circumstances occur such that holders of
the equity investment at risk, as a group, lose the power from voting rights or
similar rights of those investments to direct the activities of the entity that
most significantly impact the entity’s economic performance; and to require
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest
entity. These changes become effective January 1, 2010, and the Company is
currently evaluating the potential impact of these changes on our consolidated
financial statements.
Interest
Rate Risk:
We are
exposed to various market risks associated with changes in interest rates
relating to our floating rate debt. To manage borrowing costs the
Company uses derivative instruments, specifically interest rate swaps, to
effectively convert floating rate debt to fixed rate debt. All
derivative contracts are for non-trading purposes and are entered into with
major reputable financial institutions thereby minimizing counterparty
risk.
At
September 30, 2009, we had $341.2 million of floating debt
outstanding. In order to hedge the interest rate risk we entered into
interest rate swap contracts that hedged approximately 58.9% of our outstanding
debt at September 30, 2009. At September 30, 2009, we had interest rate swap
contracts to pay an average fixed rate of 3.78% before loan margin on the
notional amount of $201.1 million. The fair value of interest rate
swap agreements at September 30, 2009 was a liability of $12.4
million. Interest loan margins over LIBOR at September 30, 2009,
after changes made under the loan modifications, were 4.00% on $76.0 million,
$75.0 million, and $35.9 million of debt; 3.50%, on $93.8 million, and $19.2
million of debt; 3.00% on $8.1 million and $4.5 million of debt; and 2.75% on
$28.7 million of debt.
As an
indication of the extent of our sensitivity to interest rate changes, an
increase in the LIBOR rate of 100 basis points would have increased our net loss
and decreased cash flows for the three and nine months ending September 30, 2009
by approximately $0.4 and $1.1 million based upon our net debt level at
September 30, 2009, which was $140.1 million after deducting $201.1 million of
debt hedged with interest rate swaps.
Foreign
Exchange Rate Risk:
We
consider the U.S. dollar to be the functional currency for all of our
entities. Our financial results are affected by changes in foreign
exchange rates. Changes in foreign exchange rates could adversely
affect our earnings. For the nine months ended September 30, 2009
gains and losses resulting from foreign currency transactions are not
significant. We generate all of our revenues in U.S. dollars, but
incur approximately 7.5 % of our operating expenses in currencies other than
U.S. dollars. For accounting purposes, expenses incurred in
currencies other than U.S. dollars are converted into U.S. dollars at the
exchange rate prevailing on the date of each transaction. At
September 30, 2009, approximately 9.7% of our outstanding accounts payable
were denominated in currencies other than U.S. dollars.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer, we
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of September 30, 2009, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, as of the end of the period covered by this report (the
"Evaluation Date"). Based on this evaluation, our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer concluded as of
the Evaluation Date that our disclosure controls and procedures were effective
such that the information relating to the Company, including our consolidated
subsidiaries, required to be disclosed in our SEC reports (i) is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms, and (ii) is accumulated and communicated to the Company's
management, including our Chief Executive Officer, Chief Financial Officer and
Chief Accounting Officer, as appropriate to allow timely decisions regarding
required disclosure.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company's internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting during the period covered by this
quarterly report.
PART
II
The Company
is periodically a defendant in cases involving personal injury and other matters
that arise in the normal course of business. While any pending or
threatened litigation has an element of uncertainty, the Company believes that
the outcome of these lawsuits or claims, individually or combined, will not
materially adversely affect the consolidated financial position, results of
operations or cash flows of the Company. During the three months
ended September 30, 2009, there have been no material changes to legal
proceedings from those considered in our Annual Report on Form 10-K for the year
ended December 31, 2008.
The risk
factors included in our Form 10-K are hereby incorporated in Part II,
Item 1A of this Form 10-Q. The risk factors and other
information included in our Form 10-K as well as the information in Management's
Discussion and Analysis's of Financial Condition and Results of Operations and
throughout this Form 10-Q (including the additional risks discussed below)
should be carefully considered prior to making an investment decision with
respect to the Company’s stock.
The
Company's board of directors has unanimously approved, and is submitting to our
shareholders, a proposal (the "Transaction") that would result in its
shareholders holding shares in TBS International plc, an Irish company ("TBS
Ireland"), rather than TBS International Limited, a Bermuda
company. If conditions are satisfied, including approval by the
Company's shareholders and the Supreme Court of Bermuda, TBS Ireland will
replace TBS International Ltd. as the ultimate parent company for the Company's
operations.
Risks
Relating to the Company's Change in its Jurisdiction of Incorporation from
Bermuda to Ireland
Legislative or
regulatory action could materially and adversely affect us after the
Transaction.
Our tax
position could be adversely impacted by changes in tax laws, tax treaties or tax
regulations or the interpretation or enforcement thereof by any tax authority
following the Transaction. For example, legislative proposals have
been introduced in the U.S. Congress which, if enacted, could override tax
treaties upon which we expect to rely, or could change the circumstances under
which we would be treated as a U.S. person for U.S. federal income tax
purposes, each of which could materially and adversely affect our effective tax
rate and require us to take further action, at potentially significant expense,
to seek to preserve our effective tax rate. We cannot predict the
outcome of any specific legislative proposals. However, if proposals
were enacted limiting our ability as an Irish company to take advantage of the
tax treaties between Ireland and the United States, we could be subjected to
increased taxation and/or potentially significant expense. In
addition, any future amendments to the current income tax treaties between
Ireland and other jurisdictions (including the United States) could subject us
to increased taxation and/or potentially significant expense. Also,
various U.S. federal and state legislative proposals have been introduced
and/or enacted in recent years that deny government contracts to certain
U.S. companies that reincorporate or have reincorporated outside the
United States. While the Company was not a U.S. company that
reincorporated outside the United States, the Transaction may not eliminate the
risk that these contract bans and other legislative proposals could be enacted
in a way to affect the Company.
As an
Irish company following the Transaction, we will be required to comply with
numerous Irish and EU legal requirements. Compliance with EU and Irish laws and
regulations may have a material and adverse effect on the Company’s financial
condition and results of operations.
We may be subject
to criticism and negative publicity related to the
Transaction.
There
continues to be negative publicity regarding expatriation
transactions. While we were never a U.S. company, some former
U.S. companies that have undertaken expatriation transactions to offshore
jurisdictions have been criticized as improperly avoiding U.S. taxes or
creating an unfair competitive advantage over U.S. companies. We
could become subject to criticism in connection with the
Transaction.
Our effective tax
rate may increase.
While the
Transaction is not anticipated to have any material impact on our effective tax
rate, there is uncertainty regarding the tax policies of the jurisdictions where
we operate (which include the potential legislative actions described above),
and our effective tax rate may increase, regardless of whether we complete the
Transaction, and any such increase may be material. Additionally, the
tax laws of Ireland and other jurisdictions could change in the future, and such
changes could cause a material change in our effective tax rate.
We may choose to
abandon or delay the Transaction.
We may
abandon or delay the Transaction by action of our board of directors at any time
prior to the Scheme of Arrangement becoming effective, even after the meetings
and the sanction of the Supreme Court of Bermuda. While we currently
expect to complete the Transaction in 2010, our board of directors may delay the
Transaction for a significant time or may abandon the Transaction after the
meetings because, among other reasons, of an increase in our estimated cost of
the Transaction or a determination by the board of directors that completing the
Transaction is no longer in our best interest or the best interests of our
shareholders or may not result in the benefits we
expect. Additionally, we may not be able to obtain the requisite
shareholder or court approvals.
If
the shareholders of the Company do not approve the distributable reserves
proposal, TBS Ireland may not have sufficient distributable reserves to pay
dividends or buy back shares following the Transaction. In addition,
there is no guarantee that Irish High Court approval of the creation of
distributable reserves will be forthcoming.
Under Irish
law, dividends must be paid (and share buy-backs must generally be funded) out
of “distributable reserves,” which TBS Ireland will not have immediately
following the Transaction. Shareholders of the Company are being
asked to approve the establishment of distributable reserves. These
reserves are needed so that TBS Ireland is in a position to pay dividends and
buy back shares. The approval of this proposal is not a condition to
the Transaction. The establishment of these reserves also requires
the approval of the Irish High Court. Although we are not aware of
any reason why the Irish High Court would not grant its approval, there is no
guarantee if or when it will be obtained. If shareholders of the
Company approve the Scheme of Arrangement but do not approve this proposal or
the Irish High Court does not approve the reduction of share premium of TBS
Ireland, the Company may be limited in its ability to pay dividends or buy back
shares until we generate post-Transaction earnings.
As a result of
different shareholder voting requirements in Ireland relative to Bermuda, we
will have less flexibility to issue and buy back shares and enter into certain
corporate transactions.
Under
Bermuda law, our directors may issue, without shareholder approval, any
authorized common shares that are not already issued. Bermuda law
does not impose the restrictions imposed under Irish law on the ability of
subsidiaries to make market purchases of their parent’s common
shares.
Under
Irish law the board of directors may only issue shares with prior shareholder
authorization. This authorization may be provided in advance of any
specific transaction. Irish law also grants existing shareholders
pre-emptive rights to participate in new issuances of shares for cash, subject
to certain exceptions. However, shareholders may waive these rights
in advance. Each of these authorizations must be renewed by the
shareholders at least every five years. If shareholders do not renew
these authorizations, our ability to issue equity could be
limited. Under Irish law, subsidiaries of TBS Ireland may only
purchase TBS Ireland Class A or Class B ordinary shares subject to
conditions, including the general authorization of the ordinary shareholders of
TBS Ireland permitting subsidiaries to make such market purchases.
While we
do not believe that the differences between Bermuda law and Irish law relating
to our capital management will have a material adverse effect on us, situations
may arise where we no longer have the same flexibility we currently have in
Bermuda, which might reduce or eliminate certain benefits to our shareholders,
including the issuance of shares.
In
addition, we will become subject to the Irish Takeover Rules, under which the
board of directors of TBS Ireland will not be permitted to take any action which
might frustrate an offer for the TBS Ireland shares once the board of directors
has received an approach which may lead to an offer or has reason to believe an
offer is imminent. Further, it could be more difficult for the
Company to obtain shareholder approval for a merger or negotiated transaction
after the Transaction because the shareholder approval requirements for certain
types of transactions differ, and in some cases are greater, under Irish law
than under Bermuda law.
After the
Transaction, a future transfer of your TBS Ireland Ordinary Shares may be
subject to Irish stamp duty.
Transfers
by shareholders who hold their TBS Ireland shares beneficially through banks,
brokers, trustees, custodians or other nominees, which in turn hold those shares
through DTC, will generally not be subject to Irish stamp duty where such
transfers are to holders who also hold through DTC. If you hold your
TBS Ireland Ordinary Shares directly rather than beneficially, any purchase of
your shares will be subject to Irish stamp duty. Irish stamp duty is
currently levied at the rate of 1% of the price paid or the market value of the
TBS Ireland Ordinary Shares acquired, if higher. Any transfer of TBS Ireland
Ordinary Shares which is subject to Irish stamp duty will not be registered in
the name of the buyer unless an instrument of transfer is executed by or on
behalf of the seller, is duly stamped and is provided to our transfer
agent. The potential for stamp duty could adversely affect the price
of TBS Ireland Ordinary Shares.
The market for
the TBS Ireland shares may differ from the market for the Company’s
shares.
We intend to list the
TBS Ireland Class A ordinary shares on the Nasdaq Global Select Market
under the symbol “TBSI”, the same trading symbol as the Company Class A
common shares. The market price, trading volume or volatility of the
TBS Ireland Class A ordinary shares could be different than those of the
Company’s Class A common shares.
None.
None.
On October
20, 2009 the Company filed a Proxy Statement Pursuant to Section 14(A) of the
Securities Exchange Act of 1934, which submitting to the shareholders a proposal
that would result in a change in the place of incorporation of the Company from
Bermuda to Ireland.
None.
Incorporated
by Reference
|
||||||||
Exhibit Description
|
Filed
Herewith
|
Form
|
File
No.
|
Exhibit
|
Filing
Date
|
|||
3.1
|
Amended
and Restated Memorandum of Association of TBS International
Limited
|
10-Q
|
000-51368
|
3.1
|
8/07/2008
|
|||
3.2
|
Amended
and Restated Bye-Laws of TBS International Limited
|
10-Q
|
000-51368
|
3.2
|
8/07/2008
|
|||
31.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-15(a) and 15d-15(a) of
the Securities and Exchange Act, as amended.
|
X
|
000-51368
|
31.2
|
||||
31.2
|
Certification
of the Chief Financial and Accounting Officer pursuant to Rule 13a-15(a)
and 15d-15(a) of the Securities and Exchange Act, as amended.
|
X
|
000-51368
|
31.2
|
||||
31.3
|
Certification
of the Chief Accounting Officer pursuant to Rule 13a-15(a) and 15d-15(a)
of the Securities and Exchange Act, as amended.
|
X
|
000-51368
|
31.2
|
||||
32
|
Certification
of Chief Executive Officer, Chief Financial Officer and Chief Accounting
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.(a)
|
X
|
000-51368
|
32
|
(a)
|
Pursuant
to SEC Release No. 33-8212, this certification will be treated as
"accompanying" this Quarterly Report on Form 10-Q and not "filed" as part
of such report for purposes of Section 18 of the Securities Exchange Act,
as amended, or otherwise subject the liability of Section 18 of the
Securities Exchange Act, as amended, and this certification will not be
deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act, as
amended, except to the extent that the registrant specifically
incorporates it by reference.
|
TBS
INTERNATIONAL LIMITED & SUBSIDIARIES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Quarterly Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 9th day of November
2009.
TBS INTERNATIONAL
LIMITED
|
||
(Registrant)
|
||
|
||
By:
|
/s/
Joseph E.
Royce
|
|
Joseph
E. Royce
President
and Chief Executive Officer
|
||
By:
|
/s/
Ferdinand V.
Lepere
|
|
Ferdinand
V. Lepere
Executive
Vice President, Chief Financial
Officer
|
||
By:
|
/s/
Frank
Pittella
|
|
Frank
Pittella
Chief
Accounting
Officer
|